<PAGE>
RCM
STRATEGIC
GLOBAL
GOVERNMENT
FUND
SEMI-ANNUAL
REPORT
JULY 31, 2000
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
FUND HIGHLIGHTS
----------------
RCM Strategic Global Government Fund, Inc. ("RCS" or the "Fund") is a
closed-end, global bond fund. 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 extent consistent with its other
investment objectives.
The Fund invests at least 65% of its assets in government securities of the
United States and other countries, under normal market conditions. The
securities in the investment portfolio currently have an average credit-quality
rating of AA and have effective maturities generally between 3 and 10 years.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS JANUARY 31,
ENDED -----------------------------
PERIOD ENDED* JULY 31, 2000 2000 1999 1998
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Total investment income $ 15,671 $ 34,713 $ 32,730 $34,578
Total investment income per share 0.51 1.14 1.07 1.13
Net investment income 13,785 28,838 28,094 30,054
Net investment income per share 0.45 0.95 0.92 0.98
Net realized and unrealized gain (loss) 1,872 (25,159) (13,362) 1,421
Net realized and unrealized gain (loss) per share 0.06 (0.83) (0.43) 0.05
Net asset value at end of period 10.63 10.56 11.46 11.91
Market price at end of period 9.19 9.13 9.88 11.16
Total return on net asset value 5.75% 2.70% 5.32% 9.66%
Total return on market price 5.77% 2.99% (3.11)% 14.76%
Dividend from net investment income $ 0.44 $ 1.02 $ 0.94 $ 0.99
Effective dividend yield** 9.66% 11.17% 9.51% 8.87%
</TABLE>
* IN THOUSANDS (000'S) EXCEPT PER SHARE DATA.
** CURRENT DIVIDEND DIVIDED BY PERIOD-ENDED MARKET PRICE AND ANNUALIZED.
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CHAIRMAN'S LETTER TO STOCKHOLDERS
----------------------------------------
PHOTO
TO BE
INSERTED
September 7, 2000
Dear Stockholders:
For the six months ended July 31, 2000, the RCM Strategic Global Government
Fund, Inc. (NYSE symbol: RCS) earned total income of $15,670,848 or $0.51 per
share. This is down somewhat from earnings in the comparable period last year
during which the Fund earned $18,558,965 or $0.61 per share. The general decline
in interest rates during the six-month period produced strong returns for the
bond markets. Reflecting the favorable environment for bonds, the Fund's net
asset value rose about 1.1% from $10.62 at January 28th to $10.74 at August 4th.
During the six-month period, the Fund paid out $0.44 per share in dividends to
stockholders, which was the same as in the previous fiscal year. I am again
pleased to report that the Fund continues to produce income in excess of the
monthly dividend and is again on track to achieve a dividend payout in the
current fiscal year well in excess of the yield on high-quality intermediate
maturity U.S. debt obligations.
The share price of RCS as reported on the NYSE rose 0.7% during the six month
period from $9.13 to $9.19 per share. The share price of the Fund reflects the
interaction of buyers and sellers and is therefore not something which Fund
management or the Board can directly control. However, by producing a consistent
level of income and stability in Net Asset Value, the Fund has distinguished
itself and attracted additional demand for its shares. Dresdner RCM, the Fund's
manager, continues to provide current and prospective investors with timely
information regarding the Fund's holdings and risk profile via monthly updates
to the Fund's website. We have received favorable feedback from analysts and
investors regarding the depth and quality of the information available there. I
encourage all stockholders and others interested in the Fund to visit the Fund's
website at www.RCSFUND.com. In the coming months, Dresdner RCM will continue to
enhance and expand the information available to you via this medium.
I believe the Fund is well positioned to achieve its objectives for the
remainder of this fiscal year and expect the Fund to maintain its current
dividend. The Federal Reserve's campaign to raise short-term interest rates in
an attempt to slow the economy has made the last year difficult for some
closed-end bond funds. In fact, a number of competing funds which employ
leverage have had to reduce
1
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CHAIRMAN'S LETTER TO STOCKHOLDERS
-------------------------------------------------
dividends as their borrowing costs rose. RCS does not face this problem in the
foreseeable future as the Fund continues to produce income in excess of that
which is paid out in monthly dividends. Of course, we can not guarantee this
will always be the case but Fund management has thus far done an admirable job
of aligning the portfolio to perform in a variety of market environments.
One recent example of this is the Fund's use of U.S. dollar denominated emerging
market debt securities, which produced about 25.8% of the Fund's total income
during the six month period versus 19.1% during the same period last year. This
sector was one of the strongest performing areas of the bond market in the past
year and produced significant benefits for the Fund. Given the positive outlook
for the global economy and monetary stability, we expect emerging market bonds
to continue performing well in the months ahead. Producing 67.3% of total
income, mortgage related strategies continue to represent the bulk of the Fund's
assets and income by source. This has been a particularly challenging sector
since the impact of six increases in short-term rates by the Federal Reserve in
the past year have reduced the income potential. Investments in developed
foreign bond markets produced 2.5% of total income, which was down from 5.5%
last year, reflecting fewer opportunities in these markets relative to the U.S.
The remaining 4.4% of income during the period came from cash and corporate bond
strategies. Overall the Fund maintains a high quality profile with an average
rating of AA.
