<PAGE>
RCM
STRATEGIC
GLOBAL
GOVERNMENT
FUND
ANNUAL
REPORT
JANUARY 31, 2000
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
FUND HIGHLIGHTS
- ----------------
ANNUAL FINANCIAL INFORMATION
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>
FISCAL YEAR* 1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total investment income $ 34,713 $ 32,730 $34,578
Total investment income per share 1.14 1.07 1.13
Net investment income 28,838 28,094 30,054
Net investment income per share 0.95 0.92 0.98
Net realized and unrealized gain (loss) (25,159) (13,362) 1,421
Net realized and unrealized gain (loss) per share (0.83) (0.43) 0.05
Net asset value at end of year 10.56 11.46 11.91
Market price at end of year 9.13 9.88 11.16
Total return on net asset value 2.70% 5.32% 9.66%
Total return on market price 2.99% (3.11)% 14.76%
Dividend from net investment income per share $ 1.02 $ 0.94 $ 0.99
Effective dividend yield** 11.17% 9.51% 8.87%
</TABLE>
* IN THOUSANDS (000'S) EXCEPT PER SHARE DATA.
** CURRENT ANNUAL DIVIDEND DIVIDED BY YEAR-END MARKET PRICE.
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CHAIRMAN'S LETTER TO STOCKHOLDERS
- ----------------------------------------
PHOTO
TO BE
INSERTED
March 7, 2000
Dear Stockholders:
The past 12 months have been difficult for the bond markets. Yields rose
substantially across the entire maturity spectrum in response to strong economic
growth and the Federal Reserve's tighter monetary policy. Both the share price
and the Net Asset Value (NAV) of the RCM Strategic Global Government Fund (NYSE
Symbol: RCS) declined during the year reflecting the overall unfavorable
environment for bonds. However, RCS was still able to achieve its primary
objective of providing stockholders with higher income than that generated by
intermediate-term, high-quality U.S. debt securities. In fact, net investment
income for the fiscal year was $28.8 million. This represented an increase of
$744,095 or 2.6% from the prior year. The strong performance in this area
allowed the fund to pay a record $1.02 per share in income during the period up
from the $0.94 last year. The dividend distributions in the past year represent
a 10.32% yield based on RCS' stock price at the end of the prior fiscal year,
which is significantly in excess of the yield on high-quality intermediate
maturity U.S. debt securities. As mentioned, the general increase in interest
rates caused both the NAV and stock price to decline. Specifically, the NAV of
the fund declined 8.5% from $11.46 to $10.56 at January 31, 2000. However, this
decline was less than that which would have been incurred by owning intermediate
treasury securities which, as measured by Merrill Lynch 5 and 10 year maturity
indices, declined by 8.9% and 14.5% respectively. The Fund's total return for
the year measured as the sum of dividends paid and change in value was 2.7% on
NAV and 3.0% based on the stock price. By comparison, the Merrill Lynch 5 & 10
year indices posted total returns of -3.8% and -9.6% respectively. Other
measures of the Fund's performance appear in the table on page 2.
INVESTMENT PORTFOLIO CHARACTERISTICS. The interest rate sensitivity or duration
is diversified among a number of geographic regions. Taking into account the use
of interest rate swaps, the percentage of the portfolio's duration by region at
year end was as follows: United States 51%, Developed Foreign 24%, Emerging
Markets 25%. Although the fund has investments in the regions listed in the
Portfolio of Investments on page 9 through 12, approximately 99% of the
securities at January 31, 2000 were denominated in U.S. dollars. The United
States component of the portfolio was invested almost
1
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CHAIRMAN'S LETTER TO STOCKHOLDERS
- -------------------------------------------------
entirely in mortgage-backed securities. The Developed Foreign component was 46%
Switzerland and 54% Japan. The emerging market component was split between
Europe 23%, Latin America 62% and Asia 15%.
The credit quality of the portfolio remains high. Overall, the average quality
of the portfolio was AA+ at year-end. Approximately 86% of the portfolio market
value was rated AAA by one of the major rating agencies. The percentage of the
total portfolio rated below investment grade at year-end was 11.7%. The
aggregate credit profile of the portfolio remains in line with fund policy.
The fund routinely uses financial leverage to manage the income and duration
exposures of the portfolio. By policy, the fund's use of leverage is limited to
33.3% of net assets. At year-end, the leverage ratio was 24.34%. While the use
of leverage resulted in greater income than could otherwise be generated,
leverage also increases risk. I recommend you read the other sections of this
report dealing with leverage for useful information on this strategy.
