<PAGE>
FUND HIGHLIGHTS
- ---------------
RCM Strategic Global Government Fund, Inc. ("RCS" or the "Fund") is a
closed-end, global 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 securities. The securities in the
investment portfolio currently have an average credit-quality rating of AA plus
and have effective maturities generally between 3 and 10 years.
The primary 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 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
<TABLE>
<CAPTION>
extent consistent with its other investment objectives.
<S> <C> <C> <C> <C>
SIX MONTHS
ENDED
JULY 31, 1998 FISCAL FISCAL FISCAL
PERIOD ENDED* (UNAUDITED) 1997 1996 1995
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total investment income $ 16,715 $ 34,578 $ 33,013 $ 33,300
Total investment income per share 0.55 1.13 1.08 1.09
Net investment income 14,315 30,054 28,665 29,171
Net investment income per share 0.46 0.98 0.94 0.96
Net realized and unrealized gain (loss) (6,092) 1,421 6,163 22,048
Net realized and unrealized gain (loss) per share (0.20) 0.05 0.21 0.72
Net asset value at end of period 11.73 11.91 11.87 11.64
Market price at end of period 10.44 11.16 10.63 10.25
Total return on market price (2.52)% 14.76% 13.57% 16.21%
Total return on net asset value 2.61% 9.66% 11.72% 17.07%
Dividend from net investment income $ 0.44 $ 0.99 $ 0.92 $ 0.89
Effective dividend yield** 8.51% 8.87% 8.65% 8.68%
</TABLE>
* IN THOUSANDS EXCEPT PER SHARE DATA.
** DIVIDEND DIVIDED BY MARKET PRICE AND ANNUALIZED.
<PAGE>
CHAIRMAN'S LETTER TO SHAREHOLDERS
- ----------------------------------------------------------
PHOTO
September 2, 1998
Dear Shareholders:
For the six months of fiscal 1998 ended July 31, 1998, the RCM Strategic Global
Government Fund (NYSE Symbol: RCS) earned
$14.3 million (46 cents per share) of net investment income. Total dividends
distributed during this period represented 3.8% of the portfolio's net asset
value and provided shareholders with an effective dividend yield of 8.5% based
upon RCS' stock price. RCS' net asset value decreased 18 cents per share in the
first half of fiscal 1998 while the market price of the Fund's shares declined
72 cents per share. Results were negatively impacted by an increase in the
yields of emerging markets debt securities while U.S. Treasury bond rates
continued to decline. The sum of dividends paid and change in principal produced
a total return for the period of 2.6% and (2.5%) calculated on the basis of net
asset value and stock price, respectively.
INVESTMENT PORTFOLIO CHARACTERISTICS
The average credit quality of the investment portfolio is rated AA.
Approximately 83% and 13% of the debt securities held are rated AAA and BB,
respectively, by either, or both, of the major credit rating agencies. The
largest single investment is a position of over $200 million in Government
National Mortgage Association (GNMA) 7% mortgage pass-through securities.
As measured by the duration of the Fund's investments, the percentage
contribution of each country or region to total portfolio variability, after
including the impact of swap contracts, is approximately as follows: United
States 5.9%, Canada 11.7%, Developed Europe 45.1%, and Emerging Markets 37.3%.
Total portfolio duration at July 31, 1998, was 5.1 years and the average
effective maturity was approximately 6.9 years. Unhedged foreign currency
exchange rate exposure remains nil.
The Fund continues to derive the majority of its income from investments in the
United States. Approximately two thirds of total investment income is earned
from mortgage-
1
<PAGE>
CHAIRMAN'S LETTER TO SHAREHOLDERS
- ----------------------------------------------------------
backed securities, collateralized mortgage obligations and money market
investments while emerging and developed foreign securities contributed 23% and
10% of total investment income, respectively.