On behalf of the Board, I thank you for your continued interest in the Fund. We
believe we are on track to another successful year of operation. Everyone
involved works hard to provide stockholders with a steady income stream higher
than that which would be achieved by investing in intermediate maturity U.S.
debt instruments. As always, we welcome your thoughts and comments, which can be
directed to me via e-mail at [email protected].
Sincerely,
/s/ LUKE D. KNECHT
Luke D. Knecht, CFA
CHAIRMAN OF THE BOARD AND PRESIDENT
2
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
--------------------------------------------------------
REGIONAL PORTFOLIO COMPOSITION
MARKET ENVIRONMENT. For the first time in seven years, the U.S. bond market
performed better than its equity counterparts for the semi-annual period ended
July 31, 2000, in part due to mounting concern for the level of valuations in
the equity market but also due to the extreme technical condition of the U.S.
treasury market during much of the period. During the period reported, the U.S.
bond market, as measured by the Merrill Lynch Domestic Master Index, posted a
total return of 5.2% compared to 3.2% for the S&P 500 Index. While most of the
world economy steamed ahead for much of the period with continued low inflation,
several significant events during the period caused extreme volatility in U.S.
markets. Still, the RCM Strategic Global Government Fund, Inc. (RCS) achieved a
return of nearly 6.0% for the six months ended July 31, 2000.
During the six months ended July 31, 2000, the Federal Reserve continued to
raise short-term interest rates in an attempt to slow economic growth and
contain emergent inflationary pressures. Economic releases during this period
pointed largely to continued expansion. Unemployment declined to 3.9% which was
the lowest in 30 years, and manufacturing orders surged to 5.5%, while initial
estimates of GDP showed continued growth at 5.3%. Rapid growth in productivity
helped to keep inflation down against a backdrop of surging consumer confidence,
record retail sales, and a large U.S. trade deficit.
One might expect the economy's continued voyage into record expansion to fuel
further gains in stocks and push interest rates higher. However, other factors
caused equity prices to stall and bond yields to fall during the first quarter.
The most influential event was the Treasury Department's announcement of its
intention to use the mounting Federal budget surplus to significantly reduce its
long-term debt through paydowns and repurchases. Although this intention was
largely known to the market, the magnitude and timing of this move was a
surprise. The size of the debt reduction coupled with mounting fears of a
slowdown in corporate profits resulted in increased demand for treasury
securities (especially long treasuries) thereby driving yields down and prices
up for most treasury notes and bonds.
Further exacerbating the situation was the announcement regarding Government
Sponsored Enterprises (GSEs). These entities such as FNMA and FHLMC have been
widely considered quasi-government enterprises and assumed to have an implied
government guarantee (GNMA has an explicit guarantee). Though they are private
companies with publicly traded stock, GSEs enjoy AAA ratings and special
borrowing privileges based on their charters and lines of credit to the
government. With the prospect of a severe decline in the amount of Treasury debt
outstanding, investors had been
3
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
-------------------------------------------------
reevaluating Treasuries as the benchmark for risk pricing, and moving funds to
debt issued by the GSEs. However, during the first quarter, Treasury
undersecretary Gary Gensler reiterated in testimony before Congress that GSEs
were not formally government guaranteed and urged legislators to examine the
need for additional regulations. This sent the bond market into further
gyrations as hopes were dashed that a new risk-free asset had been found to
replace the ever-diminishing treasury debt supply.
From April to mid-May, U.S. yields drifted up in part because of investors'
fears that the Federal Reserve, continuing its pre-emptive hard line of battling
the traces of inflation creeping into the market, might raise rates too much and
cause the economy to stall. In mid-May the Federal Reserve hiked the Fed Funds
Rate by 0.5%, which was the sixth increase in a year. After the May rate hike,
signs emerged that the economy was finally slowing, in response to the last 12
months of tightened monetary policy, to a point of sustainable but controlled
growth. Durable goods orders fell to their lowest level in eight years,
industrial production fell slightly, new home sales fell, and retail sales were
sluggish.
RCS FUND REVIEW. The RCS Fund's strategy continues to rely on three primary bond
market sectors to meet its objectives: U.S. domestic markets, developed foreign
markets, and emerging markets.
Once again, U.S. dollar investments were the majority of the Fund's holdings,
largely represented by mortgage pass-through securities. The U.S. bond market,
as described above, was marked by extreme volatility during the period (mainly
due to technical conditions resulting from the treasury buyback announcement and
the issues surrounding the implied guarantee of GSEs), causing mortgage
passthroughs on a spread basis to slightly underperform their U.S. treasury
counterparts. A significant piece of the Fund's mortgage pass-through component
consisted of mortgage TBAs, which are financed mortgage pass-through
transactions with extended settlements. These types of transactions allow RCS to
earn the spread between the yield on the underlying mortgage securities and
short-term interest rates. Although short-term rates were moving higher during
the period, Dresdner RCM was able to mitigate most of the impact of rising
short-term rates through the Fund's use of interest rate swaps. Such swaps in
effect allow the manager to convert the Fund's exposure to rising short-term
rates into a fixed rate, thereby locking in the funding cost for the mortgage
transactions. This was an important benefit for the Fund as the Federal Reserve
caused 3-month and 6-month rates to increase by 0.5% during the semi-annual
period while RCS was able to enjoy the benefit of lower funding costs
4
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
-------------------------------------------------
as locked in via the swaps. We continue to believe that the mortgage market
exhibits exceptional value from a fundamental standpoint and we currently expect
mortgage securities to continue to represent a significant percentage of the
Fund's assets for the foreseeable future.
