<PAGE>
1933 Act File No. 2-63825
1940 Act File No. 811-2913
- ------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 23
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 23
- ------------------------------------------------------------------------
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
- ------------------------------------------------------------------------
Anthony Ain, Vice President and General Counsel
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
(Name and Address of Agent for Service)
Copy to:
Michael Glazer
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
The Registrant has filed a declaration pursuant to
Rule 24f-2 registering an indefinite number of shares
under the Securities Act of 1933. On February 28, 1996
the Registrant filed its 24f-2 Notice for its fiscal year
December 31, 1995.
- ------------------------------------------------------------------------
It is proposed that this filing will become effective:
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On _________________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _________________ pursuant to paragraph (a)(1) of rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _________________ pursuant to paragraph (a)(2) of rule 485
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM GROWTH EQUITY FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
1. Cover Page Cover Page
2. Synopsis Synopsis; Summary of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and Policies; Stock
Index Futures Transactions; Description
of Capital Stock
5. Management of the Fund The Investment Manager
5A. Management's Description of Fund *
Performance
6. Capital Stock and Other Dividends, Distributions and Tax Status;
Securities Description of Capital Stock
7. Purchase of Securities Being How to Purchase Shares
Offered
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
- ------------------------
*Not applicable
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM GROWTH EQUITY FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
(CONTINUED)
ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Description of Capital Stock
History
13. Investment Objectives and Investment Objective and
Policies Policies; Stock Index Futures
Transactions; Investment
Restrictions
14. Management of the Fund Directors and Officers
15. Control Persons and Principal Description of Capital Stock
Holders of Securities
16. Investment Advisory and Other The Investment Manager
Services
17. Brokerage Allocation and Other Execution of Portfolio Transactions
Practices
18. Capital Stock and Other Redemption of Shares;
Securities Description of Capital Stock
19. Purchase, Redemption and How to Purchase Shares; Net
Pricing of Securities Being Asset Value
Offered
20. Tax Status Dividends, Distributions and
Tax Status
21. Underwriters *
22. Calculation of Performance Investment Results
Data
23. Financial Statements Financial Statements
- -------------------
*Not applicable
<PAGE>
------------------
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
------------------
RCM GROWTH EQUITY FUND
Offered by:
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATES TO RCM
GROWTH EQUITY FUND, A SERIES OF RCM CAPITAL FUNDS, INC., SPECIALIZING IN EQUITY
AND EQUITY-RELATED SECURITIES OF SMALL- TO MEDIUM-SIZED CONCERNS
------------------
RCM GROWTH EQUITY FUND (THE "FUND") is a diversified no-load series of RCM
Capital Funds, Inc. (the "Company"), an open-end management investment company.
Shares of the Fund may be purchased and redeemed at their net asset value
without a sales or redemption charge. (See HOW TO PURCHASE SHARES and REDEMPTION
OF SHARES.) THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO
INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT
MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT
MANAGER, RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE COMPANY EXPECTS
TO CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER MAY FOR
DISCRETIONARY ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING
OF PURCHASES AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH CLIENTS, SUBJECT
ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT
BY EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by
investing, during normal conditions, at least 80% of its assets in equity and
equity-related securities of small- to medium-sized concerns, primarily
common stocks. (See INVESTMENT OBJECTIVE AND POLICIES.) Such investments will
be chosen primarily with regard to their potential for capital appreciation.
The Investment Manager will not take into consideration the tax effect of
long-term versus short-term capital gains when making investment decisions.
Current income of securities in which the Fund has invested, or may invest,
will be considered only as part of total investment return and will not be
emphasized. "Small- to medium-sized concerns" is defined as encompassing
companies whose equity securities have a market capitalization not exceeding
that of the largest company included in the Standard & Poor's MidCap 400
Index. As of the date hereof, the Standard & Poor's MidCap 400 Index includes
companies with market capitalizations ranging from $151 million to $5.9
billion. There can be no assurance the Fund will meet its investment
objective.
This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Fund that prospective investors should
know before investing. Investors should read this document and retain it for
future use.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus and
Statement of Additional Information in connection with the offer contained in
this Combined Prospectus and Statement of Additional Information, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Combined Prospectus and Statement
of Additional Information is not an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
------------------
The Date of this Combined Prospectus and Statement of
Additional Information is April 29, 1996.
------------------
<PAGE>
------------------
TABLE OF CONTENTS
------------------
PAGE
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . . 6
Stock Index Futures Transactions . . . . . . . . . . . . . . . . . . . . . . 9
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 20
Investment by Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 23
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dividends, Distributions and Tax Status. . . . . . . . . . . . . . . . . . . 29
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Safekeeping of Securities, Distributor, and Transfer and Redemption Agent. . 35
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
<PAGE>
---------------------
SYNOPSIS
---------------------
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
in RCM Growth Equity Fund's Annual Report to Shareholders for the year ended
December 31, 1995, incorporated by reference herein, appearing elsewhere in this
Combined Prospectus and Statement of Additional Information (hereinafter this
"Prospectus").
RCM CAPITAL FUNDS, INC. (THE "COMPANY") is an open-end management investment
company. RCM Growth Equity Fund (the "Fund") is a diversified no-load series
of the Company. THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO
INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT
MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S
INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE
COMPANY EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER
MAY FOR DISCRETIONARY ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT
AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH
CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE
CLIENTS. (See INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by
investing, during normal conditions, at least 80% of its assets in equity and
equity-related securities of small- to medium-sized concerns, primarily
common stocks. Such investments will be chosen primarily with regard to their
potential for capital appreciation. Current income of securities in which the
Fund has invested or may invest will be considered only as part of total
investment return and will not be emphasized. "Small- to medium-sized
concerns" is defined as encompassing companies whose equity securities have a
market capitalization not exceeding that of the largest company included in
the Standard & Poor's MidCap 400 Index (the "S&P 400"). As of the date
hereof, the S&P 400 includes companies with market capitalizations ranging
from $151 million to $5.9 billion. The Fund is not restricted in its
purchases to securities that constitute a portion of the S&P 400. There can
be no assurance the Fund will meet its investment objective.
The value of the Fund's shares will fluctuate because of the fluctuations in
the value of the securities in the Fund's portfolio. When the Fund sells
portfolio securities, it may realize a gain or a loss. In addition,
investments in small- to medium-sized concerns may involve greater risks than
investments in larger or more established firms that have greater resources.
An investment in the Fund is not insured against loss of principal. (See
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.)
The Investment Manager is actively engaged in providing investment
supervisory services, as defined in the Investment Advisers Act of 1940, to
institutional and individual clients.
Shares of the Fund are purchased without a sales charge. The minimum initial
investment is $10,000 and the minimum subsequent investment is $1,000. The
Company acts as transfer and redemption agent for the Fund's shares. (See HOW
TO PURCHASE SHARES AND REDEMPTION OF SHARES.)
Shareholder inquiries may be directed to the Company or the Investment
Manager in writing to Four Embarcadero Center, Suite 3000, San Francisco,
California 94111, or by telephone at (415) 954-5400.
<PAGE>
----------------------
SUMMARY OF FEES AND EXPENSES
----------------------
SHAREHOLDER TRANSACTION EXPENSES
All Sales Loads, and Redemption and Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses (Custodian) 0.01%
-----
Total Fund Operating Expenses 0.76%
HYPOTHETICAL EXAMPLE OF
EFFECT OF EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------- ------ ------- ------- --------
You would pay the following total
expenses on a $1,000 investment,
assuming (1) a 5% annual return and
(2) redemption at the end of each
time period. $8 $24 $42 $94
THIS EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE REGULATIONS OF
THE SECURITIES AND EXCHANGE COMMISSION, (THE "SEC" OR THE "COMMISSION"),
BASED ON THE EXPENSES OF THE FUND FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995, AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE GREATER OR LESSER
THAN THOSE SHOWN. The purpose of the above table is to give you information
in order to understand various costs and expenses of the Fund that an
investor may bear directly or indirectly.
For more information concerning fees and expenses of the Fund, see FINANCIAL
HIGHLIGHTS, THE INVESTMENT MANAGER, EXECUTION OF PORTFOLIO TRANSACTIONS, and
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.
In accordance with applicable SEC regulations, this example assumes that: (1)
the percentage amounts listed under Annual Fund Operating Expenses remain the
same in each year of the one, three, five, and ten year periods; (2) the
amount of the Fund's assets remains constant at the level at the end of its
most recently completed fiscal year; and (3) all dividends and distributions
will be reinvested by the shareholder. This example also reflects recurring
fees charged to all investors. SEC regulations require that the example be
based on a $1,000 investment, although the minimum initial purchase of Fund
shares is actually $10,000. (See HOW TO PURCHASE SHARES.)
The Fund is responsible for the payment of certain of its operating expenses,
including brokerage and commission expenses; taxes levied on the Fund;
interest charges on borrowings (if any); charges and expenses of the Fund's
custodian; and payment of investment management fees due to the Investment
Manager. The Investment Manager is responsible for all of the Fund's other
ordinary operating expenses (e.g., legal and audit fees, securities
registration expenses and compensation of non-interested directors of the
Company). Expenses attributable to the Fund are charged against the assets of
the Fund. General expenses of the Company's three series, the Fund, RCM Small
Cap Fund and RCM International Growth Equity Fund A, are allocated among the
three series in a manner proportionate to the net assets of each series, on a
transactional basis or
- ------------------------------------------------------------------------------
Page 2
<PAGE>
on such other basis as the Board of Directors deems equitable. (See THE
INVESTMENT MANAGER.)
Clients of the Investment Manager who are shareholders of the Fund will,
through the Fund, pay a fee to the Investment Manager on the portion of their
assets invested in shares of the Fund. However, such clients will not pay
additional fees to the Investment Manager on the portions of their assets
invested in the Fund.
A Client's assets not invested in shares of the Fund will be subject to fees
in accordance with the Investment Management Agreement or Investment Advisory
Agreement between the Client and the Investment Manager. Clients who invest
in shares of the Fund will generally pay an aggregate fee which is higher
than that paid by other Clients not invested in the Fund. (See INVESTMENT
MANAGER AND INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
- ------------------------------------------------------------------------------
Page 3
<PAGE>
RCM GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated elsewhere in their opinion
apppearing in the Fund's 1995 Annual Report to Shareholders (which has been
incorporated herein by reference). This supplementary information should be
read in conjunction with the financial statements and related notes which are
included in the Annual Report to Shareholders.
Selected data for each share of capital stock outstanding for the ten years
ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 197.31 $ 260.43 $ 274.14 $ 288.48 $ 212.27
-------- -------- -------- -------- --------
Net investment income 0.57 0.74 0.97 1.68 2.31
Net realized and unrealized gain (loss)
on investments 66.36 0.34 26.95 17.74 98.11
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value
resulting from investment operations 66.93 1.08 27.92 19.42 100.42
-------- -------- -------- -------- --------
Distributions:
Net investment income (0.56) (0.79) (1.00) (1.70) (2.29)
Net realized gain on investments (35.45) (63.41) (40.63) (32.06) (21.92)
-------- -------- -------- -------- --------
Total distributions (36.01) (64.20) (41.63) (33.76) (24.21)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $228.23 $ 197.31 $ 260.43 $ 274.14 $ 288.48
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
AVERAGE COMMISSION RATE PAID $0.05801
--------
--------
Total Return (b) 34.53% 0.76% 10.72% 7.03% 48.23%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios and supplemental data:
Net assets, end of year (in millions) $ 1,325 $ 1,365 $ 2,049 $ 2,122 $ 2,138
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average net assets 0.8% 0.8% 0.8% 0.8% 0.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average net assets 0.2% 0.2% 0.3% 0.6% 0.9%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Portfolio turnover 96.5% 111.1% 67.0% 56.8% 62.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Year Ended December 31,
---------------------------------------------------------------
1990 1989 1988 1987 1986 (a) 1985
-------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 228.09 $ 199.99 $ 177.22 $ 207.52 $ 211.83 $ 169.44
-------- -------- ------- -------- --------- --------
Net investment income 3.67 3.94 2.83 1.72 1.59 3.68
Net realized and unrealized gain (loss)
on investments (13.14) 49.62 33.89 20.52 17.83 52.64
-------- -------- ------- -------- --------- --------
Net increase (decrease) in net asset value
resulting from investment operations (9.47) 53.56 36.72 22.24 19.42 56.32
-------- -------- ------- -------- --------- --------
Distributions:
Net investment income (4.21) (3.96) (2.92) (4.06) (3.94) (3.68)
Net realized gain on investments (2.41) (21.48) (11.03) (48.48 (19.79) (10.25)
-------- -------- ------- -------- --------- --------
Total distributions (6.35) (25.46) (13.95) (52.54) (23.73) (13.93)
-------- -------- ------- -------- --------- --------
NET ASSET VALUE, END OF YEAR $ 212.27 $ 228.09 199.99 $ 177.22 $ 207.52 $ 211.83
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
AVERAGE COMMISSION RATE PAID
TOTAL RETURN (B) (4.12%) 26.87% 20.86% 10.97% 9.33% 32.06%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 1,300 $ 1,284 $ 964 $ 553 $ 461 $ 289
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Ratio of expenses to average net assets 0.8% 0.7% 0.7% 0.8% 0.7% 0.7%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Ratio of net investment income to
average net assets 1.8% 1.8% 1.8% 0.9% 1.3% 2.1%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Portfolio turnover 50.0% 70.8% 64.7% 79.9% 78.2% 80.0%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
</TABLE>
- ----------------------------------
(a) On July 9, 1986, RCM Capital Management, the successor to the
business and operations of Rosenberg Capital Managment, became the
investment manager.
(b) Total return measures the change in value of an investment over the
period indicated.
<PAGE>
----------------------
INVESTMENT RESULTS
----------------------
The Fund may, from time to time, include information on its investment
results and/or comparisons of its investment results to various unmanaged
indices or results of other mutual funds or groups of mutual funds in
advertisements or in reports furnished to present or prospective
shareholders. See ADDITIONAL INFORMATION for a brief description of these
comparisons. Investment results will include information calculated on a
total return basis in the manner set forth below.
Average total return ("T") will be calculated as follows: an initial
hypothetical investment of $1,000 ("P") is divided by the net asset value as
of the first day of the period in order to determine the initial number of
shares purchased. Subsequent dividends and capital gain distributions 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
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:
P(1+T)N = 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: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial
investment; (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Board; and (3) a 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 for the one, five, and ten year periods ended December
31, 1995 are 34.53%, 18.95% and 15.56%, respectively.
In addition, in order more completely to represent the Fund's performance or
more accurately to compare such performance to other measures of investment
return, the Fund also may include in advertisements and shareholder 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.
The 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 the 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 objectives and policies.
- ------------------------------------------------------------------------------
Page 5
<PAGE>
----------------------
INVESTMENT OBJECTIVE AND POLICIES
----------------------
The Fund is designed to provide investors with a vehicle for investment
primarily in a diversified group of equity and equity-related securities of
small- to medium-sized concerns. The Fund's investment objective is to seek
appreciation of capital by investing, during normal conditions, at least 80%
of its assets in equity and equity-related securities of small- to
medium-sized concerns, primarily common stocks. Such investments will be
chosen primarily with regard to their potential for capital appreciation.
Current income from the Fund's investment portfolio will be considered only
as a part of total return and will not be emphasized. This investment
objective is fundamental and cannot be changed without shareholder approval.
"Small- to medium-sized concerns" is defined as encompassing companies whose
equity securities have a market capitalization not exceeding that of the
largest company included in the S&P 400. As of the date hereof, the S&P 400
includes companies with market capitalizations ranging from $151 million to
$5.9 billion. The Fund is not restricted in its purchases to securities that
are included in the S&P 400, nor will the Fund be required to sell portfolio
securities solely on account of the fact that the market capitalization of
the issuer's equity securities has exceeded that of the largest company in
the S&P 400. There obviously can be no assurance that the Fund's investment
objective will be achieved.
Critical factors that will be considered by the Investment Manager in the
selection of securities will include the economic and political outlook, the
values of individual securities relative to other securities investment
alternatives, trends in the determinants of corporate profits, and management
capability and practices. Generally speaking, disposal of a portfolio
security will be based upon such factors as (i) actual or potential
deterioration of the issuer's earning power which the Investment Manager
believes may adversely affect the price of its securities, (ii) increases in
the price level of the security or of securities generally which the
Investment Manager believes reflect expected earnings growth too far in
advance of realization, and (iii) changes in the relative investment
opportunities offered by other securities.
The Fund may invest in securities on either a long-term or short-term basis.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. The Fund
may invest with the expectation of short-term capital appreciation if the
Fund believes that such action will benefit its shareholders. The Fund also
may sell securities that have been held on a short-term basis if the Fund's
investment objective for such securities has been achieved or if other
circumstances make the sale of such securities advisable. This may result in
a taxable shareholder 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 some securities for the
Fund's portfolio without regard to the length of the holding period for such
securities, it is possible that the 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. Although the Investment Manager does not
generally intend to trade on behalf of the Fund for short-term profits,
securities in the 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. Turnover will be influenced by sound
investment practices, the Fund's investment objectives, and the need for
funds for the redemption of the Fund's shares.
- ------------------------------------------------------------------------------
Page 6
<PAGE>
The Investment Manager anticipates that annual turnover should not exceed
90%, but the turnover rate will not be a limiting factor when the Investment
Manager deems portfolio changes appropriate. A 90% portfolio turnover rate
would occur if the value of purchases OR sales of portfolio securities
(whichever is less) for a year (excluding purchases of U. S. Treasury issues
and securities within a maturity of one year or less) were equal to 90% of
the average monthly value of the securities held by the Fund during such
year. A higher portfolio turnover rate would increase aggregate brokerage
commission expenses, which must be borne directly by the Fund and ultimately
by the Fund's shareholders. (See EXECUTION OF PORTFOLIO TRANSACTIONS.) The
portfolio turnover for the years ended December 31, 1995, 1994 and 1993 was
96.5%, 111.1% and 67.0%, respectively.
Except when taking a defensive investment position (as described below), the
Investment Manager expects under normal circumstances to have at least 80% of
total assets invested in equity or equity-related securities of small- to
medium-sized concerns (as defined above). When business or financial
conditions warrant, the Investment Manager temporarily may take a defensive
position and invest without regard to the above policies up to 100% of the
Fund's assets in one or more of the following: (1) cash or cash equivalents
having a maturity date no more than one year from the date of acquisition; or
(2) obligations of, or securities guaranteed by, the United States
Government, its agencies or instrumentalities having a maturity date no later
than five years from the date of acquisition.
Other than as described below under INVESTMENT RESTRICTIONS, the Fund is not
restricted with regard to the types of cash-equivalent investments it may
make. Financial instruments of this nature include certificates of deposit,
bankers' acceptances, repurchase agreements, and other short-term debt
obligations. Certificates of deposit are short-term obligations of commercial
banks. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
Repurchase agreements involve transactions by which an investor (such as the
Fund) purchases a security and simultaneously obtains the commitment of the
seller (a member bank of the Federal Reserve System or a recognized
securities dealer) to repurchase the security at an agreed-upon price on an
agreed-upon date within a number of days (usually not more than seven) from
the date of purchase.
The Fund may invest in domestic listed and unlisted securities and in
securities of foreign issuers which are available in American Depository
Receipt ("ADR") form or are traded on any United States or foreign securities
exchange or over-the-counter. ADRs represent ownership of securities of
non-U. S. issuers deposited with a depository agent, typically a commercial
bank. The Fund may invest in ADRs sponsored by persons other than the
underlying issuers. Issuers of the stock of such unsponsored ADRs are not
obligated to disclose material information in the United States and,
accordingly, there may not be a correlation between such information and the
market value of such ADRs.
An ADR will be treated as an illiquid security for purposes of the Fund's
restriction on the purchase of such securities unless the ADR is convertible
by the Fund within seven days into cash. The Fund may invest in foreign
securities if investment therein, at the time of purchase, would not cause
more than 10% of the value of the Fund's total assets to be invested in
foreign securities. Investment in foreign securities may be riskier than
investment in domestic securities. In many cases, foreign securities markets
are not as developed or as efficient as those in the United States. As a
result, securities of foreign issuers often may be less liquid and more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities may be subject to risks from restrictions on monetary
repatriation; oppressive regulation; heavy or confiscatory taxation; less
governmental supervision of securities markets and issuers of securities;
lack of uniform settlement periods and trading practices; limited publicly
available corporate information; lower
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accounting, auditing, and financial reporting standards; less understandable
financial statements; less advantageous legal, operational, and financial
protections applicable to foreign subcustody arrangements; nationalization or
expropriation of assets; and political, economic, or social instability. In
addition, custodial expenses for non-U.S. securities often may be higher than
for U.S. securities. Fluctuations in the rates of exchange between U.S. and
foreign currencies may also affect the value of the Fund's investments.
The Fund may invest up to 5% of the value of its net assets in securities
that are illiquid. Securities may be considered illiquid if the Fund cannot
reasonably expect to receive approximately the amount at which the Fund
values such securities within seven days. The Company's Board of Directors
has the authority to determine whether specific securities, including
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Board of Directors
monitors the liquidity of securities in the Fund's portfolio based on reports
furnished periodically by the Investment Manager. The Investment Manager
takes into account a number of factors in reaching liquidity decisions,
including, but not limited to: 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).
The Fund's investments in illiquid securities may include securities that are
not registered for resale under the Securities Act of 1933, as amended, and
therefore are subject to restrictions on resale. In some cases, such
securities may be eligible for resale to qualified institutional buyers under
Rule 144A under the Securities Act of 1933. Investing in Rule 144A securities
could have the effect of increasing Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. When the Fund purchases unregistered securities, the Fund
may, in appropriate circumstances, obtain the right to registration of such
securities at the expense of the issuer. In such cases, there may be a lapse
of time between the Fund's decision to sell any such security and the
registration of the security permitting sale. During any such period, the
price of the security will be subject to market fluctuations.
In making purchases within the above policies (which may be changed without
shareholder consent), the Fund and the Investment Manager will be subject to
all of the restrictions referred to under INVESTMENT RESTRICTIONS. If a
percentage restriction on an investment or utilization of assets set forth
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. The 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 Investment Company Act of 1940 ("1940 Act"), any such
securities so acquired without regard to the Fund's investment policies and
restrictions. The Fund will not knowingly exercise rights or otherwise
acquire securities when to do so would jeopardize the Fund's status under the
1940 Act as a "diversified" investment company.
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---------------------
STOCK INDEX FUTURES TRANSACTIONS
---------------------
The Fund may purchase and sell stock index futures as a hedge against changes
in market conditions that may result in changes in the value of the Fund's
portfolio securities, in accordance with the strategies more specifically
described below. The Fund will engage in transactions in stock index futures
contracts or related options consistent with the Fund's objectives and not
for speculation. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included. A futures contract on an index (such
as the S&P 500) 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 the index at the close of the last trading day of the contract
and the price at which the index contract was originally written. In the case
of futures contracts traded on U.S. exchanges, the exchange itself or an
affiliated clearing corporation assumes 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 index. No physical delivery
of the underlying stocks in the index is made.
STOCK INDEX FUTURES CHARACTERISTICS. Stock index futures contracts can be
purchased or sold with respect to various broad-based and other stock
indices. Differences in the indices may result in differences in correlation
of the futures with movements in the value of the securities being hedged.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the Fund's Custodian (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 futures contract margin does not
involve the borrowing of funds by the customer 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 the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. Futures contracts customarily are purchased and sold on 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
stock index fluctuates, 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 the Fund has purchased a stock index futures
contract and the price of the underlying stock index has risen, that position
will have increased in value and the Fund will receive from the FCM a
variation margin payment equal to that increased value. Conversely, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index 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, the 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. (See RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS
below.)