COMPARATIVE INVESTMENT PERFORMANCE
RCS' (2.5%) return on market price and 2.6% return on net asset value for the
six months ended July 31, 1998 compared to returns of 7.2% on market price and
6.4% on net asset value for the same period last year. The comparative fiscal
1998 benchmark returns, representing the average market performance for the
major sectors in which the Fund invests, are 2.9% for the Salomon Brothers
Mortgage Security Index, 4.3% for the Salomon Brothers World Government Bond
Index (Hedged) and 0.8% for the J.P. Morgan Emerging Market Bond Index.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
REFERENCE RETURNS* JULY 31, 1998
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
RCS return on market price** (2.5%)
RCS return on net asset value** 2.6%
Salomon Brothers Mortgage Security Index 2.9%
Salomon Brothers World Government Bond Index (Hedged) 4.3%
J.P. Morgan Emerging Market Bond Index 0.8%
</TABLE>
* REFERENCE RETURNS ARE USED FOR COMPARISON TO TOTAL RETURN ON NET ASSET VALUE
AND REPRESENT THE MAJOR MARKET SECTORS IN WHICH THE PORTFOLIO IS PERMITTED TO
INVEST. THE SALOMON BROTHERS MORTGAGE SECURITY INDEX INCLUDES VARIOUS TYPES
OF MORTGAGE SECURITIES, INCLUDING 30-YEAR FNMA/GNMA ISSUES, 20-YEAR FHLMC
ISSUES, 15-YEAR FHLMC/FNMA/GNMA ISSUES AND FHA PROJECT NOTES. THE SALOMON
BROTHERS WORLD GOVERNMENT BOND INDEX (HEDGED) IS A MARKET CAPITALIZATION BOND
INDEX THAT INCLUDES LOCAL GOVERNMENT BOND MARKET RETURNS HEDGED INTO U.S.
DOLLAR RETURNS OF TWELVE COUNTRIES THAT ARE FREELY OPEN TO FOREIGN INVESTORS.
THE J.P. MORGAN EMERGING MARKET BOND INDEX INCLUDES APPROXIMATELY $100
BILLION IN FACE VALUE OUTSTANDING, DOLLAR-DENOMINATED, RESTRUCTURED SOVEREIGN
BONDS.
** RCS RETURNS ARE CALCULATED ASSUMING REINVESTMENT OF DIVIDENDS AT THE ACTUAL
AVERAGE MARKET PRICE OBTAINED BY THE FUND'S TRANSFER AGENT.
2
<PAGE>
CHAIRMAN'S LETTER TO SHAREHOLDERS
- ----------------------------------------------------------
STOCK PRICE DISCOUNT TO NET ASSET VALUE
The average percentage stock price discount to net asset value increased from
8.3% in fiscal 1997 to 9.3% for the six months ended July 31, 1998. The
difference between the value per share of the Fund's investments and RCS' stock
price at the end of July 31, 1998, compared to January 31, 1998, widened to
approximately $1.29 from $0.75.
I encourage you to visit RCS' web site, www.RCSfund.com, for updated information
regarding the Fund's portfolio of investments. The Board of Directors and
Officers appreciate your confidence in RCS and your investment in the Fund.
Sincerely,
/s/ GARY SCHREYER
Gary Schreyer
CHAIRMAN OF THE BOARD AND PRESIDENT
3
<PAGE>
MANAGER DISCUSSION AND ANALYSIS
- ------------------------------
REGIONAL PORTFOLIO COMPOSITION. Over the six-month period, RCS was regionally
diversified. Measured on the basis of sensitivity to interest rate changes or
"duration," the key regions were North America (United States and Canada, 17.6%
of total), Europe (45.1%), and Emerging Markets (37.3%) as of July 31, 1998. The
mix of regions at July 31 was representative of the portfolio throughout the
period.
U.S. investments were predominantly mortgage "pass-through" securities.