COMPARATIVE PERFORMANCE. In addition to the NAV and stock price performance
comparisons referenced above, the fund performed well in comparison to indices
representing the major sectors in which the fund invests. The table below
summarizes the total return of the fund compared to these indices as well as an
unmanaged measure of the overall U.S. bond market, the Lehman Aggregate Index.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
4TH QUARTER FISCAL 1999
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCS RETURN ON MARKET PRICE 5.40% 2.99%
RCS RETURN ON NAV 0.17% 2.70%
Salomon Brothers Mortgage Index (1.02)% 0.35%
Salomon Brothers World Government Index (Hedged) 0.59% 0.40%
JP Morgan Emerging Market Bond Index 5.31% 25.55%
Lehman Brothers Aggregate Bond Index (0.82)% (1.85)%
</TABLE>
2
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
CHAIRMAN'S LETTER TO STOCKHOLDERS
- -------------------------------------------------
STOCK PRICE DISCOUNT TO NAV. The Fund's stock price at the beginning of the
fiscal year was 13.8% below the fund NAV. At year-end, this discount had
decreased to 13.5%. During the course of the year, the discount ranged from a
wide of 20.5% to its narrow point of 8.8%. Overall, the average for the year was
16.1% which was about equal to the prior fiscal year. Many independent factors
impact the stock price and therefore the premium or discount of the stock price
in relation to the fund's net asset value. The Board has asked fund management
to review measures that may be taken to help reduce the discount, while keeping
in mind the impact such measures might have on the fund's income generating
ability.
RCS WEBSITE. The fund's manager, Dresdner RCM Global Investors, maintains a
website about the fund which can be accessed at www.RCSfund.com. The site
provides informational updates on the fund's holdings, performance and press
releases.
SUMMARY. The fund was again able to meet its primary objective of providing
stockholders with a high level of current income. Dividend distributions to
stockholders reached a new record of $1.02 per share. Looking forward, I am
confident in the ability of the portfolio as currently structured to continue
meeting its objectives and expect the coming year to be a better overall
environment for the bond market.
Sincerely,
/s/ LUKE D. KNECHT
Luke D. Knecht, CFA
CHAIRMAN OF THE BOARD AND PRESIDENT
3
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------
REGIONAL PORTFOLIO COMPOSITION. The U.S. bond market posted only its second
negative total return this decade, with the bond market as measured by the
Lehman Brothers Treasury Index posting a -2.86% return for the year ended
January 2000. Yields in the U.S. continued their upward climb throughout the
year in reaction to continued strong U.S. domestic growth and fears that the
Federal Reserve would take preemptive measures to keep inflation in check. The
Fed raised short-term interest rates three times in 1999 in hopes of cooling off
the record-expanding economy. This pushed up rates across the entire yield
curve, as evidenced by the fact that 10-year U.S. treasury yields ended 2.0%
higher than the prior year-end and 30-year U.S. treasury yields ended the period
1.4% higher. Investors chased after higher returns in the U.S. stock market,
which had another stellar year as measured by the S&P 500 returning 21.0% for
calendar 1999 while the Nasdaq returned a whopping 57.7% for the same period.
Equity markets cooled in January, causing both composites to slip a bit for the
year ended January 2000. In general, economic activity has been increasing
around the world. Though still at subdued levels, inflation turned slightly
higher across most of the developed world. However, inflation was considerably
lower in emerging economies during the past twelve months, primarily due to the
rebound in currency valuations after a significant depreciation in the prior
year. While bond markets in most developed countries suffered their worst year
since 1994, emerging market debt flourished as crises abated in these regions.
RCS portfolio strategy again relied on three primary bond market sectors:
U.S. domestic markets, developed foreign markets, and emerging markets.
U.S. investments were predominantly mortgage pass-through securities. The U.S.
bond market experienced increased appetite for all spread products during the
year, including mortgage pass-through securities. This demand was fueled by
global stabilization, continuing strong economic growth and little evidence of
inflationary pressure. Increased demand coupled with significantly reduced
supply resulted in strong performance of pass-throughs. A decrease in volatility
increased the demand for mortgages in the second half of the year. Reinvestment
of cash flow in new TBA positions was made in securities priced closest to par
to maximize exposure to declining volatility.
During the year the Fund modified its exposure to investment-grade corporates
and commercial mortgage-backed securities by introducing the use of total return
swaps on indices instead of owning individual securities. This was done in order
to diversify the Fund's holdings and lock the yield spreads on those securities
versus 30-year U.S. Treasuries in the most efficient way possible.