CHARACTERISTICS OF OPTIONS ON STOCK INDEX FUTURES. The Fund may also purchase
call options and put options on stock index futures contracts ("futures
options"). A futures option gives the holder the right, in return for the
premium paid, to assume a long position (in the case of a call) or short
position (in the case of a put) in a futures con-
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tract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder 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. (See RISKS OF TRANSACTIONS IN STOCK
INDEX FUTURES AND FUTURES OPTIONS below.)
PURCHASE OF STOCK INDEX FUTURES. When the Investment Manager anticipates a
significant stock market or stock market sector advance, the purchase of a
stock index futures contract affords a hedge against not participating in
such advance at a time when the Fund is not fully invested in equity
securities. Such purchase of a futures contract would serve as a temporary
substitute for the purchase of individual stocks which may later be purchased
(with attendant costs) in an orderly fashion. As such purchases of individual
stocks are made, an approximately equivalent amount of stock index futures
would be terminated by offsetting sales.
SALE OF STOCK INDEX FUTURES. The Fund may sell stock index futures contracts
in anticipation of or during a general stock market or market sector decline
that may adversely affect the market values of the Fund's portfolio of equity
securities. To the extent that the Fund's portfolio of equity securities
changes in value in correlation with a given stock index, the sale of futures
contracts on that index would reduce the risk to the portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.
PURCHASE OF PUT OPTIONS ON STOCK INDEX FUTURES CONTRACTS. The purchase of put
options on stock index futures contracts is analogous to the purchase of puts
on individual stocks, where an absolute level of protection from price
fluctuation is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
stocks or a position in the futures contract upon which the put option is
based against a possible decline in market value.
PURCHASE OF CALL OPTIONS ON STOCK INDEX FUTURES. The purchase of a call
option on stock index futures represents a means of obtaining temporary
exposure to market appreciation 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
future upon which it is based, or to the price of the underlying stock index
itself, it may be less risky, because losses are limited to the premium paid
for the call option, when compared to the ownership of the stock index
futures or the underlying stocks. Like the purchase of a stock index future,
the Fund would purchase a call option on a stock index future to hedge
against a market advance when the Fund is not fully invested.
LIMITATIONS ON PURCHASE AND SALE OF STOCK INDEX FUTURES AND OPTIONS ON STOCK
INDEX FUTURES. The Fund will not engage in transactions in stock index
futures contracts or related options for speculation, but only as a hedge
against changes in the value of securities held in the Fund's portfolio, or
securities which the Investment Manager intends to purchase for the
portfolio, resulting from actual or anticipated changes in general market
conditions. Such transactions will only be effected when, in the view of the
Investment Manager, they are economically appropriate to the reduction of
risks inherent in the ongoing management of the Fund's investment portfolio.
The Fund may not purchase or sell stock index futures or purchase related
options if, immediately thereafter, more than 30% of the value of its net
assets would be hedged. In addition, the Fund may not purchase or sell stock
index 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 would exceed 5% of the market value of the
Fund's total assets. In Fund
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transactions involving stock index futures contracts, to the extent required
by applicable SEC guidelines, an amount of cash and cash equivalents 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.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS. There are
several risks in connection with the use of stock index futures in the Fund
as a hedging device. One risk arises because the correlation between
movements in the price of the stock index future and movements in the price
of the securities which are the subject of the hedge is not always perfect.
The price of the stock index future may move more than, or less than, the
price of the securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the
securities 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
securities being hedged has moved in a favorable direction, this advantage
will be partially offset by the future. If the price of the future moves more
than the price of the stock, 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 securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged
and movements in the price of the stock index futures, the Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged, if the historical volatility of the price
of such securities has been greater than the historical volatility of the
index. Conversely, the Fund may buy or sell fewer stock index futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the stock index. It is also
possible that, when the Fund has sold futures to hedge its portfolio against
decline in the market, the market may advance and the value of the securities
held in the Fund's portfolio may decline. If this occurs, the Fund will lose
money on the future and also experience a decline in value in its portfolio
securities.
When futures are purchased to hedge against a possible increase in the price
of stock before the Fund is able to invest its cash (or cash equivalents) in
stock in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes 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 stock index futures and the
portion of the portfolio being hedged, the price of stock index futures may
not correlate perfectly with movement in the stock index 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 index 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 securities 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 of the imperfect correlation between movements
in the stock index and movements in the price of stock index futures, a
correct forecast of general market trends by the Investment Manager still may
not result in a successful hedging transaction over a very short time frame.
Compared to the use of stock index futures, the purchase of options on stock
index futures in-
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volves less potential risk to the 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 stock index future would
result in a loss to the Fund when the use of a stock index future would not,
such as when there is no movement in the level of the 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.
The Fund will only enter into futures contracts or purchase futures options
that are standardized and traded on a U.S. 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.
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price of the
securities, 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 securities 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 stock index futures by the Fund is also subject to the
Investment Manager's ability to predict correctly movements in the direction
of the market. For example, if the Fund hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and
stock prices increased instead, the Fund would lose part or all of the
benefit of the increased value of its stocks which it hedged because it would
have offsetting losses in its futures positions. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell
securities to meet daily variation margin requirements. Such sales of
securities might be, but would not necessarily be, at increased prices which
would reflect the rising market. As a result, the Fund might have to sell
securities at a time when it might be disadvantageous to do so. The
Investment Manager has 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 stock index futures and
options on stock index 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.
TAX TREATMENT. The extent to which the Fund may engage in stock index futures
and related option transactions may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.)
REGULATORY MATTERS. The Fund has filed a claim of exemption from registration
as a commodity pool with the Commodity Futures Trading Commission (the
"CFTC"). The 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.
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---------------------
INVESTMENT RESTRICTIONS
---------------------
The 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. The "vote of a majority
of the outstanding voting securities" of the Fund, as defined in Section
2(a)(42) of the 1940 Act, means the vote (i) of 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) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. These restrictions provide that
the Fund may not:
1. Invest in securities of any one issuer (other than the United States
of America, its agencies and instrumentalities), if immediately after
and as a result of such investment the value of the holdings of the
Fund in the securities of such issuer exceeds 5% of the value of the
Fund's total assets;
2. Invest more than 25% of 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);
3. Invest in foreign securities if immediately after and as a result of
such investment the value of the holdings of the Fund in foreign
securities exceeds 10% of the value of the Fund's total assets;
4. Acquire more than l0% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. 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;
7. Invest in interests in oil, gas, or other mineral exploration or
development programs, or warrants to buy equity securities; provided,
however, that this policy shall not prevent the ownership, holding or
sale of warrants or other rights where the grantor of the warrants or
other rights is the issuer of underlying securities owned by the Fund;
8. Borrow amounts in excess of 5% of the total assets taken at cost or
at market value, whichever is lower, and only from banks as a
temporary measure for extraordinary or emergency purposes. The Fund
will not mortgage, pledge, hypothecate or in any other manner transfer
as security for an indebtedness any of its assets;
9. 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;
10. 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. The Fund will not enter into repurchase
agreements with
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<PAGE>
maturities in excess of 7 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. The Fund will not lend portfolio securities which, when valued
at the time of loan, have a value in excess of 10% of the Fund's
total assets;
11. Make short sales of securities;
12. Act as an underwriter of securities issued by other persons, or
invest more than 5% of the value of its net assets in securities that
are illiquid;
13. Invest in the securities of any issuer which shall have a record of less
than three years of continuous operation (including the operation of any
predecessor);
14. 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 5% 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;
15. 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 average prices among them, is not deemed to result in a securities
trading account);
16. Purchase from or sell portfolio securities to its officers,
directors, or other "interested persons" (as defined in the 1940 Act)
of the Company, other than otherwise unaffiliated broker-dealers;
17. Purchase or retain the securities of an issuer if, to the
Company's knowledge, one or more of the directors, officers, partners
or employees of the Company or the Investment Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own beneficially more than 5% of such securities;
18. Purchase or sell stock index futures or purchase related options
if, immediately thereafter, more than 30% of the value of its net
assets would be hedged, or the sum of the amount of "margin" deposits
on the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total
assets; or
19. 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 only for hedging purposes. The Fund
has no current intention of entering into commodities contracts except
for stock index futures and related options.
The Fund 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.
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-------------------
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 Suite 3000, Four Embarcadero Center, San
Francisco, California 94111.
WILLIAM L. PRICE,*+ Chairman of the Board, President and Director. Mr. Price
is a Principal of RCM Capital Management ("RCM"), with which he has been
associated since 1977.+ He is also a limited partner of RCM Limited L.P., a
California limited partnership ("RCM Limited"), the sole General Partner of
RCM; a Director, Executive Vice President, and a shareholder of RCM General
Corporation ("RCM General"), the sole General Partner of RCM Limited;
Chairman of the Board, President, Chief Executive Officer and Director of RCM
Equity Funds, Inc., and open-end management investment company ("RCM
Equity"); Executive Vice President and Trustee of RCM Capital Trust Company
("RCM Trust"); a General Partner of RREEF Partners, a California general
partnership comprised of principals of RCM Limited (RREEF Partners owns an
interest in RREEF America Partners, a real estate investment manager); and a
shareholder of The RREEF Corporation, a real estate investment manager.
CLAUDE N. ROSENBERG, JR.,*+ Vice Chairman of the Board and Director. Mr.
Rosenberg is the Senior Principal of RCM, with which he has been associated
since 1970. (See THE INVESTMENT MANAGER.) He is also a limited partner of RCM
Limited; a shareholder of RCM General; Chairman of the Board, Director and
Chief Executive Officer of RCM Trust; a General Partner of RREEF Partners;
and a shareholder of The RREEF Corporation.
JOHN D. LELAND, JR.,*+ Vice President and Director. Mr. Leland is a Principal
of RCM, with which he has been associated since 1972. He is also a limited
partner of RCM Limited; a shareholder of RCM General; Vice President of RCM
Trust; a General Partner of RREEF Partners; and a shareholder of The RREEF
Corporation.
G. NICHOLAS FARWELL,+ Vice President and Director. Mr. Farwell is a Principal
of RCM, with which he has been associated since 1980. He is also a limited
partner of RCM Limited; a shareholder of RCM General; and a General Partner
of RREEF Partners.
MICHAEL J. APATOFF,+ Vice President, Chief Operating Officer and Director. Mr.
Apatoff is a Principal and Chief Operating Officer of RCM, with which he has
been associated since 1991. He is also a limited partner of RCM Limited;
Director, Executive Vice President and a shareholder of RCM General, Vice
President of RCM Strategic Global Government Fund, Inc., a closed-end
management investment company ("RCS"); Vice President, Chief Operating Officer
and Director of RCM Equity; and Director and Vice President of RCM Trust. From
1986 to 1991 he was an Executive Vice President and Chief Operating Officer of
the Chicago Mercantile Exchange.
KENNETH B. WEEMAN, JR.,+ Vice President and Director. Mr. Weeman is a
Principal of RCM, with which he has been associated since 1979. He is also a
limited partner of RCM Limited; a shareholder of RCM General; Vice President
- -------------------
* Member, Executive Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in
Section 2(a)(19) of the 1940 Act.
++ RCM Capital Management ("RCM") was established in July 1986, as the
successor to Rosenberg Capital Management (which was established in
1970). Any historical references herein to RCM prior to July, 1986
refer to the operations of Rosenberg Capital Management.
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<PAGE>
of RCM Equity; Vice President of RCM Trust; and a General Partner of RREEF
Partners.
JOHN A. KRIEWALL,+ Director. Mr. Kriewall is a Principal of RCM, with which
he has been associated since 1973. He is also a limited partner of RCM
Limited; Executive Vice President and a shareholder of RCM General; and a
General Partner of RREEF Partners.
KENNETH E. SCOTT,** Director. Mr. Scott is the Ralph M. Parsons Professor of
Law and Business at Stanford Law School, where he has been since 1967. He is
also a director of certain registered investment companies managed by Benham
Capital Management.
WALTER C. PRICE, JR., Vice President. Mr. Price is a Principal of RCM, with
which he has been associated with since 1974. He is also a limited partner of
RCM Limited; a shareholder of RCM General; Vice President of RCM Equity; and
a General Partner of RREEF Partners.
HUACHEN CHEN, Vice President. Mr. Chen is a Principal of RCM, with which is
has been associated since 1985. He is also a limited partner of RCM Limited,
a shareholder of RCM General and Vice President of RCM Equity.
SUSAN C. GAUSE, Treasurer and Chief Financial Officer. Ms. Gause is the
Director of Finance at RCM, with which she has been associated since 1994.
She is also Treasurer and Chief Financial Officer of RCS; Treasurer and Chief
Financial Officer of RCM Equity; and Chief Financial Officer, Treasurer, and
Trust Officer of RCM Trust. From December 1990 to June 1994, she was employed
by Citicorp Bankers Leasing, where she was Chief Financial Officer and
Controller.
ANTHONY AIN, Vice President and General Counsel. Mr. Ain is General Counsel
at RCM, with which he has been associated since April 1992. He is also
General Counsel and Secretary of RCM Limited; Vice President, General Counsel
and Secretary of RCM General; Vice President and General Counsel of RCS; Vice
President, General Counsel and Secretary of RCM Equity; and Vice President,
General Counsel and Secretary of RCM Trust. From September 1988 to April 1992
he was employed by the United States Securities and Exchange Commission,
where he was senior special counsel and counsel to a Commissioner.
CAROLINE M. HIRST, Vice President and Principal Accounting Officer. Ms. Hirst
is Director of Investment Operations at RCM, with which she has been
associated since December 1994. She is also Vice President and Principal
Accounting Officer of RCS and Vice President and Principal Accounting Officer
of RCM Equity. From February 1980 to April 1994 she was employed by Morgan
Grenfell Asset Management, Ltd., where she served as Head of International
Administration.
WILLIAM S. STACK, Vice President. Mr. Stack is a member of the Equity
Portfolio Management Team and the Chief Investment Officer of International
Equities at RCM, with which he has been associated since 1994. He is also a
Director of RCM General and Vice President and Director of RCM Equity. From
October 1985 to August 1994, he was employed by Lexington Management
Corporation, where he was a Managing Director and Chief Investment Officer
and managed mutual funds and investment in global, international and domestic
securities.
TIMOTHY B. PARKER, Secretary and Associate General Counsel. Mr. Parker is
Deputy General Counsel of RCM, with which he has been associated since 1993.
He is also Secretary and Associate General Counsel of RCS; Assistant
Secretary and Associate General Counsel of RCM Equity; and Assistant
Secretary of RCM
- ---------------------
** Member, Audit Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in
Section 2(a)(19) of the 1940 Act.
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<PAGE>
Trust. From 1989 to 1993, he was an associate in the law firm of Orrick,
Herrington & Sutcliffe. It is presently anticipated that regular meetings of
the Board of Directors will be held on a quarterly basis. The Executive
Committee of the Company will meet as required when the full Board does not
meet, for the purpose of reviewing the Fund's investment portfolio.
The Executive Committee has the authority to exercise all of the powers of
the Company's Board of Directors at any time when the Board is not in
session, except the power to declare dividends or distributions, authorize
the issuance of securities, amend the Company's By-Laws, recommend to
stockholders of the Company any action requiring their approval or as
otherwise required by the 1940 Act. The Company's Audit Committee, whose sole
present member is Mr. Scott, meets with the Company's independent accountants
to exchange views and information and to assist the full Board in fulfilling
its responsibilities relating to corporate accounting and reporting
practices. Mr. Scott receives a fee of $6,000 per year plus $1,000 for each
Board meeting attended, and is reimbursed for his travel and other expenses
incurred in connection with attending Board meetings. The Investment Manager
bears this expense. Mr. Scott receives no pension or retirement benefits from
the Company and is not a director of any other registered investment company
that is advised by the Investment Manager or any of its affiliates or any
other fund that holds itself out to investors as related to the Company.
The Investment Manager uses a system of multiple portfolio managers to manage
the Fund's assets. Under this system, the portfolio of the Fund is divided
into smaller segments ("portfolios"). Each portfolio is assigned to an
individual portfolio manager who is employed as a research and portfolio
management professional by the Investment Manager. Some of the Fund's
portfolios may be limited to particular industry groups, and a particular
portfolio manager may be responsible for more than one portfolio. Subject to
the objectives for that portfolio and to the Fund's overall investment
objectives, guidelines, and restrictions, the portfolio manager for each
portfolio determines how that portfolio will be invested. The primary
portfolio managers for the Fund are the following individuals:
JOHN A. KRIEWALL. Mr. Kriewall has managed one or more of the Fund's
portfolios since 1987. He is a member of the Investment Managers' Portfolio
Management Team and is the Head of its Research Division and a principal of
the firm, and he is a director of the Company. Mr. Kriewall is also one of
the primary portfolio managers of the RCM Small Cap Fund. He has been
associated with the Investment Manager since 1973.
G. NICHOLAS FARWELL. Mr. Farwell has managed one or more of the Fund's
portfolios since 1984. He is a member of the Investment Manager's Portfolio
Management Team, and he is a director of the Company. Mr. Farwell is also one
of the primary portfolio managers of the RCM Small Cap Fund. He has been
associated with the Investment Manager since 1980.
The establishment of objectives for each portfolio, the distribution and
redistribution of assets among portfolios, and the oversight of the
investment management of each portfolio is the responsibility of the
Investment Manager's Steering Committee. The Steering Committee is chaired by
William L. Price, the Chairman and President of the Company; the other
members of the Steering Committee are John A. Kriewall, G. Nicholas Farwell
and Huachen Chen.
The RCM Capital Management Profit Sharing Plan (the "Plan"), is a plan
limited to principals and employees of the Investment Manager. The Plan,
which is exempt from federal income taxation under Section 501 of the
Internal Revenue Code of 1986, was the owner of 11,857 shares of the Fund's
Capital Stock on March 31, 1996, constituting less than 1% of total shares
outstanding at that date. Each director or officer of the Company listed in
this prospectus (other than Mr. Scott) is a beneficiary of this trust and has
vested rights in its assets.
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<PAGE>
Otherwise, no director or officer of the Company was a beneficial owner of
any shares of the Fund's outstanding Common Stock as of March 31, 1996.
-------------------
THE INVESTMENT MANAGER
-------------------
The Company's Board of Directors has overall responsibility for the operation
of the Fund. 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 Fund. The Company, on behalf
of the Fund, has retained as the Fund's Investment Manager RCM Capital
Management (the "Investment Manager"), a limited partnership with principal
offices at Suite 3000, Four Embarcadero Center, San Francisco, California
94111. The Investment Manager is actively engaged in providing investment
supervisory services to institutional and individual clients, and is
registered under the Investment Advisers Act of 1940. The Investment Manager
was established in July, 1986, as the successor to the business and
operations of Rosenberg Capital Management (established in 1970). The General
Partner and controlling person of the Investment Manager is RCM Limited L.P.,
a California limited partnership, which is the successor in interest to RCM
General, the former General Partner. RCM Limited L.P. is managed by its
General Partner, RCM General Corporation, a California corporation. RCM
Limited L.P. has 19 limited partners, all of whom are principals of the
Investment Manager and shareholders of RCM General Corporation: Claude N.
Rosenberg, Jr.; John D. Leland, Jr.; Lee N. Price; Gary W. Schreyer; William
L. Price; Walter C. Price, Jr.; John A. Kriewall; Edward C. Derkum; Jeffrey
S. Rudsten; Kenneth B. Weeman, Jr.; Andrew C. Whitelaw; G. Nicholas Farwell;
Ellen M. Courtien; Melody L. McDonald; Michael J. Apatoff; Eamonn F. Dolan;
Joanne L. Howard; Stephen Kim; and Huachen Chen.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc.,
a wholly owned subsidiary of Travelers Group Inc. ("Travelers"). Travelers,
whose principal executive offices are located at 388 Greenwich Street, New York,
New York 10013, is a financial services holding company engaged, through its
subsidiaries, principally in the business of consumer financial, insurance
services, and investment services. The common stock of Travelers is listed on
the New York Stock Exchange. The limited partner does not have the power to
control the management or operations of the Investment Manager. Pursuant to the
agreement between Primerica Corporation, the predecessor of Travelers, and RCM
Limited L.P., Travelers has an option to acquire the remaining interest of the
Investment Manager from RCM Limited L.P. in the year 2000.
In December 1995, the Investment Manager entered into an Agreement of
Purchase and Sale pursuant to which it will become an entity wholly owned by
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany. It is expected that the day-to-day operations of the
Investment Manager will not be affected and that the individuals who are
primarily responsible for the management of the Fund's portfolio will remain
the same. The closing of the transaction is subject to a number of
contingencies, including the receipt of certain regulatory approvals. The
transaction is currently expected to close in mid-1996. Because the
transaction may constitute an "assignment" of the Fund's Management Agreement
with the Investment Manager under the 1940 Act, and thus a termination of
such
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<PAGE>
Management Agreement, the Fund will seek prior approval of a new management
agreement from the Fund's Board of Directors and stockholders prior to the
closing of the transaction. The terms of the new management agreement are
expected to be substantially the same as those of the current Management
Agreement, and the transaction will be described in more detail in the proxy
statement being to stockholders.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreement") dated June 16, 1987. The Investment
Manager manages the Fund's investments, provides various administrative
services, and supervises the Fund's daily business affairs, subject to the
authority of the Board of Directors. In addition, the Investment Manager
provides persons satisfactory to the Company's Board of Directors to act as
officers and employees of the Company. Such officers and employees, as well
as certain directors of the Company, may be principals or employees of the
Investment Manager. The Investment Manager is also the investment manager for
RCM Small Cap Fund and RCM International Growth Equity Fund A, the other
series of the Company, RCM Technology Fund, a series of RCM Equity Funds,
Inc., an open-end management investment company, RCM Strategic Global
Government Fund, Inc., a closed-end management and investment company, and is
sub-adviser to Bergstrom Capital Corporation, a closed-end management
investment company.
The Management Agreement was approved by the Fund's stockholders at the
annual meeting on June 16, 1987, and was most recently approved for renewal
by the unanimous vote of the Board of Directors of the Company on June 12,
1995. The Management Agreement will continue in effect until July 1, 1996. It
may be renewed from year to year thereafter, provided that any such renewals
have been specifically approved at least annually by (i) a majority of the
Board of Directors of the Company, 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.
The Fund has, under the Management Agreement, assumed the obligation for
payment of the following ordinary operating expenses: (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, and (e) payment of all investment advisory
fees (including fees payable to the Investment Manager under the Management
Agreement). The Fund is also responsible for expenses of an extraordinary
nature subject to good faith determination of the Company's Board of
Directors. Expenses attributable to the Fund are charged against the assets
of the Fund. General expenses of the Company's three series, the Fund, RCM
Small Cap Fund and RCM International Growth Equity Fund A, are allocated
among the three series in a manner proportionate to the net assets of each
series, on a transactional basis, or on such other basis as the Board of
Directors deems equitable.
The Investment Manager is, under the Management Agreement, responsible for
all of the Company's other ordinary operating expenses (e.g., legal and audit
fees, SEC and "Blue Sky" registration expenses, and compensation, if any,
paid to officers and employees of the Company), including the compensation of
the disinterested director of the Company. (See DIRECTORS AND OFFICERS.)
For the services rendered by the Investment Manager under the Management
Agreement, the Fund pays a quarterly fee to the Investment Manager equal to
3/16 of 1% (approximately 3/4 of 1% on an annual basis) of the average month
end net assets of the Fund. This is higher than the fee paid by most other
registered investment companies. For the years ended December 31, 1995, 1994
and 1993, the Fund
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<PAGE>
incurred investment management fees aggregating $11,038,366, $14,116,196 and
$15,464,585, respectively.