During the review period, the Fund continued its use of total return swaps on
indices to gain exposure to investment-grade corporate and commercial
mortgage-backed securities. This was done in order to diversify the Fund's
holdings and lock in the yield spreads on those securities versus treasuries in
the most efficient way possible. In addition to the total return swaps on
commercial mortgage-backed securities (CMBS), the Fund also held individual CMBS
securities during the period.
A second strategy important to the income of the Fund is the Fund's exposure to
developed foreign markets. The Fund's exposure to developed foreign markets
during the period took the form of interest-rate swaps. Interest rate swaps are
an efficient means to create and manage exposure to foreign markets without
currency risk. During the period, the Fund's interest rate swaps included
Switzerland and Japan because the relative steepness of the yield curves in
those countries allowed for continued sources of income. As these two currencies
both had interim volatility, the swap strategy proved valuable in keeping the
stability of the income stream intact without exposure to currency fluctuations
evident during the period.
A third component of the Fund's strategy during the period was its investment in
emerging market debt securities. This sector was the Fund's best-performing
component during the six months ended July 31, 2000, amid an astoundingly
positive global backdrop for emerging market debt. The RCS Fund was well
positioned to take advantage of strong fundamentals and continued growth in this
sector, specifically in the regions of Russia and Latin America, where the Fund
had the largest exposures. Overall, the JP Morgan Emerging Market Bond Index
(EMBI) returned 12.7% for the period.
The Fund's emerging market exposure remains well diversified with investments in
9 countries' sovereign debt (including a position in Russia, which has been the
top performer in its sector year-to-date) as well as emerging corporate bonds.
During the period, the Fund entered into an interest-rate swap in Mexico, citing
the opportunity to lock in yield for the portfolio at attractive levels. This
strategy has added stability to the Fund's overall performance and provided
steady income as well as enhancing the Net Asset Value performance of the Fund
due to positive news and growth from that region. Though less than 15.0% of the
market value of the Fund is invested in emerging market debt, over 25.0% of the
Fund's income was generated through this sector in the period reported.
5
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
-------------------------------------------------
FINANCIAL LEVERAGE. Financial leverage is an integral part of Dresdner RCM's
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 manage overall duration risk, RCS sells U.S.
Treasury bonds on a forward commitment basis. RCS averaged $75.8 million in
bonds sold forward during the period. At July 31, 2000, there were $70.1 million
in similar positions.
Financed mortgage-backed securities, "mortgage dollar rolls," contributed $1.5
million in income, or 9.9% of the Fund's total income, in the semi-annual period
on average volume of $289.8 million invested. The income contribution appears on
the Statement of Operations as Fee Income. At July 31, 2000, the Fund held
$276.4 million in mortgage dollar rolls. To limit the effect of leverage, the
Fund has segregated $232.7 million in high-quality, liquid assets.
Since 1994 RCS has used interest-rate swaps for managing income, duration and
exposure to changing short-term interest rates. During the period, RCS averaged
$525.0 million in notional interest rate swaps. The income from swaps was $1.5
million and is included in the Fund's Statement of Operations as interest
income. At July 31, 2000, the Fund held $525.0 million in notional interest rate
swaps based on developed foreign and emerging market interest rates. During the
period, RCS extended the maturity of $85.0 million notional U.S. interest rate
swaps that served to lock the cost of financing on mortgage dollar roll
positions.
DISCOUNT TO NET ASSET VALUE. Dresdner RCM is pleased to report a significant
reduction in the Fund's discount to Net Asset Value and feels it is attributable
to a number of factors, including a more favorable bond market, stability in the
income prospects for the Fund in a period during which many funds reported
reduced income and dividends, and Dresdner RCM's continued and concerted effort
to educate the investment community of the quality and strategies of RCS.
Dresdner RCM will continue to concentrate on efforts in this regard. As of
July 31, 2000, the Fund's discount to Net Asset Value was 13.5%, compared to the
discount of 16.4% on January 28, 2000. The discount to Net Asset Value narrowed
to as little as 13.1% during the period.
6
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
-------------------------------------------------
Overall, we believe the Fund is well positioned to continue meeting its primary
objective of generating a high and stable level of income for the remainder of
the current fiscal year. The Fund has continued to earn more than the monthly
dividends regularly paid. The income yield as of July 31, 2000, was 9.7% versus
11.2% as of January 31, 2000.
MARKET OUTLOOK. In summary, Dresdner RCM does not expect the U.S. economy to
slow to the degree or as soon as the market currently expects. We also feel the
market is overly complacent regarding the risk of rising inflation. Although
inflation continues to exist in the economy at muted levels, it has been
gradually creeping up for the past year. For example, the year-over-year CPI
figure as of January 2000 was 2.7% and is currently at 3.5%. Although there are
signs that previously mentioned short-term interest rate increases have started
to slow the economy, we do not believe the theme of upward pressure on rates has
fully played itself out. We believe renewed growth in the economy and upward
price pressures will cause the Federal Reserve to continue its restrictive
policy through more short-term interest rate hikes, although we do not expect
further hikes in the Fed Funds Rate before the presidential elections. We
believe there will be a continued upward bias in interest rates and have
positioned the Fund accordingly. Current equity market valuations are a source
of additional concern. A persistent U.S. trade deficit and strong U.S. growth
have resulted in favorable conditions for U.S. financial markets, which Dresdner
RCM believes are ending. Rising rates and slowing growth could easily give rise
to a substantial correction in equity markets. Although we think there will be
further modest increases in interest rates, we believe the returns of the bond
market in the next 6 months will likely continue to exceed those of the broad
equity markets. Our longer term forecasts embody an assumption that we will not
experience persistent or dangerous acceleration in core inflation and that after
a brief period of cyclical pressure, inflation will again moderate allowing
rates to move lower sometime next year. The magnitude and duration of a
correction in the equity markets is unclear. However, we do not at present
forecast a prolonged or severe slump in stocks and would therefore expect a
recovery bringing equity returns over the three to five year period above those
for investment grade bonds.