4
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
- -------------------------------------------------
A second strategy that was important in increasing the dividend income of the
Fund was 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. As noted previously, interest rate swaps are an efficient means to create
and manage an exposure to foreign markets without the associated currency risk.
During the period the Fund's interest rate swaps included New Zealand,
Switzerland, and Japan because the relative steepness of the yield curves in
those countries allowed for good sources of income.
A third component of the portfolio, the emerging market portion of the Fund,
performed well in absolute terms while trailing the performance of the JP Morgan
EMBI+ Index. The underperformance of the RCS emerging market bond component
relative to the index was due almost entirely to the recovery of the Russian
defaulted debt in the index. The Fund was not invested in Russia (which
defaulted in August 1998 on over $30 billion of external debt) until early
December when the improving fundamentals and political situation again made it
feasible to do so. The emerging market exposure remains well diversified with
investments in 11 countries' sovereign debt as well as corporate bonds. This
strategy has enhanced the NAV performance of the Fund as well as adding
stability to the overall fund performance. As Dresdner RCM became more confident
of the prospects for this sector during the fourth quarter we moved to reduce
the Fund's emerging market debt index total return swap positions and
transitioned into specific Latin American cash bonds which further enhanced
performance.
FINANCIAL LEVERAGE. Financial leverage is an integral part of Dresdner RCM's
income and duration management strategies for RCS. Transactions that are
financed 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, RCS sells U.S. Treasury bonds on a
forward commitment basis. RCS averaged $108 million in bonds sold forward during
the period. At January 31, 2000, there were $83 million in similar positions.
Financed mortgage-backed securities, "mortgage dollar rolls," contributed
$4.6 million in income in fiscal 1999 on average volume of $287 million. The
income contribution appears on the Statement of Operations as Fee Income. At
January 31, 2000, there were $277 million in mortgage dollar rolls. To limit the
effect of leverage, the Fund has segregated $254 million in high-quality, liquid
assets.
5
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
- -------------------------------------------------
Since 1994, RCS has used interest-rate swaps for managing income and duration.
During the fiscal year 1999, RCS averaged $359 million in notional interest rate
swaps. The income from swap agreements was $2.7 million and is included in the
Fund's interest income. At January 31, 2000, there were $525 million in notional
swap agreements based on developed foreign and domestic markets. In 1999, RCS
entered into $470 million notional U.S. interest rate swaps that served to lock
the cost of financing on mortgage dollar roll positions.
DISCOUNT. As with other closed-end bond funds, the market price of RCS may trade
at a premium or discount to the net asset value depending on a number of factors
beyond the control of the Fund or Dresdner RCM--for instance, the phases of the
interest rate cycle, the stock market, and investor sentiment. The average
percentage stock price discount to net asset value throughout the year ended
January 31, 2000 was 16.1%. The Fund ended the period at a discount of 13.5%
although it was as high as 20.5% in the latter half of the year. We believe the
interim increase in the discount is most likely attributable to the sharp
increase in interest rates and general investor aversion to bond funds during
periods when the Federal Reserve is increasing short-term interest rates.
Dresdner RCM continues to believe that efforts to inform and educate the
investment community of the quality and strategies of RCS can positively impact
the share price and therefore help reduce the Fund's discount. Dresdner RCM
continues to be active in this regard, including meeting with analysts and
enhancing the Fund's web site.
Because of the strong upward move in rates, the NAV of the fund declined during
the fiscal year from $11.46 to $10.56 or 8.5%. However, Dresdner RCM is pleased
to report that the decline in the net asset value (NAV) was significantly less
than that experienced by intermediate maturity treasury securities. For example,
the Merrill Lynch index for current coupon 5-year treasury securities declined
in value by 8.9% while the 10-year maturity treasury index was off 14.5%.
Finally, we believe delivering consistent performance by generating a high and
stable level of income is important to attracting investors to the Fund. The
Fund succeeded in generating a record level of income in the latest fiscal year
as the average yield on market price rose throughout the period from an average
of 9.11% to 10.93% at January 31, 2000. We believe the Fund is well positioned
to meet this objective in the coming year. The Fund was also able to pay
stockholders additional income at the end of the year through a series of
special dividends totaling $0.13, in addition to the regular $0.074 monthly
dividend.