CLIENTS OF THE INVESTMENT MANAGER WHO ARE SHAREHOLDERS OF THE FUND WILL PAY A
FEE AT THIS RATE ONLY ON THE PORTION OF THEIR ASSETS INVESTED IN SHARES OF
THE FUND. HOWEVER, SUCH CLIENTS WILL NOT PAY ADDITIONAL FEES TO THE
INVESTMENT MANAGER ON THE PORTIONS OF THEIR ASSETS INVESTED IN THE FUND.
ASSETS NOT INVESTED IN SHARES OF THE FUND WILL BE SUBJECT TO FEES IN
ACCORDANCE WITH THE INVESTMENT MANAGEMENT AGREEMENT OR THE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE CLIENT AND THE INVESTMENT MANAGER. CLIENTS WHO
INVEST IN SHARES OF THE FUND WILL GENERALLY PAY AN AGGREGATE FEE WHICH IS
HIGHER THAN THAT PAID BY OTHER CLIENTS NOT INVESTED IN THE FUND.
On the first business day of February, the Investment Manager will pay the
Fund the amount, if any, by which ordinary operating expenses of the Company
attributable to the Fund for the preceding fiscal year (except interest,
taxes and extraordinary expenses) exceed 1% of the average net assets of the
Fund for that year, determined monthly. However, in paying the quarterly
investment management fee to the Investment Manager, the Fund will reduce the
amount of such fee by the amount, if any, by which the Fund's ordinary
operating expenses for the previous quarter (except interest, taxes and
extraordinary expenses) exceeded on an annualized basis 1% of the Fund's
average net assets, determined monthly; provided, however, that the Fund will
pay to the Investment Manager on the first day of June the amount, if any, by
which any such reductions exceeded the amount to which the Fund would be
entitled in the preceding February under the immediately preceding sentence
if such a reduction had not occurred. For the calendar years ended December
31, 1985 through December 31, 1995, no payment was due under these provisions
from either the Fund or the Investment Manager.
The Management Agreement is terminable without penalty on sixty days' written
notice by a vote of the majority of the Fund's outstanding voting securities,
by a vote of the majority of the Company's Board of Directors, or by the
Investment Manager on sixty days' written notice and will automatically
terminate in the event of its assignment.
-------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
-------------------
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the
broker or dealer for 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 each 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 or dealer is in a position to obtain the best execu-
- ------------------------------------------------------------------------------
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<PAGE>
tion, the order is placed with that broker or dealer. This may or may not be
a broker or dealer that has provided investment information and research
services to the Investment Manager. Such investment information and research
services 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.
Subject to the requirement of seeking best available price and execution, the
Investment Manager may, in circumstances in which two or more brokers are in
a position to offer comparable prices and 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 the Fund to pay an amount of commission in excess of
the amount of commission another broker would have charged. In selecting 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 Manager exercises
investment discretion. The Investment Manager continually evaluates all
commissions paid in order to ensure that the commission represents 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 Fund) and it is recognized that the Fund may be charged a
commission paid to a broker or dealer who supplied research services not
utilized by the Fund. However, the Investment Manager expects that the 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 available prices and
execution, the Investment Manager may also place orders with brokerage firms
that have sold shares of the Fund. However, to date the Fund has not marketed
any of its shares through brokers and the Investment Manager has thus not
utilized the above authority. 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. During 1995, all broker-
- ------------------------------------------------------------------------------
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<PAGE>
age commissions paid by the Fund were paid to such brokers.
The Fund may in some instances invest in U.S. and/or foreign securities that
are not listed on a national securities exchange but are traded in the
over-the-counter market. The Fund 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 primary market-makers for each security; however,
when necessary in order to obtain the best price and execution, it will
utilize the services of others. In all cases, the Investment Manager will
attempt to negotiate the best market price and execution.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid in
brokerage commissions $3,568,510, $8,994,515 and $6,298,854, respectively and
the Fund's portfolio turnover rates during such periods were 96.5%, 111.1%
and 67.0%, respectively.
As noted above, the limited partner of the Investment Manager is RCM
Acquisition, Inc., a wholly owned, indirect subsidiary of Travelers. Smith
Barney Inc. ("Smith Barney") is a wholly owned subsidiary of Travelers, and
The Robinson-Humphrey Company Inc. ("Robinson-Humphrey") is a wholly owned
subsidiary of Smith Barney. Smith Barney and Robinson-Humphrey are registered
broker-dealers. The Investment Manager believes that it is in the best
interests of the Fund to have the ability to execute brokerage transactions
through Smith Barney and Robinson-Humphrey. Accordingly, the Investment
Manager intends to execute brokerage transactions on behalf of the Fund
through Smith Barney and Robinson-Humphrey, when appropriate, and to the
extent consistent with applicable laws and regulations. In all such cases,
Smith Barney or Robinson-Humphrey will act as agent for the Fund, and the
Investment Manager will not enter into any transaction on behalf of the Fund
in which Smith Barney or Robinson-Humphrey is acting as principal for its own
account. In connection with such agency transactions, Smith Barney or
Robinson-Humphrey may 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 Smith Barney or Robinson-Humphrey, as the case may be, are no 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 Fund.
The Investment Manager performs investment management and advisory services
for various clients, including pension, profit-sharing and other employee
benefit trusts, as well as individuals. In many cases, portfolio transactions
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 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
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<PAGE>
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 Fund, there can be no assurance that any
investment will be proportionately allocated among clients according to any
particular or predetermined standard or criteria. The Investment Manager will
not include orders on behalf of any affiliated or related entity in any
aggregated transaction that includes orders placed on behalf of the Fund.
-------------------
INVESTMENT BY EMPLOYEE BENEFIT PLANS
-------------------
All shareholders of the Fund are (and are expected in the future to be)
organizations and individuals to whom the Fund's investment manager also
provides discretionary investment supervisory or investment advisory
services. For discretionary account clients that are employee benefit plans
subject to the Employee Retirement Income Security Act of 1974 ("ERISA")
investment in shares of the Fund requires a special form of approval
procedure by the plans' independent "fiduciaries," as described below.
ERISA provides that, when an employee benefit plan invests in any security
issued by an investment company registered under the 1940 Act (such as the
Company), the assets of such plan will be deemed to include that security,
but shall not, solely by reason of such investment, be deemed to include any
assets of the investment company. ERISA also provides that the investment by
an employee benefit plan in securities issued by an investment company
registered under the 1940 Act will not cause the investment company or the
investment company's advisor to be deemed a "fiduciary" or a "party in
interest" with respect to such employee benefit plan, as those terms are
defined in Title I of ERISA, or a "disqualified person" with respect to such
plan for purposes of the Internal Revenue Code of 1986.
The Investment Manager does not intend to cause the Fund to invest in the
securities of a company that is a sponsor of an employee benefit plan owning
shares of the Fund. However, should such an investment occur, either by
portfolio decisions of the Investment Manager or by the purchase of shares by
an employee benefit plan, the shares held by the Fund would not be considered
"employer securities" within the meaning of ERISA Section 407 (which limits
the amount of employer securities which may be held by certain employee
benefit plans) for an employee benefit plan owning shares of the Fund.
Although only the shares of the Fund and not its underlying investments will
be considered assets of an employee benefit plan purchasing the Fund's
shares, the ERISA Conference Report of the U. S. Congress indicates that, for
purposes of determining whether the investments of an employee benefit plan
meet the diversification requirements of ERISA Section 404, it is appropriate
to apply the diversification rule by examining the diversification of
investments by the Fund. The Department of Labor has indicated its
concurrence in this position in Advisory Opinion 75-93 (November 4, 1975).
The Investment Manager presently anticipates that shares of the Fund will be
purchased by employee benefit plans that have appointed or
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<PAGE>
may appoint the Investment Manager as "investment manager" (within the
meaning of ERISA Section 3(38)) of some or all of their assets. The
Department of the Treasury and the Department of Labor have promulgated a
"Prohibited Transaction Class Exemption" (Prohibited Transaction Exemption
77-4, 42 Fed. Reg. 18732 (April 8, 1977)) exempting from the prohibited
transaction restrictions of ERISA the purchase and sale by an employee
benefit plan of shares of a registered, open-end investment company when a
fiduciary with respect to the plan (e.g., an investment manager) is also the
investment adviser for the investment company, provided certain conditions
are met. It is the intention of the Fund and the Investment Manager to take
all necessary steps to satisfy these conditions when the transaction so
requires. The applicable conditions are:
1. The employee benefit plan (the "plan") does not pay a sales commission in
connection with such purchase or sale. (The Fund does not charge a sales
commission in connection with the sale of its capital stock.)
2. The plan does not pay a redemption fee in connection with the sale by the
plan to the investment company of its shares unless:
(a) the redemption fee is paid to the investment company, and
(b) the fee is disclosed in the investment company prospectus
in effect both at the time of the purchase of such shares
and at the time of such sale. (The Fund does not charge a
redemption fee.)
3. The plan does not pay an investment management fee with respect to plan
assets invested in such shares for the entire period of the investment.
This does not preclude payment of fees by the investment company under
the terms of the Management Agreement adopted in accordance with Section
15 of the 1940 Act. (The Investment Manager does not charge a separate
management fee on plan assets invested in shares of the Fund.)
4. A second fiduciary with respect to the plan, who is independent
of and unrelated to the fiduciary/investment adviser or any affiliate
of the adviser, must receive a prospectus issued by the investment
company, and a full and detailed written disclosure of the investment
advisory and other fees charged to or paid by the plan and the
investment company, including the nature and extent of any
differential between the rates of such fees, the reasons why the
fiduciary/investment adviser may consider purchases of investment
company stock to be appropriate, and whether there are any limitations
on the fiduciary/investment adviser with respect to which plan assets
may be invested in shares of the investment company and, if so, the
nature of such limitations.
5. On the basis of the prospectus and the additional disclosure materials
described above, the second fiduciary approves the purchases and sales.
The approval may be limited solely to the investment advisory and other
fees paid by the investment company in relation to the fees paid by the
plan and need not relate to any other aspect of the investment. The
approval must be either:
(a) set forth in the plan document or investment management agreement,
or
(b) indicated in writing prior to each purchase or sale, or
(c) indicated in writing prior to the commencement or continuation of a
specified purchase or sale program in the shares of such investment
company.
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<PAGE>
6. The second fiduciary or any successor thereto is notified in
writing of any change in any of the rates of fees referred to in
Paragraph 5 and approves in writing the continuation of the purchases
and sales and the continued holding of shares acquired prior to the
change. Such approval may be limited solely to the investment advisory
and other fees.
As noted above, the Fund and the Investment Manager intend to conform with
the above provisions in connection with investments in the Fund by employee
benefit plans managed by the Investment Manager. The Fund and Investment
Manager solicit approval of specified purchase programs as described in
Paragraph 5(c) above. Such a program will establish a purchase limitation
based either on a specific dollar amount or on a percentage of the total
assets of a plan which are committed to investment in equity and
equity-related securities supervised by the Investment Manager.
-------------------
HOW TO PURCHASE SHARES
-------------------
THE FUND CURRENTLY OFFERS ITS SHARES SOLELY TO INSTITUTIONS AND INDIVIDUALS
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR AN INVESTMENT
ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL
MANAGEMENT. THE FUND EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. IN THIS
CAPACITY, THE INVESTMENT MANAGER MAY BE AUTHORIZED TO DETERMINE THE AMOUNT
AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES HELD BY DISCRETIONARY
CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THE
INVESTMENT MANAGER'S DISCRETIONARY CLIENTS. (See INVESTMENT BY EMPLOYEE
BENEFIT PLANS above.)
Shares of the Fund are offered on a continuous basis at the net asset value
per share (next determined after acceptance of orders), without any sales or
other charge. The initial investment must be at least $10,000, and there is a
$1,000 minimum for additional investments other than through the Fund's
automatic dividend reinvestment plan (see DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS). The Company reserves the right at any time to waive, increase, or
decrease the minimum requirements applicable to initial or subsequent
investments.
Eligible investors or their duly authorized agents may purchase shares from
the Company by sending a signed, completed subscription form to the Company
at Suite 3000, Four Embarcadero Center, San Francisco, California 94111.
(telephone (415) 954-5400). Subscription forms can be obtained from the
Investment Manager or the Company. The Company, on behalf of the Fund, does
not have dealer agreements.
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on
that day. The Company reserves the right to reject any order at its sole
discretion. Orders received after the close of the New York Stock Exchange
composite tape, or on any day on which the New York Stock Exchange is not
open for trading, will be priced at the close of the New York Stock Exchange
composite tape on the next succeeding date on which the New York Stock
Exchange is open for trading. Net asset value normally is not calculated for
any day on which an order for shares is not received
- ------------------------------------------------------------------------------
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<PAGE>
or on which shares are not surrendered for redemption.
Upon receipt of the subscription form in good order, the Company will open a
shareholder account in accordance with the investor's registration
instructions. A confirmation statement reflecting the current transaction
along with a summary of the status of the account as of the transaction date
will be forwarded to the investor. Payment for shares purchased should be
made by check or money order, payable to:
State Street Bank and Trust Company
U.S. Mutual Funds Services Division
P.O. Box 1713
Boston, Massachusetts 02105
Attn: RCM Growth Equity Fund
Account I001
For overnight delivery, the address is:
1776 Heritage Drive
North Quincy, Massachusetts 02171
Investors may also wire funds in payment of orders to the above address.
Wired funds should include the following: shareholder's registration name and
account number with the Company and the name of the Fund.
The Company will issue share certificates of the Fund only for full shares
and only upon the specific request of the shareholder. Confirmation
statements showing transactions in the shareholder account and a summary of
the status of the account serve as evidence of ownership of shares of the
Fund.
In its discretion, the Company may accept securities of equal value instead
of cash in payment of all or part of the subscription price for the Fund's
shares offered by this Prospectus. Any such securities (a) will be valued at
the close of the New York Stock Exchange composite tape on the day of
acceptance of the subscription in accordance with the method of valuing the
Fund's portfolio described under NET ASSET VALUE; (b) will have a tax basis
to the Fund equal to such value; (c) must not be "restricted securities"; and
(d) must be permitted to be purchased in accordance with the Fund's
investment objectives and policies set forth in this Prospectus and must be
securities that the Fund would be willing to purchase at that time.
Prospective shareholders considering this method of payment should contact
the Company in advance to discuss the securities in question and the
documentation necessary to complete the transaction. Share purchases with
securities will not be taxable transactions to shareholders of the Fund which
are exempt from Federal income taxation under Section 501(a) of the Code.
-------------------
NET ASSET VALUE
-------------------
The net asset value of each share of the Fund on which the subscription and
redemption prices are based is determined by the sum of the market value of
the securities and other assets owned by the Fund less its liabilities,
computed in accordance with the Articles of Incorporation and By-Laws of the
Company. The net asset value of a share is the quotient obtained by dividing
the net assets of the Fund (i.e., the value of the assets of the Fund less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares of the Fund outstanding. The
net asset value of the Fund's shares will be calculated as of the close of
regular trading on the New York Stock Exchange, currently
- ------------------------------------------------------------------------------
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<PAGE>
4:00 p.m., New York time, (unless weather, equipment failure or other factors
contribute to an earlier closing time) on the last day of each month that the
New York Stock Exchange is open for trading, and on any day that the New York
Stock Exchange is open for trading and on which there is a sale or redemption
of the Fund's shares.
For purposes of this computation, 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 Board of Directors of the Company 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 Board of Directors of the
Company in good faith 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 shall be valued by whatever means a duly constituted
committee of the Board of Directors of the Company in good faith 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 Fund will be valued in such manner as a duly
constituted committee of the Board of Directors of the Company in good faith
deems appropriate to reflect their fair market value.
The Fund may use a pricing service approved by its Board of Directors to
value long-term 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
trading characteristics, indications of value from dealers, and other 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 Fund under the general
supervision of the 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.
-------------------
REDEMPTION OF SHARES
-------------------
Subject only to the limitations described below, the Company's Articles of
Incorporation require that the Company redeem the shares of the Fund tendered
to it, as described below, at a redemption price equal to the net asset value
per share as next computed following the
- ------------------------------------------------------------------------------
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<PAGE>
receipt of all necessary redemption documents. There is no redemption charge.
Payment for shares redeemed will be made within seven days after receipt by
the Company of: (a) a written request for redemption, signed by each
registered owner or his duly authorized agent exactly as the shares are
registered, which clearly identifies the exact names in which the account is
registered, the account number and the number of shares or the dollar amount
to be redeemed; (b) stock certificates for any shares to be redeemed which
are held by the shareholder; and (c) the additional documents required for
redemptions by corporations, executors, administrators, trustees and
guardians. Redemptions will not become effective until all documents in the
form required have been received by the Company. A shareholder in doubt as to
what documents are required should contact the Company.
If the Company is requested to redeem shares for which it has not yet
received payment, the Company will delay or cause to be delayed the mailing
of a redemption check until such time as it has assured itself that payment
has been collected for the purchase of such shares. The delay may be up to 15
days. Delays in the receipt of redemption proceeds may be avoided if shares
are purchased through the use of wire-transferred funds or other methods
which do not entail a clearing delay in the Fund receiving "good funds" for
its use.
Upon execution of the redemption order, a confirmation statement will be
forwarded to the shareholder indicating the number of shares sold and the
proceeds thereof. Proceeds of all redemptions will be paid by check or
federal funds wired no later than seven calendar days subsequent to execution
of the redemption order except as may be provided below.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the New York Stock Exchange is
closed (other than customary weekend or holiday closing) or during which the
SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable,
or as a result of which it is not reasonably practical for the Fund fairly to
determine the value of its net assets, or for such other periods as the SEC
may by order permit for the protection of shareholders of the Fund.
Payments will be made wholly in cash unless the Board of Directors believe
that economic conditions exist which would make such a practice detrimental
to the best interests of the Fund. Under such circumstances, payment of the
redemption price could be made either in cash or in portfolio securities
(selected in the discretion of the Board of Directors of the Company and
taken at their value used in determining the redemption price), 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 the Fund at the request of the redeeming
shareholder, if the Fund 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
investor in converting the securities to cash.
Because the net asset value of the Fund's shares will fluctuate as a result
of changes in the market value of securities owned, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
- ------------------------------------------------------------------------------
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<PAGE>
-------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
-------------------
It is the intention of the Fund to distribute to its shareholders all of each
fiscal year's net investment income and net realized capital gains, if any,
on the Fund's investment portfolio. The amount and time of any such
distribution must necessarily depend upon the realization by the Fund of
income and capital gains from investments.
Until the Board of Directors otherwise determines, each income dividend and
capital gains distribution, if any, declared by the 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 shareholder or its 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
shareholder or its 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 shareholders entitled to such payment. Any dividend and
distribution election will remain in effect until the Company is notified by
the shareholder in writing to the contrary.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December by the Fund and
made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the Fund pays the
dividend no later than January 31 of the following year.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. This may
result in a taxable shareholder paying higher income taxes than would be the
case with investment companies emphasizing the realization of long-term
capital gains.
The Company has qualified and intends to continue to qualify the Fund as a
"regulated investment company" under Subchapter M of the Code. The Fund will
be treated as a separate fund for tax purposes and thus the provisions of the
Code applicable to regulated investment companies generally will be applied
to the Fund. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. By complying
with the applicable provisions of the Code, the Fund will not be subjected to
federal income taxes with respect to net investment income and net realized
capital gains distributed to its shareholders.
To qualify under Subchapter M, the Fund must (a) 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 or securities or
certain options, futures, forward contracts on foreign currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of stock
or securities held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) 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 assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in the
- ------------------------------------------------------------------------------
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<PAGE>
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 the 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. The 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 the 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 the 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. The Fund intends to meet these distribution requirements to avoid the
excise tax liability. Shareholders 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 the Fund whether paid in additional
shares of the Fund or in cash. To the extent that dividends received by the
Fund would qualify for the 70% dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders 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
shareholder must hold the Fund shares paying the dividends upon which a
dividend received deduction is based for at least 46 days. Shareholders, 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 the
Fund under federal, state and local tax laws.
Clients who purchase shares of the Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for the shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
Federal law requires the Company to withhold 31% of income from dividends,
capital gains distributions and/or redemptions (including exchanges) that
occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply. Amounts withheld are applied to
the shareholder's federal tax liability, and a refund may be obtained from
the Internal Revenue Service if withholding results in an overpayment of
taxes.
Under the Code, distributions of net investment income by the Fund to
a shareholder 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 shareholder") will be subject to U.S.
- ------------------------------------------------------------------------------
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<PAGE>
withholding tax (at a rate of 30% or lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder 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 are not subject to tax withholding, but in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. 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.
Futures contracts and related options entered into by the Fund may be
"Section 1256 contracts" under the Code. Any gains or losses on Section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses, although certain foreign currency gains and losses from such
transactions may be treated as ordinary income in character. Section 1256
contracts held by the Fund at the end of each taxable year (and for purposes
of the 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.
Generally, transactions in stock index futures contracts and related options
undertaken by the fund may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the character of gains or losses
realized by the Fund. In addition, losses realized by the 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 such
transactions to the Fund are not entirely clear.
Transactions in futures contracts and related options may increase the amount
of short-term capital gain realized by the Fund which is taxed as ordinary
income when distributed to shareholders. The Fund may make one or more of the
elections available under the Code which are applicable to straddle
positions. If the 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 form the affected straddle positions, the amount which
must be distributed to shareholders, and which will be taxed to shareholders
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 the Fund will be able to engage in transactions involving stock index
futures contracts and all related options.
Under the Code, gains or losses attributable to fluctuations and exchange
rates which occur between the time the 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 certain futures contracts and related
options, gains or losses attributable to fluctuation in the value of foreign
currency between the dates of acquisition and 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 the
Fund's investment company taxable income to be distributed to shareholders as
ordinary income.
The 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
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<PAGE>
the United States may reduce or eliminate such taxes. To the extent the Fund
does pay foreign withholding or other foreign taxes on certain of its
investments, investors will not be able to deduct their pro rata shares of
such taxes in computing their taxable income and will not be able to take
their share of such taxes as a credit against their United States income
taxes.
Each shareholder will receive following the end of each fiscal year of the
Company, full information on dividends, capital gains distributions and other
reportable amounts with respect to shares of the Fund for tax purposes,
including information such as the portion taxable as capital gains, and the
amount of dividends, if any, eligible for the federal dividends received
deduction for corporate taxpayers.
The foregoing is a general abbreviated summary of present United States
Federal income tax laws and regulations applicable to dividends and
distributions by the Fund. Investors 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.