Pass-throughs provide substantial yield above other U.S. securities and have
principal and interest guaranteed by the U.S. government or government-sponsored
agencies. In this period, they contributed 49% of investment income. The total
return on pass-throughs is sensitive to prepayment of the underlying mortgage
loans. During the period, two important changes were made in the mix of (1)
issuers and (2) coupons to address the potential for faster prepayments. Issuer
changes included the sale of $467 million of FNMA pass-throughs replaced by GNMA
pass-throughs that historically have slower prepayment experience when interest
rates decline. Coupon changes included adding $500 million of 7% coupons from
the sale of 7.5% coupons to provide better prepayment support. At period end,
pass-throughs with 7.0% and 7.5% coupons represented 73.8% of RCS' total
investments, while total pass-throughs represented 79%.
Exposure to European and Canadian interest rates was composed of U.S dollar
positions held through interest rate swaps, a strategy employed by the Fund
since 1995. Swaps are often a more efficient way to effectively hold foreign
bonds without taking currency risk, and hence help RCS achieve its goals. They
allow RCS to benefit from stable or declining foreign interest rates while
avoiding foreign currency exchange risk since all interest payments and any
future gains or losses are in U.S. dollars. In the period, these positions
contributed 10.4% of investment income. Positions at period end included
Belgium, Canada, Finland, Germany, The Netherlands and Switzerland as detailed
on page 10. During the period, a $40 million notional Switzerland position was
added to take advantage of the considerable yield differences between 10-year
and 1-year Swiss interest rates. The lack of such yield opportunities in Canada
prompted the sale of $25 million of existing notional Canadian positions.
RCS' emerging market investments are predominantly in Latin American markets:
Argentina, Mexico and Panama. The Argentina and Mexico positions represent two
of the
4
<PAGE>
MANAGER DISCUSSION AND ANALYSIS
- ------------------------------
most liquid markets in emerging market debt. As part of the overall allocation
in emerging markets, RCS has $20 million in notional swap positions indexed to
the J.P. Morgan Emerging Market Bond Index Plus ("EMBI+") included in the swap
schedule on page 10. The EMBI+ is an index of actively traded U.S.
dollar-denominated debt instruments from the following thirteen emerging
countries (in order of market capitalization): Brazil, Argentina, Mexico,
Russia, Venezuela, Ecuador, Poland, Nigeria, Bulgaria, The Philippines, Peru,
Morocco and Panama. The EMBI+ swaps allow RCS to hold a geographically
diversified basket of exposures to emerging market positions. The overall
exposure makes important contributions to Fund income.
MARKET DYNAMICS. Interest rates in the United States, as represented by the
10-year Treasury, were essentially unchanged during the period. European
interest rates using the 10-year German government rate enjoyed a 0.43%
decrease. Market concerns over the new EURO currency peaked in late 1997 and
subsided considerably in 1998, providing a more favorable context for lower
rates in Europe. Emerging market securities were directly and adversely affected
by events in Asia, including Japan. The "Asian crisis" worsened in the quarter
as the market evaluated the depth of economic recession in the area, questioning
political leadership and the will to solve it. Market participants also tried to
judge its impact on the global economy and, as a result, raised the risk premium
that investors require for assuming credit risk. When the premium for risk goes
up, emerging market securities will underperform comparable U.S. government
securities. Latin American bonds and emerging markets generally experienced a
higher premium, effectively raising their interest rates by upwards of 0.90%.
FINANCIAL LEVERAGE is an integral part of Dresdner RCM Global Investors LLC's
("Dresdner RCM"), the Fund's investment manager, income and duration management
strategies for RCS. Transactions that are financed create financial leverage and
allow RCS to earn the spread between the yield of the underlying security and
short-term interest rates. A financed transaction has three important effects:
(1) it increases income to the extent of the interest rate spread, (2) it
increases overall duration risk, and (3) it adds sensitivity to rising
short-term interest rates. As leverage, these transactions are limited by
regulations. To further limit the effect of leverage, the Fund has segregated
$246 million in high credit quality, liquid investments.
