<PAGE>
RCM GLOBAL SMALL CAP FUND
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of RCM Global Small Cap Fund and
Board of Directors of RCM Equity Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of RCM
Global Small Cap Fund (the "Fund"), including the statement of investments in
securities and net assets, as of December 31, 1996, and the related statement of
operations, the statement of changes in net assets, and the financial highlights
for the period indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1996, by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
Global Small Cap Fund as of December 31, 1996, and the results of its
operations, the changes in its net assets, and the financial highlights for the
period indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 28, 1997
<PAGE>
RCM GLOBAL SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
% of
Shares Equity Investments Net Assets Market Value
- --------------- ------------------------------ ---------- --------------
CONSUMER NON-DURABLES SECTOR 11.21%
GENERAL RETAIL 1.02%
1,800 Santa Isabel S A $ 40,833
HOUSEHOLD/RELATED NON-DURABLES 5.70%
5,000 Carson Inc.* 69,050
4,000 The North Face Inc. * 77,752
5,000 Tag Heuer International SA * 81,175
--------------
227,977
--------------
LEISURE TIME PRODUCTS/SERVICES 4.49%
5,000 CapStar Hotel Co. * 97,650
4,000 Planet Hollywood International Inc. * 82,000
--------------
179,650
--------------
CYCLICAL/CAPITAL GOODS SECTOR 2.05%
TRANSPORTATION SERVICES 2.05%
8,000 Kitty Hawk Inc. * 82,000
ENERGY SECTOR 1.31%
OIL AND RELATED SERVICES 1.31%
3,000 Houston Exploration Co. * 52,590
HEALTH CARE SECTOR 7.19%
HEALTH CARE SERVICES 7.19%
5,000 Advanced Health Corp. * 64,060
7,000 Harborside Healthcare Corp. * 81,795
2,000 Total Renal Care Holdings Inc. * 70,310
5,000 Transition Systems Inc. * 71,250
--------------
287,415
--------------
The accompanying notes are an integral part of the financial statements.
Page 2
<PAGE>
RCM GLOBAL SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
% of
Shares Equity Investments Net Assets Market Value
- --------------- ------------------------------ ---------- --------------
INTEREST SENSITIVE SECTOR 2.11%
GENERAL FINANCE 2.11%
3,000 The Money Store Inc. $ 84,458
SERVICES/MEDIA SECTOR 13.96%
BUSINESS AND FOOD SERVICES 12.20%
2,000 Caribiner International Inc. * 99,186
3,000 F. Y. I. Inc. * 63,000
5,600 Philip Environmental Inc. * 81,480
3,000 Precision Response Corp. * 105,729
1,300 The Registry Inc. * 60,027
3,000 Wilmar Industries Inc. * 78,501
--------------
487,923
--------------
MEDIA SERVICES 1.76%
2,600 Bell Cablemedia PLC * 39,528
1,000 Central European Media
Entertainment Ltd. Class A * 31,062
--------------
70,590
--------------
TECHNOLOGY SECTOR 23.44%
ELECTRONICS AND NEW TECHNOLOGY 4.87%
2,200 Leitch Technology Corp. * 40,986
3,000 Uniphase Corp. * 153,750
--------------
194,736
--------------
TECHNOLOGY SERVICES 18.57%
5,800 Business Objects S A
Sponsored ADR * 79,025
2,000 CBT Group PLC Sponsored ADR * 109,000
3,000 The Indus Group Inc. * 77,250
3,000 Integrated Systems Inc. * 71,250
3,000 International Telecommunication
Systems Inc. * 70,500
1,800 Open Text Corp. * 12,110
4,000 Raptor Systems Inc. * 77,500
2,000 Renaissance Solutions Inc. * 88,500
The accompanying notes are an integral part of the financial statements.
