<PAGE>
RCM GLOBAL HEALTH CARE FUND
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of RCM Global Health Care Fund and
Board of Directors of RCM Equity Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of RCM
Global Health Care Fund (the "Fund"), including the statement of investments in
securities and net assets, as of December 31, 1996, and the related statement of
operations, the statement of changes in net assets, and the financial highlights
for the period indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1996, by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
Global Health Care Fund as of December 31, 1996, and the results of its
operations, the changes in its net assets, and the financial highlights for the
period indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 28, 1997
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RCM GLOBAL HEALTH CARE FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------------- --------------------------------- ---------- -------------
DRUGS & HOSPITAL SERVICES 14.06%
2,800 Guidant Corp. $ 158,984
2,300 Pfizer Inc. 195,282
200 Sofamor/Danek Group Inc. * 5,962
2,700 Thermo Cardiosystems Inc. * 80,744
5,400 VISX Inc. * 121,500
-----------
562,472
-----------
HEALTH CARE SERVICES 6.64%
2,800 PhyCor Inc. * 80,850
1,000 Renal Treatment Centers Inc. * 25,149
5,800 Vivra Inc. * 159,546
-----------
265,545
-----------
TOTAL EQUITY INVESTMENTS
(COST $828,017) 20.70% 828,017
-----------
SHORT-TERM INVESTMENTS
PRINCIPAL U.S. GOVERNMENT 99.91%
- ----------------
$ 4,000,000 U.S. Treasury Bill
maturing 1/9/97 3,996,344
-----------
TOTAL SHORT-TERM INVESTMENTS 99.91% 3,996,344
(COST $3,996,344) -----------
TOTAL INVESTMENTS (COST $4,824,361) 120.61% 4,824,361
OTHER ASSETS LESS LIABILITIES -20.61% (824,361)
-----------
NET ASSETS 100.00% $ 4,000,000
-----------
-----------
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
Page 2
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RCM GLOBAL HEALTH CARE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS:
Investments in securities, at value (cost $4,824,361)(Note 1) $ 4,824,361
Cash 4,000,000
------------
Total Assets 8,824,361
------------
LIABILITIES:
Payable for securities purchased 4,824,361
------------
Total Liabilities 4,824,361
------------
NET ASSETS $ 4,000,000
------------
------------
NET ASSETS CONSIST OF:
Paid in capital (Note 3) $ 4,000,000
------------
NET ASSETS $ 4,000,000
------------
------------
NET ASSET VALUE PER SHARE
($4,000,000 DIVIDED BY 400,000 shares outstanding) $ 10.00
------------
------------
The accompanying notes are an integral part of the financial statements.
Page 3
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RCM GLOBAL HEALTH CARE FUND
STATEMENT OF OPERATIONS
FROM DECEMBER 31, 1996* TO DECEMBER 31, 1996
INVESTMENT INCOME:
Income $ -
Expenses -
----------
Net investment income -
NET REALIZED AND UNREALIZED GAIN:
Net realized and unrealized gain -
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ -
---------
---------
- --------------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
Page 4
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RCM GLOBAL HEALTH CARE FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM DECEMBER 31, 1996** TO DECEMBER 31, 1996
OPERATIONS:
Net investment income $ -
Net realized and unrealized gain -
------------
Net increase in net assets resulting from operations -
NET INCREASE FROM CAPITAL SHARES TRANSACTIONS (NOTE 3) 4,000,000
------------
TOTAL INCREASE IN NET ASSETS 4,000,000
NET ASSETS:
Beginning of period -
------------
End of period * $ 4,000,000
------------
------------
* Includes undistributed net investment income of $ -
------------
------------
- --------------------
** Commencement of operations
The accompanying notes are an integral part of the financial statements.
Page 5
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RCM GLOBAL HEALTH CARE FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding are as follows:
December 31, 1996
(commencement
of operations) to
December 31, 1996
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
--------------
Net investment income -
Net realized and unrealized gain -
--------------
Net increase in net asset value
resulting from investment operations -
--------------
NET ASSET VALUE, END OF PERIOD $ 10.00
--------------
--------------
TOTAL RETURN 0.00% *
--------------
--------------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid per share $ 0.0324 +
--------------
--------------
Net assets, end of period (in 000's) $ 4,000
--------------
--------------
Ratio of expenses to average net assets 0.00% ++
--------------
--------------
Ratio of net investment income to average net assets 0.00% ++
--------------
--------------
Portfolio turnover 0.00% ++
--------------
--------------
- --------------------
* Total return measures the change in value of an investment over the period
indicated.
+ For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission structures may differ.
++ Not annualized. Fund was in operation for one day, ratios are not
meaningful.
The accompanying notes are an integral part of the financial statements.
Page 6
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RCM GLOBAL HEALTH CARE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
RCM Global Health Care Fund (the "Fund") is a non-diversified series of RCM
Equity Funds, Inc. (the "Company"). The Company is organized as a Maryland
corporation and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations on December 31, 1996.
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
which require management to make estimates and assumptions that affect the
reported amount of assets and liabilities. Actual results may differ from
these estimates.