5
<PAGE>
MANAGER DISCUSSION AND ANALYSIS
- ------------------------------
Financed mortgage-backed securities, "mortgage dollar rolls," contributed $1.7
million in income to date in 1998 on average volume of $207 million. The income
contribution appears on the Statement of Operations as Fee Income. At period
end, there was $210 million in mortgage dollar rolls compared to $191 million at
fiscal year-end.
Since 1994, RCS has used interest rate swaps for managing income and duration.
For income, RCS averaged $265 million in notional interest rate swaps on
Canadian and European interest rates and $20 million in notional amount on
emerging markets. The income contribution from swaps was $1.8 million and is
included in the Fund's interest income. At period end, there was $285 million
notional interest rate swaps based on European, Canadian and emerging market
interest rates. RCS also had $164 million in notional U.S. interest rate swaps
that served to lock the cost of financing on mortgage dollar roll positions at
period end, compared to $89 million of comparable swaps at prior fiscal
year-end.
To manage overall duration, RCS sells U.S. Treasury bonds on a forward
commitment basis. RCS averaged $79 million in bonds sold forward during the
year. At July 31, 1998, there was $81.5 million in similar positions, as
detailed on page 10, compared to $90.1 million at fiscal year-end.
DISCOUNT. During the six months period ended July 31, 1998, RCS' stock traded at
a price 9.3% below its net asset value on average, compared to 8.3% in fiscal
1997. Dresdner RCM is responsible for the net asset value performance of the
Fund. The stock price of RCS is affected by factors outside of the direct
control of Dresdner RCM, including the phases of the interest rate cycle, the
stock market in general, and specific supply and demand characteristics of RCS.
In achieving the goals of RCS, Dresdner RCM uses the income and duration
management tools available to it under the closed-end format.
MARKET OUTLOOK. In the 1997 Annual Report, Dresdner RCM's outlook anticipated
that the Asian crisis would create an environment for stable-to-lower interest
rates globally in the year ahead. The outlook remains unchanged for the United
States and other developed nations. However, volatility in emerging markets is
likely to continue through year-end, and the allocation to this region serves an
important income role towards achieving RCS' goals.
6
<PAGE>
RCS INVESTMENT INCOME SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 31, 1998 JULY 31, 1998 1997 1997
(PERCENTAGE) (000'S) PERCENTAGE (000'S)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES
Mortgage Pass-Throughs 48.7% $ 8,148 41.0% $ 14,197
Mortgage Projects/CMO's 6.4% 1,065 18.8% 6,485
Mortgage Dollar Rolls 9.9% 1,651 4.4% 1,529
Cash & Other 2.0% 336 1.7% 576
- ---------------------------------------------------------------------------------------------------------------------
Total United States 67.0% 11,200 65.9% 22,787
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPED FOREIGN
Canada 3.0% 498 4.4% 1,519
Germany 2.7% 430 4.1% 1,401