Page 3
<PAGE>
RCM GLOBAL SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
% of
Shares Equity Investments Net Assets Market Value
- --------------- ------------------------------ ---------- --------------
TECHNOLOGY SERVICES
(CONTINUED)
3,000 Unison Software Inc. * $ 79,590
1,500 VERITAS Software Co. * 78,000
--------------
742,725
--------------
TOTAL EQUITY INVESTMENTS
(COST $2,450,897) 61.27% 2,450,897
--------------
SHORT-TERM INVESTMENTS
PRINCIPAL U.S. GOVERNMENT 99.91%
- -----------
$4,000,000 U.S. Treasury Bill
maturing 1/9/97 3,996,344
--------------
TOTAL SHORT-TERM INVESTMENTS 99.91% 3,996,344
(COST $3,996,344) --------------
TOTAL INVESTMENTS (COST $6,447,241) 161.18% 6,447,241
OTHER ASSETS LESS LIABILITIES -61.18% (2,447,241)
--------------
NET ASSETS 100.00% $ 4,000,000
--------------
--------------
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE>
RCM GLOBAL SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS:
Investments in securities, at value
(cost $6,447,241) (Note 1) $ 6,447,241
Cash 4,000,000
--------------
Total Assets 10,447,241
--------------
LIABILITIES:
Payable for securities purchased 6,447,241
--------------
Total Liabilities 6,447,241
--------------
NET ASSETS $ 4,000,000
--------------
--------------
NET ASSETS CONSIST OF:
Paid in capital (Note 3) $ 4,000,000
--------------
NET ASSETS $ 4,000,000
--------------
--------------
NET ASSET VALUE PER SHARE
($4,000,000 DIVIDED BY 400,000 shares outstanding) $ 10.00
--------------
--------------
The accompanying notes are an integral part of the financial statements.
Page 5
<PAGE>
RCM GLOBAL SMALL CAP FUND
STATEMENT OF OPERATIONS
FROM DECEMBER 31, 1996* TO DECEMBER 31, 1996
INVESTMENT INCOME:
Income $ -
Expenses -
-----------
Net investment income -
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized and unrealized Gain -
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ -
-----------
-----------
The accompanying notes are an integral part of the financial statements.
Page 6
<PAGE>
RCM GLOBAL SMALL CAP FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM DECEMBER 31, 1996** TO DECEMBER 31, 1996
OPERATIONS:
Net investment income $ -
Net realized and unrealized Gain -
-----------
Net increase in net assets resulting from operations -
NET INCREASE FROM CAPITAL SHARES TRANSACTIONS (NOTE 3) 4,000,000
-----------
TOTAL INCREASE IN NET ASSETS 4,000,000
NET ASSETS:
Beginning of period -
-----------
End of period * $ 4,000,000
-----------
-----------
* Includes undistributed net investment income of $ -
-----------
-----------
_____________________
** Commencement of operations
The accompanying notes are an integral part of the financial statements.
Page 7
<PAGE>
RCM GLOBAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding are as follows:
December 31, 1996
(commencement
of operations) to
December 31, 1996
---------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
-----------
Net investment income -
Net realized and unrealized gain -
-----------
Net increase in net asset value
resulting from investment operations -
-----------
NET ASSET VALUE, END OF PERIOD $ 10.00
-----------
-----------
TOTAL RETURN 0.00% *
-----------
-----------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid per share $ 0.0465 +
-----------
-----------
Net assets, end of period (in 000's) $ 4,000
-----------
-----------
Ratio of expenses to average net assets 0.00% ++
-----------
-----------
Ratio of net investment income to average net assets 0.00% ++
-----------
-----------
Portfolio turnover 0.00% ++
-----------
-----------
______________________
* Total return measures the change in value of an investment over the period
indicated.
+ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission structures may
differ.
++ Not annualized. Fund was in operation for one day, ratios are not
meaningful.
Page 8
<PAGE>
RCM GLOBAL SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
RCM Global Small Cap Fund (the "Fund") is a diversified series of RCM
Equity Funds, Inc. (the "Company"). The Company is organized as a Maryland
corporation and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations on December 31, 1996.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amount of assets and liabilities. Actual results may differ from
these estimates.
a. SECURITIES VALUATIONS:
Investment securities are stated at fair market value. Equity securities
traded on stock exchanges are valued at the last sale price on the exchange
or in the principal over-the-counter market in which such securities are
traded as of the close of business on the day the securities are being
valued. If there has been no sale on such day, then the security will be
valued at the closing bid price on such day. If no bid price is quoted on
such day, then the security will be valued by such method as the Board of
Directors of the Company in good faith deems appropriate to reflect its
fair market value. Readily marketable securities traded only in the
over-the-counter market that are not listed on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar foreign
reporting service will be valued at the mean bid price, or such other
comparable sources as the Board of Directors of the Company deems
appropriate to reflect their fair market value. Other portfolio securities
held by the Fund will be valued at current market value, if current market
quotations are readily available for such securities. To the extent that
market quotations are not readily available, such securities will be valued
by whatever means the Board of Directors of the Company in good faith deems
appropriate to reflect their fair market value. Short-term investments
with a maturity of 60 days or less are valued at amortized cost, which
approximates market value.
b. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Security transactions are recorded as of the date of purchase or sale.