6
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
MANAGER'S DISCUSSION AND ANALYSIS
- -------------------------------------------------
MARKET OUTLOOK. Dresdner RCM believes that the Federal Reserve is likely to
further increase the Fed Funds rate in the coming months in an attempt to
further slow economic growth to a non-inflationary pace. Although much of this
risk is already discounted in bond markets, the potential exists for more
significant increases in rates if the economy does not slow or if inflation
accelerates. Although there are signs that previous rate increases have started
to slow the economy, we do not believe the theme of upward pressure on rates has
fully played itself out. Adding to the upward pressure is concern by the Federal
Reserve that much of the liquidity supplied to markets has gone into financial
assets-- specifically stocks--pushing the prices to unreasonable heights.
Therefore we believe it is likely the Fed will continue to incrementally raise
short-term rates until there is convincing evidence that the economy is slowing
or the stock markets enters a sharp downturn. Correspondingly, the Fund has
maintained a neutral duration position in light of these beliefs.
Overall, Dresdner RCM believes that absolute returns for bonds will be better in
2000 than in 1999. Bond valuations are more attractive than last year, and
although global growth is expected to continue, inflationary pressures should
remain relatively muted because of the continued productivity gains and excess
capacity in the world economy. If world central banks can continue to engineer
non-disruptive slowdowns in their respective economies, then price pressures
will be contained and bonds will perform well. 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.
YEAR 2000 REPORT. We are pleased to report to stockholders that the Fund
experienced no difficulties related to the rollover to the Year 2000. Dresdner
RCM devoted significant resources to Y2K preparedness throughout 1999 that
included exhaustive testing and auditing, with the majority of Y2K changes
implemented by mid-year 1999. All of Dresdner RCM's hardware, software, and
office systems as well as its building facilities and data centers are Y2K
compliant, and there was no interruption to service of any kind experienced in
the turnover to the new millennium.
7
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
INVESTMENT INCOME SUMMARY
- ----------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1999 1998 1998
PERCENTAGE (000'S) PERCENTAGE (000'S)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
UNITED STATES
Mortgage Pass-Throughs 48.4% $ 16,810 49.6% $16,244
Mortgage Dollar Rolls 13.2% 4,571 8.4% 2,758
Mortgage Projects/CMO's 8.9% 3,082 6.2% 2,036
Corporate Bonds 3.1% 1,073 0.8% 274
Cash & Other 2.5% 895 1.8% 571
- ---------------------------------------------------------------------------------------------------------------------
Total United States 76.1% 26,431 66.8% 21,883
- ---------------------------------------------------------------------------------------------------------------------
DEVELOPED FOREIGN
Switzerland 2.7% 947 1.4% 453
New Zealand 1.6% 545 0.4% 125
Canada 0.3% 112 2.2% 728
Japan 0.2% 57 -- --
Germany -- -- 2.1% 690
The Netherlands -- -- 1.8% 579
Belgium -- -- 1.1% 362
Finland -- -- 0.9% 284
- ---------------------------------------------------------------------------------------------------------------------
Total Developed Foreign 4.8% 1,661 9.9% 3,221
- ---------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS
Mexico 3.7% 1,289 5.7% 1,881
Brazil 3.0% 1,033 0.5% 161
Bulgaria 2.2% 772 -- --
Philippines 2.0% 700 0.1% 22
EMBI+ Index 1.7% 592 2.0% 649
Argentina 1.2% 423 6.4% 2,109
Venezuela 1.0% 335 -- --
Ecuador 0.9% 300 -- --
Russia 0.6% 216 -- --
Turkey 0.6% 195 -- --
Indonesia 0.4% 154 -- --
Panama 0.4% 132 4.6% 1,500
Korea 0.4% 130 1.9% 630
Other 1.0% 350 2.1% 674
- ---------------------------------------------------------------------------------------------------------------------
Total Emerging Markets 19.1% 6,621 23.3% 7,626
- ---------------------------------------------------------------------------------------------------------------------
Total RCS Investment Income 100.0% $ 34,713 100.0% $32,730
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
- -------------------------
JANUARY 31, 2000
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
DEBT SECURITIES -- 188.0%*
ARGENTINA -- 4.4%
Republic of Argentina
ARS 8,222 3.11%, Bocon Bond, Series PRE1, 04/01/01 $ 3,153,720
USD 5,412 6.81%, Floating Rate, 03/31/05 4,857,270
USD 7,256 9.75%, 09/19/27 6,222,020
-------------
Total Argentina 14,233,010
-------------
BRAZIL - 4.7%
USD Federal Republic of Brazil
C Bond, 5.00% with 3.00%
7,890 Interest Capitalization, 04/15/14 5,483,206
1,000 5.75%, Step-Up Coupon, 04/15/24 606,300
5,598 6.94%, Floating Rate, 04/15/06 4,772,039
6,076 7.00%, Floating Rate, 04/15/12 4,222,820
-------------
Total Brazil 15,084,365
-------------
BULGARIA -- 2.1%
USD National Republic of Bulgaria
9,591 2.75%, Step-Up Coupon, 07/28/12 6,833,588
-------------
INDIA -- 0.6%
USD Reliance Industries Ltd.