-------------------
DESCRIPTION OF CAPITAL STOCK
-------------------
The Company was incorporated in Maryland on March 16, 1979. The authorized
capital stock of the Company is 25,000,000 shares of Capital Stock (par value
$0.10 per share) of which 12,000,000 shares have been designated as shares of
RCM Growth Equity Fund. 8,000,000 shares have been designated as shares of
RCM Small Cap Fund, and 4,500,000 shares have been designated as shares of
RCM International Growth Equity Fund A. The Company's Board of Directors has
authorized the issuance of three series of shares of capital stock, each
representing an interest in one of three investment portfolios, RCM Growth
Equity Fund, RCM Small Cap Fund and RCM International Growth Equity Fund A,
and the Board of Directors may, in the future, authorize the issuance of
other series of capital stock representing shares of additional investment
portfolios or funds. All shares of the Company have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by
series is required by law or where the matter involved affects only one
series. There are no conversion or preemptive rights in connection with any
shares of the Company. All shares of the Fund when duly issued will be fully
paid and non-assessable. The rights of the holders of shares of the Fund may
not be modified except by vote of the majority of the outstanding shares of
the Fund. Certificates are not issued unless requested and are never issued
for fractional shares. Fractional shares are liquidated when an account is
closed. As of March 31, 1996, there were 3,906,151.092 shares of the Fund's
shares outstanding; on that date the following were known to the Fund to own
of record more than 5% of the Fund's capital stock:
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<PAGE>
NAME AND % OF SHARES
ADDRESS OF SHARES OUTSTANDING AS OF
BENEFICIAL OWNER HELD MARCH 31, 1996
- ------------------------- -------- --------------
U.S. Trust Company N.Y. 419,190.383 10.73%
Ernst & Young U.S. Master Trust
770 Broadway, 10th Floor
New York, New York 10003
Fidelity Management Trust Co. 380,807.384 9.75%
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
Bankers Trust Company 343,060.181 8.78%
Chevron Corporation Annuity Trust
M/S 3021
34 Exchange Place, 2nd Floor
Jersey City, New Jersey 07302
Chase Manhattan Bank NA 262,395.835 6.72%
Boeing Company Employee Retirement Plan
3 Metrotech Center
Brooklyn, New York 11245
Except as described above, the Fund has no information regarding the
beneficial owners of such shares. All shareholders of the Fund are also
clients of the Investment Manager. (See INVESTMENT BY EMPLOYEE BENEFIT
PLANS.) As investment manager for discretionary account clients, the
Investment Manager may be authorized to determine the amount and timing of
purchases and redemptions of the Fund's shares held by such clients, subject
only to general restrictions and approvals of such clients. As a result, the
Investment Manager under law may also be deemed the beneficial owner of all
of the outstanding shares of the Fund and in "control" of the Fund on account
of such beneficial ownership. Nevertheless, each shareholder of the Fund that
is a client of the Investment Manager retains the general authority to
restrict or instruct the Investment Manager with respect to investments in
shares of the Fund.
Shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so.
In such event, the holders of the remaining less that 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the Board of Directors.
The Company is not required to hold a meeting of shareholders in any year in
which the 1940 Act does not require a shareholder vote on a particular
matter, such as election of directors. The Company will hold a meeting of its
shareholders for the purpose of voting on the question of removal of one or
more directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, or to assist in communicating with
its shareholders as required by Section 16(c) of the 1940 Act.
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<PAGE>
------------------------
SHAREHOLDER REPORTS
------------------------
The fiscal year of the Fund ends on December 31 of each year. The Fund will
issue to its shareholders semi-annual and annual reports; each annual report
will contain a schedule of the Fund's portfolio securities, audited annual
financial statements and related footnotes, and information regarding
purchases and sales of securities during the period covered by the report as
well as information concerning the Fund's performance in accordance with
rules promulgated by the SEC. In addition, shareholders will receive
quarterly statements of the status of their accounts reflecting all
transactions having taken place within that quarter. The Federal income tax
status of shareholders' distributions will also be reported to shareholders
after the end of each fiscal year.
------------------------
COUNSEL
------------------------
The validity of the shares offered by this Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker have 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 the Fund, assist in the
preparation of the 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.
The financial statements of the Fund incorporated by reference herein have
been audited by Coopers & Lybrand L.L.P., independent accountants, as stated
in their opinion appearing therein and are included in reliance upon such
opinion given upon the authority of said firm as experts in accounting and
auditing.
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<PAGE>
------------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER AND
REDEMPTION AGENT
------------------------
State Street Bank and Trust Company, U.S. Mutual Funds Services Division,
P.O. Box 1713, Boston, Massachusetts 02105 serves as Custodian of all
securities and funds owned by the Fund in accordance with the terms of a
Custodial Agreement between the Company and the Custodian. The Custodian also
provides dividend paying services to the Fund.
The Company acts as its own transfer and redemption agent for its common
stock, and solicits orders from qualified investors to purchase Fund shares.
------------------------
ADDITIONAL INFORMATION
------------------------
This Prospectus does 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 Commission. The registration statements and related forms
may be inspected at the Public Reference Room of the Commission at Room 1024,
450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
Under an Agreement dated March 16, 1979, the Investment Manager (through its
predecessor, Rosenberg Capital Management) 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.
The Fund may from time to time compare its investment results with the
following:
1. The unmanaged Russell Mid-Capitalization Index, which is composed of
all medium/small companies in the Russell 1000 Index.
2. The Standard & Poor's MidCap 400 Index, which is a widely recognized
index composed of the middle capitalization sector of the U.S. equities
market.
3. The Standard & Poor's 500 Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
of the largest publicly traded stocks in the United States.
4. The Dow Jones Industrial Average, which is a price-weighted average
comprised of the stocks of 30 blue-chip stocks, primarily
manufacturing companies, but also service companies.
5. The Russell 2000 Index, which is the 2,000 smallest stocks in the
Russell 3000 Index.
6. The Value Line Composite Index, which consists of approximately 1,700
common equity securities.
- ------------------------------------------------------------------------------
Page 35
<PAGE>
7. The NASDAQ Over-the-Counter Composite Index, which is a value-weighted
index composed of 4,500 stocks traded over the counter.
8. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc., which ranks mutual funds by overall performance,
investment objectives, and assets.
------------------------
FINANCIAL STATEMENTS
------------------------
Incorporated by reference herein are the financial statements of RCM Growth
Equity Fund, contained in the Fund's Annual Report to Shareholders for the
year ended December 31, 1995, including the Report of Independent
Accountants, dated February 9, 1996, 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. A copy of the Fund's Annual Report to
Shareholders is available, upon request, by calling the Fund at (415)
954-5400, or by writing the Fund at Four Embarcadero Center, Suite 3000, San
Francisco, CA 94111.
- ------------------------------------------------------------------------------
Page 36
<PAGE>
INVESTMENT MANAGER
RCM Capital Management
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION
AGENT
RCM Capital Funds, Inc.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
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
Combined Prospectus and
Statement of Additional Information
April 29, 1996
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM SMALL CAP FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
1. Cover Page Cover Page
2. Synopsis Synopsis; Summary of Fees and
Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description of Investment Objective and
Registrant Policies; Stock Index Futures
Transactions; Description of
Capital Stock
5. Management of the Fund The Investment Manager
5A. Management's Description of *
Fund Performance
6. Capital Stock and Other Dividends, Distributions and
Securities Tax Status; Description of
Capital Stock
7. Purchase of Securities Being How to Purchase Shares
Offered
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
- --------------------------
* Not applicable
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM SMALL CAP FUND
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
(CONTINUED)
ITEM NUMBER OF PART B OF FORM N-1A CAPTIONS IN COMBINED PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Description of Capital Stock
History
13. Investment Objectives and Investment Objective and
Policies Policies; Stock Index Futures
Transactions; Investment
Restrictions
14. Management of the Fund Directors and Officers
15. Control Persons and Description of Capital Stock
Principal Holders of
Securities
16. Investment Advisory and The Investment Manager
Other Services
17. Brokerage Allocation and Execution of Portfolio
Other Practices Transactions
18. Capital Stock and Other Redemption of Shares;
Securities Description of Capital Stock
19. Purchase, Redemption and How to Purchase Shares; Net
Pricing of Securities Asset Value
Being Offered
20. Tax Status Dividends, Distributions and Tax
Status
21. Underwriters *
22. Calculation of Performance Investment Results
Data
23. Financial Statements Financial Statements
- --------------------------------
*Not applicable
<PAGE>
------------------------------
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
------------------------------
RCM SMALL CAP FUND
Offered by:
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATES TO RCM
SMALL CAP FUND, A SERIES OF RCM CAPITAL FUNDS, INC., SPECIALIZING IN EQUITY AND
EQUITY-RELATED SECURITIES OF SMALL CAPITALIZATION COMPANIES
-----------------------------
RCM SMALL CAP FUND (THE "FUND") is a diversified no-load series of RCM Capital
Funds, Inc. (the "Company"), an open-end management investment company. Shares
of the Fund may be purchased and redeemed at their net asset value without a
sales or redemption charge. (See HOW TO PURCHASE SHARES and REDEMPTION OF
SHARES.) THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO INSTITUTIONS
AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT
AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER,
RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE COMPANY EXPECTS TO
CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER MAY FOR DISCRETIONARY
ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES
AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH CLIENTS, SUBJECT ONLY TO
GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY
EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by investing,
during normal conditions, at least 80% of its assets in equity and equity-
related securities of small-sized concerns (common stocks or securities
convertible into common stocks). (See INVESTMENT OBJECTIVE AND POLICIES.) Such
investments will be chosen with regard to their potential for capital
appreciation. The Investment Manager will not take into consideration the tax
effect of long-term versus short-term capital gains loss recognition when making
investment decisions as it is anticipated that the majority of investors will be
tax-exempt institutions. Current income will be considered only as part of total
investment return and will not be emphasized. "Small-sized concerns" is defined
as encompassing companies whose equity securities have a total market
capitalization of up to $750 million at the time of purchase; however, under
normal market conditions, at least 65% of the Fund's assets will be invested in
equity and equity-related securities of companies whose equity securities have a
total market capitalization of up to $500 million at the time of purchase. There
can be no assurance the Fund will meet its investment objective.
This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Fund that prospective investors should know
before investing. Investors should read this document and retain it for future
use.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus and
Statement of Additional Information in connection with the offer contained in
this Combined Prospectus and Statement of Additional Information, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Combined Prospectus and Statement
of Additional Information is not an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
------------------------------
The Date of this Combined Prospectus and Statement of
Additional Information is April 29, 1996.
------------------------------
<PAGE>
-----------------
TABLE OF CONTENTS
-----------------
PAGE
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of Fees and Expenses . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . 4
Investment Results . . . . . . . . . . . . . . . . . . . 5
Investment Objective and Policies. . . . . . . . . . . . 6
Stock Index Futures Transactions . . . . . . . . . . . . 10
Investment Restrictions. . . . . . . . . . . . . . . . . 14
Directors and Officers . . . . . . . . . . . . . . . . . 16
The Investment Manager . . . . . . . . . . . . . . . . . 19
Execution of Portfolio Transactions. . . . . . . . . . . 21
Investment by Employee Benefit Plans . . . . . . . . . . 24
How to Purchase Shares . . . . . . . . . . . . . . . . . 26
Net Asset Value. . . . . . . . . . . . . . . . . . . . . 28
Redemption of Shares . . . . . . . . . . . . . . . . . . 29
Dividends, Distributions and Tax Status. . . . . . . . . 30
Description of Capital Stock . . . . . . . . . . . . . . 33
Shareholder Reports. . . . . . . . . . . . . . . . . . . 35
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . 35
Independent Accountants. . . . . . . . . . . . . . . . . 35
Safekeeping of Securities, Distributor, and
Transfer and Redemption Agent . . . . . . . . . . . . . 36
Additional Information . . . . . . . . . . . . . . . . . 36
Financial Statements . . . . . . . . . . . . . . . . . . 37
<PAGE>
-------------------
SYNOPSIS
-------------------
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) in RCM
Small Cap Fund's Annual Report to Shareholders for the year ended December
31, 1995, incorporated by reference herein, and elsewhere in this Combined
Prospectus and Statement of Additional Information (hereinafter this
"Prospectus").
RCM CAPITAL FUNDS, INC. (THE "COMPANY") is an open-end management investment
company. RCM Small Cap Fund (the "Fund") is a diversified no-load series of
the Company. THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO
INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT
MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S
INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE
COMPANY EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER
MAY FOR DISCRETIONARY ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT
AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH
CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE
CLIENTS. (See INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by
investing, during normal market conditions, at least 80% of its assets in
equity and equity-related securities of small-sized concerns (common stocks,
or securities convertible into common stocks). Such investments will be
chosen with regard to their potential for capital appreciation. Current
income from the Fund's investment portfolio will be considered only as a part
of total investment return and will not be emphasized. "Small-sized concerns"
is defined as encompassing companies whose equity securities have a market
capitalization, at the time of acquisition of up to $750 million at the time
of purchase; however, under normal market conditions, the Fund will invest at
least 65% of its assets in equity and equity-related securities of companies
whose equity securities have a total market capitalization up to $500 million
at the time of purchase and no more than 35% of its net assets in equity and
equity-related securities of companies whose equity securities have a total
market capitalization in excess of $500 million, but less than $750 million.
There can be no assurance that the Fund will meet its investment objective.
The Fund will sell or transfer securities whenever, as of the end of a
calendar quarter, the issuer's market capitalization exceeds $1 billion.
The Fund will accept subscriptions only when its net assets, at cost, are
below $750 million. When the value of its net assets reaches $750 million,
the Fund will be closed to new investments until such time as the Fund's net
assets, at cost, are reduced by redemption to a level below $750 million.
This restriction on new investments shall not apply to reinvestments of
dividends and capital gains distributions.
Investments in small-sized concerns may involve greater risks than
investments in larger or more established firms. These firms may have limited
or unprofitable operating histories, limited financial resources and
inexperienced management, and they may face competition from larger or more
established firms that have greater resources. Their securities are
frequently traded in the over-the-counter market or on regional exchanges
where low trading volumes may result in erratic or abrupt price movements.
The value of the Fund's shares will fluctuate because of the fluctuations in
the value of securities in the Fund's portfolio. When the Fund sells
portfolio securities, it may realize a gain or a loss. (See DIVIDENDS,
DISTRIBUTIONS AND TAX STATUS.)
The Investment Manager is actively engaged in providing investment
supervisory services, as
<PAGE>
defined in the Investment Advisers Act of 1940, to institutional and
individual clients.
Shares of the Fund are purchased without a sales charge. The minimum initial
investment is $10,000 and the minimum subsequent investment is $1,000. The
Company acts as transfer and redemption agent for the Fund's shares. (See HOW
TO PURCHASE SHARES and REDEMPTION OF SHARES.)
Shareholder inquiries may be directed to the Company or the Investment
Manager in writing to Four Embarcadero Center, Suite 3000, San Francisco,
California 94111, or by telephone at (415) 954-5400.
--------------------------------
SUMMARY OF FEES AND EXPENSES
--------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
All Sales Loads and Redemption and Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)
Management Fees 1.00%
Other Expenses (Custodian) 0.01%
------
Total Fund Operating Expenses 1.01%
HYPOTHETICAL EXAMPLE OF
EFFECT OF EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------- ------ ------- ------- --------
You would pay the following total
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each time period. $10 $32 $56 $124
THIS EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE REGULATIONS OF
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC" OR THE "COMMISSION"), BASED
ON THE EXPENSES OF THE FUND FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE GREATER OR LESSER THAN THOSE
SHOWN. The purpose of the above table is to give you information in order to
understand various costs and expenses of the Fund that an investor will bear
directly or indirectly.
For more information concerning fees and expenses of the Fund, see FINANCIAL
HIGHLIGHTS, THE INVESTMENT MANAGER, EXECUTION OF PORTFOLIO TRANSACTIONS, and
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.
In accordance with applicable SEC regulations, this example assumes that: (1)
the percentage amounts listed under Annual Fund Operating Expenses remain the
same in each year of the one, three, five, and ten year periods; (2) the
- -----------------------------------------------------------------------------
Page 2
<PAGE>
amount of the Fund's assets remains constant at the level at the end of its
most recently completed fiscal year; and (3) all dividends and distributions
will be reinvested by the shareholder. This example also reflects recurring
fees charged to all investors. SEC regulations require that the example be
based on a $1,000 investment, although the minimum initial purchase of Fund
shares is actually $10,000. (See HOW TO PURCHASE SHARES.)
The Fund is responsible for the payment of certain of its operating expenses,
including brokerage and commission expenses; taxes levied on the Fund;
interest charges on borrowings (if any); charges and expenses of the Fund's
custodian; and payment of investment management fees due to the Investment
Manager. The Investment Manager is responsible for all of the Fund's other
ordinary operating expenses (e.g., legal and audit fees, securities
registration expenses and compensation of non-interested directors of the
Company). Expenses attributable to the Fund are charged against the assets of
the Fund. General expenses of the Company's three series, the Fund, RCM
Growth Equity Fund and RCM International Growth Equity Fund A, are allocated
among the three series in a manner proportionate to the net assets of each
series, on a transactional basis or on such other basis as the Board of
Directors deems equitable. (See THE INVESTMENT MANAGER.)
Clients of the Investment Manager who are shareholders of the Fund will,
through the Fund, pay a fee to the Investment Manager on the portion of their
assets invested in shares of the Fund. However, such clients will not pay
additional fees to the Investment Manager on the portions of their assets
invested in the Fund. A Client's assets not invested in shares of the Fund
will be subject to fees in accordance with the Investment Management
Agreement or Investment Advisory Agreement between the Client and the
Investment Manager. Clients who invest in shares of the Fund will generally
pay an aggregate fee which is higher than that paid by other Clients not
invested in the Fund. (See INVESTMENT MANAGER and INVESTMENT BY EMPLOYEE
BENEFIT PLANS.)
- -----------------------------------------------------------------------------
Page 3
<PAGE>
RCM SMALL CAP FUND
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their opinion appearing elsewhere
in the Fund's 1995 Annual Report to Shareholders (which has been incorporated
herein by reference). This supplementary information should be read in
conjunction with the financial statements and related notes, which are included
in the Annual Report to Shareholders.
Selected data for each share of capital stock outstanding for the four years
ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1995 1994 1993 1992
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 113.01 $ 124.94 $ 121.82 $ 100.00
---------- ---------- ---------- ---------
Net investment income (loss) (0.44) (0.51) (0.01) 0.31
Net realized and unrealized gain (loss)
on investments 38.49 (2.43) 10.90 21.82
---------- ---------- ---------- ---------
Net increase (decrease) in net asset value
resulting from investment operations 38.05 (2.94) 10.89 22.13
---------- ---------- ---------- ---------
Distributions:
Net investment income (0.00) (0.00) (0.00) (0.31)
Net realized gain on investments (14.85) (8.99) (7.77) (0.00)
---------- ---------- ---------- ---------
Total distributions (14.85) (8.99) (7.77) (0.31)
---------- ---------- ---------- ---------
NET ASSET VALUE, END OF YEAR $ 136.21 $ 113.01 $ 124.94 $ 121.82
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
TOTAL RETURN* 34.08% (2.16%) 9.20% 22.14%
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
AVERAGE COMMISSION RATE PAID 0.05421
----------
----------
RATIO AND SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $ 409,567 $ 415,647 $ 660,049 $ 457,994
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Ratio of expenses to average net assets 1.0% 1.1% 0.9% 0.7%
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Ratio of net investment income (loss) to
average net assets (0.2%) (0.3%) 0.0% 0.4%
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Portfolio turnover 83.9% 117.7% 80.0% 72.0%
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
- -----------------------
* Total return measure the change in value of an investment over the period
indicated.
- -----------------------------------------------------------------------------
Page 4
<PAGE>
-------------------------
INVESTMENT RESULTS
-------------------------
The Fund may, from time to time, include information on its investment
results and/or comparisons of its investment results to various unmanaged
indices or results of other mutual funds or groups of mutual funds in
advertisements or in reports furnished to present or prospective
shareholders. See ADDITIONAL INFORMATION for a brief description of these
comparisons. Investment results will include information calculated on a
total return basis in the manner set forth below.
Average total return ("T") will be calculated as follows: an initial
hypothetical investment of $1,000 ("P") is divided by the net asset value as
of the first day of the period in order to determine the initial number of
shares purchased. Subsequent dividends and capital gain distributions 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
as of the end of the period ("n") to determine ending 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: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial
investment; (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Board; and (3) a 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 for the one and four year periods ended December 31,
1995 are 34.08% and 15.01%, respectively.
In addition, in order more completely to represent the Fund's performance or
more accurately to compare such performance to other measures of investment
return, the Fund also may include in advertisements and shareholder 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.
The 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 the 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 objectives and policies.
- -----------------------------------------------------------------------------
Page 5
<PAGE>
-------------------------
INVESTMENT OBJECTIVE AND POLICIES
-------------------------
The Fund is designed to provide investors with a vehicle for investment
primarily in a diversified group of equity and equity-related securities of
small-sized concerns. The Fund's investment objective is to seek appreciation
of capital by investing, during normal conditions, at least 80% of its assets
in equity and equity-related securities of small-sized concerns (common
stocks or securities convertible into common stocks). Such investments will
be chosen with regard to their potential for capital appreciation. Current
income from the Fund's investment portfolio will be considered only as a part
of total return and will not be emphasized. "Small-sized concerns" is defined
under applicable law as encompassing companies whose equity securities have a
total market capitalization of up to $750 million (at the time of purchase of
the securities of such a company). This investment objective is fundamental
and cannot be changed without shareholder approval. Under normal market
conditions, the Fund will invest at least 65% of its assets in equity and
equity-related securities of companies whose equity securities have a total
market capitalization up to $500 million at the time of purchase and no more
than 35% of its assets in equity and equity-related securities of companies
whose equity securities have a total market capitalization at the time of
purchase in excess of $500 million, but less than $750 million.
Under normal market conditions, the Fund will not purchase equity and
equity-related securities of companies whose equity securities have a total
market capitalization of greater than $750 million at the time of purchase.
The market capitalization of each issuer's equity securities will be
evaluated on a quarterly basis. The Fund will not be required to sell
portfolio securities solely on account of the fact that the market
capitalization of the issuer's equity securities has exceeded $750 million,
or be prevented from purchasing or be required to sell other portfolio
securities as a result of such change. However, the Fund will sell or
transfer portfolio securities whenever, as of the end of a calendar quarter,
the issuer's market capitalization exceeds $1 billion. There is no minimum
market capitalization for an issuer's equity securities to be considered an
appropriate investment for the Fund. Although the market capitalization of
portfolio securities at the time of purchase is used for compliance purposes,
the Fund anticipates that the average market capitalization of the portfolio
at market value will approximate $300 million to $400 million and that the
average market capitalization of the portfolio at market value will not
exceed $450 million. There can be no assurance that the Fund's investment
objective will be achieved.
Critical factors which will be considered by the Investment Manager in the
selection of securities will include the economic and political outlook, the
values of individual securities relative to other securities investment
alternatives, trends in the determinants of corporate profits, and management
capability and practices. Generally speaking, disposal of a portfolio
security will be based upon such factors as (i) actual or potential
deterioration of the issuer's earning power which the Investment Manager
believes may adversely affect the price of its securities, (ii) increases in
the price level of the security or of securities generally which the
Investment Manager believes reflect expected earnings growth too far in
advance of realization, and (iii) changes in the relative investment
opportunities offered by other securities.
The Fund will accept subscriptions only when its net assets, at cost, are
below $750 million. When the value of its net assets, at cost, reaches $750
million, the Fund will be closed to new investments until such time as the
Fund's net assets, at cost, are reduced by redemption, changes in market
value or otherwise to a level below $750 million. This restriction on new
investments shall not apply to reinvestments of dividends and capital gains
distributions or to additional investments by existing shareholders.
- -----------------------------------------------------------------------------
Page 6
<PAGE>
The Fund may invest in securities on either a long-term or short-term basis.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. (See
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) The Fund may invest with the
expectation of short-term capital appreciation if the Fund believes that such
action will benefit its shareholders. The Fund also may sell securities that
have been held on a short-term basis if the Fund's investment objective for
such securities has been achieved or if other circumstances make the sale of
such securities advisable. This may result in a taxable shareholder 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 some securities for the Fund's
portfolio without regard to the length of the holding period for such
securities, it is possible that the 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. Although the Investment Manager generally does
not intend to trade on behalf of the Fund for short-term profits, securities
in the 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. Turnover will be influenced by sound investment practices,
the Fund's investment objectives, and the need for funds for the redemption
of the Fund's shares.
The Investment Manager anticipates that annual portfolio turnover rate should
not exceed 90%, but the turnover rate will not be a limiting factor when the
Investment Manager deems portfolio changes appropriate. A 90% portfolio
turnover rate would occur if the value of purchases OR sales of portfolio
securities (whichever is less) for a year (excluding purchases of U. S.