The Netherlands 2.0% 326 2.8% 960
Belgium 1.3% 221 1.8% 626
Finland 1.0% 175 1.4% 494
Switzerland 0.4% 67 0.6% 205
- ---------------------------------------------------------------------------------------------------------------------
Total Developed Foreign 10.4% 1,717 15.1% 5,205
- ---------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
Argentina 6.9% 1,159 6.3% 2,196
Mexico 5.6% 940 6.1% 2,095
Panama 4.5% 758 3.2% 1,112
Poland 1.9% 314 -- --
Korea 1.4% 231 -- --
Brazil 0.7% 118 2.9% 1,015
Other 1.6% 278 0.5% 168
- ---------------------------------------------------------------------------------------------------------------------
Total Emerging Markets 22.6% 3,798 19.0% 6,586
- ---------------------------------------------------------------------------------------------------------------------
Total RCS Investment Income 100.0% $16,715 100.0% $ 34,578
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000'S) DESCRIPTION (US$)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENTS IN DEBT SECURITIES - 154.1%*
ARGENTINA -- 6.8%
USD Republic of Argentina
15,000 5.75%, Step-Up Coupon, 03/31/23 $ 11,325,000
4,000 8.38%, 12/20/03 4,038,000
5,000 9.75%, 09/19/27 4,802,500
4,000 10.95%, 11/01/99 4,172,000
-------------
Total Argentina 24,337,500
-------------
BRAZIL -- 1.2%
USD Federal Republic of Brazil C Bond, 5.00%
5,801 with 3.00% Interest Capitalization, 04/15/14 4,423,301
-------------
KOREA -- 2.3%
USD Republic of Korea
8,860 8.88%, 04/15/08 8,339,918
-------------
MEXICO -- 5.4%
USD United Mexican States
6,000 9.75%, 02/06/01 6,327,000
7,000 11.38%, 09/15/16 7,920,500
4,326 11.50%, 05/15/26 5,074,398
-------------
Total Mexico 19,321,898
-------------
PANAMA -- 4.6%
USD Republic of Panama
4,000 7.88%, 02/13/02, 144A** 3,970,000
13,518 8.88%, 09/30/27 12,673,125
-------------
Total Panama 16,643,125
-------------
POLAND -- 3.6%
USD Republic of Poland
14,000 4.00%, Step-Up Coupon, 10/27/14 12,810,000
-------------
UNITED STATES -- 130.2%
USD MORTGAGE-BACKED SECURITIES -- 122.3%
14,324 GNMA 7.00%, 2027 - 2028 14,568,057
6,601 FNMA 7.00%, 2027 - 2028 6,695,677
55,354 GNMA 7.50%, 2006 - 2028 56,987,620
23,728 FNMA 7.50%, 2026 - 2028 24,362,363
96,985 FHLMC 7.50%, 2025 - 2026 99,485,850
</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.
8
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL VALUE
CURRENCY (000'S) DESCRIPTION (US$)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USD MORTGAGE-BACKED SECURITIES - (CONTINUED)
3,743 GNMA 8.00%, 2016 - 2022 $ 3,913,217
5,606 FHLMC 8.00%, 2024 5,800,928
481 GNMA 8.50%, 2016 - 2023 508,442
206,000 GNMA 7.00%, 2028 TBA 209,506,120
10,011 FHA Project Pool 56, 7.43%, 11/01/22 10,047,273
5,855 FHA Project Pool 144 S, 7.43%, 06/01/24 6,128,278
-------------
Total Mortgage-Backed Securities 438,003,825
-------------
USD COLLATERALIZED MORTGAGE OBLIGATIONS -- 7.9%
DLJ Mortgage Acceptance Corp.
1,000 Series 1994-MF11, Class A2 8.10%, 06/18/04 1,043,828
4,850 Series 1994-MF11, Class A3 8.10%, 06/18/04 5,080,943
Federal Home Loan Mortgage Corp.
17,932 Series 1667, Class PE 6.00%, 03/15/08 17,965,623
G E Capital Mortgage Services, Inc.
