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RULE 497(c)
NO. 33-97572
RCM EQUITY FUNDS, INC.
RCM GLOBAL TECHNOLOGY FUND
RCM GLOBAL HEALTH CARE FUND
RCM GLOBAL SMALL CAP FUND
RCM LARGE CAP GROWTH FUND
FOUR EMBARCADERO CENTER, SUITE 3000
SAN FRANCISCO, CALIFORNIA 94111
(800) 726-7240
STATEMENT OF ADDITIONAL INFORMATION
May 2, 1997
RCM Global Technology Fund (the "Technology Fund"), RCM Global Health Care Fund
(the "Health Care Fund"), RCM Global Small Cap Fund (the "Small Cap Fund"), and
RCM Large Cap Growth Fund ("the Large Cap Fund") are no-load series (each a
"Fund" and collectively the "Funds") of RCM Equity Funds, Inc. (the "Company"),
an open-end management investment company. The Funds' investment manager is RCM
Capital Management, L.L.C. (the "Investment Manager").
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the Funds'
Prospectuses (each a "Prospectus" and collectively the "Prospectuses") and
should be read in conjunction with such Prospectuses. The Prospectuses may be
obtained without charge by calling or writing the Company at the address and
phone number above.
TABLE OF CONTENTS
PAGE
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . 2
Investment and Risk Considerations . . . . . . . . . . . . . . . . . . . 13
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 21
Execution of Portfolio Transactions. . . . . . . . . . . . . . . . . . . 23
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . 28
The Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Purchase and Redemption of Shares. . . . . . . . . . . . . . . . . . . . 34
Dividends, Distributions and Tax Status. . . . . . . . . . . . . . . . 36
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Description of Capital Shares. . . . . . . . . . . . . . . . . . . . . . 41
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 42
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INVESTMENT OBJECTIVES AND POLICIES
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INVESTMENT CRITERIA
In evaluating particular investment opportunities, the Investment Manager may
consider, in addition to the factors described in the Prospectuses, the
anticipated economic growth rate, the political outlook, the anticipated
inflation rate, the currency outlook, and the interest rate environment for the
country and the region in which a particular issuer is located. When the
Investment Manager believes it would be appropriate and useful, the Investment
Manager's personnel may visit the issuer's headquarters and plant sites to
assess an issuer's operations and to meet and evaluate its key executives. The
Investment Manager also will consider whether other risks may be associated with
particular securities.
INVESTMENT IN FOREIGN SECURITIES
Each of the Funds may invest in foreign securities. The securities markets of
many countries have at times in the past moved relatively independently of one
another due to different economic, financial, political, and social factors. In
seeking to achieve a Fund's investment objective, the Investment Manager will
allocate the Fund's assets among securities of countries and in currency
denominations where opportunities for meeting the Fund's investment objective
are expected to be the most attractive, subject to the percentage limitations
set forth in the Prospectus. In addition, from time-to-time, a Fund may
strategically adjust its investments among issuers based in various countries
and among the various equity markets of the world in order to take advantage of
diverse global opportunities or capital appreciation, based on the Investment
Manager's evaluation of prevailing trends and developments, as well as on the
Investment Manager's assessment of the potential for capital appreciation (as
compared to the risks) of particular companies. industries. countries, and
regions.
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES. Each Fund may invest in securities
of companies that are organized or headquartered in developed foreign countries.
A Fund may not be invested in all developed foreign countries at one time, and
may not invest in particular developed foreign countries at any time, depending
on the Investment Manager's view of the investment opportunities available.
Although these countries have developed economies, even developed countries are
subject to periods of economic or political instability. For example, efforts
by the member countries of the European Community to eliminate internal barriers
to the free movement of goods, persons, services and capital have encountered
opposition arising from the conflicting economic, political and cultural
interests and traditions of the member countries and their citizens. The
reunification of the former German Democratic Republic (East Germany) with the
Federal Republic of Germany (West Germany) and other political and social events
in Europe have caused considerable economic and social dislocations. Such
events can materially affect securities markets and have also disrupted the
relationship of such currencies with each other and with the U.S. dollar.
Similarly, events in the Japanese economy and social developments may affect
Japanese securities and currency markets, as well as the relationship of the
Japanese Yen to the U.S. dollar. Future political, economic and social
developments can be expected to produce continuing effects on securities and
currency markets.
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INVESTMENT IN EMERGING MARKETS. Each Fund may invest in securities of companies
organized or headquartered in developing countries with emerging markets. As a
general matter, countries that are not considered to be developed foreign
countries by the Investment Manager will be deemed to be emerging market
countries. (See INVESTMENT IN DEVELOPED FOREIGN COUNTRIES.) As their economies
grow and their markets grow and nature, some countries that currently may be
characterized by the Investment Manager as emerging market countries may be
deemed by the Investment Manager to be developed foreign countries. In the
event that the Investment Manager deems a particular country to be a developed
foreign country, any investment in securities issued by that country's
government or by an issuer located in that country would not be subject to the
Funds' overall limitations on investments in emerging market countries.
Securities of issuers organized or headquartered in emerging market countries
may, at times, offer excellent opportunities for capital appreciation. However,
prospective investors should be aware that the markets of emerging market
countries historically have been more volatile than the markets of the United
States and developed foreign countries, and thus the risks of investing in
securities of issuers organized or headquartered in emerging market countries
may be far greater than the risks of investing in developed foreign markets.
See "INVESTMENT AND RISK CONSIDERATIONS -- EMERGING MARKET SECURITIES" for a
more detailed discussion of the risk factors associated with investments in
emerging market securities. In addition, movements of emerging market
currencies historically have had little correlation with movements of developed
foreign market currencies. Prospective investors should consider these risk
factors carefully before investing in the Fund. Some emerging market countries
have currencies whose value is closely linked to the U.S. dollar. Emerging
market countries also may issue debt denominated in U.S. dollars and other
currencies.
It is unlikely that a Fund will be invested in equity securities in all emerging
market countries at any time. Moreover, investing in some emerging markets
currently may not be desirable or feasible, due to lack of adequate custody
arrangements for the Funds' assets, overly burdensome repatriation or similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks, poor values of investments in those markets relative to
investments in other emerging markets, in developed foreign markets, or in the
United States, or for other reasons.
CURRENCY MANAGEMENT
Securities purchased by the Funds may be denominated in U.S. dollars, foreign
currencies, or multinational currency units such as the European Currency Unit,
and the Funds will incur costs in connection with conversions between various
currencies. Movements in the various securities markets may be offset by
changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities
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market may be affected, either positively or negatively, by changes in exchange
rates, and a Fund's net currency positions may expose it to risks independent of
its securities positions.
From time-to-time, the Funds may employ currency management techniques to
enhance their total returns, although they presently do not intend to do so. A
Fund may not employ more than 30% of the value of its total assets in currency
management techniques for the purpose of enhancing returns. To the extent that
such techniques are used to enhance return, they are considered speculative.
A Fund's ability to engage in currency transactions may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) A
Fund's ability and decisions to purchase or sell portfolio securities also may
be affected by the laws or regulations in particular countries relating to
convertability and repatriation of assets. Because the shares of the Funds are
redeemable in U.S. dollars each day the Funds determine their net asset value,
the Funds must have the ability at all times to obtain U.S. dollars to the
extent necessary to meet redemptions. Under present conditions, the Investment
Manager does not believe that these considerations will have any significant
adverse effect on its portfolio strategies, although there can be no assurances
in this regard.
GENERAL CURRENCY CONSIDERATIONS. Currency exchange rates may fluctuate
significantly over short periods of time causing, along with other factors, each
Fund's net asset value to fluctuate as well. Currency exchange rates generally
are determined by the forces of supply and demand in the foreign exchange
markets and the relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention, or failure to do so, by U.S. or foreign
governments or central banks or by currency controls or political developments
in the United States or abroad. The market in forward foreign currency exchange
contracts, currency swaps and other privately negotiated currency instruments
offers less protection against defaults by the other party to such instruments
than is available for currency instruments traded on an exchange. To the extent
that a substantial portion of the Fund's total assets, adjusted to reflect a
Fund's net position after giving effect to currency transactions, is denominated
or quoted in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund may purchase or sell
forward foreign currency exchange contracts for hedging purposes or to seek to
increase total return when the Investment Manager anticipates that the foreign
currency will appreciate or depreciate in value, but securities denominated or
quoted in that currency do not present attractive investment opportunities and
are not held in the Fund's portfolio. When purchased or sold to increase total
return, forward foreign currency exchange contracts are considered speculative.
In addition, a Fund may enter into forward foreign currency exchange contracts
in order to protect against anticipated changes in future foreign currency
exchange rates. Each Fund may engage in cross-hedging by using forward
contracts in a currency different from that in which the hedged security is
renominated or quoted if the Investment Manager determines that there is a
pattern of correlation between the two currencies. Each Fund may also engage in
proxy hedging, by using forward contracts in a series of foreign currencies for
similar purposes.
Each Fund may enter into contracts to purchase foreign currencies to protect
against an anticipated rise in the U.S. dollar price of securities it intends to
purchase. Each Fund may enter into contracts to sell
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foreign currencies to protect against the decline in value of its foreign
currency denominated or quoted portfolio securities, or a decline in the value
of anticipated dividends from such securities, due to a decline in the value of
foreign currencies against the U.S. dollar. Contracts to sell foreign currency
could limit any potential gain which might be realized by a Fund if the value of
the hedged currency increased.
If a Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return, the Fund will place cash, U.S.
Government securities, or other liquid debt or equity securities in a segregated
account with the Fund's custodian in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the
value of the securities placed in the segregated account declines, additional
assets will be placed in the account so that the value of the account will equal
the amount of the Fund's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. The Funds will enter into
such transactions only with primary dealers or others deemed creditworthy by the
Investment Manager.
OPTIONS ON FOREIGN CURRENCIES. Each Fund may purchase and sell (write) put and
call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign portfolio securities and
anticipated dividends on such securities and against increases in the U.S.
dollar cost of foreign securities to be acquired. Each Fund may also use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to hedge against changes in exchange rates for a different
currency, if the Investment Manager believes there is a pattern of correlation
between the two currencies. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges.
The writer of a put or call option receives a premium and gives the purchaser
the right to sell (or buy) the currency underlying the option at the exercise
price. The writer has the obligation upon exercise of the option to purchase
(or deliver) the currency during the option period. A writer of an option who
wishes to terminate the obligation may effect a "closing transaction" by buying
an option of the same series as the option previously written. A writer may not
effect a closing purchase transaction after being notified of the exercise of an
option. The writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received; a Fund could be
required to purchase or sell additional foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against exchange rate fluctuations;
however, in the event of exchange rate movements adverse to a Fund's position, a
Fund may forfeit the entire amount of the premium plus elated transaction costs.
Each Fund may purchase call or put options on currency to seek to increase total
return when the Investment Manager anticipates that the currency will appreciate
or depreciate in value, but the securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio. When purchased or sold to increase total return, options
on currencies are considered speculative.
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When a Fund writes a call option on a foreign currency, an amount of cash, U.S.
Government securities, or other liquid debt or equity securities equal to the
market value of its obligations under the option will be deposited by the Fund
in a segregated account with the Fund's custodian to collateralize the position.
CURRENCY SWAPS. Each Fund may enter into currency swaps for both hedging and to
seek to increase total return. Currency swaps involve the exchange of rights to
make or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Funds expect to achieve an acceptable degree of
correlation between their portfolio investments and their currency swap
positions entered into for hedging purposes. Currency swaps may involve the
delivery of the entire principal value of one designated currency in exchange
for the other designated currency, or the delivery of the net amount of a
party's obligations over its entitlements. Therefore, the entire principal
value of a currency swap may be subject to the risk that the other party to the
swap will default on its contractual delivery obligations. Each Fund will
maintain in a segregated account with the Fund's custodian cash, U.S. Government
securities, or other liquid debt or equity securities equal to the amount of the
Fund's obligations, or the net amount (if any) of the excess of the Fund's
obligations over its entitlements, with respect to swap transactions. To the
extent that such amount of a swap is held in such a segregated account the
Company and the Investment Manager believe that swaps do not constitute senior
securities under the Investment Company Act of 1940 (the "1940 Act") and,
accordingly, will not treat them as being subject to a Fund's borrowing
restriction.