1,900 9.38%, 06/24/26, Series 144A** 1,892,780
-------------
KOREA -- 0.7%
USD Korea Electric and Power
12 6.38%, 12/01/03 11,197
Korea Telecom
682 7.63%, 4/15/07 651,242
Cho Hung Bank
1,580 11.07%, Floating Rate, 01/07/05, Series 144A** 1,617,525
-------------
Total Korea 2,279,964
-------------
MEXICO -- 2.3%
United Mexican States
EURO 5,000 7.38%, 07/06/06 4,940,876
USD 1,015 9.88%, 02/01/10 992,163
USD Nuevo Grupo Iusacell SA
1,285 14.25%, 12/01/06, Series 144A** 1,337,531
-------------
Total Mexico 7,270,570
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
- -----------------------------------
JANUARY 31, 2000
<TABLE>
<CAPTION>
COUNTRY/ PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
PANAMA -- 1.1%
USD Republic of Panama
4,493 4.25%, Step-Up Coupon, 07/17/14 $ 3,454,218
-------------
PHILIPPINES -- 1.3%
USD Republic of Philippines
2,889 6.88%, Step-Up Coupon, 06/01/08 2,751,825
Globe Telecom
1,254 13.00%, 08/01/09, Series 144A** 1,386,046
-------------
Total Philippines 4,137,871
-------------
RUSSIA -- 2.2%
USD Russian Federation
9,967 12.75%, 06/24/28, Series 144A** 7,164,280
-------------
TURKEY -- 2.2%
USD Republic of Turkey
3,965 11.88%, 01/15/30 4,068,883
2,980 12.38%, 06/15/09 3,153,138
-------------
Total Turkey 7,222,021
-------------
VENEZUELA -- 1.5%
USD Republic of Venezuela
3,429 7.00%, 12/18/07 2,678,726
3,637 9.25%, 09/15/27 2,314,223
-------------
Total Venezuela 4,992,949
-------------
UNITED STATES -- 164.9%
USD MORTGAGE-BACKED SECURITIES -- 156.6%
8,837 FHA Project Pool 56, 7.43%, 11/01/22**** 8,723,020
5,725 FHA Project Pool 144 S, 7.43%, 06/01/24**** 5,322,829
50,236 FHLMC 7.50%, 2025 - 2026**** 49,098,580
2,481 FHLMC 8.00%, 2024 **** 2,479,810
51,193 FNMA 6.50%, 2024 - 2029**** 47,540,117
18,611 FNMA 7.00%, 2004 - 2029**** 17,744,718
12,850 FNMA 7.50%, 2026 - 2028**** 12,551,061
50,593 GNMA 7.00%, 2024 - 2029**** 48,277,452
33,381 GNMA 7.50%, 2006 - 2028**** 32,583,887
2,394 GNMA 8.00%, 2016 - 2022**** 2,408,315
276 GNMA 8.50%, 2016 - 2023**** 281,975
74,000 FNMA 6.50%, 2029 TBA*** 68,720,100
194,000 FNMA 7.00%, 2029 TBA*** 184,973,180
24,300 FNMA 7.50%, 2029 TBA*** 23,734,539
-------------
Total Mortgage-Backed Securities 504,439,583
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
- -----------------------------------
JANUARY 31, 2000
<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 $ 1,001,250
4,850 Series 1994-MF11, Class A3, 8.10%, 07/19/04 4,840,717
G E Capital Mortgage Services, Inc.
3,502 Series 1994-12, Class B1, 6.00%, 04/25/09 3,249,390
-------------
Total Collateralized Mortgage Obligations 9,091,357
-------------
TREASURY NOTES -- 5.5%
United States Treasury Note****
19,250 5.50%, 05/15/09 17,646,860
-------------
Total United States 531,177,800
-------------
TOTAL DEBT SECURITIES -- (COST $633,966,200) 605,743,416
-------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
- -----------------------------------
JANUARY 31, 2000
<TABLE>
<CAPTION>
COUNTRY/ SHARES MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 3.0%
UNITED STATES -- 3.0%
USD MONEY MARKET FUNDS -- 3.0% (NOTE 1)
9,510 SSgA U.S. Government Money Market Fund**** $ 9,510,304
-------------
TOTAL SHORT-TERM INVESTMENTS -- (COST $9,510,304) 9,510,304
-------------
TOTAL INVESTMENTS -- 191.0% (COST $643,476,504) 615,253,720
-------------
Payable for Investments Purchased -- (92.3)% (297,265,064)
Payable for Investments Sold on a Forward Commitment Basis, net -- (23.9)%+ (77,069,719)
Other Assets Less Liabilities -- 25.2%++ 81,292,310
-------------
NET ASSETS -- 100.0% $ 322,211,247
=============
</TABLE>
TERMS
ARS -- Argentine Peso
EURO -- Euro
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
JANUARY 31, 2000, THE VALUE OF THE FUND'S FORWARD COMMITMENT PURCHASES WAS
$277,427,819.