Bond valuations are still attractive, and although global growth is expected to
continue, inflationary pressures globally should remain relatively muted because
of the continued productivity gains and excess capacity in the world economy.
Abroad, economic confidence has improved in both Europe and Japan. Therefore, we
will continue to look for attractive investment alternatives in non-U.S. markets
and we will continue to expose the Fund to these markets through interest-rate
swaps as a more efficient means of holding foreign exposure without the currency
risk.
7
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
INVESTMENT INCOME SUMMARY
----------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 2000 JANUARY 31, 2000 JANUARY 31, 2000
PERCENTAGE (000'S) PERCENTAGE (000'S)
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
UNITED STATES
Mortgage Pass-Throughs 52.5% $ 8,214 48.4% $ 16,810
Mortgage Dollar Rolls 9.9% 1,544 13.2% 4,571
Mortgage Projects/CMO's 4.9% 774 8.9% 3,082
Corporate Bonds 1.3% 207 3.1% 1,073
Cash & Other 3.1% 501 2.5% 895
-------------------------------------------------------------------------------------------------
Total United States 71.7% 11,240 76.1% 26,431
-------------------------------------------------------------------------------------------------
DEVELOPED FOREIGN
Japan 1.4% 223 0.2% 57
Switzerland 1.1% 165 2.7% 947
New Zealand -- -- 1.6% 545
Canada -- -- 0.3% 112
-------------------------------------------------------------------------------------------------
Total Developed Foreign 2.5% 388 4.8% 1,661
-------------------------------------------------------------------------------------------------
EMERGING MARKETS
Brazil 6.1% 955 3.0% 1,033
Russia 6.1% 955 0.6% 216
Mexico 3.3% 517 3.7% 1,289
Venezuela 2.6% 405 1.0% 335
Argentina 2.4% 378 1.2% 423
Turkey 1.7% 263 0.6% 195
Bulgaria 1.2% 194 2.2% 772
Philippines 1.2% 182 2.0% 700
Korea 0.8% 130 0.4% 130
Peru 0.2% 23 -- --
Panama 0.1% 19 0.4% 132
India 0.1% 18 -- --
Indonesia 0.0%* 4 0.4% 154
EMBI+ Index -- -- 1.7% 592
Ecuador -- -- 0.9% 300
Other -- -- 1.0% 350
-------------------------------------------------------------------------------------------------
Total Emerging Markets 25.8% 4,043 19.1% 6,621
-------------------------------------------------------------------------------------------------
Total RCS Investment
Income 100.0% $ 15,671 100.0% $ 34,713
-------------------------------------------------------------------------------------------------
</TABLE>
* LESS THAN 0.1% OF RCS INVESTMENT INCOME.
8
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
-------------------------
JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
DEBT SECURITIES -- 179.4%*
ARGENTINA -- 4.0%
USD Republic of Argentina
4,920 7.38%, Floating Rate, 03/31/05 $ 4,541,160
9,015 11.75%, 04/07/09 8,541,713
-------------
Total Argentina 13,082,873
-------------
BRAZIL -- 4.9%
USD Federal Republic of Brazil
C Bond, 5.00% with 3.00%
10,314 Interest Capitalization, 04/15/14 7,671,769
1,000 6.00%, Step-Up Coupon, 04/15/24 653,800
10,196 7.44%, Floating Rate, 04/15/12 7,570,530
-------------
Total Brazil 15,896,099
-------------
BULGARIA -- 1.2%
USD National Republic of Bulgaria
3,839 2.75%, Step-Up Coupon, 07/28/12 2,898,445
1,335 7.75%, Floating Rate, 07/28/11 1,076,344
-------------
Total Bulgaria 3,974,789
-------------
INDONESIA -- 0.5%
USD Indah Kiat Fin Mauritius Ltd.