The currency swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and
agents utilizing standard swap documentation, and the Investment Manager has
determined that the currency swap market has become relatively liquid. However,
the use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Manager is incorrect in
its forecasts of market values and currency exchange rates, the investment
performance of a Fund entering into a currency swap would be less favorable than
it would have been if this investment technique were not used.
OPTIONS TRANSACTIONS
Each Fund may purchase listed put and call options on stocks and stock indices
as a hedge against changes in market conditions that may result in changes in
the value of the Fund's portfolio securities. The aggregate premiums on put
options and call options purchased by a Fund may not in each case exceed 5% of
the value of the net assets of the Fund. In addition, a Fund will not purchase
or sell options if more than 25% of the value of its net assets would be hedged.
A put gives the holder the right, in return for the premium paid, to require the
writer of the put to purchase from the holder a security at a specified price.
A call gives the holder the right, in return for the premium paid, to require
the writer of the call to sell a security to the holder at a specified price.
Put and call options re traded on U.S. and foreign exchanges. A put option is
covered if the writer maintains cash, U.S. Government securities or other liquid
debt or equity securities equal to the exercise price in a segregated account.
A call option is covered if the writer owns the security underlying the call or
has an absolute and immediate right to acquire the security without additional
cash consideration upon conversion or exchange of other securities held by it.
PUT OPTIONS. Purchasing put options may be used as a portfolio investment
strategy when the Investment Manager perceives significant short-term risk but
substantial long-term appreciation for the
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underlying security. The put option acts as an insurance policy, as it protects
against significant downward price movement while it allows full participation
in any upward movement. If a Fund is holding a stock which the Investment
Manager feels has strong fundamentals, but for some reason may be weak in the
near term, the Fund may purchase a put option on such security, thereby giving
itself the right to sell such security at a certain strike price throughout the
term of the option. Consequently, the Fund will exercise the put only if the
price of such security falls below the strike price of the put. The difference
between the put's strike price and the market price of the underlying security
on the date the Fund exercises the put, less transaction costs, will be the
amount by which the Fund will be able to hedge against a decline in the
underlying security. If during the period of the option the market price for
the underlying security remains at or above the put's strike price, the put will
expire worthless, representing a loss of the price the Fund paid for the put,
plus transaction costs. If the price of the underlying security increases, the
profit the Fund realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount for which the put may be old.
CALL OPTIONS. The purchase of a call option is a type of insurance policy to
hedge against losses that could incur if a Fund intends to purchase the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the price of the
underlying security thereafter falls, the price the Fund pays for the security
will in effect be increased by the premium paid for the call option less any
amount for which such option may be sold.
STOCK INDEX OPTIONS. Each Fund may purchase put and call options with respect
to the stock indices such as the S&P 500 Composite Index. Such options may be
purchased as a hedge against changes resulting from market conditions in the
values of securities which are held in a Fund's portfolio or which it intends to
purchase or sell, or when they are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options generally. Because the value of an
index option depends upon movements in the level of the index rather than the
price of a particular stock, whether a Fund will realize a gain or loss on the
purchase or sale of an index option depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index will be subject to the Investment Manager's ability to predict correctly
movements in the direction of the stock market generally. This requires
different skills and techniques than predicting changes in the prices of
individual stocks.
Index prices may be distorted if trading of certain stocks included in an index
is interrupted. Trading of index options also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this were to occur, a Fund would not be able to close
out options which it had purchased, and if restrictions on exercise were
imposed, the Fund might be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the policy of the Funds to
purchase put or call options only with respect to an index which the Investment
Manager believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.
DEALER OPTIONS. Each Fund may engage in transactions involving dealer options
as well as exchange- traded options. Options not traded on an exchange
generally lack the liquidity of an exchange
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traded option, and may be subject to a Fund's restriction on investment in
illiquid securities. In addition, dealer options may evolve the risk that the
securities dealers participating in such transactions will fail to meet their
obligations under the terms of the option.
SHORT SALES
Each Fund may engage in short sales transactions. A short sale that is not made
"against the box" is a transaction in which a Fund sells a security it does not
own in anticipation of a decline in market price. When a Fund makes a short
sale, the proceeds it receives are retained by the broker until the Fund
replaces the borrowed security. In order to deliver the security to the buyer,
the Fund must arrange through a broker to borrow the security and, in so doing,
the Fund becomes obligated to replace the security borrowed at its market price
at the time of replacement, whatever that price may be.
Short sales by a Fund that are not made "against the box" create opportunities
to increase the Fund's return but, at the same time, involve special risk
considerations and may be considered a speculative technique. Since a Fund in
effect profits from a decline in the price of the securities sold short without
the need to invest the full purchase price of the securities on the date of the
short sale, the Fund's net asset value per share will tend to increase more when
the securities it has sold short decrease in value, and to decrease more when
the securities it has sold short increase in value, than would otherwise be the
case if it had not engaged in such short sales. Short sales theoretically
involve unlimited loss potential, as the market price of securities sold short
may continuously increase, although a Fund may mitigate such losses by replacing
the securities sold short before the market price has increased significantly.
Under adverse market conditions, a Fund might have difficulty purchasing
securities to meet its short sale delivery obligations, and might have to sell
portfolio securities to raise the capital necessary to meet its short sale
obligations at a time when fundamental investment considerations would not favor
such sales.
If a Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. A Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Investment Manager believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Fund or a security convertible into or exchangeable for
such security. In such case, any future losses in the Fund's long position
would be reduced by a gain in the short position.
In the view of the Securities and Exchange Commission ("SEC"), a short sale
involves the creation of a "senior security" as such term is defined in the 1940
Act, unless the sale is "against the box" and the securities sold are placed in
a segregated account (not with the broker), or unless the Fund's obligation to
deliver the securities sold short is "covered" by placing in a segregated
account (not with the broker) cash, U.S. Government securities or other liquid
debt or equity securities in an amount equal to the difference between the
market value of the securities sold short at the time of the short sale and any
cash or securities required to be deposited as collateral with a broker in
connection with the sale (not including the proceeds from the short sale), which
difference is adjusted daily for changes in the value of the securities sold
short. The total value of the cash and securities deposited with the broker and
otherwise segregated may not at any time be less than the market value of the
securities sold short at the time of the short sale.
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A Fund's ability to enter into short sales transactions is limited by the
requirements of the Internal Revenue Code with respect to the Fund's
qualifications as a regulated investment company. (See DIVIDENDS, DISTRIBUTIONS
AND TAX STATUS.)
To avoid limitations under the 1940 Act on borrowing by investment companies,
short sales by each Fund will be against the box, or the Fund's obligation to
deliver the securities sold short will be "covered" by placing in segregated
account cash, U.S. Government securities or other liquid debt or equity
securities in an amount equal to the market value of its delivery obligation. A
Fund will not make short sales of securities or maintain a short position if
doing so could create liabilities or require collateral deposits and segregation
of assets aggregating more than 25% of the value of the Fund's total assets.
FUTURES TRANSACTIONS
Each Fund may purchase and sell currency futures contracts and futures options,
in accordance with the strategies more specifically described below, to hedge
against currency exchange rate fluctuations or to enhance returns.
FUTURES CHARACTERISTICS. A futures contract is an agreement between two parties
(buyer and seller) to take or make delivery of an amount of cash equal to the
difference between the value of currency at the close of the last trading day of
the contract and the price at which the currency contract was originally
written. In the case of futures contracts traded on U.S. exchanges, the
exchange itself or an affiliated clearing corporation resumes the opposite side
of each transaction (i.e., as buyer or seller). A futures contract may be
satisfied or closed out by payment of the change in the cash value of the
currency. No physical delivery of the underlying currency is made.
Unlike when a Fund purchases or sells a security, no price is paid or received
by a Fund upon the purchase or sale of a futures contract. Initially, the Fund
will be required to deposit with the Fund's custodian or such other parties as
may be authorized by the SEC (in the name of the futures commission merchant
(the "FCM")) an amount of cash or U.S. Treasury bills which is referred to as an
"initial margin" payment. The nature of initial margin in futures transactions
is different from that of margin in security transactions in that a futures
contract margin does not involve the borrowing of funds by a Fund to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to a Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Futures contracts customarily are purchased and sold with
initial margins that may range upwards from less than 5% of the value of the
futures contract being traded. Subsequent payments, called variation margin, to
and from the FCM, will be made on a daily basis as the price of the underlying
currency varies, making the long and short positions in the futures contract
more or less valuable. This process is known as "marking to the market." For
example, when a Fund has purchased a currency futures contract and the price of
the underlying currency has risen, that position will have increased in value
and a Fund will receive from the FCM a variation margin payment equal to that
increased value. Conversely, when a Fund as purchased a currency futures
contract and the price of the underlying currency has declined, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the FCM. At any time prior to expiration of the futures contract, a
Fund may elect to close the position by taking an identical opposite position
which will operate to terminate the Fund's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund realizes a loss or
a gain.
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CHARACTERISTICS OF FUTURES OPTIONS. Each Fund may also purchase call options
and put options on currency futures contracts ("futures options"). A futures
option gives the holder the right, in return for the premium aid, to assume a
long position (in the case of a call) or short position (in the case of a put)
in a futures contract at a specified exercise price prior to the expiration of
the option. Upon exercise of a call option, the older acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. A futures option may be
closed out (before exercise or expiration) by an offsetting purchase or sale of
a futures option of the same series.
PURCHASE OF FUTURES. The Investment Manager may purchase a currency futures
contract when it anticipates the subsequent purchase of particular securities
and has the necessary cash, but expects the currency exchange rates then
available in the applicable market to be less favorable than rates that are
currently available, or to attempt to enhance return when it anticipates that
future currency exchange rates will be more favorable than current rates.
SALE OF FUTURES. The Investment Manager may sell a currency futures contract to
hedge against an anticipated decline in foreign currency rates that would
adversely affect the dollar value of a Fund's portfolio securities denominated
in such currency, or may sell a currency futures contract in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern or correlation between
the two currencies.
PURCHASE OF PUT OPTIONS ON FUTURES. The purchase of a put option on a currency
futures contract is analogous to the purchase of a put on an individual stock,
where an absolute level of protection from price fluctuation is sought below
which no additional economic loss would be incurred by a Fund. The purchase of
a put option on a currency futures contract can be used to hedge against
unfavorable movements in currency exchange rates, or to attempt to enhance
returns in contemplation of movements in such rates.
PURCHASE OF CALL OPTIONS ON FUTURES. The purchase of a call option on a
currency futures contract represents a means of obtaining temporary exposure to
favorable currency exchange rate movements with risk limited to the premium paid
for the call option. It is analogous to the purchase of a call option on an
individual stock, which can be used as a substitute for a position in the stock
itself. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or to the price of the underlying currency
itself, the call option may be less risky, because losses are limited to the
premium paid for the call option, when compared to the ownership of the
underlying currency. Like the purchase of a currency futures contract, a Fund
would purchase a call option on a currency futures contract to hedge against an
unfavorable movement in exchange rates.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND FUTURES OPTIONS. A Fund may not
purchase or sell futures contracts or purchase futures options if, immediately
thereafter, more than 30% of the value of its net assets would be hedged. In
addition, a Fund may not purchase or sell futures or purchase futures options
if, immediately thereafter, the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for futures options would
exceed 5% of the market value of the Fund's total assets. In Fund transactions
involving futures contracts, to the extent required by applicable SEC
guidelines, an amount of cash, U.S. Government securities, or other liquid debt
or equity securities equal to the market value of the futures contracts will be
deposited by the Fund in a segregated account with the Fund's Custodian, or in
other segregated accounts as regulations may allow, to collateralize the
position and thereby to insure that the use of such futures is unleveraged.