**** ALL OR A PORTION OF THESE SECURITIES HAVE BEEN SEGREGATED TO COVER THE
FUND'S LEVERAGE TRANSACTIONS.
- --------------------------------------------------------------------------------
+ On a forward commitment basis, the Fund has agreed to sell the following U.S.
Treasury securities:
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE (US$)
CURRENCY (000'S) DESCRIPTION (NOTE 1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
USD $33,000 U.S. Treasury Bonds 5.50%, 08/15/28 $ 28,478,010
9,500 U.S. Treasury Bonds 6.00%, 02/15/26 8,795,273
20,075 U.S. Treasury Bonds 6.38%, 08/15/27 19,507,279
11,200 U.S. Treasury Bonds 6.50%, 11/15/26 11,054,736
9,200 U.S. Treasury Bonds 6.63%, 02/15/27 9,224,472
------- ------------------
$82,975 (Proceeds $75,683,525) $ 77,059,770
======= ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
- -----------------------------------
JANUARY 31, 2000
++ As of January 31, 2000, the Fund had the following outstanding swap
agreements denominated in U.S. dollars - (Note 1):
<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 2/01/01 2/01/01 5.86%(a) 5.89% $ 638,600
rate
100,000 AAA U.S. Dollar interest 2/07/01 2/07/01 5.90%(a) 5.74% 782,900
rate
60,000 AA U.S. Dollar interest 2/01/01 2/01/01 5.86%(a) 5.91% 221,700
rate
50,000 A Treasury Index (c) 1/25/01 1/25/01 5.74% 6.80% 0
50,000 AAA U.S. Dollar interest 2/14/01 2/14/01 5.78%(a) 6.16% 142,800
rate
45,000 A Corporate Total 7/01/00 7/01/00 1.26% 1.83% (384,120)
Return Index (d)
40,000 AA CMBS Total Return 6/30/00 6/30/00 1.36% 1.36% (505,200)
Index (e)
25,000 AA Switzerland (f) 3/15/02 3/15/10 4.02% 2.67%(a) (273,000)
25,000 AA Japan (g) 3/15/02 3/15/10 2.12% 0.33%(b) 351,650
25,000 AA CMBS Total Return 10/31/00 10/31/00 7.43% 5.58%(a) (525,100)
Index (h)
5,000 A Mexico 3/19/08 3/12/08 8.63% 3.94%(a) (122,145)
- ------------------------------------------------------------------------------------------------------
$525,000 $ 328,085
- ------------------------------------------------------------------------------------------------------
</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 AT 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 U.S 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 INDICES 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
- -----------------------------------
JANUARY 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at value -- (Note 1)
(cost $633,966,200) $ 605,743,416
Cash 1,010,544
Cash equivalents -- (Note 1) 9,510,304
Receivable for investments sold -- (Note 1) 76,744,469
Receivable for interest rate swap contracts -- (Note 1) 328,085
Interest receivable 3,939,545
-------------
Total Assets 697,276,363
-------------
LIABILITIES:
Payable for delayed delivery investments purchased 278,359,539
Payable for investments purchased -- (Note 1) 18,905,525
Investments sold on a forward commitment basis -- (Note
1) 77,069,719
Deferred fee income on dollar rolls -- (Note 1) 236,499
Payable for:
Investment management fees -- (Note 2) 264,918
Custodial fees 15,925
Administration fees -- (Note 2) 52,375
Professional fees 88,182
Directors' fees 3,074
Other expenses 69,360
-------------
Total Liabilities 375,065,116
-------------
NET ASSETS $ 322,211,247
=============
NET ASSETS CONSIST OF:
Paid-in capital -- (Note 3) $ 380,927,078
Accumulated undistributed net investment income 2,879,455
Accumulated net realized loss on investments, foreign
currency
transactions, interest rate swaps, and forward
commitments (32,290,622)
Net unrealized depreciation on investments, interest
rate swaps,
and forward commitments (29,304,664)
-------------
NET ASSETS $ 322,211,247
=============
NET ASSET VALUE PER SHARE
(30,515,800 shares outstanding) $ 10.56
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STATEMENT OF OPERATIONS
- -------------------------
FOR THE YEAR ENDED JANUARY 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 30,141,977
Fee income -- (Note 1) 4,570,738
------------
Total investment income 34,712,715
------------
Expenses:
Investment management fees -- (Note 2) 3,222,796
Interest expense -- (Note 1) 1,945,862
Administration fees -- (Note 2) 255,166
Printing and postage expenses 164,198
Professional fees 128,545
Custodial fees 52,891
Directors' fees and expenses 32,950
Registration and filing fees 32,048
Transfer agent fees 23,492
Other expenses 16,882
------------
Total expenses 5,874,830
------------
Net investment income 28,837,885
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments, foreign currency
transactions, interest rate swaps, and forward
commitments 4,796,665