A. SECURITIES VALUATIONS:
Investment securities are stated at fair market value. Equity securities
traded on stock exchanges are valued at the last sale price on the exchange
or in the principal over-the-counter market in which such securities are
traded as of the close of business on the day the securities are being
valued. If there has been no sale on such day, then the security will be
valued at the closing bid price on such day. If no bid price is quoted on
such day, then the security will be valued by such method as the Board of
Directors of the Company in good faith deems appropriate to reflect its fair
market value. Readily marketable securities traded only in the over-the-
counter market that are not listed on the National Association of Securities
Dealers, Inc. Automated Quotation System or similar foreign reporting service
will be valued at the mean bid price, or such other comparable sources as the
Board of Directors of the Company deems appropriate to reflect their fair
market value. Other portfolio securities held by the Fund will be valued at
current market value, if current market quotations are readily available for
such securities. To the extent that market quotations are not readily
available, such securities will be valued by whatever means the Board of
Directors of the Company in good faith deems appropriate to reflect their
fair market value. Short-term investments with a maturity of 60 days or less
are valued at amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Security transactions are recorded as of the date of purchase or sale.
Realized gains and losses on security transactions are determined on the
identified cost basis for both financial statement and federal income tax
purposes. Interest income, foreign taxes and expenses are accrued daily.
Dividends are recorded on the ex-dividend date.
C. FOREIGN CURRENCY TRANSACTIONS:
The records of the Fund are maintained in U.S. dollars. Foreign currencies,
investments and other assets and liabilities are translated into U.S. dollars
at current exchange rates. Purchases and sales of foreign securities and
income and withholding taxes are translated on the respective dates of such
transactions. Net realized currency gains and losses include foreign
currency gains and losses between trade date and settlement date and foreign
currency transactions. The Fund does not isolate that portion of foreign
currency exchange fluctuation on investments from unrealized appreciation and
depreciation which arises from changes in market prices. Such fluctuations
are included with the net unrealized appreciation or depreciation on
investments.
Page 7
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RCM GLOBAL HEALTH CARE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. 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 (the "Code"). It is also the intention of the Fund
to make distributions sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision has been made for Federal
or excise taxes on income and capital gains.
e. DISTRIBUTIONS:
Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Fund and timing differences.
2. INVESTMENT IN FOREIGN SECURITIES
Investing in foreign equity securities and currency transactions involves
significant risks, some of which are not typically associated with
investments of domestic origin. The Fund's investments in foreign markets
will subject the Fund to the risk of foreign currency exchange rate
fluctuations, perceived credit risk and adverse economic and political
developments.
3. CAPITAL SHARES
At December 31, 1996, there were 1,000,000,000 shares of the Company's
capital stock authorized, at $0.0001 par value. Of this amount, 50,000,000
were classified as shares of the Fund; 50,000,000 were classified as shares
of RCM Global Technology Fund; 50,000,000 were classified as shares of RCM
Global Small Cap Fund; 50,000,000 were classified as shares of RCM Large Cap
Growth Fund; and 800,000,000 shares remain unclassified. There were 400,000
shares sold for a total of $4,000,000 on December 31, 1996 (commencement of
operations).
At December 31, 1996, all the outstanding shares of the Fund were
beneficially owned by clients of Dresdner Bank AG/Investment
Management/Institutional Assets Management Division.
4. PURCHASES AND SALES OF SECURITIES
For the one day period ended December 31, 1996 (commencement of operations),
purchases of investment securities by the Fund, other than U.S. government
obligations and short-term securities, aggregated $828,017. Purchases of
U.S. government obligations by the Fund for the period ended December 31,
1996, aggregated $3,996,344. There were no sales of investment securities or
U.S. government obligations by the Fund for the period ended December 31,
1996. At December 31, 1996, the aggregate cost of investments was the same
for book and federal income tax purposes.
Page 8
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RCM GLOBAL HEALTH CARE FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
RCM Capital Management, L.L.C. ("RCM") manages the Fund's investments and
provides various administrative services, subject to the authority of the
Board of Directors. The Fund pays investment management fees monthly to RCM
at an annualized rate of 1.00% of the Fund's average daily net assets. For
the one day period ended December 31, 1996, the Fund did not record
investment management fees.
RCM has voluntarily agreed, until at least December 31, 1997, to pay the Fund
on a quarterly basis the amount, if any, by which the ordinary operating
expenses of the Company attributable to the Fund for the quarter (except
interest, taxes, and extraordinary expenses) exceed the annualized rate of
2.10% of the value of the average daily net assets of the Fund. In
subsequent years, the Fund will reimburse RCM for any such payments to the
extent that the Fund's operating expenses are otherwise below this expense
cap.
Funds Distributor, Inc. (the "Distributor"), acts as distributor of shares of
the Fund. The Distributor retains a portion of any initial sales charge upon
the purchase of shares of the Fund. The Company has adopted a distribution
plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund.
Under the distribution plan, which is a "reimbursement plan," the Fund pays
the Distributor an annual fee of up to 0.30% of the Fund's average daily net
assets as reimbursement for certain expenses actually incurred by the
Distributor in connection with distribution of shares of the Fund.
The Company pays each of its Directors who is not an interested person of the
Fund $6,000 annually plus $1,000 for each meeting of the board or any
committee thereof attended by the Director.
Page 9
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INVESTMENT MANAGER
RCM Capital Management, L.L.C.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION AGENT
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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