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TAX TREATMENT. The extent to which a Fund may engage in futures and futures
option transactions may be limited by the requirements of the Code for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. See DIVIDENDS, DISTRIBUTIONS AND TAXES.
REGULATORY MATTERS. The Company has filed a claim of exemption from
registration of the Funds as commodity pools with the Commodity Futures Trading
Commission (the "CFTC"). Each Fund intends to conduct its futures trading
activity in a manner consistent with that exemption. The Investment Manager is
registered with the CFTC as both a Commodity Pool Operator and as a Commodity
Trading Advisor.
DEBT SECURITIES
Each Fund may purchase debt obligations. The timing of purchase and sale
transactions in debt obligations may result in capital appreciation or
depreciation because the value of debt obligations varies inversely with
prevailing interest rates.
The debt obligations in which the Funds will invest will be rated, at the time
of purchase, BBB or higher by Standard & Poor's Corporation ("Standard &
Poor's") or Baa or higher by Moody's Investor Services, Inc. ("Moody's") or
equivalent ratings by other rating organizations, or, if unrated, will be
determined by the Investment Manager to be of comparable investment quality. If
the rating of an investment grade security held by a Fund is downgraded, the
Investment Manager will determine whether it is in the best interests of the
Fund to continue to hold the security in its investment portfolio.
U.S. Government obligations include obligations issued or guaranteed as to
principal and interest by the U.S. Government and its agencies and
instrumentalities, by the right of the issuer to borrow from the U.S. Treasury,
by the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality, or only by the credit of the
agency or instrumentality.
PREFERRED STOCKS
Each Fund may purchase preferred stocks. Preferred stock, unlike common stock,
offers a stated dividend rate payable from a corporation's earnings. Such
preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. If interest rates rise, the fixed dividend on preferred stocks may
be less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline.
Dividends on some preferred stock may be "cumulative," requiring all or a
portion of prior unpaid dividends to be paid prior to payment of dividends on
the issuer's common stock. Preferred stock also generally has a preference over
common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation, and may be "participating," which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on the distribution of a corporation's assets in
the event of a liquidation are generally subordinate to the rights associated
with a corporation's debt securities.
INVESTMENT IN ILLIQUID SECURITIES
Each Fund may purchase illiquid securities. The Investment Manager takes into
account a number of factors in reaching liquidity decisions, including, but not
limited to: the listing of the security on an
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exchange or national market system; the frequency of trading in the security;
the number of dealers who publish quotes for the security; the number of dealers
who serve as market makers for the security; the apparent number of other
potential purchasers; and the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how offers are solicited, and the
mechanics of transfer).
CASH-EQUIVALENT INVESTMENTS
Other than as described below under INVESTMENT RESTRICTIONS, no Fund is
restricted with regard to the types of cash-equivalent investments it may make.
When the Investment Manager believes that such investments are an appropriate
part of a Fund's overall investment strategy, the Fund may hold or invest, for
investment purposes, a portion of its assets in any of the following,
denominated in U.S. dollars, foreign currencies, or multinational currency
units: cash; short-term U.S. or foreign government securities; commercial paper
rated at least A-2 by Standard & Poor's or P-2 by Moody's; certificates of
deposit or other deposits of banks deemed creditworthy by the Investment Manager
pursuant to standards adopted by the Company's Board of Directors; time
deposits; bankers' acceptances; and repurchase agreements related to any of the
foregoing. In addition, for temporary defensive purposes under abnormal market
or economic conditions, a Fund may invest up to 100% of its assets in such
cash-equivalent investments.
A certificate of deposit is a short-term obligation of a commercial bank. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions. A repurchase
agreement involves a transaction by which an investor (such as a Fund) purchases
a security and simultaneously obtains the commitment of the seller (a member
bank of the Federal Reserve System or a securities dealer deemed creditworthy by
the Investment Manager pursuant to standards adopted by the Company's Board of
Directors) to repurchase the security at an agreed-upon price on an greed-upon
date within a number of days (usually not more than seven) from the date of
Purchase.
DIVERSIFICATION
The Small Cap Fund and Large Cap Fund are "diversified" within the meaning of
the 1940 Act. In order to qualify as diversified, a Fund must diversify its
holdings so that at all times at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), securities issued or
guaranteed as to principal or interest by the United States or its agencies or
instrumentalities, securities of other investment companies, and other
securities (for this purpose other securities of any one issuer are limited to
an amount not greater than 5% of the value of the total assets of the Fund and
to not more than 10% of the outstanding voting securities of the issuer).
PORTFOLIO TURNOVER
Each Fund may invest in securities on either a long-term or short-term basis. A
Fund may invest with the expectation of short-term capital appreciation if the
Investment Manager believes that such action will benefit the Fund's
stockholders. A Fund also may sell securities that have been held on a
short-term basis if the Investment Manager believes that circumstances make the
sale of such securities advisable. This may result in a taxable stockholder
paying higher income taxes than would be the case with investment companies
emphasizing the realization of long-term capital gains. Because the Investment
Manager will purchase and sell securities for each Fund's portfolio without
regard to the
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length of the holding period for such securities, it is possible that a Fund's
portfolio will have a higher turnover rate than might be expected for investment
companies that invest substantially all of their funds for long-term capital
appreciation or generation of current income. Securities in a Fund's portfolio
will be sold whenever the Investment Manager believes it is appropriate to do
so, regardless of the length of time that securities have been held, and
securities may be purchased or sold for short-term profits whenever the
Investment Manager believes it is appropriate or desirable to do so. Turnover
will be influenced by sound investment practices, a Fund's investment objective,
and the need for funds for the redemption of a Fund's shares.
For example, a 150% portfolio turnover rate would occur if the value of
purchases or sales of portfolio securities whichever is less) by a Fund for a
year (excluding purchases of U.S. Treasury issues and securities with a maturity
of ne year or less) were equal to 150% of the average monthly value of the
securities held by the Fund during such year. As a result of the manner in
which turnover is measured, a high turnover rate could also occur during the
first year of a Fund's operations, and during periods when a Fund's assets are
growing or shrinking. The annual portfolio turnover rate of the Technology
Fund for the year ended December 31, 1996 was 155.58%.
INVESTMENT RESTRICTIONS
In making purchases within the foregoing policies, each Fund and the Investment
Manager will be subject to all of the restrictions referred to under "INVESTMENT
RESTRICTIONS". If a percentage restriction on a Fund's investment or
utilization of assets set forth above or under "INVESTMENT RESTRICTIONS" is
adhered to at the time the investment is made, a later change in percentage
resulting from changing value or a similar type of event will not be considered
a violation of the Fund's investment policies or restrictions. A Fund may
exchange securities, exercise conversions or subscription rights, warrants or
other rights to purchase common stock or other equity securities and may hold,
except to the extent limited by the 1940 Act, any such securities so acquired
without regard to the Fund's investment policies and restrictions.
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INVESTMENT AND RISK CONSIDERATIONS
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INVESTMENTS IN FOREIGN SECURITIES GENERALLY
Investments in foreign equity securities may offer investment opportunities and
potential benefits not available from investments solely in securities of U.S.
issuers. Such benefits may include the opportunity to invest in foreign issuers
that appear, in the opinion of the Investment Manager, to offer better
opportunity for long-term capital appreciation than investments in securities of
U.S. issuers, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not necessarily move in a manner parallel to U.S.
stock markets.
At the same time, however, investing in foreign equity securities involves
significant risks, some of which are not typically associated with investing in
securities of U.S. issuers. For example, the value of investments in such
securities may fluctuate based on changes in the value of one or more foreign
currencies relative to the U.S. dollar, and a change in the exchange rate of one
or more foreign currencies could reduce the value of certain portfolio
securities. Currency exchange rates may fluctuate
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significantly over short periods of time, and are generally determined by the
forces of supply and demand and other factors beyond the Funds' control.
Changes in currency exchange rates may, in some circumstances, have a greater
effect on the market value of a security than changes in the market price of the
security. To the extent that a substantial portion of a Fund's total assets is
denominated or quoted in the currency of a foreign country, the Fund will be
more susceptible to the risk of adverse economic and political developments
within that country. As discussed above, each Fund may employ certain
investment techniques to hedge its foreign currency exposure; however, such
techniques also entail certain risks.
In addition, information about foreign issuers may be less readily available
than information about domestic issuers. Foreign issuers generally are not
subject to accounting, auditing, and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to U.S.
issuers. Furthermore, with respect to certain foreign countries, the
possibility exists of expropriation, nationalization, revaluation of currencies,
confiscatory taxation, and limitations on foreign investment and the use or
removal of funds or other assets of the Funds, including the withholding of
dividends and limitations on the repatriation of currencies. In addition, the
Funds may experience difficulties or delays in obtaining or enforcing judgments.
Foreign securities may be subject to foreign government taxes that could reduce
the yield on such securities.
Foreign equity securities may be traded on an exchange in the issuer's country,
an exchange in another country, or over-the-counter in one or more countries.
Most foreign securities markets, including over-the-counter markets, have
substantially less volume than U.S. securities markets, and the securities of
many foreign issuers may be less liquid and more volatile than securities of
comparable U.S. issuers. In addition, here is generally less government
regulation of securities markets, securities exchanges, securities dealers, and
listed and unlisted companies in foreign countries than in the United States.
Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
and complete such transactions. Inability to dispose of a portfolio security
caused by settlement problems could result either in losses to a Fund due to
subsequent declines in the value of the portfolio security or, if a Fund has
entered into a contract to sell that security, could result in possible
liability of the Fund to the purchaser. Delays in settlement could adversely
affect a Fund's ability to implement its investment strategies and to achieve
its investment objective.
In addition, the costs associated with transactions in securities traded on
foreign markets or of foreign issuers, and the expense of maintaining custody of
such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign securities may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage commissions on
foreign exchanges, the expense of maintaining securities with foreign custodians
and the imposition of transfer taxes or transaction charges associated with
foreign exchanges.
Investment in debt obligations of supranational organizations involves
additional risks. Such organizations' debt obligations generally are not
guaranteed by their member governments, and payment depends on their financial
solvency and/or the willingness and ability of their member governments to
support their obligations. Continued support of a supranational organization by
its
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government members is subject to a variety of political, economic and other
factors, as well as the financial performance of the organization.
DEPOSITORY RECEIPTS
In many respects, the risks associated with investing in depository receipts are
similar to the risks associated with investing in foreign equity securities. In
addition, to the extent that a Fund acquires depository receipts through banks
that do not have a contractual relationship with the foreign issuer of the
security underlying the depository receipts to issue and service depository
receipts, there may be an increased possibility that the Fund would not become
aware of and be able to respond to corporate actions, such as stock splits or
rights offerings, involving the foreign issuer in a timely manner.
The information available for American Depository Receipts ("ADRs") sponsored by
the issuers of the underlying securities is subject to the accounting, auditing,
and financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than those
to which many non-domestic issuers may be subject. However, some ADRs are
sponsored by persons other than the issuers of the underlying securities.
Issuers of the stock on which such ADRs are based are not obligated to disclose
material information in the United States. The information that is available
concerning the issuers of the securities underlying European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs") may be less than the
information that is available about domestic issuers, and EDRs and GDRs may be
traded in markets or on exchanges that have lesser standards than those
applicable to the markets for ADRs.
A depository receipt will be treated as an illiquid security for purposes of a
Fund's restriction on the purchases of such securities unless the depository
receipt is convertible into cash by the Fund within seven days.
EMERGING MARKET SECURITIES
There are special risks associated with investments in securities of companies
organized or headquartered in developing countries with emerging markets that
are in addition to the usual risks of investing in securities of issuers located
in developed foreign markets around the world, and investors in the Funds are
strongly advised to consider those risks carefully. The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid, and more volatile than the securities markets of the United States and
developed foreign markets. As a result, the prices of emerging market
securities may increase or decrease much more rapidly and much more dramatically
than the prices of securities of issuers located in developed foreign markets.