Treasury issues and securities within a maturity of one year or less) were
equal to 90% of the average monthly value of the securities held by the Fund
during such year. A higher portfolio turnover rate would increase aggregate
brokerage commission expenses, which must be borne directly by the Fund and
ultimately by the Fund's shareholders. (See EXECUTION OF PORTFOLIO
TRANSACTIONS.) The portfolio turnover for the years ended December 31, 1995,
1994 and 1993 was 83.9%, 117.7% and 80.0%, respectively.
Except when taking a defensive investment position (as described below), the
Investment Manager expects under normal circumstances to have at least 80% of
total assets invested in equity or equity-related securities of small-sized
concerns (as defined above). When business or financial conditions warrant,
the Investment Manager temporarily may take a defensive position and invest
without regard to the above policies up to 100% of the Fund's assets in one
or more of the following: (1) cash or cash equivalents having a maturity date
no more than one year from the date of acquisition; or (2) obligations of, or
securities guaranteed by, the United States Government, its agencies or
instrumentalities having a maturity date no later than five years from the
date of acquisition.
Other than as described below under INVESTMENT RESTRICTIONS, the Fund is not
restricted with regard to the types of cash-equivalent investments it may
make. Financial instruments of this nature include certificates of deposit,
bankers' acceptances, repurchase agreements, and other short-term debt
obligations. Certificates of deposit are short-term obligations of commercial
banks. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
Repurchase agreements involve transactions by which an investor (such as the
Fund) purchases a security and simultaneously obtains the commitment of the
seller (a member bank of the Federal
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Reserve System or a recognized securities dealer) to repurchase the security
at an agreed-upon price on an agreed-upon date within a number of days
(usually not more than seven) from the date of purchase.
The Fund may invest in domestic listed and unlisted securities and in
securities of foreign issuers which are available in American Depository
Receipt ("ADR") form or are traded on any United States or foreign securities
exchange or over-the-counter. ADRs represent ownership of securities of
non-U. S. issuers deposited with a depository agent, typically a commercial
bank. The Fund may invest in ADRs sponsored by persons other than the
underlying issuers. Issuers of the stock of such unsponsored ADRs are not
obligated to disclose material information in the United States and,
accordingly, there may not be a correlation between such information and the
market value of such ADRs.
An ADR will be treated as an illiquid security for purposes of the Fund's
restriction on the purchase of such securities, unless the ADR is convertible
by the Fund within seven days into cash. The Fund may invest in foreign
securities if investment therein, at the time of purchase, would not cause
more than 10% of the value of the Fund's total assets to be invested in
foreign securities. Investment in foreign securities may be riskier than
investment in domestic securities. In many cases, foreign securities markets
are not as developed or as efficient as those in the United States. As a
result, securities of foreign issuers often may be less liquid and more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities may be subject to risks from restrictions on monetary
repatriation; oppressive regulation; heavy or confiscatory taxation; less
governmental supervision of securities markets and issuers of securities;
lack of uniform settlement periods and trading practices; limited publicly
available corporate information; lower accounting, auditing, and financial
reporting standards; less understandable financial statements; less
advantageous legal, operational, and financial protections applicable to
foreign subcustody arrangements; nationalization or expropriation of assets;
and political, economic, or social instability. In addition, custodial
expenses for non-U.S. securities often may be higher than for U.S.
securities. Fluctuations in the rates of exchange between U.S. and foreign
currencies may also offset the value of the Fund's investments.
The Fund may invest up to 5% of the value of its net assets in securities
that are illiquid. (See INVESTMENT RESTRICTIONS.) Securities may be
considered illiquid if the Fund cannot reasonably expect to receive
approximately the amount at which the Fund values such securities within 7
days. The Company's Board of Directors has the authority to determine whether
specific securities, including restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, are liquid or
illiquid. The Board of Directors monitors the liquidity of securities in the
Fund's portfolio based on reports furnished periodically by the Investment
Manager. The Investment Manager takes into account a number of factors in
reaching liquidity decisions, including, but not limited to: 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).
The Fund's investments in illiquid securities may include securities that are
not registered for resale under the Securities Act of 1933, as amended, and
therefore are subject to restrictions on resale. In some cases, such
securities may be eligible for resale to qualified institutional buyers under
Rule 144A under the Securities Act of 1933. Investing in Rule 144A securities
could have the effect of increasing Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. When the Fund purchases unregistered securities, the Fund
may, in appropriate circumstances, obtain the right to registration of such
securities at the expense of the issuer. In
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such cases, there may be a lapse of time between the Fund's decision to sell
any such security and the registration of the security permitting sale.
During any such period, the price of the security will be subject to market
fluctuations.
In making purchases within the above policies (which may be changed without
shareholder consent), the Fund and the Investment Manager will be subject to
all of the restrictions referred to under INVESTMENT RESTRICTIONS. If a
percentage restriction on an investment or utilization of assets set forth
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. The 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 Investment Company Act of 1940 ("1940 Act"), any such
securities so acquired without regard to the Fund's investment policies and
restrictions. The Fund will not knowingly exercise rights or otherwise
acquire securities when to do so would jeopardize the Fund's status under the
1940 Act as a "diversified" investment company.
Investments in small-sized concerns may involve greater risks than
investments in larger companies. For this reason, the Fund is not intended as
a complete investment vehicle. The Fund is designed for that portion of a
portfolio that can appropriately be invested in securities with greater risk
but also greater potential for appreciation. The securities of small-sized
concerns, as a class, have shown market behavior which has had periods of
more favorable results, and periods of less favorable results, relative to
securities of larger companies as a class. In addition, small-sized concerns
in which the Fund will invest may be unseasoned; that is, these companies may
have limited or unprofitable operating histories, limited financial resources
and inexperienced management. Small-sized concerns often face competition
from larger or more established firms that have greater resources.
Smaller-sized concerns may not have as great an ability to raise additional
capital, may have a less diversified product line (making them susceptible to
market pressure), and may have a smaller public market for their shares as
compared to larger companies. Securities of small and unseasoned companies
are often less liquid than securities of larger companies and are frequently
traded in the over-the-counter market or on regional exchanges where low
trading volumes may result in erratic or abrupt price movements. To dispose
of these securities, the Fund may have to sell them over an extended period
of time or below the original purchase price. Investments by the Fund in
these small or unseasoned companies may be regarded as speculative. The Fund
has investment restrictions that limit the amount of its assets that can be
invested in companies that have a record of less than three years of
continuous operations and prohibit investment of more than 5% of the value of
its net assets in securities that are illiquid. (See INVESTMENT RESTRICTIONS.)
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--------------------------
STOCK INDEX FUTURES TRANSACTIONS
--------------------------
The Fund may purchase and sell stock index futures as a hedge against changes
in market conditions that may result in changes in the value of the Fund's
portfolio securities, in accordance with the strategies more specifically
described below. The Fund will engage in transactions in stock index futures
contracts or related options consistent with the Fund's objectives and not
for speculation. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included. A futures contract on an index (such
as the S&P 500) 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 the index at the close of the last trading day of the contract
and the price at which the index contract was originally written. In the case
of futures contracts traded on U.S. exchanges, the exchange itself or an
affiliated clearing corporation assumes 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 index. No physical delivery
of the underlying stocks in the index is made.
STOCK INDEX FUTURES CHARACTERISTICS. Stock index futures contracts can be
purchased or sold with respect to various broad-based and other stock
indices. Differences in the indices may result in differences in correlation
of the futures with movements in the value of the securities being hedged.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the Fund's Custodian (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 futures contract margin does not
involve the borrowing of funds by the customer 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 the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. Futures contracts customarily are purchased and sold on 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
stock index fluctuates, 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 the Fund has purchased a stock index futures
contract and the price of the underlying stock index has risen, that position
will have increased in value and the Fund will receive from the FCM a
variation margin payment equal to that increased value. Conversely, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index 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, the 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. (See RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS
below.)
CHARACTERISTICS OF OPTIONS ON STOCK INDEX FUTURES. The Fund may also purchase
call options and put options on stock index futures contracts ("futures
options"). A futures option gives the holder the right, in return for the
premium paid, to assume a long position (in the case of a call) or short
position (in the case of a put) in a futures con-
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tract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures con-tract 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. (See RISKS OF TRANSACTIONS IN STOCK
INDEX FUTURES AND FUTURES OPTIONS below.)
PURCHASE OF STOCK INDEX FUTURES. When the Investment Manager anticipates a
significant stock market or stock market sector advance, the purchase of a
stock index futures contract affords a hedge against not participating in
such advance at a time when the Fund is not fully invested in equity
securities. Such purchase of a futures contract would serve as a temporary
substitute for the purchase of individual stocks which may later be purchased
(with attendant costs) in an orderly fashion. As such purchases of individual
stocks are made, an approximately equivalent amount of stock index futures
would be terminated by offsetting sales.
SALE OF STOCK INDEX FUTURES. The Fund may sell stock index futures contracts
in anticipation of or during a general stock market or market sector decline
that may adversely affect the market values of the Fund's portfolio of equity
securities. To the extent that the Fund's portfolio of equity securities
changes in value in correlation with a given stock index, the sale of futures
contracts on that index would reduce the risk to the portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.
PURCHASE OF PUT OPTIONS ON STOCK INDEX FUTURES CONTRACTS. The purchase of put
options on stock index futures contracts is analogous to the purchase of puts
on individual stocks, where an absolute level of protection from price
fluctuation is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
stocks or a position in the futures contract upon which the put option is
based against a possible decline in market value.
PURCHASE OF CALL OPTIONS ON STOCK INDEX FUTURES. The purchase of a call
option on stock index futures represents a means of obtaining temporary
exposure to market appreciation 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
future upon which it is based, or to the price of the underlying stock index
itself, it may be less risky, because losses are limited to the premium paid
for the call option, when compared to the ownership of the stock index
futures or the underlying stocks. Like the purchase of a stock index future,
the Fund would purchase a call option on a stock index future to hedge
against a market advance when the Fund is not fully invested.
LIMITATIONS ON PURCHASE AND SALE OF STOCK INDEX FUTURES AND OPTIONS ON STOCK
INDEX FUTURES. The Fund will not engage in transactions in stock index
futures contracts or related options for speculation, but only as a hedge
against changes in the value of securities held in the Fund's portfolio, or
securities which the Investment Manager intends to purchase for the
portfolio, resulting from actual or anticipated changes in general market
conditions. Such transactions will only be effected when, in the view of the
Investment Manager, they are economically appropriate to the reduction of
risks inherent in the ongoing management of the Fund's investment portfolio.
The Fund may not purchase or sell stock index futures or purchase related
options if, immediately thereafter, more than 30% of the value of its net
assets would be hedged. In addition, the Fund may not purchase or sell stock
index 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 would exceed 5% of the market value of the
Fund's total assets. In Fund
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transactions involving stock index futures contracts, to the extent required
by applicable SEC guidelines, an amount of cash and cash equivalents equal to
the market value of the futures contracts will be deposited 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.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS. There are
several risks in connection with the use of stock index futures in the Fund
as a hedging device. One risk arises because of the correlation between
movements in the price of the stock index future and movements in the price
of the securities which are the subject of the hedge is not always perfect.
The price of the stock index future may move more than, or less than, the
price of the securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the
securities 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
securities being hedged has moved in a favorable direction, this advantage
will be partially offset by the future. If the price of the future moves more
than the price of the stock, 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 securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged
and movements in the price of the stock index futures, the Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged, if the historical volatility of the price
of such securities has been greater than the historical volatility of the
index. Conversely, the Fund may buy or sell fewer stock index futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the stock index. It is also
possible that, when the Fund has sold futures to hedge its portfolio against
decline in the market, the market may advance and the value of the securities
held in the Fund's portfolio may decline. If this occurs, the Fund will lose
money on the future and also experience a decline in value in its portfolio
securities.
When futures are purchased to hedge against a possible increase in the price
of stock before the Fund is able to invest its cash (or cash equivalents) in
stock in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes 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 stock index futures and the
portion of the portfolio being hedged, the price of stock index futures may
not correlate perfectly with movement in the stock index 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 index 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 securities 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 of the imperfect correlation between movements
in the stock index and movements in the price of stock index futures, a
correct forecast of general market trends by the Investment Manager still may
not result in a successful hedging transaction over a very short time frame.
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Compared to the use of stock index futures, the purchase of options on stock
index futures involves less potential risk to the 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 stock
index future would result in a loss to the Fund when the use of a stock index
future would not, such as when there is no movement in the level of the
index. In addition, daily changes in the value of the option due to changes
in the values of the underlying futures contracts, are reflected in the net
asset value of the Fund.
The Fund will only enter into futures contracts or purchase futures options
that are standardized and traded on a U.S. 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.
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price of the
securities, 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 securities 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 stock index futures by the Fund is also subject to the
Investment Manager's ability to predict correctly movements in the direction
of the market. For example, if the Fund hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and
stock prices increased instead, the Fund would lose part or all of the
benefit of the increased value of its stocks which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell
securities to meet daily variation margin requirements. Such sales of
securities might be, but would not necessarily be, at increased prices which
would reflect the rising market. The Fund might have to sell securities at a
time when it might be disadvantageous to do so. The Investment Manager has
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 stock index futures and options on stock index 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.
TAX TREATMENT. The extent to which the Fund may engage in stock index futures
and related option transactions may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.)
REGULATORY MATTERS. The Fund has filled a claim of exemption from
registration as a commodity pool with the Commodity Futures Trading
Commission (the "CFTC"). The Fund intends to conduct its futures trading
actively 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.
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--------------------
INVESTMENT RESTRICTIONS
--------------------
The 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. The "vote of a majority
of the outstanding voting securities" of the Fund, as defined in Section
2(a)(42) of the 1940 Act, means the vote (i) of 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) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. These restrictions provide that
the Fund may not:
1. Invest in securities of any one issuer (other than the United States of
America, its agencies and instrumentalities), if immediately after and as
a result of such investment the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total
assets;
2. Invest more than 25% of 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);
3. Invest in foreign securities if immediately after and as a result of such
investment the value of the holdings of the Fund in foreign securities
exceeds 10% of the value of the Fund's total assets;
4. Acquire more than 10% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. 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;
7. Invest in interests in oil, gas, or other mineral exploration or
development programs, or warrants to buy equity securities; provided
however, that this policy shall not prevent the ownership, holding or sale
of warrants or other rights where the grantor of the warrants or other
rights is the issuer of underlying securities owned by the Fund;
8. Issue senior securities, except that the Fund may borrow amounts, up to 5%
of the total assets taken at cost or at market value, whichever is lower,
and only from banks as a temporary measure for extraordinary or emergency
purposes and the Fund may engage in activities listed in Investment
Restriction 10. The Fund will not mortgage, pledge, hypothecate or in any
other manner transfer as security for an indebtedness any of its assets;
9. 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;
10. 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, and (ii) the purchase of bank
obligations such as certificates of deposit, bankers' acceptances and
other short-term debt obligations. Notwithstanding the foregoing, the Fund
may: (i) enter 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 (ii) loan 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
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<PAGE>
secured by collateral in the form of cash or cash equivalents. The
Fund will not enter into repurchase agreements with maturities in excess
of 7 days if immediately after and as a result of such transaction the
value of the Fund's holdings of such repurchase agreements and other
illiquid securities exceeds 5% of the value of the Fund's total assets. The
Fund will not lend portfolio securities which, when valued at the time of
loan, have a value in excess of 10% of the Fund's net assets;
11. Make short sales of securities;
12. Act as an underwriter of securities issued by other persons, or invest
more than 5% of the value of its net assets in securities that are illiquid;
13. Invest more than 5% of its net assets in the securities of any issuer
which shall have a record of less than three years of continuous
operation (including the operation of any predecessor);
14. 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 5% 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;
15. 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 average prices among
them, is not deemed to result in a securities trading account);
16. Purchase from or sell portfolio securities to its officers, directors, or
other "interested persons" (as defined in the 1940 Act) of the Company,
other than otherwise unaffiliated broker-dealers;
17. Purchase or retain the securities of an issuer if, to the Company's
knowledge, one or more of the directors, officers, partners or employees
of the Company or the Investment Manager individually own beneficially more
than 1/2 of 1% of the securities of such issuer and together own
beneficially more than 5% of such securities;
18. Purchase or sell stock index futures or purchase related options if,
immediately thereafter, more than 30% of the value of its net assets would
be hedged, or the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premiums paid for related options would
exceed 5% of the market value of the Fund's total assets; or
19. 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 only for hedging purposes. The Fund has no current
intention of entering into commodities contracts except for stock index
futures and related options.
The Fund 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.
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--------------------
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 Suite 3000, Four Embarcadero Center, San
Francisco, California 94111.
WILLIAM L. PRICE,*+ Chairman of the Board, President and Director. Mr. Price
is a Principal of RCM Capital Management ("RCM"), with which he has been
associated since 1977.1 He is also a limited partner of RCM Limited L.P., a
California limited partnership ("RCM Limited"), the sole General Partner of
RCM; a Director, Executive Vice President, and a shareholder of RCM General
Corporation ("RCM General"), the sole General Partner of RCM Limited;
Chairman of the Board, President, Chief Executive Officer and Director of RCM
Equity Funds, Inc., an open-end management investment company ("RCM Equity");
Executive Vice President and Trustee of RCM Capital Trust Company ("RCM
Trust"); a General Partner of RREEF Partners, a California general
partnership comprised of principals of RCM Limited (RREEF Partners owns an
interest in RREEF America Partners, a real estate investment manager); and a
shareholder of The RREEF Corporation, a real estate investment manager.
CLAUDE N. ROSENBERG, JR.,*+ Vice Chairman of the Board and Director. Mr.
Rosenberg is the Senior Principal of RCM, with which he has been associated
since 1970. (See THE INVESTMENT MANAGER.) He is also a limited partner of RCM
Limited; a shareholder of RCM General; Chairman of the Board, Director and
Chief Executive Officer of RCM Trust; a General Partner of RREEF Partners;
and a shareholder of The RREEF Corporation.
JOHN D. LELAND, JR.,*+ Vice President and Director. Mr. Leland is a Principal
of RCM, with which he has been associated since 1972. He is also a limited
partner of RCM Limited; a shareholder of RCM General; Vice President of RCM
Trust; a General Partner of RREEF Partners; and a shareholder of The RREEF
Corporation.
G. NICHOLAS FARWELL,+ Vice President and Director. Mr. Farwell is a Principal
of RCM, with which he has been associated since 1980. He is also a limited
partner of RCM Limited; a shareholder of RCM General; and a General Partner
of RREEF Partners.
MICHAEL J. APATOFF,+ Vice President, Chief Operating Officer and Director.
Mr. Apatoff is a Principal and Chief Operating Officer of RCM, with which he
has been associated since 1991. He is also a limited partner of RCM Limited;
a Director, Executive Vice President and shareholder of RCM General; Vice
President of RCM Strategic Global Government Fund, Inc.; a closed-end
management investment company ("RCS"); Vice President, Chief Operating
Officer and Director of RCM Equity; and Director and Vice President of RCM
Trust. From 1986 to 1991 he was an Executive Vice President and Chief
Operating Officer of the Chicago Mercantile Exchange.
KENNETH B. WEEMAN, JR.,+ Vice President and Director. Mr. Weeman is a
Principal of RCM, with which he has been associated since 1979.
- --------------------------------
* Member, Executive Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in
Section 2(a)(19) of the 1940 Act.
1 RCM Capital Management ("RCM") was established in July 1986, as the
successor to Rosenberg Capital Management (which was established in 1970).
Any historical references herein to RCM prior to July 1986, refer to the
operations of Rosenberg Capital Management.
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<PAGE>
He is also a limited partner of RCM Limited; a shareholder of RCM General;
Vice President of RCM Equity; Vice President of RCM Trust; and a General
Partner of RREEF Partners.
JOHN A. KRIEWALL,+ Director. Mr. Kriewall is a Principal of RCM, with which
he has been associated since 1973. He is also a limited partner of RCM
Limited; Executive Vice President and a shareholder of RCM General; and a
General Partner of RREEF Partners.
KENNETH E. SCOTT,** Director. Mr. Scott is the Ralph M. Parsons Professor of
Law and Business at Stanford Law School, where he has been since 1967. He is
also a director of certain registered investment companies managed by Benham
Capital Management.
WALTER C. PRICE, JR., Vice President. Mr. Price is a Principal of RCM, with
which he has been associated since 1974. He is also a limited partner of RCM
Limited; a shareholder of RCM General; Vice President of RCM Equity; and a
General Partner of RREEF Partners.
HUACHEN CHEN, Vice President. Mr. Chen is a Principal of RCM, with which he
has been associated since 1985. He is also a limited partner of RCM Limited,
a shareholder of RCM General and Vice President of RCM Equity.
SUSAN C. GAUSE, Treasurer and Chief Financial Officer. Ms. Gause is the
Director of Finance at RCM, with which she has been associated since 1994.
She is also Treasurer and Chief Financial Officer of RCS; Treasurer and Chief
Financial Officer of RCM Equity; and Chief Financial Officer, Treasurer and
Trust Officer of RCM Trust. From December 1990 to June 1994, she was employed
by Citicorp Bankers Leasing, where she was Chief Financial Officer and
Controller.
ANTHONY AIN, Vice President and General Counsel. Mr. Ain is a Senior Vice
President and General Counsel at RCM, with which he has been associated since
April 1992. He is also General Counsel and Secretary of RCM Limited; Vice
President, General Counsel and Secretary of RCM General; Vice President and
General Counsel of RCS; Vice President, General Counsel and Secretary of RCM
Equity; and Vice President, General Counsel and Secretary of RCM Trust. From
September 1988 to April 1992, he was employed by the United States Securities
and Exchange Commission, where he was senior special counsel and counsel to a
Commissioner.
CAROLINE M. HIRST, Vice President and Principal Accounting Officer. Ms. Hirst
is Director of Investment Operations at RCM, with which she has been
associated since December 1994. She is also Vice President and Principal
Accounting Officer of RCS and Vice President and Principal Accounting Officer
of RCM Equity. From February 1980 to April 1994 she was employed by Morgan
Grenfell Asset Management, Ltd., where she served as Head of International
Administration.
WILLIAM S. STACK, Vice President. Mr. Stack is a member of the Equity
Portfolio Management Team and the Chief Investment Officer of International
Equities at RCM, with which he has been associated since 1994. He is also a
Director of RCM General and Vice President and Director of RCM Equity. From
October 1985 to August 1994, he was employed by Lexington Management
Corporation, where he was a Managing Director and Chief Investment Officer
and managed mutual funds and investment in global, international and domestic
securities.
- --------------------------------
** Member, Audit Committee of the Company.
+ Director who is an "interested person" of the Company, as defined
in Section 2(a)(19) of the 1940 Act.
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<PAGE>
TIMOTHY B. PARKER, Secretary and Associate General Counsel. Mr. Parker is
Deputy General Counsel of RCM, with which he has been associated since 1993.
He is also Secretary and Associate General Counsel of RCS; Assistant
Secretary and Associate General Counsel of RCM Equity; and Assistant
Secretary of RCM Trust. From 1989 to 1993, he was an associate in the law
firm of Orrick, Herrington & Sutcliffe.
It is presently anticipated that regular meetings of the Board of Directors
will be held on a quarterly basis. The Executive Committee of the Company
will meet as required when the full Board does not meet, for the purpose of
reviewing the Fund's investment portfolio. The Executive Committee has the
authority to exercise all of the powers of the Company's Board of Directors
at any time when the Board is not in session, except the power to declare
dividends or distributions, authorize the issuance of securities, amend the
Company's ByLaws, recommend to stockholders of the Company any action requiring
their approval or as otherwise required by the 1940 Act. The Company's Audit
Committee, whose sole present member is Mr. Scott, meets with the Company's
independent accountants to exchange views and information and to assist the
full Board in fulfilling its responsibilities relating to corporate
accounting and reporting practices. Mr. Scott receives a fee of $6,000 per
year plus $1,000 for each Board meeting attended, and is reimbursed for his
travel and other expenses incurred in connection with attending Board
meetings. The Investment Manager bears this expense. Mr. Scott receives no
pension or retirement benefits from the Company and is not a director of any
other registered investment Company advised by the Investment Manager or any
of its affiliates, or any other fund that holds itself out to investors as
related to the Company.