Net change in unrealized depreciation on investments,
foreign currency
translations, interest rate swaps, and forward
commitments (29,955,683)
------------
Net realized and unrealized loss on investments (25,159,018)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,678,867
============
</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>
YEAR ENDED YEAR ENDED
JANUARY 31, 2000 JANUARY 31, 1999
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 28,837,885 $ 28,093,790
Net realized gain on investments, foreign currency
transactions,
interest rate swaps, and forward commitments 4,796,665 12,672,296
Net change in unrealized depreciation on investments,
foreign currency translations, interest rate swaps,
and forward commitments (29,955,683) (26,033,904)
------------- -------------
Net increase in net assets resulting from operations 3,678,867 14,732,182
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income -- (Note 1) (31,065,084) (28,562,789)
------------- -------------
Net decrease in net assets (27,386,217) (13,830,607)
NET ASSETS:
Beginning of period 349,597,464 363,428,071
------------- -------------
End of period* $ 322,211,247 $ 349,597,464
------------- -------------
------------- -------------
* Includes accumulated undistributed net investment
income $ 2,879,455 $ 3,031,956
------------- -------------
------------- -------------
</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 YEAR ENDED JANUARY 31, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received $ 30,213,801
Operating expenses paid (3,966,360)
Purchase of investments* (2,424,077,097)
Proceeds from disposition of investments* 2,507,381,948
--------------
Net cash and equivalents provided by operating
activities 109,552,292
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payment for reverse repurchase agreements (81,127,000)
Net payment for interest on reverse repurchase
agreements (2,093,800)
Net proceeds from dollar roll transactions 4,705,927
Dividends and distributions to stockholders (31,065,084)
--------------
Net cash and equivalents used in by financing
activities (109,579,957)
--------------
Net decrease in cash and equivalents (27,665)
Cash and equivalents at beginning of year 10,548,513
--------------
Cash and equivalents at end of year $ 10,520,848
==============
RECONCILIATION OF RESULTS FROM OPERATIONS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 3,678,867
Decrease in investments 83,427,287
Net realized gain on investments and forward
commitments (4,796,665)
Net unrealized depreciation on investments 34,625,843
Net interest expense on reverse repurchase agreements 1,945,862
Change in:
Receivable for investments sold 2,407,474
Net unrealized appreciation on interest rate swaps (4,416,325)
Interest receivable 1,641,708
Payable for investments purchased (5,018,999)
Payable for investments sold on a forward commitment
basis (3,944,509)
Accrued expenses 1,749
--------------
Net cash and equivalents provided by operating
activities $ 109,552,292
==============
* PURCHASES AND PROCEEDS INCLUDE INVESTMENTS 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 STATEMENTS
- ------------------------------
For a share outstanding throughout each fiscal year:
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (a):
Net asset value, beginning of year $ 11.46 $ 11.91 $ 11.87 $ 11.64 $ 10.85
-------- -------- -------- -------- --------
Net investment income 0.95 0.92 0.98 0.94 0.96
Net realized and unrealized gain (loss) (0.83) (0.43) 0.05 0.21 0.72
-------- -------- -------- -------- --------
Net increase in net assets resulting from operations 0.12 0.49 1.03 1.15 1.68
Less distributions:
Dividends from net investment income (1.02) (0.94) (0.99) (0.92) (0.89)
-------- -------- -------- -------- --------
Net asset value, end of year $ 10.56 $ 11.46 $ 11.91 $ 11.87 $ 11.64
======== ======== ======== ======== ========
Per share market value, end of year $ 9.13 $ 9.88 $ 11.16 $ 10.63 $ 10.25
======== ======== ======== ======== ========
Total return based on net asset value 2.70% 5.32% 9.66% 11.72% 17.07%
Total return based on market price 2.99% (3.11)% 14.76% 13.57% 16.21%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $322,211 $349,597 $363,428 $362,102 $355,287
Ratio of total expenses to average net assets 1.73% 1.31% 1.25% 1.25% 1.20%
Ratio of interest expense to average net assets 0.57% 0.10% -- -- --
Ratio of net investment income to average net assets 8.50% 7.93% 8.29% 8.21% 8.50%
Portfolio turnover (b) 74% 133% 29% 59% 96%
</TABLE>
(a) CALCULATED USING THE AVERAGE SHARE METHOD.