Disclosure and regulatory standards in many respects are less stringent than in
the United States and developed foreign markets. There also may be a lower
level of monitoring and regulation of securities markets in emerging market
countries and the activities of investors in such markets, and enforcement of
existing regulations has been extremely limited.
Many emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging market
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and
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may continue to be adversely affected by economic conditions in the countries in
which they trade. In addition, custodial services and other costs elated to
investment in foreign markets may be more expensive in emerging markets than in
many developed foreign markets, which could reduce the Funds' investment returns
from such securities.
In many cases, governments of emerging market countries continue to exercise a
significant degree of control over the economies of such countries, and
government actions relative to the economy, as well as economic developments
generally, also may have a major effect on an issuer's prospects. In addition,
certain of such governments have in the past failed to recognize private
property rights and have at times naturalized or expropriated the assets of
private companies. There is also a heightened possibility of confiscatory
taxation, imposition of withholding taxes on interest payments, or other similar
developments that could affect investments in those countries. As a result,
there can be no assurance that adverse political changes will not cause a Fund
to suffer a loss with respect to any of its holdings. In addition, political and
economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Unanticipated political or social developments may affect the value of the
Funds' investments in those countries and the availability of additional
investments in those countries.
INVESTMENTS IN SMALLER COMPANIES
Investment by the Technology, Health Care and Small Cap Funds in the securities
of companies with market capitalizations below $1 billion involves greater risk
and the possibility of greater portfolio price volatility than investing in
larger capitalization companies. For example, smaller capitalization companies
may have less certain growth prospects, and may be more sensitive to changing
economic conditions, than large, more established companies. Moreover, smaller
capitalization companies often face competition from larger or more established
companies that have greater resources. In addition, the smaller capitalization
companies in which the Funds may invest may have limited or unprofitable
operating histories, limited financial resources, and inexperienced management.
Furthermore, securities of such companies are often less liquid than securities
of larger companies, and may be subject to erratic or abrupt price movements.
To dispose of these securities, a Fund may have to sell them over an extended
period of time below the original purchase price. Investments by the
Technology, Health Care and Small Cap Funds in smaller capitalization companies
may be regarded as speculative.
No Fund will invest more than 5% of the value of its total assets in securities
issued by companies including predecessors) that have operated for less than
three years. The securities of such companies may have limited liquidity which
can result in their prices being lower than might otherwise be the case. In
addition, investments in such companies are more speculative and entail greater
risk than do investments in companies with established operating records.
CONVERTIBLE SECURITIES
Investment in convertible securities involves certain risks. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying stock).
If the conversion value is low relative to the investment value, the price of
the convertible security will be governed principally by its yield, and thus may
not decline in price to the same extent as the underlying
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stock; to the extent the market price of the underlying common stock approaches
or exceeds the conversion price, the price of the convertible security will be
influenced increasingly by its conversion value. A convertible security held by
a Fund may be subject to redemption at the option of the issuer at a price
established in the instrument governing the convertible security, in which event
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock, or sell it to a third party.
DEBT OBLIGATIONS
Although securities rated BBB by Standard & Poor's or Baa by Moody's are
considered to be of "investment grade," and are considered to have adequate
capacity to pay interest and repay principal, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and principal than higher-rated securities. Credit ratings evaluate
the safety of principal and interest payments of securities, not their market
value. The rating of an issuer is also heavily weighted by past developments
and does not necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the time it is
updated.
OPTIONS
There are several risks associated with transactions in options on securities
and indices. Options may be more volatile than the underlying instruments and,
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying instruments themselves.
There are also significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objective. In addition, a liquid
secondary market for particular options may be absent for reasons which include
the following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
instrument; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or clearing corporation may not at
all times be adequate to handle current trading volume; or one or more exchanges
could, for economic or other reasons, decide, or be compelled at some future
date, to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events. The extent to
which a Fund may enter into options transactions may be limited by the Internal
Revenue Code requirements for qualification as a regulated investment company.
In addition, when trading options on foreign exchanges, many of the protections
afforded to participants in U.S. option exchanges will not be available. For
example, there may be no daily price fluctuation limits in such exchanges or
markets, and adverse market movements could therefore continue to an unlimited
extent over a period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction costs, this entire
amount could be lost.
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Potential losses to the writer of an option are not limited to the loss of the
option premium received by the writer, and thus may be greater than the losses
incurred in connection with the purchasing of an option.
FUTURES TRANSACTIONS
There are several risks in connection with the use of futures in the Funds as a
hedging device. One risk arises because the correlation between movements in
the price of the future and movements in the price of the currencies which are
the subject of the hedge is not always perfect. The price of the future
acquired by a Fund may move more than, or less than, the price of the currencies
being hedged. If the price of the future moves less than the price of the
currencies which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the currencies being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the currencies being hedged has moved in a
favorable direction, this advantage will be partially offset by movement in the
value of the future. If the price of the future moves more than the price of
the currencies, the Fund will experience either a loss or a gain on the future
which will not be completely offset by movements in the price of the currencies
which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
currencies being hedged and movements in the price of the futures, a Fund may
buy or sell futures contracts in a greater dollar amount than the dollar amount
of currencies being hedged, if the historical volatility of the price of such
currencies as been greater than the historical volatility of the currencies.
Conversely, a Fund may buy or sell fewer futures contracts if the historical
volatility of the price of the currencies being hedged is less than the
historical volatility of the currencies.
Because of the low margins required, futures trading involves a high degree of
leverage. As a result, a relatively small investment in a futures contract by a
Fund may result in immediate and substantial loss, as well as gain, to the Fund.
A purchase or sale of a futures contract may result in losses in excess of the
initial margin for the futures contract. However, the Fund would have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying currencies and sold the instrument after the decline.
When futures are purchased by a Fund to hedge against a possible unfavorable
movement in a currency exchange rate before the Fund is able to invest its cash
(or cash equivalents) in stock in an orderly fashion, it is possible that the
currency exchange rate may move in a favorable manner instead. If the Fund then
decides not to invest in stock at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures and the currencies which
are the subject of a hedge, the price of futures contracts nay not correlate
perfectly with movement in the currency due to certain market distortions.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions. This practice could distort the normal relationship between the
currency and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market may be less onerous than margin
requirements in the currency market. Therefore, increased participation by
speculators in the futures market also may cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because
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of the imperfect correlation between movements in the currency and movements in
the price of currency futures, a correct forecast of general currency trends by
the Investment Manager still may not result in a successful hedging transaction
over a very short time frame.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. Once the daily limit has
been reached, no more trades may be made on that day at a price beyond the
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions.
Compared to the use of futures contracts, the purchase of options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in loss to a Fund when the use of a futures contract would not, such as
when there is no movement in the level of an index. In addition, daily changes
in the value of the option due to changes in the value of the underlying futures
contract are reflected in the net asset value of the Fund.
A Fund will only enter into futures contracts or purchase futures options that
are standardized and traded in a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. However, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular futures contract or futures option or at any
particular time. In such event, it may not be possible to close a futures
position, and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In the event
futures contracts have been used to hedge currencies, an increase in the price
of the currencies, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the currency will, in fact, correlate with the movements in the futures
contract and thus provide an offset to losses on a futures contract.
Successful use of futures by the Funds for hedging purposes or to enhance
returns is subject to the Investment if Manager's ability to predict correctly
movements in the direction of the currency markets. For example, if a Fund
purchased currency futures contracts with the intention of profiting from a
favorable change in currency exchange rates, and the change was unfavorable, the
Fund would incur a loss, and might have to sell securities to meet daily
variation margin requirements at a time when it might be disadvantageous to do
so. The Investment Manager and its predecessor have been actively engaged in
the provision of investment supervisory services for institutional and
individual accounts since 1970, but the skills required for the successful use
of futures and options on futures are different from those needed to select
portfolio securities, and the Investment Manager has limited prior experience in
the use of futures or options techniques in the management of assets under its
supervision.
OTHER RISK CONSIDERATIONS
Investment in illiquid securities involves potential delays on resale as well as
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a Fund might not be able to
dispose of such securities promptly or at reasonable prices.
A number of transactions in which the Funds may engage are subject to the risks
of default by the other party of the transaction. If the seller of securities
pursuant to a repurchase agreement entered into by a
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Fund defaults and the value of the collateral securing the repurchase agreement
declines, the Fund may incur a loss. If bankruptcy proceedings re commenced
with respect to the seller, realization on the collateral by the Fund may be
delayed or limited. Similarly, when a Fund engages in when-issued, reverse
repurchase, forward commitment and relayed settlement transactions, it relies on
the other party to consummate the trade; failure of the other party to do so may
result in the Fund incurring a loss or missing an opportunity to obtain a price
the Investment Manager believed to be advantageous. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of a
possible delay in receiving additional collateral or in recovery of the
securities or possible loss of rights in the collateral should the borrower fail
financially.
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__________________________________
INVESTMENT RESTRICTIONS
__________________________________
FUNDAMENTAL POLICIES
Each Fund has adopted certain investment restrictions that are fundamental
policies and that may not be changed without approval by the vote of a majority
of the Fund's outstanding voting securities, as defined in the 1940 Act. The
"vote of a majority of the outstanding voting securities" of a Fund, as defined
in Section 2(a)(42) of the 1940 Act, means the vote of (i) 67% or more of the
voting securities of the Fund present at any meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund, whichever is less. These restrictions provide that a Fund may not:
1. Invest more than 25% the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States of America, its agencies and instrumentalities) (this restriction
does not apply to the Health Care Fund);
2. Acquire more than 10% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
3. Invest in companies for the purpose of exercising control or management;
4. Borrow money, except from banks to meet redemption requests or for
temporary or emergency purposes; provided that borrowings for temporary or
emergency purposes other than to meet redemption requests shall not exceed
5% of the value of its total assets; and provided further that total
borrowings shall be made only to the extent that the value of the Fund's
total assets, less its liabilities other than borrowings, is equal to at
least 300% of all borrowings (including the proposed borrowing). For
purposes of the foregoing limitations, reverse repurchase agreements and
other borrowing transactions covered by segregated accounts are considered
to be borrowings. A Fund will not mortgage, pledge, hypothecate, or in any
other manner transfer as security for an indebtedness any of its assets.
This investment restriction shall not prohibit a Fund from engaging in
futures contracts, futures options, forward foreign currency exchange
transactions, and currency options;
5. Purchase securities on margin, but it may obtain such short-term credit
from banks as may be necessary for the clearance of purchases and sales of
securities;
6. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, (ii) the purchase of bank obligations
such as certificates of deposit, bankers' acceptances and other short-term
debt obligations, (iii) entering into repurchase agreements with respect to
commercial paper, certificates of deposit and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iv) the loan of portfolio securities to brokers, dealers and other
financial institutions where such loan is callable by the Fund at any time
on reasonable notice and is fully secured by collateral in the form of cash
or cash equivalents. A Fund will not enter into repurchase agreements with
maturities in excess of
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seven days if immediately after and as a result of such transaction the
value of the Fund's holdings of such repurchase agreements exceeds 10% of
the value of the Fund's total assets:
7. Act as an underwriter of securities issued by other persons, except insofar
as it may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities, or invest more than 15% of the value of its
net assets in securities that are illiquid;
8. Purchase the securities of any other investment company or investment
trust, except by purchase in the open market where, to the best information
of the Company, no commission or profit to a sponsor or dealer (other than
the customary broker's commission) results from such purchase and such
purchase does not result in such securities exceeding 10% of the value of
the Fund's total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;
9. Purchase portfolio securities from or sell portfolio securities to the
officers, directors, or other "interested persons" (as defined in the 1940
Act) of the Company, other than otherwise unaffiliated broker-dealers;
10. Purchase commodities or commodity contracts, except that the Fund may
purchase securities of an issuer which invests or deals in commodities or
commodity contracts, and except that the Fund may enter into futures and
options contracts in accordance with the applicable rules of the CFTC. The
Funds have no current intention of entering into commodities contracts
except for currency futures and futures options;
11. Issue senior securities, except that the Fund may borrow money as permitted
by restriction 4 above. This restriction shall not prohibit a Fund from
engaging in short sales, options, futures and foreign currency
transactions; and
12. Purchase or sell real estate; provided that the Fund may invest in readily
marketable securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.