2,662 10.00%, 07/01/07 1,490,720
-------------
KOREA -- 1.0%
USD Korea Exchange Bank
954 13.75%, Private Placement, 06/30/10, Series 144A** 963,540
Cho Hung Bank
1,580 11.90%, Floating Rate, 01/07/05, Series 144A** 1,595,800
Hanvit Bank
625 12.75%, Private Placement, 03/01/10, Series 144A** 620,313
-------------
Total Korea 3,179,653
-------------
MEXICO -- 3.8%
United Mexican States
EUD 5,000 7.38%, 07/06/06 4,656,279
USD 5,350 8.63%, 03/12/08 5,243,000
USD 1,015 9.88%, 02/01/10 1,068,795
USD Nuevo Grupo Iusacell SA de CV
1,285 14.25%, 12/01/06, Series 144A** 1,381,375
-------------
Total Mexico 12,349,449
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
-----------------------------------
JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
PHILIPPINES -- 0.8%
USD Republic of Philippines
1,652 7.94%, Floating Rate, 06/01/08 $ 1,445,889
Globe Telecom
1,254 13.00%, 08/01/09, Series 144A** 1,322,970
-------------
Total Philippines 2,768,859
-------------
RUSSIA -- 4.9%
USD Russian Federation
9,285 11.00%, 07/24/18 7,033,388
9,967 12.75%, 06/24/28, Series 144A** 8,770,960
-------------
Total Russia 15,804,348
-------------
VENEZUELA -- 1.3%
USD Republic of Venezuela
4,167 7.44%, Floating Rate, 03/31/07 3,468,715
893 7.88%, Floating Rate, 12/18/07 742,181
-------------
Total Venezuela 4,210,896
-------------
UNITED STATES -- 157.0%
USD MORTGAGE-BACKED SECURITIES -- 154.2%
8,746 FHA Project Pool 56, 7.43%, 11/01/22**** 8,670,496
5,667 FHA Project Pool 144S, 7.43%, 06/01/24**** 5,405,961
47,311 FHLMC 7.50%, 2025 - 2026**** 46,657,766
2,303 FHLMC 8.00%, 2024 **** 2,313,592
49,117 FNMA 6.50%, 2024 - 2029**** 46,409,899
22,742 FNMA 7.00%, 2004 - 2030**** 21,963,136
12,136 FNMA 7.50%, 2026 - 2028**** 11,964,594
48,167 GNMA 7.00%, 2024 - 2029**** 46,791,688
31,362 GNMA 7.50%, 2006 - 2028**** 31,094,258
2,277 GNMA 8.00%, 2016 - 2022**** 2,310,226
241 GNMA 8.50%, 2017 - 2025**** 245,911
74,000 FNMA 6.50%, 2029 TBA*** 69,903,360
189,000 FNMA 7.00%, 2029 TBA*** 182,528,640
24,300 FNMA 7.50%, 2029 TBA*** 23,949,594
-------------
Total Mortgage-Backed Securities 500,209,121
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
-----------------------------------
JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
USD COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.8%
DLJ Mortgage Acceptance Corp.
1,000 Series 1994-MF11, Class A2, 8.10%, 05/18/04**** $ 998,750
4,850 Series 1994-MF11, Class A3, 8.10%, 07/19/04**** 4,834,086
G E Capital Mortgage Services, Inc.
3,283 Series 1994-12, Class B1, 6.00%, 04/25/09**** 3,076,363
-------------
Total Collateralized Mortgage Obligations 8,909,199
-------------
Total United States 509,118,320
-------------
TOTAL DEBT SECURITIES -- (COST $585,032,173) 581,876,006
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
-----------------------------------
JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
UNITED STATES -- 5.4%
USD MONEY MARKET FUNDS -- 4.5% (NOTE 1)
14,577 SSgA U.S. Government Money Market Fund $ 14,577,452
-------------
U.S. GOVERNMENT BONDS -- 0.9%
3,000 U.S. Treasury Bill, 5.96%, 08/17/00 2,992,060
-------------
TOTAL SHORT-TERM INVESTMENTS -- (COST $17,569,512) 17,569,512
-------------
TOTAL INVESTMENTS -- 184.8% (COST $602,601,685) 599,445,518
-------------
Payable for Investments Purchased -- (85.5)% (277,440,906)
Payable for Investments Sold on a Forward Commitment Basis -- (21.6)%+ (70,125,387)
Other Assets Less Liabilities -- 22.3%++ 72,439,785
-------------
NET ASSETS -- 100.0% $ 324,319,010
=============
</TABLE>
TERMS
CMBS -- Commercial Mortgaged-Backed Securities
EUD -- European Dollar
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
* 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.
*** SETTLEMENT OF MORTGAGE BACKED SECURITIES IS ON A DELAYED DELIVERY BASIS
WITH THE FINAL MATURITY TO BE ANNOUNCED (TBA) IN THE FUTURE. AT JULY 31,
2000, THE VALUE OF THE FUND'S FORWARD COMMITMENT PURCHASES WAS
$276,381,594.
**** ALL OR A PORTION OF THESE SECURITIES HAVE BEEN SEGREGATED TO COVER THE
FUND'S LEVERAGE TRANSACTIONS.
--------------------------------------------------------------------------------
+ On a forward commitment basis, the Fund has agreed to sell the following U.S.