The Investment Manager uses a system of multiple portfolio managers to manage
the Fund's assets. Under this system, the portfolio of the Fund is divided
into smaller segments ("portfolios"). Each portfolio is assigned to an
individual portfolio manager who is employed as a research and portfolio
management professional by the Investment Manager. Some of the Fund's
portfolios may be limited to particular industry groups, and a particular
portfolio manager may be responsible for more than one portfolio. Subject to
the objectives for that portfolio and to the Fund's overall investment
objectives, guidelines, and restrictions, the portfolio manager for each
portfolio determines how that portfolio will be invested. The primary
portfolio managers for the Fund are the following individuals:
JOHN A. KRIEWALL. Mr. Kriewall has managed one or more of the Fund's
portfolios since the Fund's inception in 1992. He is a member of the
Investment Manager's Equity Portfolio Management Team and is the Head of its
Equity Research Division and a principal of the firm, and he is a director of
the Company. Mr. Kriewall is also one of the primary portfolio managers of
the RCM Growth Equity Fund. He has been associated with the Investment
Manager since 1973.
G. NICHOLAS FARWELL. Mr. Farwell has managed one or more of the Fund's
portfolios since the Fund's inception in 1992. He is a member of the
Investment Manager's Equity Portfolio Management Team, and he is a director
of the Company. Mr. Farwell is also one of the primary portfolio managers of
the RCM Growth Equity Fund. He has been associated with the Investment
Manager since 1980.
GARY B. SOKOL. Mr. Sokol has managed one or more of the
Fund's portfolios since the Fund's inception in 1992. He is a senior research
analyst and a senior vice president of the Investment Manager. He has been
associated with the Investment Manager since 1988.
The establishment of objectives for each portfolio, the distribution and
redistribution of assets among portfolios, and the oversight of the
investment management of each portfolio is the responsibility of the
Investment Manager's Steering Committee. The Steering Committee is chaired by
William L. Price, the Chairman and President of the Company; the other members
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<PAGE>
of the Steering Committee are John A. Kriewall, G. Nicholas Farwell and
Huachen Chen.
The RCM Capital Management Profit Sharing Plan (the "Plan") is a plan limited
to principals and employees of the Investment Manager. The Plan, which is
exempt from federal income taxation under Section 501 of the Internal Revenue
Code of 1986, was the owner of 18,753 shares of the Fund's Capital Stock on
March 31, 1996, constituting less than 1% of total shares outstanding at that
date. Each director or officer of the Company listed in this Prospectus
(other than Mr. Scott) is a beneficiary of this trust and has vested rights
in its assets. Otherwise, no director or officer of the Company was a
beneficial owner of any shares of the Fund's outstanding Common Stock as of
March 31, 1996.
--------------------
THE INVESTMENT MANAGER
--------------------
The Company's Board of Directors has overall responsibility for the operation
of the Fund. Pursuant to such responsibility, the Board has approved
contracts for various financial organizations to provide, among other things,
day to day management services required by the Fund. The Company, on behalf
of the Fund, has retained as the Fund's Investment Manager RCM Capital
Management (the "Investment Manager"), a limited partnership with principal
offices at Suite 3000, Four Embarcadero Center, San Francisco, California
94111. The Investment Manager is actively engaged in providing investment
supervisory services to institutional and individual clients, and is
registered under the Investment Advisers Act of 1940.
The Investment Manager was established in July, 1986, as the successor to the
business and operations of Rosenberg Capital Management (established in
1970). The General Partner and controlling person of the Investment Manager
is RCM Limited, which is the successor in interest to RCM General, the former
General Partner. RCM Limited is managed by its General Partner, RCM General
Corporation, a California corporation. RCM Limited also has 19 limited
partners, all of whom are principals of the Investment Manager and
shareholders of RCM General Corporation: Claude N. Rosenberg, Jr.; John D.
Leland, Jr.; Lee N. Price; Gary W. Schreyer; William L. Price; Walter C.
Price, Jr.; John A. Kriewall; Edward C. Derkum; Jeffrey S. Rudsten; Kenneth
B. Weeman, Jr.; Andrew C. Whitelaw; G. Nicholas Farwell; Ellen M. Courtien;
Melody L. McDonald; Michael J. Apatoff; Eamonn F. Dolan, Joanne L. Howard;
Stephen Kim; and Huachen Chen.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc.,
a wholly owned, indirect subsidiary of The Travelers Inc. ("Travelers").
Travelers, whose principal executive offices are located at 65 East 55th
Street, New York, New York 10022, is a financial services holding company
engaged, through its subsidiaries, principally in the businesses of life and
property and casualty insurance services, consumer finance services, and
investment services. The common stock of Travelers is listed for trading on
the New York Stock Exchange. Neither RCM Acquisition, Inc. nor Travelers has
the power to control the management or operations of the Investment Manager.
Pursuant to the agreement between Primerica Corporation, the predecessor of
Travelers, and RCM Limited L.P., Travelers has an option to acquire the
remaining interest of the Investment Manager from RCM Limited L.P. in the
year 2000.
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<PAGE>
In December 1995, the Investment Manager entered into an Agreement of
Purchase and Sale pursuant to which it will become an entity wholly owned by
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany. It is expected that the day-to-day operations of the
Investment Manager will not be affected and that the individuals who are
primarily responsible for the management of the Fund's portfolio will remain
the same. The closing of the transaction is subject to a number of
contingencies, including the receipt of certain regulatory approvals. The
transaction is currently expected to close in mid-1996. Because the
transaction may constitute an "assignment" of the Fund's Management Agreement
with the Investment Manager under the 1940 Act, and thus a termination of
such Management Agreement, the Fund will seek prior approval of a new
management agreement from the Fund's Board of Directors and stockholders
prior to the closing of the transaction. The terms of the new management
agreement are expected to be substantially the same as those of the current
Management Agreement, and the transaction will be described in more detail in
the proxy statement being sent to stockholders.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreement") dated January 1, 1992. The Investment
Manager manages the Fund's investments, provides various administrative
services, and supervises the Fund's daily business affairs, subject to the
authority of the Board of Directors. In addition, the Investment Manager
provides persons satisfactory to the Company's Board of Directors to act as
officers and employees of the Company. Such officers and employees, as well
as certain directors of the Company, may be principals or employees of the
Investment Manager. The Investment Manager is also the investment manager for
RCM Growth Equity Fund and RCM International Growth Equity Fund A, the two
other series of the Company, RCM Technology Fund, a series of RCM Equity
Funds, Inc., an open-end management investment company, RCM Strategic Global
Government Fund, Inc., a closed-end management investment company, and is
sub-adviser to Bergstrom Capital Corporation, a closed-end management
investment company.
The Management Agreement was approved by the Fund's stockholders on April 28,
1993, and was most recently approved for renewal by the unanimous vote of the
Board of Directors of the Company on June 12, 1995. The Management Agreement
will continue in effect until July 1, 1996. The Management Agreement may be
renewed from year to year, provided that any such renewals have been
specifically approved at least annually by (i) a majority of the Board of the
Directors of the Company, 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.
The Fund has, under the Management Agreement, assumed the obligation for
payment of the following ordinary operating expenses: (a) brokerage and
commission expenses, (b) federal, state, or local taxes incurred by, or
levied on, the Fund, (c) interest charges on bor-rowings, (d) charges and
expenses of the Fund's custodian, and (e) payment of all invest-ment advisory
fees (including fees payable to the Investment Manager under the Management
Agreement). The Fund is also responsible for expenses of an extraordinary
nature subject to good faith determination of the Company's Board of
Directors. Expenses attributable to the Fund are charged against the assets
of the Fund. General expenses of the Company's three series, the Fund, RCM
Growth Equity Fund and RCM International Growth Equity Fund A, are allocated
among the three series in a manner proportionate to the net assets of each
series, on a transactional basis, or on such other basis as the Board of
Directors deems equitable.
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<PAGE>
The Investment Manager is, under the Management Agreement, responsible for
all of the Company's other ordinary operating expenses (e.g., legal and audit
fees, SEC and "Blue Sky" registration expenses, and compensation, if any,
paid to officers and employees of the Company), including the compensation of
the disinterested director of the Company. (See DIRECTORS AND OFFICERS.)
For the services rendered by the Investment Manager under the Management
Agreement, the Fund pays a quarterly fee to the Investment Manager equal to
1/4 of 1% (1% on an annual basis) of the average month end net assets of the
Fund. This is higher than the fee paid by most other registered investment
companies. For the years ended December 31, 1995, 1994 and 1993, the Fund
incurred investment management fees aggregating $4,385,825, $6,060,756 and
$5,028,115, respectively.
CLIENTS OF THE INVESTMENT MANAGER WHO ARE SHAREHOLDERS OF THE FUND WILL PAY A
FEE AT THIS RATE ONLY ON THE PORTION OF THEIR ASSETS INVESTED IN SHARES OF
THE FUND. HOWEVER, SUCH CLIENTS WILL NOT PAY ADDITIONAL FEES TO THE
INVESTMENT MANAGER ON THE PORTIONS OF THEIR ASSETS INVESTED IN THE FUND.
ASSETS NOT INVESTED IN SHARES OF THE FUND WILL BE SUBJECT TO FEES IN
ACCORDANCE WITH THE INVESTMENT MANAGEMENT AGREEMENT OR THE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE CLIENT AND THE INVESTMENT MANAGER. CLIENTS WHO
INVEST IN SHARES OF THE FUND WILL GENERALLY PAY AN AGGREGATE FEE WHICH IS
HIGHER THAN THAT PAID BY OTHER CLIENTS NOT INVESTED IN THE FUND.
On the first business day of February, the Investment Manager will pay the
Fund the amount, if any, by which ordinary operating expenses of the Company
attributable to the Fund for the preceding fiscal year (except interest,
taxes and extraordinary expenses) exceed 1.25% of the average net assets of
the Fund for that year, determined monthly. However, in paying the quarterly
investment management fee to the Investment Manager, the Fund will reduce the
amount of such fee by the amount, if any, by which the Fund's ordinary
operating expenses for the previous quarter (except interest, taxes and
extraordinary expenses) exceeded on an annualized basis 1.25% of the average
net assets of the Fund, determined monthly; provided, however, that the Fund
will pay to the Investment Manager on the first day of June the amount, if
any, by which any such reductions in the preceding fiscal year exceeded the
amount to which the Fund would have been entitled in the preceding February
under the immediately preceding sentence if such reductions had not occurred.
For the years ended December 31, 1992 through December 1995, no payment was
due under these provisions from either the Fund or the Investment Manager.
The Management Agreement is terminable without penalty on sixty days' written
notice by a vote of the majority of the Fund's outstanding voting securities,
by a vote of the majority of Company's Board of Directors, or by the
Investment Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment.
--------------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
--------------------------
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the
broker or dealer for each specific transaction using its best judgment to
choose the broker or dealer most capable of
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<PAGE>
providing the services necessary to obtain the best execution of that
transaction. In seeking the best execution of each 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 or dealer is in a position to
obtain the best execution, the order is placed with that broker or dealer.
This may or may not be a broker or dealer that has provided investment
information and research services to the Investment Manager. Such investment
information and research services 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; 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.
Subject to the requirement of seeking best available price and execution, the
Investment Manager may, in circumstances in which two or more brokers are in
a position to offer comparable prices and 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 the Fund to pay an amount of commission in excess of
the amount of commission another broker would have charged. In selecting 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 Manager exercises
investment discretion. The Investment Manager continually evaluates all
commissions paid in order to ensure that the commission represents 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 Fund) and it is recognized that the Fund may be charged a
commission paid to a broker or dealer who supplied research services not
utilized by the Fund. However, the Investment Manager expects that the 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
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<PAGE>
allocation of transactions based on the recognition of such research services.
Subject to the requirement of seeking the best available prices and
execution, the Investment Manager may also place orders with brokerage firms
that have sold shares of the Fund. However, to date the Fund has not marketed
any of its shares through brokers and the Investment Manager has thus not
utilized the above authority. 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. During 1995, all brokerage commissions paid by the Fund
were paid to such brokers.
The Fund may in some instances invest in U.S. and/or foreign securities that
are not listed on a national securities exchange but are traded in the
over-the-counter market. The Fund 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 primary market-makers for each security; however,
when necessary in order to obtain the best price and execution, it will
utilize the services of others. In all cases, the Investment Manager will
attempt to negotiate the best market price and execution.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid in
brokerage commissions $754,813, $4,228,279 and $3,304,283, respectively, and
its turnover rates during such periods were 83.9%, 117.7% and 80.0%,
respectively.
As noted above, the limited partner of the Investment Manager is RCM
Acquisition, Inc., a wholly owned, indirect subsidiary of Travelers. Smith
Barney Inc. ("Smith Barney") is a wholly owned subsidiary of Travelers, and
The Robinson-Humphrey Company Inc. ("Robinson-Humphrey") is a wholly owned
subsidiary of Smith Barney. Smith Barney and Robinson-Humphrey are registered
broker-dealers. The Investment Manager believes that it is in the best
interests of the Fund to have the ability to execute brokerage transactions
through Smith Barney and Robinson-Humphrey. Accordingly, the Investment
Manager intends to execute brokerage transactions on behalf of the Fund
through Smith Barney and Robinson-Humphrey, when appropriate, and to the
extent consistent with applicable laws and regulations. In all such cases,
Smith Barney or Robinson-Humphrey will act as agent for the Fund, and the
Investment Manager will not enter into any transaction on behalf of the Fund
in which Smith Barney or Robinson-Humphrey is acting as principal for its own
account. In connection with such agency transactions, Smith Barney or
Robinson-Humphrey may 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 Smith Barney or Robinson-Humphrey, as the case may be, are no 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 Fund.
The Investment Manager performs investment management and advisory services
for various clients, including pension, profit sharing and other employee
benefit trusts, as well as individuals. In many cases, portfolio transactions
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
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<PAGE>
aggregated transaction potentially could be either advantageous or
disadvantageous to any one or more particular accounts, aggregated
transactions 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 Fund, there can be no
assurance that any investment will be proportionately allocated among clients
according to any particular or predetermined standard or criteria. The
Investment Manager will not include orders on behalf of any affiliated or
related entities in any aggregated transaction that includes orders placed on
behalf of the Fund.
----------------------------
INVESTMENT BY EMPLOYEE BENEFIT PLANS
----------------------------
All shareholders of the Fund are (and are expected in the future to be)
organizations and individuals to whom the Investment Manager also provides
discretionary investment supervisory or investment advisory services. For
discretionary account clients that are employee benefit plans subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"), investment in
shares of the Fund requires a special form of approval procedure by the
plans' independent "fiduciaries," as described below.
ERISA provides that, when an employee benefit plan invests in any security
issued by an investment company registered under the 1940 Act (such as the
Company), the assets of such plan will be deemed to include that security,
but shall not, solely by reason of such investment, be deemed to include any
assets of the investment company. ERISA also provides that the investment by
an employee benefit plan in securities issued by an investment company
registered under the 1940 Act will not cause the investment company or the
investment company's advisor to be deemed a "fiduciary" or a "party in
interest" with respect to such employee benefit plan, as those terms are
defined in Title I of ERISA, or a "disqualified person" with respect to such
plan for purposes of the Internal Revenue Code of 1986.
The Investment Manager does not intend to cause the Fund to invest in the
securities of a company that is a sponsor of an employee benefit plan owning
shares of the Fund. However, should such an investment occur, either by
portfolio decisions of the Investment Manager or by the purchase of shares by
an employee benefit plan, the shares held by the Fund would not be considered
"employer securities" within the meaning of ERISA Section 407 (which limits
the amount of employer securities which may be held by certain employee
benefit plans) for an employee benefit plan owning shares of the Fund.
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<PAGE>
Although only the shares of the Fund and not its underlying investments will
be considered assets of an employee benefit plan purchasing the Fund's
shares, the ERISA Conference Report of the U. S. Congress indicates that, for
purposes of determining whether the investments of an employee benefit plan
meet the diversification requirements of ERISA Section 404, it is appropriate
to apply the diversification rule by examining the diversification of
investments by the Fund. The Department of Labor has indicated its
concurrence in this position in Advisory Opinion 75-93 (November 4, 1975).
The Investment Manager presently anticipates that shares of the Fund will be
purchased by employee benefit plans that have appointed or may appoint the
Investment Manager as "investment manager" (within the meaning of ERISA
Section 3(38)) of some or all of their assets. The Department of the Treasury
and the Department of Labor have promulgated a "Prohibited Transaction Class
Exemption" (Prohibited Transaction Exemption 77-4, 42 Fed. Reg. 18732 (April
8, 1977)) exempting from the prohibited transaction restrictions of ERISA the
purchase and sale by an employee benefit plan of shares of a registered,
open-end investment company when a fiduciary with respect to the plan (e.g.,
an investment manager) is also the investment adviser for the investment
company, provided certain conditions are met. It is the intention of the Fund
and the Investment Manager to take all necessary steps to satisfy these
conditions when the transaction so requires. The applicable conditions are:
1. The employee benefit plan (the "plan") does not pay a sales commission in
connection with such purchase or sale. (The Fund does not charge a sales
commission in connection with the sale of its common stock.)
2. The plan does not pay a redemption fee in connection with the sale by the
plan to the investment company of its shares unless:
(a) the redemption fee is paid to the investment company, and
(b) the fee is disclosed in the investment company prospectus in
effect both at the time of the purchase of such shares and at
the time of such sale. (The Fund does not charge a redemption fee.)
3. The plan does not pay an investment management fee with respect to plan
assets invested in such shares for the entire period of the investment.
This does not preclude payment of fees by the investment company under the
terms of the Management Agreement adopted in accordance with Section 15 of
the 1940 Act. (The Investment Manager does not charge a separate management
fee on plan assets invested in shares of the Fund.)
4. A second fiduciary with respect to the plan, who is independent of and
unrelated to the fiduciary/investment adviser or any affiliate of the
adviser, must receive a prospectus issued by the investment company, and a
full and detailed written disclosure of the investment advisory and other
fees charged to or paid by the plan and the investment company, including the
nature and extent of any differential between the rates of such fees, the
reasons why the fiduciary/investment adviser may consider purchases of
investment company stock to be appropriate, and whether there are any
limitations on the fiduciary/investment adviser with respect to which plan
assets may be invested in shares of the investment company and, if so, the
nature of such limitations.
5. On the basis of the prospectus and the additional disclosure materials
described above, the second fiduciary approves the purchases and sales.
The approval may be limited solely to the investment advisory and other fees
paid by the investment company in relation to the fees paid by
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<PAGE>
the plan and need not relate to any other aspect of the investment. The
approval must be either:
(a) set forth in the plan document or investment management agree-ment, or
(b) indicated in writing prior to each purchase or sale, or
(c) indicated in writing prior to the commencement or continuation of a
specified purchase or sale program in the shares of such investment
company.
6. The second fiduciary or any successor thereto is notified in writing of
any change in any of the rates of fees referred to in Paragraph 5 and
approves in writing the continuation of the purchases and sales and the
continued holding of shares acquired prior to the change. Such approval
may be limited solely to the investment advisory and other fees.
As noted above, the Fund and the Investment Manager intend to conform with
the above provisions in connection with investments in the Fund by employee
benefit plans managed by the Investment Manager. The Fund and Investment
Manager solicit approval of specified purchase programs as described in
Paragraph 5(c) above. Such a program will establish a purchase limitation
based either on a specific dollar amount or on a percentage of the total
assets of a plan which are committed to investment in equity and
equity-related securities supervised by the Investment Manager.
------------------
HOW TO PURCHASE SHARES
------------------
THE FUND CURRENTLY OFFERS ITS SHARES SOLELY TO INSTITUTIONS AND INDIVIDUALS
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR AN INVESTMENT
ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL
MANAGEMENT. THE FUND EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. IN THIS
CAPACITY, THE INVESTMENT MANAGER MAY BE AUTHORIZED TO DETERMINE THE AMOUNT
AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES HELD BY DISCRETIONARY
CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THE
INVESTMENT MANAGER'S DISCRETIONARY CLIENTS. (See INVESTMENT BY EMPLOYEE
BENEFIT PLANS above.)
Shares of the Fund are offered on a continuous basis at the net asset value
per share (next determined after acceptance of orders), without any sales or
other charge. The initial investment must be at least $10,000, and there is a
$1,000 minimum for additional investments other than through the Fund's
automatic dividend reinvestment plan (see DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS). The Company reserves the right at any time to waive, increase, or
decrease the minimum requirements applicable to initial or subsequent
investments.
Eligible investors or their duly authorized agents may purchase shares from
the Company by sending a signed, completed subscription form to the Company
at Suite 3000, Four Embarcadero Center, San Francisco, California 94111
(telephone (415) 954-5400). Subscription forms can be obtained from the
Investment Manager or the Company. The Company, on behalf of the Fund, does
not have dealer agreements.
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<PAGE>
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape, on each day the New York Stock Exchange is
open for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on
that day. The Company reserves the right to reject any order at its sole
discretion. Orders received after the close of the New York Stock Exchange
composite tape, or on any day on which the New York Stock Exchange is not
open for trading, will be priced at the close of the New York Stock Exchange
composite tape on the next succeeding date on which the New York Stock
Exchange is open for trading. Net asset value normally is not calculated for
any day on which an order for shares is not received or on which shares are
not surrendered for redemption.
Upon receipt of the subscription form in good order, the Company will open a
shareholder account in accordance with the investor's registration
instructions. A confirmation statement reflecting the current transaction
along with a summary of the status of the account as of the transaction date
will be forwarded to the investor.
Payment for shares purchased should be made by check or money order, payable
to:
State Street Bank and Trust Company
U.S. Mutual Funds Services Division
P.O. Box 1713
Boston, Massachusetts 02105
Attn: RCM Small Cap Fund
Account I002
For overnight delivery, the address is:
1776 Heritage Drive
North Quincy, Massachusetts 02171
Investors may also wire funds in payment of orders to the above address.
Wired funds should include the following: the shareholder's registration name
and account number with the Company and the name of the Fund.
The Company will issue share certificates of the Fund only for full shares
and only upon the specific request of the shareholder. Confirmation
statements showing transactions in the shareholder account and a summary of
the status of the account serve as evidence of ownership of shares of the
Fund.
In its discretion, the Company may accept securities of equal value instead
of cash in payment of all or part of the subscription price for the Fund's
shares offered by this Prospectus. Any such securities (a) will be valued at
the close of the New York Stock Exchange composite tape on the day of
acceptance of the subscription in accordance with the method of valuing the
Fund's portfolio described under NET ASSET VALUE; (b) will have a tax basis
to the Fund equal to such value; (c) must not be "restricted securities"; and
(d) must be permitted to be purchased in accordance with the Fund's
investment objectives and policies set forth in this Prospectus and must be
securities that the Fund would be willing to purchase at that time.
Prospective shareholders considering this method of payment should contact
the Company in advance to discuss the securities in question and the
documentation necessary to complete the transaction. Share purchases with
securities will not be taxable transactions to shareholders of the Fund that
are exempt from Federal income taxation under Section 501(a) of the Code.
The Fund will accept subscriptions only when its net assets, at cost, are at
or below $750 million. When the value of its net assets, at cost, reaches
$750 million, the Fund will be closed to new investments until such time as
the Fund's net assets, at cost, are reduced by redemption, changes in market
value or otherwise to a level below $750 million. This restriction on new
purchases shall not apply to reinvestments of dividends and capital gains
distributions on to additional investments by existing shareholders.