OPERATING POLICIES
Each Fund has adopted certain investment restrictions that are not fundamental
policies and may be changed by the Company's Board of Directors without approval
of the Fund's outstanding voting securities. These restrictions provide that a
Fund may not:
1. Invest in interests in oil, gas, or other mineral exploration or
development programs;
2. Invest more than 5% of the value of its total assets in the securities of
any issuer which has a record of less than three years of continuous
operation (including the operation of any predecessor);
3. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs, or to average prices among
them, is not deemed to result in a securities trading account); and
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4. Purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premiums paid for related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the value of the Fund's net assets.
The Funds are also is subject to other restrictions under the 1940 Act; however,
the registration of the Company under the 1940 Act does not involve any
supervision by any federal or other agency of the Company's management or
investment practices or policies, other than incident to occasional or periodic
compliance examinations conducted by the SEC staff.
__________________________________
EXECUTION OF PORTFOLIO TRANSACTIONS
__________________________________
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Funds' investment decisions and selects the broker
or dealer to be used in each specific transaction using its best judgment to
choose the broker or dealer most capable of providing the services necessary to
obtain the best execution of that transaction. In seeking the best execution of
a transaction, the Investment Manager evaluates a wide range of criteria
including any or all of the following: the broker's commission rate,
promptness, reliability and quality of executions, trading expertise,
positioning and distribution capabilities, back-office efficiency, ability to
handle difficult trades, knowledge of other buyers and sellers, confidentiality,
capital strength and financial stability, and prior performance in serving the
Investment Manager and its clients and other factors affecting the overall
benefit to be received in the transaction. When circumstances relating to a
proposed transaction indicate that a particular broker is in a position to
obtain the best execution, the order is placed with that broker. This may or
may not be a broker that has provided investment information and research
services to the Investment Manager. Such investment information may include,
among other things, a wide variety of written reports or other data on the
individual companies and industries; data and reports on general market or
economic conditions; information concerning pertinent federal and state
legislative and regulatory developments and other developments that could affect
the value of actual or potential investments; companies in which the Investment
Manager has invested or may consider investing; attendance at meetings with
corporate management personnel, industry experts, economists, government
personnel, and other financial analysts; comparative issuer performance and
evaluation and technical measurement services; subscription to publications that
provide investment-related information; accounting and tax law interpretations;
availability of economic advice; quotation equipment and services; execution
measurement services; market-related and survey data concerning the products and
services of an issuer and its competitors or concerning a particular industry
that are used in reports prepared by the Investment Manager to enhance its
ability to analyze an issuer's financial condition and prospects; and other
services provided by recognized experts on investment matters of particular
interest to the Investment Manager. In addition, the foregoing services may
include the use of or be delivered by computer systems whose hardware and/or
software components may be provided to the Investment Manager as part of the
services. In any case in which information and other services can be used for
both research and non-research purposes, the Investment Manager makes an
appropriate allocation of those uses and pays directly for that portion of the
services to be used for non-research purposes.
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Subject to the requirement of seeking the best execution, the Investment Manager
may, in circumstances in which two or more brokers are in a position to offer
comparable execution, give preference to a broker or dealer that has provided
investment information to the Investment Manager. In so doing, the Investment
Manager may effect securities transactions which cause a Fund to pay an amount
of commission in excess of the amount of commission another broker would have
charged. In electing such broker or dealer, the Investment Manager will make a
good faith determination that the amount of commission is reasonable in relation
to the value of the brokerage services and research and investment information
received, viewed in terms of either the specific transaction or the Investment
Manager's overall responsibility to the accounts for which the Investment
Manager exercises investment discretion. The Investment Manager continually
evaluates all commissions paid in order to ensure that the commissions represent
reasonable compensation for the brokerage and research services provided by such
brokers. Such investment information as is received from brokers or dealers may
be used by the Investment Manager in servicing all of its clients (including the
Funds) and it is recognized that a Fund may be charged commission paid to a
broker or dealer who supplied research services not utilized by the Fund.
However, the Investment Manager expects that each Fund will benefit overall by
such practice because it is receiving the benefit of research services and the
execution of such transactions not otherwise available to it without the
allocation of transactions based on the recognition of such research services.
Subject to the requirement of seeking the best execution, the Investment Manager
may also place orders with brokerage firms that have sold shares of the Funds.
The Investment Manager has made and will make no commitments to place orders
with any particular broker or group of brokers. It is anticipated that a
substantial portion of all brokerage commissions will be paid to brokers who
supply investment information to the Investment Manager.
The Funds may in some instances invest in foreign and/or U.S. securities that
are not listed on a national securities exchange but are traded in the over-the-
counter market. The Funds may also purchase listed securities through the third
market or fourth market. When transactions are executed in the over-the-counter
market or the third or fourth market, the Investment Manager will seek to deal
with the counterparty that the Investment Manager believes can provide the best
execution, whether or not that counterparty is the primary market maker for that
security.
As noted below, the Investment Manager is a wholly owned subsidiary of Dresdner.
Dresdner Kleinwort Benson North America LLC ("Dresdner Kleinwort Benson") and
other Dresdner subsidiaries may be broker-dealers (collectively, the "Dresdner
Affiliates"). The Investment Manager believes that it is in the best interests
of the Funds to have the ability to execute brokerage transactions, when
appropriate, through the Dresdner Affiliates. Accordingly, the Investment
Manager intends to execute brokerage transactions on behalf of the Funds through
the Dresdner Affiliates, when appropriate and to the extent consistent with
applicable laws and regulations, including federal banking laws.
In all such cases, the Dresdner Affiliates will act as agent for the Funds, and
the Investment Manager will not enter into any transaction on behalf of the Fund
in which a Dresdner Affiliate is acting as principal for its own account. In
connection with such agency transactions, the Dresdner Affiliates will receive
compensation in the form of a brokerage commission separate from the Investment
Manager's management fee. It is the Investment Manager's policy that such
commissions be reasonable and fair when compared to the commissions received by
other brokers in connection with comparable transactions involving similar
securities and that the commissions paid to a Dresdner Affiliate be no
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higher than the commissions paid to that broker by any other similar customer of
that broker who receives brokerage and research services that are similar in
scope and quality to those received by the Funds.
The Investment Manager performs investment management and advisory services for
various clients, including other registered investment companies, and pension,
profit-sharing and other employee benefit trusts, as well as individuals. In
many cases, portfolio transactions for a Fund may be executed in an aggregated
transaction as part of concurrent authorizations to purchase or sell the same
security for numerous accounts served by the Investment Manager, some of which
accounts may have investment objectives similar to those of the Fund. The
objective of aggregated transactions is to obtain favorable execution and/or
lower brokerage commissions, although there is no certainty that such objective
will be achieved. Although executing portfolio transactions in an aggregated
transaction potentially could be either advantageous or disadvantageous to any
one or more particular accounts, aggregated transactions in which a Fund
participates will be effected only when the Investment Manager believes that to
do so will be in the best interest of the Fund, and the Investment Manager is
not obligated to aggregate orders into larger transactions. These orders
generally will be averaged as to price. When such aggregated transactions
occur, the objective will be to allocate the executions in a manner which is
deemed fair and equitable to each of the accounts involved over time. In making
such allocation decisions, the Investment Manager will use its business judgment
and will consider, among other things, any or all of the following: each
client's investment objectives, guidelines, and restrictions, the size of each
client's order, the amount of investment funds available in each client's
account, the amount already committed by each client to that or similar
investments, and the structure of each client's portfolio. Although the
Investment Manager will use its best efforts to be fair and equitable to all
clients, including the Funds, there can be no assurance that any investment will
be proportionately allocated among clients according to any particular or
predetermined standard or criteria.
The aggregate amount of brokerage commissions paid by the Technology Fund
during the year ended December 31, 1996 was $11,875, of which 83% was paid
to brokers which provided research information to the Fund.
__________________________________
DIRECTORS AND OFFICERS
__________________________________
The names and addresses of the directors and officers of the Company and their
principal occupations and certain other affiliations during the past five years
are given below. Unless otherwise specified, the address of each of the
following persons is Four Embarcadero Center, Suite 3000, San Francisco,
California 94111.
DEWITT F. BOWMAN, Chairman and Director. Mr. Bowman is a Principal of Pension
Investment Consulting, with which he has been associated since February 1994.
From February 1989 to January 1994 he was Chief Investment Officer for
California Public Employees Retirement System, a public pension fund. He serves
as a director of RREEF America REIT, Inc., and a trustee of Brandes Investment
Trust and Pacific Gas and Electric Nuclear Decommissioning Trust. He also
serves as a director of RCM Capital Funds, Inc. ("Capital Funds").
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant.
From 1991 to 1994, she was President of Banyan Homes, Inc., a real estate
development and construction firm; for eight years she was a management
consultant for McKinsey & Company, where she served a variety of
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Fortune 500 companies in all aspects of strategic management and organizational
structure. She also serves as a director of Capital Funds.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that he
served as the 49th Speaker of the House of Representatives and was the
representative of the 15th Congressional District of the State of Washington
from 1965 to 1994. Mr. Foley serves on the Board of Directors of the H.J. Heinz
Company, on the Global Advisory Board of Coopers & Lybrand L.L.P. and on the
Board of Overseers of Whitman College. He also serves as a director of Capital
Funds.
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of
Wood Island Associates, a registered investment adviser, with which he has
been associated since August 1991. From November 1987 to August 1991, he was a
Senior Vice President and Portfolio Manager of Siebel Capital Management, Inc.,
a registered investment adviser. He also serves as a director of Capital Funds.
GEORGE G.C. PARKER, Director. Mr. Parker is Associate Dean for Academic
Affairs, and Director of the MBA Program and Dean Witter Professor of Finance at
the Graduate School of Business at Stanford University, with which he has been
associated since 1973. Mr. Parker has served on the Board of Directors of the
California Casualty Group of Insurance Companies since 1977; BB&K Holdings,
Inc., a holding company for financial services companies, since 1980; H. Warshow
& Sons, Inc., a manufacturer of specialty textiles, since 1982; Zurich
Reinsurance Centre, Inc., a large reinsurance underwriter, since 1994; and
Continental Airlines, since 1996. Mr. Parker served on the Board of Directors
of the University National Bank & Trust Company from 1986 to 1995. He also
serves as a director of Capital Funds.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr.
Ingram is Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc., ("FDI"), the ultimate parent of
which is Boston Institutional Group, Inc. From March 1994 to November 1995,
Mr. Ingram was Vice President and Division Manager of First Data Investor
Services Group. From 1989 to 1994, Mr. Ingram was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company. He is also
President, Treasurer and Chief Financial Officer of Capital Funds; President,
Chief Financial Officer and Assistant Treasurer of RCM Strategic Global
Government Fund, Inc. ("RCS"); and an officer of certain investment companies
advised or administered by The Dreyfus Corporation ("Dreyfus"), Waterhouse
Asset Management ("Waterhouse"), Harris Trust and Savings Bank ("Harris") and
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"). His address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior
Vice President and General Counsel of FDI. From February 1992 to April 1994,
he served as Counsel for The Boston Company Advisors, Inc. From August 1990
to February 1992, Mr. Pelletier was employed as an Associate at Ropes & Gray.