4,099 Series 1994-12, Class B1 6.00%, 04/25/09 3,988,541
-------------
Total Collateralized Mortgage Obligations 28,078,935
-------------
TOTAL INVESTMENTS IN DEBT SECURITIES -- (COST $540,811,215) 551,958,502
-------------
SHORT-TERM INVESTMENTS -- 1.6%
UNITED STATES -- 1.6%
USD MONEY MARKET FUNDS -- 1.6% (NOTE 1)
5,765,236 SSgA U.S. Government Money Market Fund 5,765,236
-------------
TOTAL SHORT-TERM INVESTMENTS -- (COST $5,765,236) 5,765,236
-------------
TOTAL INVESTMENTS -- 155.7%
(COST $546,576,451) 557,723,738
-------------
Payable for Investments Purchased -- (58.5%) (209,347,500)
Payable for Investments Sold on a Forward Commitment Basis, net -- (23.9%)+ (85,778,107)
Other Assets Less Liabilities -- 26.7%++ 95,504,628
-------------
NET ASSETS -- 100.0% $ 358,102,759
-------------
-------------
</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
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
INVESTMENTS IN SECURITIES AND NET ASSETS
- ----------------------------------------------------------
JULY 31, 1998 (UNAUDITED)
+ 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 $ 28,750 U.S. Treasury Bonds 6.00%, 02/15/26 $ 29,575,125
USD 39,000 U.S. Treasury Bonds 6.25%, 08/15/23 41,301,390
USD 13,750 U.S. Treasury Bonds 6.88%, 08/15/25 15,754,750
--------- ------------
$ 81,500 (Proceeds $84,436,393) $ 86,631,265
--------- ------------
--------- ------------
</TABLE>
- --------------------------------------------------------------------------------
++ As of July 31, 1998, the Fund had the following outstanding interest rate
swap agreements denominated in U.S. dollars - (Note 1):
<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% 4.27%(a) $ 1,540,300
50,000 AAA Canada 1/4/99 1/3/04 6.05% 4.83%(a) 794,250
25,000 A Finland 1/4/99 1/3/02 5.82% 4.37%(a) 984,600
75,000 AA Germany 1/4/99 1/3/02 5.42% 4.25%(a) 2,174,925
25,000 A The Netherlands 1/4/99 1/3/02 5.38% 4.19%(a) 694,000
25,000 AAA The Netherlands 1/4/99 1/3/02 5.38% 3.90%(b) 803,750
40,000 AA Switzerland 6/19/00 6/19/08 3.67% 2.18%(b) (51,360)
45,000 AAA United States 2/28/99 2/28/99 5.66%(b) 5.68% (1,800)
50,000 AAA United States 2/6/99 2/6/99 5.66%(b) 5.50% 45,500
69,000 AAA United States 2/6/99 2/6/99 5.66%(b) 5.50% 59,754
10,000 AA J.P. Morgan EMBI+(c) 12/8/99 12/8/99 9.65% 6.05% (779,140)
10,000 AA J.P. Morgan EMBI+(c) 4/24/00 4/24/00 9.56% 5.91% (823,680)
- --------------------------------------------------------------------------------------------------------------
$ 449,000 $ 5,441,099
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(A) FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE AND FIXED
THROUGH TERMINATION DATE.
(B) FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE.
(C) THE J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS (EMBI+) IS A TOTAL RETURN
INDEX TRACKING THE TRADED EXTERNAL CURRENCY DENOMINATED DEBT INSTRUMENTS OF
SEVERAL EMERGING MARKET COUNTRIES. FINAL PAYMENT WILL BE ADJUSTED BASED ON
THE PERFORMANCE OF THE UNDERLYING INDEX OVER THE TERM OF THE AGREEMENT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------
JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value -- (Note 1)
(cost $540,811,215) $ 551,958,502
Cash equivalents -- (Note 1) 5,765,236
Receivable for investments sold -- (Note 1) 84,014,229
Receivable on interest rate swap contracts, net -- (Note 1) 5,441,099
Interest receivable 7,009,185
------------------
Total Assets 654,188,251
------------------
LIABILITIES:
Payable for investments purchased -- (Note 1) 209,347,500
Investments sold on a forward commitment basis, net -- (Note 1) 85,778,107
Deferred fee income -- (Note 1) 177,991
Payable for:
Professional fees 362,308
Investment management fees -- (Note 2) 288,754
Administration fees -- (Note 2) 58,911
Custodial fees 36,098
Printing and postage expenses 33,206
Other expenses 2,617
------------------
Total Liabilities 296,085,492
------------------
NET ASSETS $ 358,102,759
------------------
------------------
NET ASSETS CONSIST OF:
Paid-in capital -- (Note 3) $ 380,711,199
Distribution in excess of net investment income (278,299)
Accumulated net realized loss on investments, interest rate swaps, and forward commitments (36,711,819)
Net unrealized appreciation on investments, interest rate swaps, and forward commitments 14,381,678
------------------
NET ASSETS $ 358,102,759
------------------
------------------
NET ASSET VALUE PER SHARE
(30,515,800 shares outstanding) $ 11.73
------------------
------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