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<PAGE>
-----------------------
NET ASSET VALUE
-----------------------
The net asset value of each share of the Fund on which the subscription and
redemption prices are based is determined by the sum of the market value of
the securities and other assets owned by the Fund less its liabilities,
computed in accordance with the Articles of Incorporation and By-Laws of the
Company. The net asset value of a share is the quotient obtained by dividing
the net assets of the Fund (i.e., the value of the assets of the Fund less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares of the Fund outstanding. The
net asset value of the Fund's shares will be calculated as of the close of
regular trading on the New York Stock Exchange, currently 4:00 p.m., New York
time, (unless weather, equipment failure or other factors contribute to an
earlier closing time) on the last day of each month that the New York Stock
Exchange is open for trading, and on any day that the New York Stock Exchange
is open for trading and on which there is a sale or redemption of the Fund's
shares.
For purposes of this computation, 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 Board of Directors of the Company 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 Board of Directors of the
Company in good faith 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 shall be valued by whatever means a duly constituted
committee of the Board of Directors of the Company in good faith 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 Fund will be valued in such manner as a duly
constituted committee of the Board of Directors of the Company in good faith
deems appropriate to reflect their fair market value.
The Fund may use a pricing service approved by its Board of Directors to
value long-term 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
trading characteristics, indications of value from dealers, and other 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 Fund under the general
supervision of the 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.
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<PAGE>
----------------------
REDEMPTION OF SHARES
----------------------
Subject only to the limitations described below, the Company's Articles of
Incorporation require that the Company redeem the shares of the Fund tendered
to it, as described below, at a redemption price equal to the net asset value
per share as next computed following the receipt of all necessary redemption
documents. There is no redemption charge.
Payment for shares redeemed will be made within seven days after receipt by
the Company of: (a) a written request for redemption, signed by each
registered owner or his duly authorized agent exactly as the shares are
registered, which clearly identifies the exact names in which the account is
registered, the account number and the number of shares or the dollar amount
to be redeemed; (b) stock certificates for any shares to be redeemed that are
held by the stockholder; and (c) the additional documents required for
redemptions by corporations, executors, administrators, trustees, and
guardians, as applicable. Redemptions will not become effective until all
documents in the form required have been received by the Company. A
shareholder in doubt as to what documents are required should contact the
Company.
If the Company is requested to redeem shares for which it has not yet
received payment, the Company will delay or cause to be delayed the mailing
of a redemption check until such time as it has assured itself that payment
has been collected for the purchase of such shares. The delay may be up to 15
days. Delays in the receipt of redemption proceeds may be avoided if shares
are purchased through the use of wire-transferred funds or other methods
which do not entail a clearing delay in the Fund receiving "good funds" for
its use.
Upon execution of the redemption order, a confirmation statement will be
forwarded to the shareholder indicating the number of shares sold and the
proceeds thereof. Proceeds of all redemptions will be paid by check or
federal funds wired no later than seven calendar days subsequent to execution
of the redemption order except as may be provided below.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the New York Stock Exchange is
closed (other than customary weekend or holiday closing) or during which the
SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable,
or as a result of which it is not reasonably practical for the Fund fairly to
determine the value of its net assets, or for such other periods as the SEC
may by order permit for the protection of stockholders of the Fund.
Payments will be made wholly in cash unless the Board of Directors believes
that economic conditions exist which would make such a practice detrimental
to the best interests of the Fund. Under such circumstances, payment of the
redemption price could be made either in cash or in portfolio securities
(selected in the discretion of the Board of Directors of the Company and
taken at their value used in determining the redemption price), 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 the Fund at the request of the redeeming
shareholder, if the Fund 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
investor in converting the securities to cash.
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<PAGE>
Because the net asset value of the Fund's shares will fluctuate as a result
of changes in the market value of securities owned, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
-------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
-------------------------
It is the intention of the Fund to distribute to its shareholders all of each
fiscal year's net investment income and net realized capital gains, if any,
on the Fund's investment portfolio. The amount and time of any such
distribution must necessarily depend upon the realization by the Fund of
income and capital gains from investments.
Until the Board of Directors otherwise determines, each income dividend and
capital gains distribution, if any, declared by the 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 shareholder or its 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
shareholder or its 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 shareholders entitled to such payment. Any dividend and
distribution election will remain in effect until the Company is notified by
the shareholder in writing to the contrary.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December by the Fund and
made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the Fund pays the
dividend no later than January 31 of the following year.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. This may
result in a taxable shareholder paying higher income taxes than would be the
case with investment companies emphasizing the realization of long-term
capital gains.
The Company has qualified and intends to continue to qualify the Fund as a
"regulated investment company" under Subchapter M of the Code. The Fund will
be treated as a separate fund for tax purposes and thus the provisions of the
Code applicable to regulated investment companies generally will be applied
to the Fund. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. By complying
with the applicable provisions of the Code, the Fund will not be subjected to
federal income taxes with respect to net investment
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<PAGE>
income and net realized capital gains distributed to its shareholders.
To qualify under Subchapter M, the Fund must (a) 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 or securities or
certain options, futures, forward contracts on foreign currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of stock
or securities held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) 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 assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets 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 the 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. The 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 the 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 the 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. The Fund intends to meet these distribution requirements to avoid the
excise tax liability.
Shareholders 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 the Fund whether paid in additional shares of the Fund or
in cash. To the extent that dividends received by the Fund would qualify for
the 70% dividends received deduction available to corporations, the Fund must
designate in a written notice to shareholders 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 shareholder must hold the Fund
shares paying the dividends upon which a dividend received deduction is based
for at least 46 days. Shareholders, 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 the Fund's shares under federal,
state and local tax laws.
Clients who purchase shares of the Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for the shares
("buying a dividend") and then receive
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<PAGE>
some portion of the price back as a taxable dividend or capital gain
distribution.
Federal law requires the Company to withhold 31% of income from dividends,
capital gains distributions and/or redemptions (including exchanges) that
occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply. Amounts withheld are applied to
the shareholder's federal tax liability, and a refund may be obtained from
the Internal Revenue Service if withholding results in an overpayment of
taxes.
Under the Code, distributions of net investment income by the Fund to a
shareholder 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 shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder 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 are not subject to tax withholding, but in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. 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.
Futures contracts and related options entered into by the Fund may be
"Section 1256 contracts" under the Code. Any gains or losses on Section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses, although certain foreign currency gains and losses from such
transactions may be treated as ordinary income in character. Section 1256
contracts held by the Fund at the end of each taxable year (and for purposes
of the 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.
Generally, transactions in stock index futures contracts and related options
undertaken by the fund may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the character of gains or losses
realized by the Fund. In addition, losses realized by the 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 such
transactions to the Fund are not entirely clear.
Transactions in futures contracts and related options may increase the amount
of short-term capital gain realized by the Fund which is taxed as ordinary
income when distributed to shareholders. The Fund may make one or more of the
elections available under the Code which are applicable to straddle
positions. If the 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 form the affected straddle positions, the amount which
must be distributed to shareholders, and which will be taxed to shareholders
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 the Fund will be able to engage in transactions involving stock index
futures contracts and all related options.
Under the Code, gains or losses attributable to fluctuations and exchange
rates which occur between the time the Fund accrues interest or
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<PAGE>
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 certain futures contracts
and related options, gains or losses attributable to fluctuation in the value
of foreign currency between the dates of acquisition and 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 the Fund's investment company taxable income to be distributed to
shareholders as ordinary income.
The 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. To the extent the Fund does
pay foreign withholding or other foreign taxes on certain of its investments,
investors will not be able to deduct their pro rata shares of such taxes in
computing their taxable income and will not be able to take their share of
such taxes as a credit against their United States income taxes.
Each shareholder will receive following the end of each fiscal year of the
Company, full information on dividends, capital gains distributions and other
reportable amounts with respect to shares of the Fund for tax purposes,
including information such as the portion taxable as capital gains, and the
amount of dividends, if any, eligible for the federal dividends received
deduction for corporate taxpayers.
The foregoing is a general abbreviated summary of present United States
Federal income tax laws and regulations applicable to dividends and
distributions by the Fund. Investors 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.
---------------------
DESCRIPTION OF CAPITAL STOCK
---------------------
The Company was incorporated in Maryland on March 16, 1979. The authorized
capital stock of the Company is 25,000,000 shares of Capital Stock (par value
$0.10 per share) of which 8,000,000 shares have been designated as shares of
RCM Small Cap Fund. 12,000,000 shares have been designated as shares of RCM
Growth Equity Fund and 4,500,000 shares have been designated as shares of RCM
International Growth Equity Fund A. The Company's Board of Directors has
authorized the issuance of three series of shares of capital stock, each
representing an interest in one of three investment portfolios, RCM Growth
Equity Fund, RCM Small Cap Fund and RCM International Growth Equity Fund A,
and the Board of Directors may, in the future, authorize the issuance of
other series of capital stock representing shares of additional investment
portfolios or funds. All shares of the Company have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by
series is required by law or where the matter involved affects only one
series. There are no conversion or preemptive rights in connection with any
shares of the Company. All shares of the Fund when duly issued will be fully
paid and non-assessable. The rights of the holders of shares of the Fund may
not be modified except by vote of the majority of the out-
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<PAGE>
standing shares of the Fund. Certificates are not issued unless requested and
are never issued for fractional shares. Fractional shares are liquidated when
an account is closed. As of March 31, 1996, there were 2,862,449.562 shares of
the Fund outstanding; on that date the following were known to the Fund to own
of record more than 5% of the Fund's capital stock:
NAME AND % OF SHARES
ADDRESS OF SHARES OUTSTANDING AS OF
BENEFICIAL OWNER HELD MARCH 31, 1996
- ------------------------------- ----------- -----------------
Fidelity Management Trust Co. 624,134.674 21.80%
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
The Northern Trust Company 212,211.923 7.41%
The J. Paul Getty Trust
P.O. Box 3577
Terminal Annex
Los Angeles, California 90051
Bankers Trust Company 174,651.656 6.10%
Chevron Corporation Annuity Trust
648 Grassmere Park Road
Nashville, Tennessee 37211
Chase Manhattan Bank, N.A 170,972.498 5.97%
Employees Retirement Plan
Florida Progress Corporation
3 Metro Tech Center
Brooklyn, New York 11245
State Street Bank & Trust Company 160,803.791 5.62%
General Mills, Inc.
P.O. Box 1992
Boston, Massachusetts 02105-1992
Except as described above, the Fund has no information regarding the
beneficial owners of such shares. All shareholders of the Fund are also
clients of the Investment Manager. (See INVESTMENT BY EMPLOYEE BENEFIT
PLANS.) As investment manager for discretionary account clients, the
Investment Manager may be authorized to determine the amount and timing of
purchases and redemptions of the Fund's shares held by such clients, subject
only to general restrictions and approvals of such clients. As a result, the
Investment Manager under law may also be deemed the beneficial owner of all
of the outstanding shares of the Fund and in "control" of the Fund on account
of such beneficial ownership. Nevertheless, each shareholder of the Fund that
is a client of the Investment Manager retains the general authority to
restrict or instruct the Investment Manager with respect to investments in
shares of the Fund.
Shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so.
In such event, the holders of the remaining less
- -------------------------------------------------------------------------------
Page 34
<PAGE>
than 50% of the shares voting for the election of directors will not be able
to elect any person or persons to the Board of Directors.
The Company is not required to hold a meeting of shareholders in any year in
which the 1940 Act does not require a shareholder vote on a particular
matter, such as election of directors. The Company will hold a meeting of its
shareholders for the purpose of voting on the question of removal of one or
more directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, or to assist in communications with
its shareholders as required by Section 16(c) of the 1940 Act.
---------------------
SHAREHOLDER REPORTS
---------------------
The fiscal year of the Fund ends on December 31 of each year. The Fund will
issue to its shareholders semi-annual and annual reports; each annual report
will contain a schedule of the Fund's portfolio securities, audited annual
financial statements and related footnotes, and information regarding
purchases and sales of securities during the period covered by the report, as
well as information concerning the Fund's performance in accordance with
rules promulgated by the SEC. In addition, shareholders will receive
quarterly statements of the status of their accounts reflecting all
transactions having taken place within that quarter. The Federal income tax
status of shareholders' distributions will also be reported to shareholders
after the end of each fiscal year.
---------------------
COUNSEL
---------------------
The validity of the shares offered by this Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker have 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 the Fund, assist in the
preparation of the Fund's federal and state
- -------------------------------------------------------------------------------
Page 35
<PAGE>
income tax returns, and consult with the Company as to matters of accounting,
regulatory filings, and federal and state taxation.
The financial statements of the Fund incorporated by reference herein have been
audited by Coopers & Lybrand L.L.P., independent accountants, as stated in their
opinion appearing therein and are included in reliance upon such opinion given
upon the authority of said firm as experts in accounting and auditing.
---------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER
AND REDEMPTION AGENT
---------------------
State Street Bank and Trust Company, U.S. Mutual Funds Services Division,
P.O. Box 1713, Boston, Massachusetts 02105 serves as custodian of all
securities and funds owned by the Fund in accordance with the terms of a
Custodial Agreement between the Company and the Custodian. The Custodian also
provides dividend paying services to the Fund.
The Company acts as its own transfer and redemption agent for its common
stock and solicits orders from qualified investors to purchase shares of the
Fund.
---------------------
ADDITIONAL INFORMATION
---------------------
This Prospectus does 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 Commission. The registration statements and related forms
may be inspected at the Public Reference Room of the Commission at Room 1024,
450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
Under an Agreement dated March 16, 1979, the Investment Manager (through its
predecessor, Rosenberg Capital Management) 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.
The Fund may from time to time compare its investment results with the
following:
1. The Russell 2000 Index which is the 2,000 smallest stocks in the Russell
3000 Index.
2. The Standard & Poor's 500 Index, which is a widely recognized index
composed of
- -------------------------------------------------------------------------------
Page 36
<PAGE>
the capitalization-weighted average of the price of 500 of the largest
publicly traded stocks in the United States.
3. The Value Line Composite Index, which consists of approximately
1,700 common equity securities.
4. The NASDAQ Over-the-Counter Composite Index, which is a value-weighted
index composed of 4,500 stocks traded over the counter.
5. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc., which ranks mutual funds by overall performance,
investment objectives, and assets.
---------------------
FINANCIAL STATEMENTS
---------------------
Incorporated by reference herein are the financial statements of RCM Small
Cap Fund, contained in the Fund's Annual Report to Shareholders for the year
ended December 31, 1995, including the Report of Independent Accountants,
dated February 9, 1996, 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. A copy of the Fund's Annual Report to Shareholders is available,
upon request, by calling the Fund at (415) 954-5400, or by writing the Fund
at Four Embarcadero Center, Suite 3000, San Francisco, CA 94111.
- -------------------------------------------------------------------------------
Page 37
<PAGE>
INVESTMENT MANAGER
RCM Capital Management
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION
AGENT
RCM Capital Funds, Inc.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
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
Combined Prospectus and
Statement of Additional Information
April 29, 1996
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM INTERNATIONAL GROWTH EQUITY FUND A
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
1. Cover Page Cover Page
2. Synopsis Synopsis; Summary of Fees and
Expenses
3. Condensed Financial *
Information
4. General Description of Investment Objective and
Registrant Policies; Description of
Capital Stock; Investment
Considerations; Appendix A;
Appendix B
5. Management of the Fund The Investment Manager
5A. Management's Description of *
Fund
6. Capital Stock and Other Dividends, Distributions and
Securities Tax Status; Description of
Capital Stock
7. Purchase of Securities Being How to Purchase Shares
Offered
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
- ----------------------------
* Not applicable
<PAGE>
RCM CAPITAL FUNDS, INC.
RCM INTERNATIONAL GROWTH EQUITY FUND A
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
(CONTINUED)
ITEM NUMBER OF PART B OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Description of Capital Stock
History
13. Investment Objectives and Investment Objective and
Policies Policies; Investment
Restrictions; Appendix A;
Appendix B
14. Management of the Fund Directors and Officers
15. Control Persons and Principal Description of Capital Stock
Holders of Securities
16. Investment Advisory and Other Redemption of Shares;
Services Description of Capital Stock
17. Brokerage Allocation Execution of Portfolio
Transactions
18. Capital Stock and Other Redemption of Shares;
Securities Description of Capital Stock
19. Purchase, Redemption and How to Purchase Shares; Net
Pricing of Securities Being Asset Value
Offered
20. Tax Status Dividends, Distributions and
Tax Status
21. Underwriters *
22. Calculations of Performance Investment Results
Data
23. Financial Statements *
- -----------------------------------
*Not applicable
<PAGE>
------------------------
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
------------------------
RCM INTERNATIONAL GROWTH EQUITY FUND A
OFFERED BY:
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATES TO RCM
INTERNATIONAL GROWTH EQUITY FUND A, A SERIES OF RCM CAPITAL FUNDS, INC.,
SPECIALIZING IN FOREIGN EQUITY AND EQUITY-RELATED SECURITIES
------------------------
RCM INTERNATIONAL GROWTH EQUITY FUND A (THE "FUND") is a non-diversified
no-load series of RCM Capital Funds, Inc. (the "Company"), an open-end
management investment company. Shares of the Fund may be purchased and
redeemed at their net asset value without a sales or redemption charge. (See
HOW TO PURCHASE SHARES and REDEMPTION OF SHARES.) THE COMPANY CURRENTLY
OFFERS SHARES OF THE FUND SOLELY TO INSTITUTIONS AND INDIVIDUALS ("CLIENTS")
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR INVESTMENT
ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL
MANAGEMENT (THE "INVESTMENT MANAGER"). THE COMPANY EXPECTS TO CONTINUE THIS
POLICY IN THE FUTURE. THE INVESTMENT MANAGER MAY FOR DISCRETIONARY ACCOUNT
CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES AND
REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH CLIENTS, SUBJECT ONLY TO
GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY
EMPLOYEE BENEFIT PLAN.)
The Fund's investment objective is to seek appreciation of capital,
primarily through investment in a portfolio of foreign equity and
equity-related securities. Such investments will be chosen primarily with
regard to their potential for capital appreciation. The Investment Manager
will not take into consideration the tax effect of long-term versus
short-term capital gains when making investment decisions. Current income
will be considered only as part of total investment return and will not be
emphasized. The Fund will also employ certain currency management techniques
to hedge against currency exchange rate fluctuations, and may from time to
time use such techniques to enhance return. (See INVESTMENT OBJECTIVE AND
POLICIES.)
Investments in foreign equity and equity-related securities involve
significant risks, some of which are not typically associated with
investments in securities of domestic issuers. The use of currency
management techniques also involves significant risks and, when employed to
enhance return, is considered speculative. There can be no assurance the
Fund will achieve its investment objective. (See INVESTMENT AND RISK
CONSIDERATIONS.)
This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Fund that prospective investors should
know before investing. Investors should read this document and retain it for
future use.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS AND STATEMENT OF
ADDITIONAL INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus and
Statement of Additional Information in connection with the offer contained
in this Combined Prospectus and Statement of Additional Information, and, if
given or made, such information or representations must not be relied upon
as having been authorized by the Company. This Combined Prospectus and
Statement of Additional Information is not an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
------------------------
The Date of this Combined Prospectus and Statement of
Additional Information is April 29, 1996.
------------------------
<PAGE>
------------------------
TABLE OF CONTENTS
------------------------
PAGE
Synopsis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . . . 6
Investment and Risk Considerations. . . . . . . . . . . . . . . . . . . . . 15
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Investment Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 27
Investment by Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . 30
How to Purchase Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Redemption of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Dividends, Distributions and Tax Status . . . . . . . . . . . . . . . . . . 36
Description of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 39
Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Safekeeping of Securities, Distributor, and Transfer and Redemption Agent . 42
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
<PAGE>
PAGE
Appendix A: Information Regarding Certain Foreign Countries . . . . . . . . 44
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Appendix B: Certain Portfolio Management Techniques. . . . . . . . . . . . 46
Futures Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Options On Securities and Securities Indices. . . . . . . . . . . . . . . . 51
Currency Management Techniques. . . . . . . . . . . . . . . . . . . . . . . 53
<PAGE>
------------------
SYNOPSIS
------------------
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) in RCM
International Growth Equity Fund A's Annual Report to Shareholders for the
year ended December 31, 1995, incorporated by reference herein, appearing
elsewhere in this Combined Prospectus and Statement of Additional Information
(hereinafter the "Prospectus").
RCM CAPITAL FUNDS, INC. (THE "COMPANY") is an open-end management investment
company. RCM International Growth Equity Fund A (the "Fund") is a
non-diversified no-load series of the Company. THE COMPANY CURRENTLY OFFERS
SHARES OF THE FUND SOLELY TO INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO
HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY
AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT (THE
"INVESTMENT MANAGER"). THE COMPANY EXPECTS TO CONTINUE THIS POLICY IN THE
FUTURE. THE INVESTMENT MANAGER MAY FOR DISCRETIONARY ACCOUNT CLIENTS BE
AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES AND REDEMPTIONS
OF SHARES OF THE FUND HELD BY SUCH CLIENTS SUBJECT ONLY TO GENERAL
AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See HOW TO PURCHASE SHARES.)
The Fund's investment objective is to seek appreciation of capital,
primarily through investment in a portfolio of foreign equity and
equity-related securities. During normal market conditions, the Fund will
invest at least 65% of its total assets in foreign equity and equity-related
securities, and will invest in securities of issuers located in at least ten
different countries. Investments in securities of issuers organized or
headquartered in Japan, the United Kingdom and Germany may in each country
aggregate up to 65% of the Fund's total assets. The Fund's investments will
be chosen primarily with regard to their potential for capital appreciation.
Current income of securities in which the Fund has invested or may consider
investing will be considered only as part of total return and will not be
emphasized. "Foreign equity and equity related securities" are defined as
(i) equity and equity related securities of companies that are organized or
headquartered, or whose operations principally are conducted, outside of the
United States, (ii) equity and equity related securities that are
principally traded outside the United States, regardless of where the issuer
of such securities is organized or headquartered or where its operations
principally are conducted, and (iii) securities of other investment
companies investing exclusively in such equity and equity-related
securities. There can be no assurance the Fund will meet its investment
objective.
The Fund may employ certain currency management techniques to hedge against
currency exchange rate fluctuations. These techniques may include hedging up
to 100% of the Fund's total assets. The Investment Manager may also from
time to time use such techniques to enhance the Fund's return.
The value of the Fund's shares will fluctuate because of the fluctuations in
the value of the securities in the Fund's portfolio. The Fund will be
non-diversified within the meaning of the Investment Company Act of 1940
(the "1940 Act"), and may be more susceptible to risks associated with a
single economic, political or regulatory occurrence than diversified funds.
When the Fund sells portfolio securities, it may realize a gain or a loss.
In addition, investments in foreign equity and equity-related securities
involve significant risks, some of which are not typically associated with
investments in securities of domestic issuers. The use of currency
management techniques also involves significant risks and, when employed to
enhance return, is considered speculative. An investment in the Fund is not
insured against loss of principal. (See Investment and Risk Considerations.)
The Investment Manager is actively engaged in providing investment
supervisory services, as defined in the Investment Advisers Act of 1940, to
institutional and individual clients.
Shares of the Fund are purchased without a sales charge. The minimum initial
investment is $50,000 and the minimum subsequent investment is $1,000. The
Company acts as transfer and redemption agent for the Fund's shares. (See
How to Purchase Shares and Redemption of Shares.)
Shareholder inquiries may be directed to the Company or the Investment
Manager in writing to Four Embarcadero Center, Suite 3000, San Francisco,
California 94111, or by telephone at (415) 954-5400.