He is also a Vice President and Secretary of Capital Funds; a Vice President
and Assistant Secretary of RCS; and an officer of certain investment
companies advised or administered by Dreyfus, Waterhouse, Harris and Morgan
Guaranty. His address is 60 State Street, Suite 1300, Boston, Massachusetts
02109.
ELIZABETH A. KEELEY, Vice President and Assistant Secretary. Ms. Keeley is
Assistant Vice President and Senior Counsel of FDI, with which she has been
associated since September 1994. Since September 1995 to present, she has
also served as Counsel to Premier Mutual Fund Services, Inc.
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Prior to September 1995, she was enrolled at Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, Ms. Keeley was
an Assistant at the National Association for Public Interest Law. She is
also Vice President and Assistant Secretary of Capital Funds and RCS, and an
officer of certain investment companies advised or administrated by Dreyfus,
Waterhouse, Harris and Morgan Guaranty. Her address is 600 Park Avenue,
Sixth Floor, New York, New York 10166.
GARY S. MACDONALD, Vice President and Assistant Treasurer. Mr. MacDonald is
Vice President of FDI, with which he has been associated since Novemer 1996.
From September 1992 to November 1996, he was Vice President of BayBanks
Investment Management/Bay Banks Financial Services; and from April 1989 to
September 1992 he was an analyst at Wellington Management Company. He is also
Vice President and Assistant Treasurer of Capital Funds.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is an Assistant
Vice President and Paralegal Manager for FDI, with which she has been associated
since January 1996. From June 1994 to January 1996, she was a Manager of SEC
Registration for Scudder, Stevens & Clark, Inc. From 1988 to May 1994, she
was Senior Paralegal at The Boston Company Advisors, Inc. She is also an
Assistant Secretary of Capital Funds, and an officer of certain investment
companies advised or administrated by Waterhouse, Harris and Morgan Guaranty.
Her address is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is Vice President and
Manager of Treasury, Services and Administration for FDI, with which she has
been associated since 1994. From 1989 to 1994, she was an Assistant Vice
President and Client Manager for The Boston Company. She is also Assistant
Treasurer of Capital Funds and an officer of certain investment companies
advised or administered by Waterhouse, Harris and Morgan Guaranty. Her
address is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
It is presently anticipated that regular meetings of the Company's Board of
Directors will be held on a quarterly basis. The Company's Audit Committee,
whose present members are DeWitt F. Bowman and Frank P. Greene, meets with
the Company's independent accountants to change views and information and to
assist the full Board in fulfilling its responsibilities relating to
corporate accounting and reporting practices. Each director of the Company
receives an annual retainer fee of $1,000 per year plus $500 for each Board
meeting attended, $250 for each Audit Committee meeting attended and is
reimbursed for travel and other expenses incurred in connection with
attending Board meetings.
The following table sets forth the aggregate compensation paid by the Company
for the fiscal year ending December 31, 1996, to the Directors and the aggregate
compensation paid to the Directors for service on the Company's Board and that
of all other funds in the "Company complex" as defined in Schedule 14A under the
Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimate Annual from Company and
Compensation as Part of Benefits Upon Company Complex
Name from Company Company Expenses Retirement Paid to Director (1)
---------------------- ------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
DeWitt F. Bowman $15,000 None N/A $33,000
Pamela A. Farr (2) $ 9,000 None N/A $27,000
Thomas S. Foley (2) $ 8,000 None N/A $23,000
Frank P. Greene $14,000 None N/A $32,000
George G.C. Parker (2) $ 9,000 None N/A $27,000
</TABLE>
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- ------------------------
(1) There are seven funds in the Company complex, including the Funds.
(2) Has served as a Director since June 14, 1996.
As of December 31, 1996, no Director or officer of the Company was a beneficial
owner of any shares of the outstanding Common Stock of any series of the
Company.
__________________________________
THE INVESTMENT MANAGER
__________________________________
The Company's Board of Directors has overall responsibility for the operation of
the Funds. Pursuant to such responsibility, the Board has approved various
contracts for various financial organizations to provide, among other things,
day to day management services required by the Funds. The Company, on behalf of
each Fund, has retained as the Funds' Investment Manager RCM Capital Management,
L.L.C., a Delaware limited liability company with principal offices at Four
Embarcadero Center, Suite 3000, San Francisco, California 94111. The Investment
Manager is actively engaged in providing investment supervisory services to
institutional nd individual clients, and is registered under the Investment
Advisers Act of 1940. The Investment Manager was established in April 1996, as
the successor to the business and operations of RCM Capital Management, a
California Limited Partnership, which, with its predecessors, has been in
operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner, an
international banking organization with principal executive offices located at
Gallunsanlage 7, 60041 Frankfurt, Germany. With total consolidated assets as of
December 31, 1995, of DM 484 billion ($337 billion), and approximately 1,600
offices and 45,000 employees in over 60 countries around the world, Dresdner is
Germany's second largest bank. Dresdner provides a full range of banking
services, including traditional lending activities, mortgages, securities,
project finance and leasing, to private customers and financial and
institutional clients. In the United States, Dresdner maintains branches in New
York and Chicago and an agency in Los Angeles. As of the date of this
Prospectus, the nine members of the Board of Managers of the Investment Manager
are William L. Price (Chairman), Gerhard Ebersdadt, Michael J. Apatoff, Hans-
Dieter Bauernfeind, George N. Fugelsang, John D. Leland, Jr., Jeffrey S.
Rudsten, William S. Stack, and Kenneth B. Weeman, Jr.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring, organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities. However, banks and their affiliates generally can
act as adviser to an investment company and can purchase shares of an investment
company as agent for and upon the order of customers. The Investment Manager
believes that it may perform the services contemplated by the investment
management agreement without violating these banking laws or regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations of
current requirements, could prevent the Investment Manager from continuing to
perform investment management services for the Company.
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Pursuant to an agreement among RCM Limited L.P. ("RCM Limited"), the
Investment Manager, and Dresdner, RCM Limited manages, operates and makes all
decisions regarding the day-to-day business and affairs of the Investment
Manager, subject to the oversight of the Board of Managers. RCM Limited is a
California limited partnership consisting of 39 limited partners and one
general partner, RCM General Corporation, a California corporation ("RCM
General"). Twenty-six of the limited partners of RCM Limited are also
principals of the Investment Manager, and the shareholders of RCM General.
As of the date of this Prospectus, the following persons are limited partners
of RCM Limited and shareholders of RCM General: William L. Price, Michael J.
Apatoff, Eamonn F. Dolan, John D. Leland, Jr., Jeffrey S. Rudsten, William S.
Stack, Kenneth B. Weeman, Jr., Anthony Ain, Donna L. Avedisian, John L.
Bernard, Huachen Chen, Jacqueline M. Cormier, Ellen M. Courtien, G. Nicholas
Farwell, Joanne L. Howard, Stephen Kim, John A. Kriewall, Allan C. Martin,
Andrew H. Massie, Jr., Melody L. McDonald, Lee N. Price, Walter C. Price,
Jr., Gary W. Schreyer, Gary B. Sokol, Andrew C. Whitelaw, and Jeffrey J.
Wiggins.
The Investment Manager provides the Funds with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement dated June 14, 1996 with respect to the Technology Fund and Investment
Management Agreement, Power of Attorney and Service Agreements dated December
27, 1996 with respect to each of the other Funds (each a "Management
Agreement"). The Investment Manager manages each Fund's investments, provides
various administrative services, and supervises the Funds' daily business
affairs, subject to the authority of the Board of Directors. The Investment
Manager is also the investment manager for each series of RCM Capital Funds,
Inc., an open-end management investment company consisting of three series, and
RCM Strategic Global Government Fund, Inc. and The Emerging Germany Fund Inc.,
closed-end management investment companies. The Investment Manager also acts as
sub-adviser to Bergstrom Capital Corporation, a closed-end management investment
company.
The Management Agreement with respect to the Technology Fund was approved by the
stockholders of the Fund on May 28, 1996, and by the unanimous vote of the
Company's Board of Directors on May 20, 1996, and will continue in effect until
June 14, 1998. The Management Agreement with respect to each of the other Funds
was approved by the initial stockholders of the Funds on December 30, 1996 and
by the unanimous vote of the Company's Board of Directors on December 27, 1996,
and will continue in effect until December 27, 1998. Each Management Agreement
may be renewed from year-to-year after its initial term, provided that any such
renewals have been specifically approved at least annually by (i) a majority of
the Company's Board of Directors, including a majority of the Directors who are
not parties to the Management Agreement or interested persons of any such
person, cast in person at a meeting called for the purpose of voting on such
approval, or (ii) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund and the vote of a majority of the
Directors who are not parties to the contract or interested persons of any such
party.
Each Fund has, under the Management Agreement, assumed the obligation for
payment of all of its ordinary operating expenses, including: (a) brokerage and
commission expenses, (b) federal, state, or local taxes incurred by, or levied
on, the Fund, (c) interest charges on borrowings, (d) charges and expenses of
the Fund's custodian, (e) investment advisory fees (including fees payable to
the Investment Manager under the Management Agreement), (f) fees pursuant to the
Fund's Rule 12b-1 plan, (g) legal and audit fees, (h) SEC and "Blue Sky"
registration expenses, and (i) compensation, if any, paid to officers and
employees of the Company who are not employees of the Investment Manager (see
DIRECTORS AND OFFICERS). The Investment Manager is responsible for all of its
own expenses in
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providing services to the Fund. Expenses attributable to the Fund are charged
against the assets of the Fund.
The Investment Manager has voluntarily agreed to limit each Fund's expenses as
described in its Prospectus. In subsequent years, each Fund has agreed to
reimburse the Investment Manager for any such payments to the extent that the
Fund's operating expenses are otherwise below this expense cap. This obligation
will not be recorded on the books of a Fund to the extent that the total
operating expenses of the Fund are at or above the expense cap. However, if the
total operating expenses of the Fund fall below the expense cap, the
reimbursement to the Investment Manager will be accrued by the Fund as a
liability.
For the year ended December 31, 1996 and the period from inception of
operations through December 31, 1995, the Technology Fund incurred investment
management fees of $30,827 and $113, respectively. However, as a result of
the expense limitation, the Investment Manager waived all such fees.
Each Management Agreement provides that the Investment Manager will not be
liable for any error of judgment or for any loss suffered by a Fund in
connection with the matters to which the Management Agreement relates, except
for liability resulting from willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of the Investment Manager's
reckless disregard of its duties and obligations under the Management Agreement.
The Company has agreed to indemnify the Investment Manager against liabilities,
costs and expenses that the Investment Manager may incur in connection with any
action, suit, investigation or other proceeding arising out of or otherwise
based on any action actually or allegedly taken or omitted to be taken by the
Investment Manager in connection with the performance of its duties or
obligations under each Management Agreement or otherwise as investment manager
of a Fund. The Investment Manager is not entitled to indemnification with
respect to any liability to a Fund or its stockholders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
of its reckless disregard of its duties and obligations under a Management
Agreement.
Each Management Agreement is terminable without penalty on 60 days' written
notice by a vote of the majority of the outstanding voting securities of the
Fund which is the subject of the Management Agreement, by a vote of the majority
of the Company's Board of Directors, or by the Investment Manager on 60 days'
written notice and will automatically terminate in the event of its assignment
(as defined in the 1940 Act).
__________________________________
THE DISTRIBUTOR
__________________________________
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109, serves as distributor to the Funds. The Distributor has provided mutual
fund distribution services since 1976, and is a subsidiary of Boston
Institutional Group, Inc., which provides distribution and other related
services with respect to investment products.
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DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement with the Company, the Distributor has
agreed to use its best efforts to effect sales of shares of the Funds, but is
not obligated to sell any specified number of shares. During the fiscal year
ended December 31, 1996, the Distributor received no commissions pursuant to
the Distribution Agreement. The Distribution Agreement contains provisions
with respect to renewal and termination similar to those in the Funds'
Management Agreements discussed above. Pursuant to the Distribution
Agreement, the Company has agreed to indemnify the Distributor to the extent
permitted by applicable law against certain liabilities under the Securities
Act of 1933.