STATEMENT OF OPERATIONS
- ---------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 15,063,972
Fee income -- (Note 1) 1,650,891
----------------
Total investment income 16,714,863
----------------
Expenses:
Investment management fees -- (Note 2) 1,703,960
Professional fees 366,356
Administration fees -- (Note 2) 152,394
Custodial fees 97,040
Directors' fees and expenses 23,711
Insurance expense 19,105
Registration and filing fees 17,168
Transfer agent fees 9,421
Printing and postage expenses 8,893
Other expenses 1,544
----------------
Total expenses 2,399,592
----------------
Net investment income 14,315,271
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments, interest rate swaps, and forward commitments 6,211,677
Net change in unrealized depreciation on investments, interest rate swaps, and forward
commitments (12,303,245)
----------------
Net realized and unrealized loss (6,091,568)
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,223,703
----------------
----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, 1998 YEAR ENDED
(UNAUDITED) JANUARY 31, 1998
------------------- -------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 14,315,271 $ 30,054,331
Net realized gain (loss) on:
Investments, interest rate swaps, and forward commitments 6,211,677 (7,145,875)
Net change in unrealized appreciation (depreciation) on investments,
interest rate swaps, and forward commitments (12,303,245) 8,567,348
------------------- -------------------
Net increase in net assets resulting from operations 8,223,703 31,475,804
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income -- (Note 1) (13,549,015) (30,149,611)
------------------- -------------------
Net increase (decrease) in net assets (5,325,312) 1,326,193
NET ASSETS:
Beginning of period 363,428,071 362,101,878
------------------- -------------------
End of period* $ 358,102,759 $ 363,428,071
------------------- -------------------
------------------- -------------------
* Includes distributions in excess of net investment income $ (278,299) $ (1,044,555)
------------------- -------------------
------------------- -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENT OF CASH FLOWS
- ---------------------------------
FOR THE SIX MONTHS ENDED JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES:
Investment income received $ 12,308,420
Operating expenses paid (2,217,470)
Purchase of long-term portfolio investments (526,696,508)
Proceeds from disposition of long-term portfolio investments 527,952,309
-----------------
Net cash provided by operating activities 11,346,751
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from dollar roll transactions 1,736,796
Dividends paid from net investment income (13,549,015)
-----------------
Net cash used in financing activities (11,812,219)
-----------------
Net decrease in cash (465,468)
Cash and equivalents at beginning of period 6,230,704
-----------------
Cash and equivalents at end of period $ 5,765,236
-----------------
-----------------
RECONCILIATION OF RESULTS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 8,223,703
Increase in investments (18,122,664)
Net realized gain on investments and forward commitments (6,211,677)
Net unrealized depreciation on investments 9,112,817
Change in:
Receivable for investments sold 13,237,618
Net unrealized depreciation on interest rate swaps 1,657,205
Interest receivable (2,912,831)
Payable for investments purchased 18,323,484
Payable for investments sold on a forward commitment basis (12,147,202)
Accrued expenses 186,298
-----------------
Net cash provided by operating activities $ 11,346,751
-----------------
-----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<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 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
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
portfolio 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, 1998, 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, 1998, there were $86,631,265 of forward sale commitments
outstanding.
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 interest rates. The fee income earned for the period on these
transactions was $1,650,891. At July 31, 1998, there were $209,347,500 in dollar
roll commitments on liquid mortgage pass-throughs outstanding.
INTEREST RATE SWAPS: The Fund enters into interest rate swaps for investment,
hedging and risk management 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.