Treasury securities:
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C>
---------------------------------------------------------------------------------
USD $33,000 U.S. Treasury Bonds 5.50%, 08/15/28 $ 30,772,500
25,650 U.S. Treasury Bonds 5.25%, 11/15/28 23,105,007
18,000 U.S. Treasury Bonds 5.25%, 02/15/29 16,247,880
------- ------------------
$76,650 (Proceeds $69,764,551) $ 70,125,387
======= ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
-----------------------------------
JULY 31, 2000 (UNAUDITED)
++ As of July 31, 2000, 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 RATE APPRECIATION
(000'S) RATING COUNTRY/ISSUER DATE DATE RECEIVED PAID (DEPRECIATION)
<C> <C> <S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
$100,000 AAA U.S. Dollar interest 02/01/01 02/01/01 5.86%(a) 5.89% $ 496,600
rate
100,000 AAA U.S. Dollar interest 02/07/01 02/07/01 5.90%(a) 5.74% 592,800
rate
60,000 AA U.S. Dollar interest 02/01/01 02/01/01 5.86%(a) 5.91% 30,540
rate
50,000 A Treasury Index (c) 01/25/01 01/25/01 5.74%(a) 6.80% (2,126,600)
50,000 AAA U.S. Dollar interest 02/14/01 02/14/01 5.78%(a) 6.16% 119,700
rate
45,000 A Corporate Total 06/30/01 06/30/01 7.26% 6.17% (31,185)
Return Index (d)
40,000 AA CMBS Total Return 06/30/01 06/30/01 7.36% 6.00% (48,080)
Index (e)
25,000 AA Switzerland (f) 03/15/02 03/15/10 4.02% 2.67%(a) (93,450)
25,000 AA Japan (g) 03/15/02 03/15/02 2.12% 0.33%(b) 324,500
25,000 AA CMBS Total Return 10/31/00 10/31/00 7.43% 5.58% (634,650)
Index (h)
5,000 A Mexico 03/19/08 03/12/08 8.63% 3.94%(a) 129,325
------------------------------------------------------------------------------------------------------
$525,000 $(1,240,500)
------------------------------------------------------------------------------------------------------
</TABLE>
(a) FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE AT RESET DATE,
EXCEPT MEXICO, WHICH IS BASED ON THE U.S. INTERBANK OFFERED RATE.
(b) FLOATING RATE BASED ON THE COUNTRY'S INTERBANK OFFERED RATE, BUT FIXED
THROUGH MARCH 15, 2001.
(c) TOTAL RETURN SWAP WITH GOLDMAN SACHS CAPITAL MARKETS L.P. THE FUND PAYS A
FIXED INTEREST RATE AND RECEIVES A FLOATING RATE (BASED ON THE INTERBANK
OFFERED RATE A RESET DATE) PERIODICALLY. AT TERMINATION, THE FUND WILL
RECEIVE OR PAY THE TOTAL RETURN OF THE LEHMAN BROTHERS LONG TREASURY INDEX
ADJUSTED FOR INTEREST RECEIVED OR PAID. THE LONG TREASURY INDEX IS A BROAD
MARKET INDEX FOR U.S. TREASURIES WITH MATURITIES OF TEN YEARS OR LONGER.
(d) TOTAL RETURN SWAP WITH GOLDMAN SACHS CAPITAL MARKETS L.P. THE FUND RECEIVES
FIXED INTEREST RATES PERIODICALLY. AT TERMINATION, THE FUND WILL RECEIVE OR
PAY THE TOTAL RETURN OF THE LEHMAN BROTHERS CORPORATE INDEX LESS THE TOTAL
RETURN OF THE LEHMAN BROTHERS TREASURY INDEX ADJUSTED FOR INTEREST RECEIVED
OR PAID. THE CORPORATE AND TREASURY INDICES ARE BROAD MARKET INDICES FOR
U.S. INVESTMENT-GRADE CORPORATE SECURITIES AND U.S. TREASURIES.
(e) TOTAL RETURN SWAP WITH J.P. MORGAN. THE FUND RECEIVES FIXED INTEREST RATES
PERIODICALLY. AT TERMINATION, THE FUND WILL RECEIVE OR PAY THE TOTAL RETURN
OF THE LEHMAN BROTHERS CMBS INVESTMENT GRADE INDEX LESS THE TOTAL RETURN OF
THE J.P. MORGAN U.S. GOVERNMENT INDEX ADJUSTED FOR INTEREST RECEIVED OR
PAID. THE CMBS AND GOVERNMENT INDICES ARE BROAD MARKET INDICES FOR U.S.
INVESTMENT-GRADE COMMERCIAL MORTGAGE-BACKED SECURITIES AND U.S. TREASURIES.
(f) ON TERMINATION DATE, THE FUND WILL RECEIVE OR PAY AN ADDITIONAL AMOUNT BASED
UPON THE MOVEMENT OF THE 8 YEAR SWISS SWAP RATE.
(g) ON TERMINATION DATE, THE FUND WILL RECEIVE OR PAY AN ADDITIONAL AMOUNT BASED
UPON THE MOVEMENT OF THE 8 YEAR JAPANESE SWAP RATE.