Pursuant to an Agreement among the Manager, the Company, Capital Funds and the
Distributor, the Distributor has also agreed to provide regulatory, compliance
and related technical services to the Funds; to provide services with regard to
advertising, marketing and promotional activities; and to provide officers to
the Company. The Manager is required to reimburse the Company for any fees and
expenses of the Distributor pursuant to the Agreement.
DISTRIBUTION PLAN
Under a plan of distribution for the Company with respect to the Health Care,
Small Cap and Large Cap Funds (the "Distribution Plan") adopted pursuant to Rule
12b-1 under the 1940 Act, the Distributor incurs the expense of distributing
shares of such Funds. The Distribution Plan provides for reimbursement to the
Distributor for the services it provides, and the costs and expenses it incurs,
related to marketing shares of such Funds. The Distributor is reimbursed for:
(a) expenses incurred in connection with advertising and marketing shares of the
Funds, including but not limited to any advertising by radio, television,
newspapers, magazines, brochures, sales literature, telemarketing or direct mail
solicitations; (b) periodic payments of fees or commissions for distribution
assistance made to one or more securities brokers, dealers or other industry
professionals such as investment advisers, accountants, estate planning firms
and the Distributor itself in respect of the average daily value of shares owned
by clients of such service organizations, and (c) expenses incurred in
preparing, printing and distributing the Portfolios' prospectuses and statements
of additional information.
The Distribution Plan continues in effect from year to year with respect to each
such Fund, provided that each such continuance is approved at least annually by
a vote of the Board of Directors of the Company, including a majority vote of
the Directors who are not "interested persons" of the Company within the meaning
of the 1940 Act and have no direct or indirect financial interest in the Plan or
in any agreement related to the Plan, cast in person at a meeting called for the
purpose of voting on such continuance. The Distribution Plan may be terminated
with respect to any Fund at any time, without penalty, by the vote of a majority
of the outstanding shares of the Fund. The Distribution Plan may not be amended
to increase materially the amounts to be paid by a Fund for the services
described therein without approval by the shareholders of the Fund, and all
material amendments are required to be approved by the Board of Directors in the
manner described above. The Distribution Plan will automatically terminate in
the event of its assignment.
The Distributor pays broker-dealers and others out of its distribution fees
quarterly trail commissions of up to the following respective percentages of the
average daily net assets attributable to shares of the Funds held in the
accounts of their customers: Large Cap Fund - 0.35%; Health Care Fund - 0.30%;
Small Cap Fund - 0.30%. During the fiscal year ended December 31, 1996 no
fees were paid to the Distributor pursuant to the Distribution Plan.
Pursuant to the Distribution Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
shares of the Funds by the Distributor. The report
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will include an itemization of the distribution and service expenses and the
purposes of such expenditures. In addition, as long as the Plan remains in
effect, the selection and nomination of Directors who are not "interested
persons" of the Company within the meaning of the 1940 Act will be committed to
the Directors who are not interested persons of the Company.
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__________________________________
NET ASSET VALUE
__________________________________
For purposes of the computation of the net asset value of each share of each
Fund, 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. In cases where securities are traded on more than one exchange,
the securities are valued on the exchange determined by the Investment Manager
to be the primary market for the securities. If there has been no sale on such
day, 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 a duly constituted committee of the Company's Board of Directors shall
determine in good faith to reflect its fair market value. Readily marketable
securities traded only in the over-the-counter market that are not listed on
NASDAQ or similar foreign reporting service will be valued at the mean bid
price, or such other comparable sources as the Company's Board of Directors
deems appropriate to reflect their fair market value. Other portfolio
securities held by the Funds 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 a duly constituted committee of the Company's Board of Directors
deems appropriate to reflect their fair market value.
Futures contracts and related options are valued at their last sale or
settlement price as of the close of the exchange on which they are traded or, if
no sales are reported, at the mean between the last reported bid and asked
prices. All other assets of the Funds will be valued in such manner as a duly
constituted committee of the Company's Board of Directors in good faith deems
appropriate to reflect their fair market value.
Trading in securities on foreign exchanges and over-the-counter markets is
normally completed at times other than the close of the business day in New
York. In addition, foreign securities and commodities trading nay not take
place on all business days in New York, and may occur in various foreign markets
on days which are not business days in New York and on which net asset value is
not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Directors determines that a particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of net asset value into U.S. dollars
at the spot exchange rates at 12:00 p.m. Eastern time or at such other rates as
the Investment Manager may determine to be appropriate in computing net asset
value.
Debt obligations with maturities of 60 days or less are valued at amortized
cost. The Funds may use a pricing service approved by the Company's Board of
Directors to value other debt obligations. Prices provided by such a service
represent evaluations of the mean between current bid and asked market prices,
may be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, individual
racing characteristics, indications of value from dealers, and other
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market data. Such services may use electronic data processing techniques and/or
a matrix system to determine valuations. The procedures of such services are
reviewed periodically by the officers of the Investment Manager under the
general supervision of the Company's Board of Directors. Short-term investments
are amortized to maturity based on their cost, adjusted for foreign exchange
translation, provided such valuations equal fair market value.
__________________________________
PURCHASE AND REDEMPTION OF SHARES
__________________________________
The price paid for purchase and redemption of shares of the Funds is based on
the net asset value per share, which is calculated once daily at the close of
trading (currently 4:00 P.M. New York time) each day the New York Stock Exchange
is open. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Washington's Birthday, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The offering
price is effective for orders received by National Financial Data Services
("NFDS") prior to the time of determination of net asset value. Dealers are
responsible for promptly transmitting purchase orders to NFDS. The Company
reserves the right in its sole discretion to suspend the continued offering of
the Fund's shares and to reject purchase orders in whole or in part when such
rejection is in the best interests of the Company and the affected Funds.
REDUCED SALES CHARGES
Sales charges on purchases of shares are subject to reduction in certain
circumstances, as indicated in the Prospectuses.
RIGHTS OF ACCUMULATION. Each Fund makes available to its shareholders the
ability to aggregate the value (at the current maximum offering price on the
date of the purchase) of their existing holdings of shares of all of the Funds
to determine the reduced sales charge, provided the shares are held in a single
account. The value of existing holdings for purposes of determining the reduced
sales charge is calculated using the maximum offering price (net asset value
plus sales charge) as of the previous business day. NFDS must be notified at
the time of purchase that the shareholder is entitled to a reduced sales charge.
The reduced sales charges will be granted subject to confirmation of the
investor's holdings.
CONCURRENT PURCHASES. Purchasers may combine concurrent purchases of shares of
two or more Funds to qualify for a reduced sales charge. If the shares of the
Funds purchased concurrently are subject to different sales charges, the
concurrent purchases are aggregated to determine the reduced sales charge
applicable to shares of each Fund purchased, and each separate reduced sales
charge is imposed on the amount of shares purchased for that Fund.
To illustrate, if an investor concurrently purchases $500,000 of the Technology
Fund and $500,000 of the Health Care Fund, for an aggregate concurrent purchase
of $1,000,000. Because the sales charges are reduced for purchases of
$1,000,000 or more and because concurrent purchases can be combined, the
applicable sales charge imposed on the $500,000 purchase of shares of each Fund
would be reduced to 0.00% (from 1.75%).
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<PAGE>
LETTER OF INTENT. Reduced sales charges are available to purchasers of shares
of the Funds who enter into a written Letter of Intent providing for the
purchase, within a 13-month period, of shares of the Funds, provided the shares
are held in a single account. All shares of the Funds which were previously
purchased and are still owned are also included in determining the applicable
reduction. The Letter of Intent privilege may be withdrawn by the Company for
future purchases upon receipt of information that any shares subject to the
Letter of Intent have been transferred or redeemed during the 13-month Period.
A Letter of Intent permits a purchaser to establish a total investment goal to
be achieved by an number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal, as if it were a single investment. Investors
should refer to their Letter of Intent when placing orders for shares of a Fund.
During the 13-month period, an investor may increase his or her Letter of Intent
goal and all subsequent purchases will be treated as a new Letter of Intent
except as to the 13-month period, which does not change. The sales charge paid
on purchases made before the increase to the Letter of Intent goal will be
retroactively reduced at the end of the period.
Shares of the Funds totaling 5% of the dollar amount of the Letter of Intent
will be held in escrow by the Transfer Agent in the name of the purchaser. Any
dividends and capital gains distributions on the escrowed shares will be paid to
the investor or as otherwise directed by the investor. The effective date of a
Letter of Intent may be back-dated up to 90 days, in order than any investments
made during this 90-day period, valued at the purchaser's cost, can be applied
to the fulfillment of the Letter of Intent goal. Upon completion of the Letter
of Intent goal within the 13-month period, the escrowed shares will be promptly
delivered to the investor or as otherwise directed by the investor.
The Letter of Intent does not obligate the investor to purchase, or any Fund to
sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the 13-month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor, or, if not paid within 20 days after written
request, the Company will liquidate sufficient escrowed shares to obtain such
difference. If the redemption or liquidation proceeds are inadequate to cover
the differences, investors will be liable for the extent of the inadequacy. By
executing the Letter of Intent, investors irrevocably appoint the Transfer Agent
as attorney in fact with full power of substitution in the premises to surrender
for redemption any or all escrowed shares. If the Letter of Intent goal is
exceeded in an amount which qualified for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the 13-month period.
DEALER COMMISSIONS
A commission of up to 1.0% may be paid by the Distributor to dealers who
initiate and are responsible for purchases of Portfolio shares of $1 million or
more and for purchases made at net assert value by certain retirement plans of
organizations with 50 or more eligible employees.
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<PAGE>
For this purpose, exchanges between Funds are not considered to be purchases.
The Distributor reserves the right to require reimbursement of any such
commissions paid with respect to such purchases if such shares are redeemed
within twelve months after purchase. Dealers requesting further information may
call (800) 726-7240.
REDEMPTION OF SHARES
Payments will be made wholly in cash unless the Company's Board of Directors
believes that economic conditions exist which would make such a practice
detrimental to the best interests of a Fund. Under such circumstances, payment
of the redemption price could be made either in cash or in portfolio securities
taken at their value used in determining the redemption price (and, to the
extent practicable, representing a pro rata portion of each of the portfolio
securities held by the Fund), or partly in cash and partly in portfolio
securities. Payment for shares redeemed also may be made wholly or partly in
the form of a pro rata portion of each of the portfolio securities held by a
Fund at the request of the redeeming stockholder, if the Company believes that
honoring such request is in the best interests of the Fund. If payment for
shares redeemed were to be made wholly or partly in portfolio securities,
brokerage costs would be incurred by the stockholder in converting the
securities to cash.
__________________________________
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
__________________________________
Each income dividend and capital gains distribution, if any, declared by a Fund
will be reinvested in full and fractional shares based on the net asset value as
determined on the payment date for such distributions, unless the stockholder or
his or her duly authorized agent has elected to receive all such payments or the
dividend or distribution portions thereof in cash. Changes in the manner in
which dividend and distribution payments are made may be requested by the
stockholder or his or her duly authorized agent at any time through written
notice to the Company and will be effective as to any subsequent payment if such
notice is received by the Company prior to the record date used for determining
the stockholders entitled to such payment. Any dividend and distribution
election will remain in effect until the Company is notified by the stockholder
in writing to the contrary.
REGULATED INVESTMENT COMPANY. The Company intends to qualify each Fund as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Each Fund will be treated as a separate fund
for tax purposes and thus the provisions of the Code generally applicable to
regulated investment companies will be applied to each Fund. In addition, net
capital gains, net investment income, and operating expenses will be determined
separately for each Fund. By complying with the applicable provisions of the
Code, the Funds will not be subject to federal income taxes with respect to net
investment income and net realized capital gains distributed to their
stockholders.