(b) DOES NOT INCLUDE THE EFFECT OF 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
- ------------------------------
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.
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
19
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 January 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 January 31, 2000, there were $77,059,770 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 $4,570,738. At January 31, 2000, there were $278,359,539 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
20
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 January 31, 2000, the Fund had entered into the 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 $2,726,745 for the year. Net unrealized
appreciation on swap positions was $328,085 at January 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 January 31, 2000 the Fund
had no open reverse repurchase agreements outstanding. The average daily balance
of reverse repurchase agreements outstanding during the period ended
January 31, 2000, was approximately $40,588,203 at a weighted average interest
rate of approximately 4.95%. The maximum amount of reverse repurchase agreements
outstanding during the period ended January 31, 2000, was $180,586,000. For the
year ended January 31, 2000, interest expense in connection with reverse
repurchase agreement amounted to $1,945,862.
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. The use of leverage
increases the overall duration risk of the Fund, and an increased sensitivity to
rising short term interest-rates. The Fund's use of leverage is limited to 33.3%
of net assets. In order to limit leverage, the Fund segregated $253,555,450 in
high credit quality, liquid investments against outstanding obligations,
resulting in $103,673,424 net leverage at January 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
21
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, January 31, 2004, and January 31, 2006, respectively.
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 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 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 "not interested" directors an annual fee of
$6,000 plus $1,000 for each meeting attended.
3. CAPITAL SHARES
At January 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 January 31,
22
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------
4. PURCHASES AND SALES OF SECURITIES (CONTINUED)
2000, aggregated $424,320,366 and $335,897,875, 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
January 31, 2000, aggregated $217,229,545 and $144,046,307, respectively. At
January 31, 2000, the aggregate cost of investments for federal income tax
purposes was $644,396,019. Gross unrealized appreciation and depreciation of
investments aggregated $2,203,929 and $31,346,228, respectively, resulting in
net unrealized depreciation of $29,142,299 at January 31, 2000.
23
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
INDEPENDENT AUDITOR'S REPORT
- ------------------------------
To the Board of Directors and Stockholders of the RCM Strategic Global
Government Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, changes
in net assets and cash flows, and the financial highlights present fairly, in
all material respects, the financial position of the RCM Strategic Global
Government Fund, Inc., (hereafter referred to as the "Fund"), at January 31,
2000, the results of its operations, the changes in its net assets, cash flows
and the financial highlights for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at January 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 17, 2000
24
<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.
25
<PAGE>
RCM STRATEGIC GLOBAL GOVERNMENT FUND
STOCKHOLDER MEETING RESULTS
- ------------------------------------------
(UNAUDITED)
The Annual Meeting of Stockholders of RCM Strategic Global Government Fund, Inc.
was held on Thursday, August 26, 1999. The number of shares issued, outstanding
and eligible to vote as of the record date (July 1, 1999) was 30,515,800.
Present were 28,826,505 shares represented by 163 proxies or 94.46% of the
eligible voting shares tabulated. The matters voted upon by Stockholders and the
resulting votes for each matter are presented below:
1. James M. Whitaker and Luke D. Knecht were re-elected to the Board of
Directors for terms to expire in 2002 and 2000, respectively, or until their
successors shall be duly elected and qualified. The votes for James M.
Whitaker were cast: For (28,457,693), Withheld (368,812). The votes for
Luke D. Knecht were cast: For (28,459,823), Withheld (366,683).
2. The selection by the Board of Directors of PricewaterhouseCoopers LLP as
independent public accountants for the fiscal year ending January 31, 2000
was ratified. The votes were cast: For (28,376,147), Against (185,320),
Abstain (265,038).
26
<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
Judith W. O'Connell
SECRETARY AND TREASURER
Steven L. 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$82 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$45 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