Realized gains and losses on security transactions are determined on the
identified cost basis for both financial statement and federal income tax
purposes. Interest income, foreign taxes and expenses are accrued daily.
Dividends are recorded on the ex-dividend date.
c. FOREIGN CURRENCY TRANSACTIONS:
The records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated
into U.S. dollars at current exchange rates. Purchases and sales of
foreign securities and income and withholding taxes are translated on the
respective dates of such transactions. Net realized currency gains and
losses include foreign currency gains and losses between trade date and
settlement date and foreign currency transactions. The Fund does not
isolate that portion of foreign currency exchange fluctuation on
investments from unrealized appreciation and depreciation which arises from
changes in market prices. Such fluctuations are included with the net
unrealized appreciation or depreciation on investments.
Page 9
<PAGE>
RCM GLOBAL SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. FEDERAL INCOME TAXES:
It is the policy of the Fund to comply with the requirements for
qualification as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). It is also the intention of
the Fund to make distributions sufficient to avoid imposition of any excise
tax under Section 4982 of the Code. Therefore, no provision has been made
for Federal or excise taxes on income and capital gains.
e. DISTRIBUTIONS:
Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities
held by the Fund and timing differences.
2. INVESTMENT IN FOREIGN SECURITIES
Investing in foreign equity securities and currency transactions involves
significant risks, some of which are not typically associated with
investments of domestic origin. The Fund's investments in foreign markets
will subject the Fund to the risk of foreign currency exchange rate
fluctuations, perceived credit risk and adverse economic and political
developments.
3. CAPITAL SHARES
At December 31, 1996, there were 1,000,000,000 shares of the Company's
capital stock authorized, at $0.0001 par value. Of this amount, 50,000,000
were classified as shares of the Fund; 50,000,000 were classified as shares
of RCM Global Technology Fund; 50,000,000 were classified as shares of RCM
Global Health Care Fund; 50,000,000 were classified as shares of RCM Large
Cap Growth Fund; and 800,000,000 shares remain unclassified. There were
400,000 shares sold for a total of $4,000,000 on December 31, 1996
(commencement of operations).
At December 31, 1996, all the outstanding shares of the Fund were
beneficially owned by clients of Dresdner Bank AG/Investment
Management/Institutional Assets Management Division.
4. PURCHASES AND SALES OF SECURITIES
For the one day period ended December 31, 1996 (commencement of
operations), purchases of investment securities by the Fund, other than
U.S. government obligations and short-term securities, aggregated
$2,450,897. Purchases of U.S. government obligations by the Fund for the
period ended December 31, 1996, aggregated $3,996,344. There were no sales
of investment securities or U.S. government obligations by the Fund for the
period ended December 31, 1996. At December 31, 1996, the aggregate cost
of investments was the same for book and federal income tax purposes.
Page 10
<PAGE>
RCM GLOBAL SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
RCM Capital Management, L.L.C. ("RCM") manages the Fund's investments and
provides various administrative services, subject to the authority of the
Board of Directors. The Fund pays investment management fees monthly to
RCM at an annualized rate of 1.25% of the Fund's average daily net assets.
For the one day period ended December 31, 1996, the Fund did not record
investment management fees.
RCM has voluntarily agreed, until at least December 31, 1997, to pay the
Fund on a quarterly basis the amount, if any, by which the ordinary
operating expenses of the Company attributable to the Fund for the quarter
(except interest, taxes, and extraordinary expenses) exceed the annualized
rate of 2.50% of the value of the average daily net assets of the Fund. In
subsequent years, the Fund will reimburse RCM for any such payments to the
extent that the Fund's operating expenses are otherwise below this expense
cap.
Funds Distributor, Inc. (the "Distributor"), acts as distributor of shares
of the Fund. The Distributor retains a portion of any initial sales charge
upon the purchase of shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to
the Fund. Under the distribution plan, which is a "reimbursement plan,"
the Fund pays the Distributor an annual fee of up to 0.30% of the Fund's
average daily net assets as reimbursement for certain expenses actually
incurred by the Distributor in connection with distribution of shares of
the Fund.
The Company pays each of its Directors who is not an interested person of
the Fund $6,000 annually plus $1,000 for each meeting of the board or any
committee thereof attended by the Director.
Page 11
<PAGE>
INVESTMENT MANAGER
RCM Capital Management, L.L.C.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION AGENT
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Page 12