(h) TOTAL RETURN SWAP WITH J.P. MORGAN. AT TERMINATION THE FUND WILL RECEIVE OR
PAY THE TOTAL RETURN OF THE LEHMAN BROTHERS CMBS INVESTMENT GRADE INDEX. THE
CMBS INDEX IS A BROAD MARKET INDEX FOR U.S. INVESTMENT-GRADE COMMERCIAL
MORTGAGE-BACKED SECURITIES.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
JULY 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at value -- (Note 1)
(cost $585,032,173) $ 581,876,006
Cash 823,004
Cash equivalents -- (Note 1) 17,569,512
Receivable for investments sold -- (Note 1) 70,435,986
Interest receivable 3,667,856
-------------
Total Assets 674,372,364
-------------
LIABILITIES:
Payable for delayed delivery investments purchased 277,440,906
Investments sold on a forward commitment basis -- (Note
1) 70,125,387
Payable for interest rate swap contracts, net -- (Note
1) 1,240,500
Interest payable on forward commitments 671,436
Deferred fee income on dollar rolls -- (Note 1) 98,085
Payable for:
Investment management fees -- (Note 2) 262,622
Administration fees -- (Note 2) 69,419
Professional fees 45,779
Custodial fees 15,838
Directors' fees 8,016
Other expenses 75,366
-------------
Total Liabilities 350,053,354
-------------
NET ASSETS $ 324,319,010
=============
NET ASSETS CONSIST OF:
Paid in capital -- (Note 3) $ 380,711,199
Accumulated undistributed net investment income 1,035,866
Accumulated net realized loss on investments, foreign
currency transactions, interest rate swaps, and
forward commitments (52,659,537)
Net unrealized depreciation on investments, interest
rate swaps,
and forward commitments (4,768,518)
-------------
NET ASSETS $ 324,319,010
=============
NET ASSET VALUE PER SHARE
(30,515,800 shares outstanding) $ 10.63
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STATEMENT OF OPERATIONS
-------------------------
FOR THE SIX MONTHS ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 14,126,565
Fee income -- (Note 1) 1,544,283
------------
Total investment income 15,670,848
------------
Expenses:
Investment management fees -- (Note 2) 1,513,860
Administration fees -- (Note 2) 133,934
Professional fees 77,068
Printing and postage expenses 67,500
Custodial fees 32,760
Directors' fees and expenses 20,943
Registration and filing fees 16,953
Transfer agent fees 11,668
Other expenses 11,379
------------
Total expenses 1,886,065
------------
Net investment income 13,784,783
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on investments, foreign currency
transactions, interest rate swaps, and forward
commitments (22,664,150)
Net change in unrealized appreciation on investments,
foreign currency
translations, interest rate swaps, and forward
commitments 24,536,146
------------
Net realized and unrealized gain on investments 1,871,996
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,656,779
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2000 JANUARY 31, 2000
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 13,784,783 $ 28,837,885
Net realized gain (loss) on investments, foreign
currency
transactions, interest rate swaps, and forward
commitments (22,664,150) 4,796,665
Net change in unrealized appreciation (depreciation) on
investments, foreign currency translations, interest
rate swaps, and forward commitments 24,536,146 (29,955,683)
------------- -------------
Net increase in net assets resulting from operations 15,656,779 3,678,867
DISTRIBUTIONS TO STOCKHOLDERS:
Dividends from net investment income -- (Note 1) (13,549,016) (31,065,084)
------------- -------------
Net increase (decrease) in net assets 2,107,763 (27,386,217)
NET ASSETS:
Beginning of period 322,211,247 349,597,464
------------- -------------
End of period* $ 324,319,010 $ 322,211,247
------------- -------------
------------- -------------
* Includes accumulated undistributed net investment
income $ 1,035,866 $ 2,879,455
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STATEMENT OF CASH FLOWS
-------------------------
FOR THE PERIOD ENDED JULY 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received $ 13,013,937
Operating expenses paid (1,842,504)
Purchase of long-term portfolio investments* (1,000,308,521)
Proceeds from disposition of long-term portfolio
investments* 1,009,173,510
--------------
Net cash provided by operating activities 20,036,422
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from dollar roll transactions 1,384,262
Dividends paid from net investment income (13,549,016)
--------------
Net cash used in financing activities (12,164,754)
--------------
Net increase in cash 7,871,668
Cash and equivalents at beginning of period 10,520,848
--------------
Cash and equivalents at end of period $ 18,392,516
==============
RECONCILIATION OF RESULTS FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 15,656,779
Decrease in investments 24,747,200
Net realized loss on investments and forward
commitments 22,664,150
Net unrealized appreciation on investments (25,066,617)
Change in:
Receivable for investments sold 6,308,483
Net unrealized depreciation on interest rate swaps 1,568,585
Interest receivable 271,689
Payable for investments purchased (19,824,158)
Payable for interest sold on forward commitments 671,436
Payable for investments sold on a forward commitment
basis (6,944,332)
Accrued expenses (16,793)
--------------
Net cash provided by operating activities $ 20,036,422
==============
* PURCHASES AND PROCEEDS INCLUDE SECURITIES TRADED ON A
FORWARD COMMITMENT BASIS THAT ARE NOT INCLUDED IN THE
FUND'S PORTFOLIO TURNOVER RATE.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
--------------------
For a share outstanding throughout each fiscal year or period ended:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS JANUARY 31,
ENDED ----------------------------------------------------
JULY 31, 2000 2000 1999 1998 1997 1996
--------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE (a):
Net asset value, beginning of period $ 10.56 $ 11.46 $ 11.91 $ 11.87 $ 11.64 $ 10.85
-------- -------- -------- -------- -------- --------
Net investment income 0.45 0.95 0.92 0.98 0.94 0.96
Net realized and unrealized gain (loss) 0.06 (0.83) (0.43) 0.05 0.21 0.72
-------- -------- -------- -------- -------- --------
Net increase in net assets resulting from operations 0.51 0.12 0.49 1.03 1.15 1.68
Less distributions:
Dividends from net investment
income (0.44) (1.02) (0.94) (0.99) (0.92) (0.89)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.63 $ 10.56 $ 11.46 $ 11.91 $ 11.87 $ 11.64
======== ======== ======== ======== ======== ========
Per share market value, end of period $ 9.19 $ 9.13 $ 9.88 $ 11.16 $ 10.63 $ 10.25
======== ======== ======== ======== ======== ========
Total return based on net asset value 5.75%* 2.70% 5.32% 9.66% 11.72% 17.07%
Total return based on market price 5.77%* 2.99% (3.11)% 14.76% 13.57% 16.21%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $324,319 $322,211 $349,597 $363,428 $362,102 $355,287
Ratio of total expenses to average net assets 1.18%** 1.16% 1.21% 1.25% 1.25% 1.20%
Ratio of total expenses to average net assets including
interest expense 1.18%** 1.73% 1.31% 1.25% 1.25% 1.20%
Ratio of net investment income to average net asset 8.65%** 8.50% 7.93% 8.29% 8.21% 8.50%
Portfolio turnover (b) 62%* 74% 133% 29% 59% 96%
</TABLE>
* NOT ANNUALIZED.