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<PAGE>
To qualify under Subchapter M, a Fund must (i) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities or currencies and
certain options, futures, forward contracts and foreign currencies; (ii) derive
less than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months; and (iii) diversify its holdings so
that, at the end of each fiscal quarter, (a) at least 50% of the market value of
the Fund's assets is represented by cash, cash items, U.S. Government securities
and other securities, limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
resets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
In any fiscal year in which a Fund so qualifies and distributes at least 90% of
the sum of its investment company taxable income (consisting of net investment
income and the excess of net short-term capital gains over net long-term capital
losses) and its tax-exempt interest income (if any), it will be taxed only on
that portion, if any, of such investment company taxable income and any net
capital gain that it retains. Each Fund expects to so distribute all of such
income and gains on an annual basis, and thus will generally avoid any such
taxation.
Even though a Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless the Fund meets certain additional
distribution requirements. Under the Code, a nondeductible excise tax of 4% is
imposed on the excess of a regulated investment company's "required
distribution" for the calendar year ending within the regulated investment
company's taxable year over the "distributed amount" for such calendar year.
The term "required distribution" means the sum of (i) 98% of ordinary income
(generally net investment income) for the calendar year, (ii) 98% of capital
gain net income (both long-term and short-term) for the one-year period ending
on October 31 (as though the one year period ending on October 31 were the
regulated investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by a Fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the Fund pays income tax for the year. Each Fund intends to meet these
distribution requirements to avoid the excise tax liability.
Stockholders who are subject to federal or state income or franchise taxes will
be required to pay taxes on dividends and capital gains distributions they
receive from a Fund whether paid in additional shares of the Fund or in cash.
To the extent that dividends received by a Fund would qualify for the 70%
dividends received deduction available to corporations, the Fund must designate
in a written notice to stockholders the amount of the Fund's dividends that
would be eligible for this treatment. In order to qualify for the dividends
received deduction, a corporate stockholder must hold the Fund shares paying the
dividends upon which a dividend received deduction is based for at least 46
days. Stockholders, such as qualified employee benefit plans, who are exempt
from federal and state taxation generally would not have to pay income tax on
dividend or capital gain distributions. Prospective tax-exempt investors should
consult their own tax advisers with respect to the tax consequences of an
investment in a Fund under federal, state, and local tax laws.
Investors who purchase shares of a Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for those shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
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WITHHOLDING. Under the Code, distributions of net investment income by a Fund
to a stockholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign stockholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by a Fund to a foreign stockholder
is "effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains to
foreign stockholders who are neither U.S. resident aliens nor engaged in a U.S.
trade or business are not subject to tax withholding, but in the case of a
foreign stockholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. federal income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.
SECTION 1256 CONTRACTS. Many of the options, futures contracts and forward
contracts entered into by the Funds are "Section 1256 contracts." Any gains or
losses on Section 1256 contracts are generally considered 50% long-term and 40%
short-term capital gains or losses, although certain foreign currency gains and
losses from such contracts may be treated as ordinary income in character.
Section 1256 contracts held by a Fund at the end of each taxable year (and for
purposes of 4% nondeductible excise tax on October 31 or such other dates as
prescribed under the Code) are "marked to market," with the result that
unrealized gains or losses are treated as though they were realized.
STRADDLE RULES. Generally, the hedging transactions and other transactions in
options, futures and forward contracts undertaken by the Funds may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains or losses realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle position may be
deferred under the straddle rules, rather than being taken into account for the
taxable year in which these losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions and options, futures and forward contracts to the Funds are
not entirely clear.
Hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to stockholders. A
Fund may make one or more of the elections available under the Code which are
applicable to straddle positions. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under the rules that vary
according to elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions. Because the application of the straddle rules may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle positions, the amount
which must be distributed to stockholders, and which will be taxed to
stockholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not engage in such
hedging transactions. The qualification rules of Subchapter M may limit the
extent to which a Fund will be able to engage in hedging transactions and other
transactions involving options, futures contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time a Fund accrues
interest or other receivables, or accrues expenses or other liabilities,
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or loss. Similarly, on the disposition of debt securities denominated in
foreign currency and on the disposition of certain future contracts, forward
contracts and options, gains or losses attributable to fluctuation in the value
of
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<PAGE>
foreign currency between the date of acquisition of the debt security or
contract and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gain or
losses, may increase or decrease the amount of a Fund's investment company
taxable income to be distributed to stockholders as ordinary income.
FOREIGN TAXES. Each Fund may be required to pay withholding and other taxes
imposed by foreign countries which would reduce the Fund's investment income,
generally at rates from 10% to 40%. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes. If more than 50% of
the value of a Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, the Fund will be eligible to elect to
"pass-through" to the Fund's stockholders the amount of foreign income and
similar taxes paid by the Fund. If this election is made, stockholders
generally subject to tax will be required to include in gross income (in
addition to taxable dividends actually received) their pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct (as
an itemized deduction) their pro rata share of foreign taxes in computing their
taxable income or to use it (subject to limitations) as a foreign tax credit
against their U.S. federal income tax liability. No deduction for foreign taxes
may be claimed by a stockholder who does not itemize deductions. Each
stockholder will be notified within 60 days after the close of a Fund's taxable
year whether the foreign taxes paid by the Fund will be "pass-through" or that
year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the stockholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of a Fund's income will flow through to stockholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency denominated debt securities, receivables
and payables will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income, and to certain other types of income. Stockholders may be
unable to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foreign tax credit is modified for purposes
of the federal alternative minimum tax and can be used to offset only 90% of the
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
The foregoing is a general abbreviated summary of present U.S. federal income
tax laws and regulations applicable to dividends and distributions by the Funds.
Stockholders are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state, and local tax laws
and regulations applicable to dividends and distributions received.
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__________________________________
INVESTMENT RESULTS
__________________________________
Average total return ("T") of a Fund will be calculated as follows: an initial
hypothetical investment of $1000 ("P") is divided by the net asset value of
shares of the Fund as of the first day of the period in order to determine the
initial number of shares purchased. Subsequent dividends and capital gain
distributions by the Fund are reinvested at net asset value on the reinvestment
date determined by the Board of Directors. The sum of the initial shares
purchased and shares acquired through reinvestment is multiplied by the net
asset value per share of the Fund as of the end of the period ("n") to determine
ending redeemable value ("ERV"). The ending value divided by the initial
investment converted to a percentage equals total return. The formula thus
used, as required by the SEC, is:
n
P(1+T) = ERV
The resulting percentage indicates the positive or negative investment results
that an investor would have experienced from reinvested dividends and capital
gain distributions and changes in share price during the period.
This formula reflects the following assumptions: (i) all share sales at net
asset value, without a sales load reduction from the $1,000 initial investment;
(ii) reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (iii) complete redemption at the
end of any period illustrated. Total return may be calculated for one year,
five years, ten years, and for other periods, and will typically be updated on a
quarterly basis. The average annual compound rate of return over various
periods may also be computed by utilizing ending values as determined above.
Average total returns of the Technology Fund for the one year period ended
December 31, 1996 and since inception were 26.41% and 26.92%, respectively.
In addition, in order more completely to represent a Fund's performance or more
accurately to compare such performance to other measures of investment return, a
Fund also may include in advertisements and stockholder reports other total
return performance data based on time-weighted, monthly-linked total returns
computed on the percentage change of the month end net asset value of the Fund
after allowing for the effect of any cash additions and withdrawals recorded
during the month. Returns may be quoted for the same or different periods as
those for which average total return is quoted. A Fund's investment results
will vary from time-to-time depending upon market conditions, the composition of
the Fund's portfolio, and operating expenses, so that any investment results
reported should not be considered representative of what an investment in the
Fund may earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing a Fund's investment
results with those published for other investment companies, other investment
vehicles and unmanaged indices. Results also should be considered relative to
the risks associated with the Fund's investment objective and policies.
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<PAGE>
__________________________________
DESCRIPTION OF CAPITAL SHARES
__________________________________
Stockholders are entitled to one vote for each full share held and fractional
votes for fractional shares held. Unless otherwise provided by law or Articles
of Incorporation or Bylaws, the Company may take or authorize any action upon
the favorable vote of the holders of more than 50% of the outstanding shares of
the Company.
As of March 31, 1997, there were 459,360,312 outstanding shares of the
Technology Fund, 400,000 outstanding shares of the Health Care Fund, 400,000
outstanding shares of the Small Cap Fund, and 400,000 outstanding shares of
the Large Cap Fund. As of that date, the following were known to the Company
to own of record more than 5% of each Fund's capital stock:
Name and Address of
Beneficial Owner Shares Held % of Shares Outstanding
------------------- ----------- -----------------------
Technology Fund
----------------
RCM Capital Management 215,282.223 46.87%
Profit Sharing Plan
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
Walter C. Price 86,582.789 18.85%
RCM Capital Management,
L.L.C.
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
Health Care Fund
-----------------
Clients of 400,000.000 100%
Dresdner Bank
AG/Investment Management
Institutional Asset
Management Division
Jurgen-Ponto-Platz
60301 Frankfurt
Germany
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Small Cap Fund
--------------
Clients of 400,000.000 100%
Dresdner Bank
AG/Investment Management
Institutional Asset
Management Division
Jurgen-Ponto-Platz
60301 Frankfurt
Germany
Large Cap Fund
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Clients of 400,000.000 100%
Dresdner Bank
AG/Investment Management
Institutional Asset
Management Division
Jurgen-Ponto-Platz
60301 Frankfurt
Germany
__________________________________
ADDITIONAL INFORMATION
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COUNSEL
Certain legal matters in connection with the capital shares offered by the
Prospectuses have been passed upon for the Funds by Paul, Hastings, Janofsky &
Walker LLP, 555 South Flower Street, Los Angeles, California 90071. The
validity of the capital stock offered by the Prospectuses has been passed upon
by Venable, Baetjer and Howard, LLP, 1800 Mercantile Bank & Trust Building, 2
Hopkins Plaza, Baltimore, Maryland 21201. Paul, Hastings, Janofsky & Walker LLP
has acted and will continue to act as counsel to the Investment Manager in
various matters.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109,
have been appointed as independent auditors for the Company. Coopers & Lybrand
L.L.P. will conduct an annual audit of each Fund, assist in the preparation of
each Fund's federal and state income tax returns, and consult with the Company
as to matters of accounting, regulatory filings, and federal and state income
taxation.
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LICENSE AGREEMENT
Under a License Agreement dated June 14, 1996, the Investment Manager has
granted the Company the right to use the "RCM" name and has reserved the right
to withdraw its consent to the use of such name by the Company at any time, or
to grant the use of such name to any other company. In addition, the Company
has granted the Investment Manager, under certain conditions, the use of any
other name it might assume in the future, with respect to any other investment
company sponsored by the Investment Manager.
FINANCIAL STATEMENTS
Incorporated by reference herein are the financial statements of the Funds
contained in each Fund's Annual Report to Shareholders for the year ended
December 31, 1996, including the Report of Independent Accountants, dated
February 20, 1997, the Statement of Investment in Securities and Net Assets,
the Statement of Assets and Liabilities, the Statement of Operations, the
Statement of Changes in Net Assets, and the related Notes to Financial
Statements. Copies of the Funds' Annual Reports to Shareholders are
available, upon request, by calling the Company at (800) 726-7240, or by
writing the Company at Four Embarcadero Center, Suite 3000, San Francisco,
California 94111.
REGISTRATION STATEMENT
The Funds' Prospectuses and this Statement of Additional Information do not
contain all of the information set forth in the Company's registration statement
and related forms as filed with the SEC, certain portions of which are omitted
in accordance with rules and regulations of the SEC. The registration statement
and related forms may be inspected at the Public Reference Room of the SEC at
Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
copies thereof may be obtained from the SEC at prescribed rates.
Statements contained in the Prospectuses or this Statement of Additional
Information as to the contents of any contract or other document referred to
herein or in the Prospectuses are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Company's Registration Statement, each such statement being
qualified in all respects by such reference.
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