The Fund had $285 million in notional amount of swaps to provide regional
exposure to interest rates in Europe, Canada and emerging markets, and $164
million in notional amount to hedge exposure to an increase in U.S. short-term
interest rates. The swaps are U.S. dollar-denominated to
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provide interest rate exposure without foreign currency exchange risk. The
difference between rates received and paid by the Fund constitutes investment
income. Unrealized appreciation on swap positions was $5,441,099 at July 31,
1998.
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, 1998, 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 $246,463,328 in high credit quality, liquid
investments against outstanding obligations, resulting in $50,336,572 net
leverage at July 31, 1998.
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, 1998, the Fund had capital loss carryovers
of $16,648,019, $18,629,658, and $1,742,109 which will expire on January 31,
2003, January 31, 2004, and January 31, 2006, 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.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- ----------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES, ADMINISTRATOR AND RELATED PARTIES
Dresdner RCM Global Investors LLC, the Fund's 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 an annual fee of $6,000 plus
$1,000 for each meeting attended.
3. CAPITAL SHARES
At July 31, 1998, 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 period ended July 31, 1998, aggregated $25,829,508
and $44,360,931, 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 period ended July 31, 1998, aggregated $589,177,654 and
$480,788,643, respectively. At July 31, 1998, the aggregate cost of investments
for federal income tax purposes was $541,118,351. Gross unrealized appreciation
and depreciation of investments aggregated $12,728,962 and $1,888,811,
respectively, resulting in net unrealized appreciation of $10,840,151 at July
31, 1998.
18
<PAGE>
FINANCIAL_ HIGHLIGHTS
- ----------------------------------------------------------
Supplementary data for a share outstanding are presented for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED 2/24/94*
7/31/98 YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
(UNAUDITED) 1/31/98 1/31/97 1/31/96 1/31/95**
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.91 $ 11.87 $ 11.64 $ 10.85 $ 12.50
------------ ------------ ------------ ------------ ------------
Net investment income 0.46 0.98 0.94 0.96 0.83
Net realized and unrealized gain (loss) (0.20) 0.05 0.21 0.72 (1.71)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 0.26 1.03 1.15 1.68 (0.88)
Distributions:
Net investment income (0.44) (0.99) (0.92) (0.89) (0.75)
Offering costs -- -- -- -- (0.02)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 11.73 $ 11.91 $ 11.87 $ 11.64 $ 10.85
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market price, end of period $ 10.438 $ 11.156 $ 10.625 $ 10.250 $ 9.625
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Total return based on market price (2.52)%+ 14.76% 13.57% 16.21% (17.21)%+
Total return based on net asset value 2.61%+ 9.66% 11.72% 17.07% (6.68)%+
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 358,103 $ 363,428 $ 362,102 $ 355,287 $ 331,166
Ratio of expenses to average net assets 1.34%++ 1.25% 1.25% 1.20% 1.15%++(a)
Ratio of net investment income to average net
assets 7.98%++ 8.29% 8.21% 8.50% 7.79%++(a)
Portfolio turnover 94%+ 29% 59% 96% 158%+
</TABLE>
<TABLE>
<C> <S>
* 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%.
</TABLE>
19
<PAGE>
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
- ----------------------------------------------------
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.
20
<PAGE>
CORPORATE INFORMATION
- -----------------------------
DIRECTORS
Gary W. Schreyer, CHAIRMAN AND PRESIDENT
William A. Hasler
Francis E. Lundy
James M. Whitaker
OFFICERS
George A. Rio
CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURER
Judith W. O'Connell
SECRETARY AND TREASURER
PORTFOLIO MANAGERS
Eamonn F. Dolan
Stephen Kim
Jack L. Bernard
Mark E. Raaberg
INVESTMENT MANAGER
Dresdner RCM Global Investors LLC
Four Embarcadero Center
San Francisco, California 94111
ADMINISTRATOR, CUSTODIAN AND
TRANSFER AGENT
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
(800) 426-5523
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
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 PRIOR ANNUAL OR SEMI-ANNUAL REPORTS, 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