** ANNUALIZED.
(a) CALCULATED USING THE AVERAGE SHARE METHOD.
(b) DOES NOT INCLUDE EFFECTIVE MORTGAGE DOLLAR ROLL TRANSACTIONS OR FORWARD
COMMITMENT TRANSACTIONS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
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 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.
PORTFOLIO 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 AND FOREIGN INVESTMENTS: 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.
19
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency exchange contract
("forward contract") is an agreement between two parties to buy or sell currency
at a set price on a future date. The Fund may enter into a forward contract 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 contract exchange
rate. Realized gains or losses on forward contracts include net gains or losses
on forward contracts that have matured or which the Fund has terminated by
entering into an offsetting closing transaction. Unrealized appreciation or
depreciation of forward contracts is included in the Fund's 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 forward contract
or if the value of the currency changes unfavorably. As of July 31, 2000, there
were no open forward contracts.
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, 2000, there were $70,125,387 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 $1,544,283. At July 31, 2000, there were $277,440,906 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
20
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
At July 31, 2000, the Fund had entered into swaps with $525 million in notional
amount to provide regional exposure to interest rates. The swaps are U.S.
dollar-denominated to provide interest rate exposure without foreign currency
exchange risk. The difference between rates received and paid by the Fund
constitutes investment income and is shown as a component of interest income on
the Statement of Operations of $1,503,407 for the period ended July 31, 2000.
Net unrealized depreciation on swap positions was $1,240,500 at July 31, 2000.
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, 2000, 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. Transactions
that are financed by the Fund results in financial leverage that the Fund uses
to manage income and duration exposures of the Fund. In addition, the use of
leverage increases the overall duration risk of the Fund, and an increased
sensitivity to rising short-term interest rates. In order to limit leverage, the
Fund segregated $232,736,726 in high credit quality, liquid investments against
outstanding obligations, resulting in $117,763,533 net leverage at July 31,
2000.
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 stockholders. Therefore, no federal income tax
provision is required. As of January 31, 2000, the Fund had capital loss
carryovers of $5,882,659, $18,629,658, and $1,742,109 which will expire on
January 31, 2003, 2004, and 2006, respectively.
21
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO STOCKHOLDERS: 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, and only distributions in excess of
tax basis earnings and profits are reported in the financial statements as a
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or net realized gain on
investments. 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 and
short-term investments to be cash equivalents.
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 accounting
agent, and receives an administrator fee of 0.06% on the first $250 million of
the Fund's average daily net assets, 0.03% on the next $250 million and 0.01% on
the amounts thereafter and an accounting fee of $90,000 annually. 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 "non-interested" directors an annual fee of
$6,000 plus $1,000 for each meeting attended.
3. CAPITAL SHARES
At July 31, 2000, 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, 2000, aggregated $60,928,530
and $65,803,389, respectively. Purchases and proceeds from sales of obligations
of the U.S. government and its agencies, other than short-term securities,
dollar rolls and
22
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES (CONTINUED)
forward commitments for the period ended July 31, 2000, aggregated $4,828,605
and $17,710,000, respectively. At July 31, 2000, the aggregate cost of
investments for federal income tax purposes was $603,524,126. Gross unrealized
appreciation and depreciation of investments aggregated $5,694,907 and
$9,773,515, respectively, resulting in net unrealized depreciation of $4,078,608
at July 31, 2000.
23
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
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 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.
24
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CORPORATE INFORMATION
-------------------------------
DIRECTORS
Luke D. Knecht, CHAIRMAN AND PRESIDENT
Francis E. Lundy
James M. Whitaker
OFFICERS
George A. Rio
CHIEF FINANCIAL OFFICER
Robert J. Goldstein
SECRETARY
Steven L. Wong
TREASURER
Glen M. Wong
ASSISTANT TREASURER
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
225 Franklin Street
Boston, Massachusetts 02110
(800) 426-5523
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Dresdner RCM Global Investors provides management and advice for approximately
US$88 billion in assets worldwide. Dresdner RCM Global Investors LLC, the U.S.
affiliate of Dresdner RCM Global Investors and the manager of the Fund, has over
US$50 billion under management and advice and a history as one of the most
respected institutional management firms in the United States.
<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 STOCKHOLDERS 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 STOCKHOLDER REPORTS, PLEASE CONTACT
YOUR BROKER OR CALL DRESDNER RCM DIRECTLY AT (415) 954-5400 OR VISIT THE FUND'S
WEBSITE AT www.rcsfund.com.
INVESTMENT MANAGER:
DRESDNER RCM GLOBAL INVESTORS LLC
FOUR EMBARCADERO CENTER
SAN FRANCISCO, CALIFORNIA 94111