<PAGE>
------------------
SUMMARY OF FEES AND EXPENSES
------------------
Shareholder Transaction Expenses
--------------------------------
All Sales Loads, and Redemption and Exchange Fees None
Annual Fund Operating Expenses
------------------------------
Investment Management Fees 0.75%
Other Expenses (after expense reduction1/) 0.25%
Total Fund Operating Expenses (after expense reduction1/) 1.00%
Hypothetical Example of
Effect of Expenses 1 Year 3 Years
------------------------------------ ------ -------
You would pay the following total
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the
end of each time period: $10 $32
__________________
1/ The Investment Manager has voluntarily agreed, for at least the
first year of public operation of the Fund, to pay the Fund on a
quarterly basis the amount, if any, by which certain ordinary
operating expenses of the Fund exceed the annual rate of 1% of the
average net assets of the Fund. Without such expense reduction, total
operating expenses would have been 1.11% of the Fund's average net
assets. The Investment Manager waived investment management fees for
the period from December 28, 1994 (commencment of operations) to May
21, 1995. Therefore, management fees began accruing on May 22, 1995
(the date the Fund's shares were first offered to the public); had the
Fund accrued management fees from January 1, 1995, the expense ratio
without reimbursement and management fee waiver would have been 1.36%.
(See THE INVESTMENT MANAGER.)
THIS EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC" OR
THE "COMMISSION"), BASED ON THE EXPENSES OF THE FUND FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1995, AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND/OR
RETURN MAY BE GREATER OR LESSER THAN THOSE SHOWN. The purpose of the
above table is to give you information in order to understand various
costs and expenses of the Fund that an investor may bear directly or
indirectly.
For more information concerning fees and expenses of the Fund, see THE
INVESTMENT MANAGER, EXECUTION OF PORTFOLIO TRANSACTIONS, AND
DIVIDENDS, DISTRIBUTIONS, AND TAX STATUS.
In accordance with applicable SEC regulations, this example assumes
that: (1) the percentage amounts listed under Annual Fund Operating
Expenses remain the same in each year of the one and three year
periods; (2) the amount of the Fund's assets remains constant at
approximately $50 million (actual expenses are anticipated to be lower
if the Fund's assets are greater); and (3) all dividends and
distributions will be reinvested by the shareholder. This
- ------------------------------------------------------------------------------
Page 2
<PAGE>
example also reflects recurring fees charged to all investors. SEC
regulations require that the example be based on a $1,000 investment,
although the minimum initial purchase of Fund shares is actually
$50,000. (See HOW TO PURCHASE SHARES.)
The Fund is responsible for the payment of its operating expenses,
including brokerage and commission expenses; taxes levied on the Fund;
interest charges on borrowings (if any); charges and expenses of the
Fund's custodian; investment management fees due to the Investment
Manager; and all of the Fund's other ordinary operating expenses
(e.g., legal and audit fees, securities registration expenses and
compensation of non-interested directors of the Company). Expenses
attributable to the Fund are charged against the assets of the Fund.
General expenses of the Company's three series, the Fund, RCM Growth
Equity Fund and RCM Small Cap Fund, are allocated among the portfolios
in a manner proportionate to the net assets of each portfolio, on a
transactional basis or on such other basis as the Board of Directors
deems equitable. (See THE INVESTMENT MANAGER.)
Clients of the Investment Manager who are shareholders of the Fund
will, through the Fund, pay a fee to the Investment Manager on the
portion of their assets invested in shares of the Fund. However, such
clients will not pay additional fees to the Investment Manager on the
portions of their assets invested in the Fund. A Client's assets not
invested in shares of the Fund will be subject to fees in accordance
with the Investment Management Agreement or Investment Advisory
Agreement between the Client and the Investment Manager. Clients who
invest in shares of the Fund will generally pay an aggregate fee
through the Fund which is higher than that paid by other Clients not
invested in the Fund. (See INVESTMENT MANAGER and INVESTMENT BY
EMPLOYEE BENEFIT PLANS.)
- ------------------------------------------------------------------------------
Page 3
<PAGE>
RCM INTERNATIONAL GROWTH EQUITY FUND A
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers &
Lybrand L.L.P., independent accountants, as stated in their opinion
appearing elsewhere in the Fund's 1995 Annual Report to Share-holders
(which has been incorporated herein by reference). This supplementary
information should be read in conjunction with the financial statements and
related notes which are included in the Annual Report to Shareholders.
Selected data for each share of capital stock outstanding are as follows:
<TABLE>
<CAPTION>
December 28, 1994
(commencemenet
Year ended of operations) to
December 31, 1995 December 31, 1994
----------------- --------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 100.01 $ 100.00
------------- ------------
Net investment income 1.17++ 0.04
Net realized and unrealized gain (loss)
on investments 16.77 (0.03)
------------- ------------
Net increase in net asset value
resulting from investment operations 17.94 0.01
------------- ------------
Distributions:
Net investment income (1.10) -
Net realized gain on investments (1.27) -
------------- ------------
Total distributions (2.37) -
------------- ------------
NET ASSET VALUE, END OF PERIOD 115.58 $ 100.01
------------- ------------
AVERAGE COMMISSION RATE PAID 0.03456
-------------
-------------
TOTAL RETURN * 17.98% 0.01%
------------- ------------
------------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) 34,347 $ 25,004
------------- ------------
------------- ------------
Ratio of expenses to average net assets 0.00%+ 0.00%++
------------- ------------
------------- ------------
Ratio of net investment income to
average net assets 0.00%+ 0.01%++
------------- ------------
------------- ------------
Portfolio turnover 87.4% 0.00%++
------------- ------------
------------- ------------
</TABLE>
- -----------------------
* Total return measures the change in value of an investment over the
period indicated.
+ Includes reimbursement by the Fund's investment manager of investment
management fees and other expenses equal to $0.35 per share. Without
such reimbursement, the ratio of expenses would have been 1.11% and the
ratio of net investment income to average net assets would have been
0.83%. Management fees began to accrue on May 22, 1995, the date on
which the Fund was ordered effective by the SEC. Had the Fund accrued
management fees from January 1, 1995, the expense ratio without
reimbursement and management fee waiver would have been 1.36%.
++ Not Annualized. Fund was in operation for four days, ratios are not
meaningful.
- ------------------------------------------------------------------------------
Page 4
<PAGE>
----------------------
INVESTMENT RESULTS
----------------------
The Fund may, from time to time, include information on its investment
results and/or comparisons of its investment results to various unmanaged
indices or results of other mutual funds or groups of mutual funds in
advertisements or in reports furnished to present or prospective
shareholders. See ADDITIONAL INFORMATION for a brief description of these
comparisons. Investment results will include information calculated on a
total return basis in the manner set forth below.
Average total return ("T") will be calculated as follows: an initial
hypothetical investment of $1000 ("P") is divided by the net asset value as
of the first day of the period in order to determine the initial number of
shares purchased. Subsequent dividends and capital gain distributions 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 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:
P(1+T)n = 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: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial
investment; (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Board; and (3) 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.
The average total return for the year ended December 31, 1995 was 17.98%.
In addition, in order more completely to represent the Fund's performance
or more accurately to compare such performance to other measures of
investment return, the Fund also may include in advertisements and
shareholder 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. The 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 the
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 objectives and policies.
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----------------------
INVESTMENT OBJECTIVE AND POLICIES
----------------------
The Fund's investment objective is to seek appreciation of capital,
primarily through investment in a portfolio of foreign equity and
equity-related securities. Current income from the Fund's investment
portfolio will be considered only as a part of total investment return, and
will not be emphasized. There can be no assurance that the Fund's
investment objective will be achieved.
The Fund expects to invest primarily in the common stock of high quality
growth companies. The Investment Manager will seek to identify industries
and companies throughout the world that are expected to have
higher-than-average rates of growth and securities with strong potential
for capital appreciation relative to their downside exposure. In most
cases, these companies will have one or more of the following
characteristics: superior management; strong balance sheets; differentiated
or superior products or services; substantial capacity for growth in
revenue, through either an expanding market or through expanding market
share; strong commitment to research and development; or a steady stream of
new products and services. While the Fund will emphasize growth companies,
the Fund also expects to invest in emerging growth companies as well as
cyclical and semi-cyclical companies, if the Investment Manager believes
that such companies have above-average growth potential.
The Fund is also authorized, under normal market conditions, to invest a
portion of its assets in equity and equity-related securities of U.S.
issuers and U.S. and foreign currency and currency management transactions
(see CURRENCY MANAGEMENT and OTHER INVESTMENT TRANSACTIONS). The Fund
presently expects to engage in foreign currency or currency management
transactions only to settle foreign securities transactions or to hedge
currency exposure related to its foreign equity and equity-related
investments. The Fund presently does not expect to purchase U.S. or foreign
debt securities (other than cash equivalent instruments with a maturity of
one year or less), U.S. equity securities, or illiquid securities, except
on an occasional basis when the Investment Manager believes that unusually
attractive investments are available. However, the Investment Manager
reserves the right to engage in any of the transactions described below
when it believes that doing so is in the best interests of the Fund.
THE FUND IS DESIGNED AS AN INVESTMENT FOR EMPLOYEE BENEFIT PLANS AND OTHER
TAX-EXEMPT INVESTORS. ALTHOUGH TAXABLE INVESTORS AND INSTITUTIONS ARE
PERMITTED TO INVEST IN THE FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE
AWARE THAT THE INVESTMENT MANAGER WILL CONSIDER THE TAX EFFECT OF CAPITAL
GAIN OR LOSS RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND
SHORT-TERM CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S
PORTFOLIO. (SEE DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) AS A RESULT, THE
FUND MAY BE MANAGED DIFFERENTLY THAN AN INVESTMENT COMPANY DESIGNED FOR
TAXABLE INVESTORS. TAXABLE INVESTORS SHOULD CONSIDER CAREFULLY WHETHER THE
FUND IS AN APPROPRIATE INVESTMENT FOR THEM.
The equity and equity-related securities in which the Fund intends to
invest include common stock, preferred stock, convertible preferred stock,
convertible debt obligations, warrants or other rights to acquire stock,
and options on stocks and stock indexes. The Fund may also write put and
call options on stocks and stock indexes.
INVESTMENT IN FOREIGN SECURITIES. Under normal market conditions, the Fund
will invest at least 65% of its total assets in foreign equity and
equity-related securities. For purposes of the Fund's investment objective
and policies, the term "foreign equity and equity-related securities" is
deemed to include (i) equity and equity-related securities of companies
that are organized or headquartered,
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<PAGE>
or whose operations principally are conducted, outside of the United
States, (ii) equity and equity-related securities that are principally
traded outside of the United States, regardless of where the issuer of such
securities is organized or headquartered or where its operations
principally are conducted, and (iii) securities of other investment
companies investing exclusively in such equity and equity-related
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 its
investment objective, the Fund will allocate its 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. In
addition, from time to time, the 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 for 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.
Under normal market conditions, the Fund will invest its assets in
securities of issuers organized or headquartered in at least ten different
foreign countries. The Fund will be non-diversified within the meaning of
the 1940 Act. Under normal market conditions, no more than 25% of the
Fund's total assets may be invested in securities of issuers that are
organized or headquartered in any one foreign country other than Japan, the
United Kingdom and Germany; investments in securities of issuers that are
organized or headquartered in Japan, the United Kingdom and Germany may in
each country aggregate up to 65% of the Fund's total assets. For purposes
of these percentage limitations, the term "securities" does not include
foreign currencies, which means that the Fund could have more than 65% of
its total assets denominated in the currency of Japan, the United Kingdom
or Germany and more than 25% of its total assets denominated in the
currency of any other country. See APPENDIX A: INFORMATION REGARDING
CERTAIN FOREIGN COUNTRIES for further information regarding Japan, the
United Kingdom and Germany.
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES. The Fund expects to invest a
substantial portion of its assets in securities of companies that are
organized or headquartered in developed foreign countries. As of the date
this Prospectus, the term "developed foreign countries" is deemed for
purposes of this Prospectus to include Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Luxembourg, Malaysia, The Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom. At the
discretion of the Investment Manager, the Fund may also invest in
securities of companies that are organized or headquartered in other
developed foreign countries. The Fund may choose not to be invested in all
developed foreign countries at one time, and may choose not to invest in
particular developed foreign countries at any time, depending on the
Investment Manager's view of the investment opportunities available.
INVESTMENT IN EMERGING MARKET COUNTRIES. In addition, the Fund may invest a
maximum of 30% of its total assets in securities of companies that are
organized or headquartered in emerging market countries. However, the Fund
will not invest more than 10% of its total assets in securities of issuers
that are organized or headquartered in any one emerging market country. For
purposes of these percentage limitations, the term "securities" does not
include foreign currencies, which means that the Fund could have more than
30% of its total assets denominated in currencies of emerging market
countries and more than 10% of its total assets denominated in the currency
of any one emerging market country. The term
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<PAGE>
"emerging market countries" is deemed for purposes of this Prospectus to
include any country that is generally considered to be an emerging or
developing country by the World Bank, the International Finance
Corporation, or the United Nations or its authorities. 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 above.)
As their economies grow and their markets grow and mature, 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 Fund's overall limitation 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 U.S. and developed foreign countries, and thus that
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 country 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.
It is unlikely that the 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 Fund's 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 U.S., or for other reasons.
INVESTMENT CRITERIA. Certain of the Investment Manager's investment
criteria are described in the introductory paragraphs of INVESTMENT
OBJECTIVES AND POLICIES above. In determining whether securities of
particular issuers are believed to have the potential for capital
appreciation, the Investment Manager will evaluate the fundamental value of
each enterprise, as well as its prospects for growth. Because current
income is not the Fund's investment objective, the Fund will not restrict
its investments in equity securities to those issuers with a record of
dividend payments. In evaluating particular investment opportunities, the
Investment Manager may consider, in addition to the factors described
above, 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 company is
located. When the Investment Manager believes it would be appropriate and
useful, the Investment Manager's personnel may visit company headquarters
and plant sites to assess a company'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.
There is no limitation on the market capitalization of the issuers in which
the Fund will invest. However, as of the date of this Prospectus, the
Investment Manager intends to
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<PAGE>
invest primarily in equity securities of issuers with market
capitalizations in excess of $1 billion, and does not intend to invest more
than 10% of its total assets in securities of issuers with market
capitalizations below $100 million.
The Fund expects to invest primarily in securities that are traded on
recognized foreign securities exchanges. However, the Fund also may invest
in securities that are traded only over-the-counter, either in the United
States or in foreign markets, when the Investment Manager believes that
investment in such securities meets the Fund's investment criteria. Subject
to certain other restrictions (see, e.g., INVESTMENT IN ILLIQUID
SECURITIES), the Fund also may invest in securities that are not publicly
traded either in the U.S. or in foreign markets.
INVESTMENT IN DEPOSITORY RECEIPTS. The Fund expects to invest a substantial
portion of its total assets directly in the common stock of foreign
companies. In addition, the Fund may invest in securities of foreign
companies in the form of sponsored and unsponsored American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs"), or other similar instruments representing securities of
foreign companies. ADRs are receipts that typically are issued by an
American bank or trust company. ADRs represent the right to receive
securities of foreign companies deposited in the domestic bank or a
correspondent bank. These securities may not necessarily be denominated in
the same currency as the securities into which they may be converted. EDRs
and GDRs are receipts issued by a non-U.S. financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed
for trading in U.S. securities markets, either on exchanges or
over-the-counter; EDRs, in bearer form, are designed for trading in
European securities markets; and GDRs, in registered or bearer form, are
designed for trading on a global basis. Where it is possible to invest
either in an ADR, EDR, or GDR, or to invest directly in the underlying
security, the Fund will evaluate which investment opportunity is
preferable, based on relative trading volume, anticipated liquidity,
differences in currency risk, and other factors.
Depository receipts may have risks that are similar to those of foreign
equity securities. (See INVESTMENT AND RISK CONSIDERATIONS - DEPOSITORY
RECEIPTS.) Therefore, for purposes of the Fund's investment policies and
restrictions, depository receipts will be treated as foreign equity
securities, based on the country in which the underlying issuer is
organized or headquartered. An illiquid depository receipt will be treated
as an illiquid security for purposes of the Fund's restriction on the
purchase of such securities, unless the depository receipt is convertible
by the Fund within seven days into cash.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The laws of some foreign
countries may make it difficult or impossible for the Fund to invest
directly in issuers organized or headquartered in those countries, or may
place limitations on such investment. In such cases, the only practical
means of investment may be through investment in other investment companies
that in turn are authorized to invest in the securities of such issuers. In
such cases and in other appropriate circumstances, and subject to the
restrictions referred to above regarding investments in companies organized
or headquartered in foreign countries, the Fund may invest up to 10% of its
total assets, calculated at the time of purchase, in other investment
companies. The Fund may not invest more than 5% of it total assets in the
securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. To the extent that the
Fund invests in other investment companies, the Fund would bear its
proportionate share of any management or administration fees paid by
investment companies in which it invests. At the same time, the Fund would
continue to pay its own management fees and other expenses.
CURRENCY MANAGEMENT. Securities purchased by the Fund may be denominated in
U.S. dollars, foreign currencies, or
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<PAGE>
multinational currency units such as the European Currency Unit (a "basket"
comprised of specified amounts of currencies of certain of the members of
the European Community). 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 market may be
affected, either positively or negatively, by changes in exchange rates.
The Fund may employ certain currency management techniques to hedge against
currency exchange rate fluctuations. The Fund's hedging techniques may
include hedging up to 100% of its total assets. The Fund may also
cross-hedge, which involves writing or purchasing options on one currency
to hedge against changes in exchange rates for a different currency, if
there is a pattern of correlation between the two currencies. In addition,
the Fund may hold foreign currency received in connection with investments
in foreign securities when, in the judgment of the Investment Manager, it
would be beneficial to convert such currency into U.S. dollars at a later
date, based on anticipated changes in the relevant exchange rates.
From time to time, the Fund may also employ currency management techniques
to enhance its total return, although it presently does not intend to do
so. The Fund may not employ more than 30% of its total assets, calculated
at the time of purchase, in currency management techniques for the purpose
of enhancing returns.
The management techniques that the Fund may employ consist of forward
foreign currency exchange contracts, currency options, futures contracts,
options on futures contracts and currency swaps. A forward currency
exchange contract is an obligation to purchase or sell a specific currency
at a future date at a price set at the time of the contract. Currency
options are rights to purchase or sell a specific currency at a future date
at a specified price. Currency swaps involve the exchange of rights to make
or receive payments in specified currencies. Futures contracts and futures
options are described below under FUTURES TRANSACTIONS. See APPENDIX B:
CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES for a more detailed description of
these currency management techniques.
The Fund will incur costs in connection with conversions between various
currencies. In addition, the active currency management techniques
described in the preceding paragraphs involve risks different than those
that arise in connection with investments in dollar-denominated securities
of U.S. issuers. Furthermore, to the extent that such techniques are used
to enhance return, they are considered speculative. To the extent that the
Fund is fully invested in foreign securities while also maintaining
currency positions, it may be exposed to greater combined risk than would
otherwise be the case. The Fund's net currency positions may expose it to
risks independent of its securities positions. (See APPENDIX B: CURRENCY
MANAGEMENT TECHNIQUES.)
The Fund's ability to engage in currency transactions may be limited by the
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company and the Fund's intention to continue to
qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) The 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
convertibility and repatriation of assets. Because the shares of the Fund
are redeemable in U.S. dollars each day the Fund determines its net asset
value, the Fund 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 strategy, although there can be
no assurances in this regard.
OTHER PORTFOLIO INVESTMENTS. As noted earlier, under normal market
conditions, the Fund will invest at least 65% of its total
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<PAGE>
assets in foreign equity and equity-related securities. However, the Fund
may also invest up to 10% of its total assets in equity and equity-related
securities of U.S. issuers. In addition, the Fund has the authority, under
normal market conditions, to invest up to 20% of its total assets in U.S.
Government obligations, debt obligations of foreign governments and their
respective agencies, instrumentalities, and authorities, debt obligations
issued or guaranteed by international or supranational entities, and debt
obligations of foreign corporate issuers, if in the judgment of the
Investment Manager such investments are advisable and offer the potential
to enhance total return. As of the date of this Prospectus, the Investment
Manager does not intend to purchase U.S. or foreign debt securities (other
than cash equivalent instruments with a maturity of one year or less or
U.S. equity securities), except on an occasional basis when the Investment
Manager believes that unusually attractive investments are available. 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 non-convertible debt obligations in which the Fund 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, if unrated, determined by the investment
Manager to be of comparable investment quality. If the rating of an
investment grade security held by the 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. Convertible debt
obligations will not be subject to rating requirements.
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.
From time to time, the Investment Manager may determine that, in its
judgment, political and economic factors affect foreign markets to such an
extent that there are unusual risks in being substantially invested in such
markets. In such circumstances, based upon the Investment Manager's
determination that market conditions are not normal, the Fund retains the
flexibility to assume a temporary defensive posture in response to such
market conditions. During times when the Investment Manager believes a
temporary defensive posture is warranted, including times involving
international, political, or economic uncertainty, the Fund may hold part
or all of its assets in cash or cash-equivalent investments (as described
below), U.S. Government obligations, non-convertible preferred stocks, and
non-convertible corporate bonds with a remaining maturity of less than one
year. When the Fund is so invested, the Fund may not be achieving its
investment objective.
INVESTMENT IN ILLIQUID SECURITIES. The Fund may invest up to 10% of the
value of its net assets in securities that are illiquid. (See INVESTMENT
RESTRICTIONS.) However, the Fund presently expects to purchase illiquid
securities only on an occasional basis when the Investment Manager believes
that unusually attractive investments are available.
Securities may be considered illiquid if the Fund cannot reasonably expect
to receive approximately the amount at which the Fund values such
securities within seven days. The Investment Manager has the authority to
determine whether specific securities are liquid or illiquid pursuant to
standards established by the Company's Board of Directors. 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
exchange or national market system; the frequency of trading in the
security; the number
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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).
The Fund's investments in illiquid securities may include securities that
are not registered for resale under the Securities Act of 1933 and
therefore are subject to restrictions on resale. When the Fund purchases
unregistered securities, the Fund may, in appropriate circumstances, obtain
the right to register such securities at the expense of the issuer. In such
cases, there may be a lapse of time between the Fund's decision to sell any
such security and the registration of the security permitting sale. During
any such period, the price of the security will be subject to market
fluctuations.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the
liquidity of such investments. If such securities are subject to purchase
by institutional buyers in accordance with Rule 144A under the Securities
Act of 1933, the Board of Directors may determine, in particular cases,
that such securities are not illiquid securities notwithstanding the legal
or contractual restrictions on their resale. Investing in Rule 144A
securities could have the effect of increasing Fund illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested
in purchasing such securities.
CASH-EQUIVALENT INVESTMENTS. Other than as described below under INVESTMENT
RESTRICTIONS, the Fund is not 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 the Fund's
overall investment strategy, the Fund may hold or invest all (for temporary
defensive purposes) or 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.
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
the 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 agreed-upon date within a number of days
(usually not more than seven) from the date of purchase.
FUTURES TRANSACTIONS. The Fund may purchase and sell stock index futures
contracts and futures options as a hedge against changes in market
conditions that may result in changes in the value of the Fund's portfolio
securities. The Fund may also purchase and sell currency futures contracts
and futures options, to hedge against currency exchange rate fluctuations
or to enhance returns.
A stock index (such as the Standard & Poor's 500 Stock Price Index) assigns
relative values to the common stocks included in the index, and the index
fluctuates with changes in the market values of the common stocks so
included. A futures contract on a stock index or currency is an agreement
between two parties to take or make delivery of an amount of cash equal to
the difference between the value of the index or currency at the close of
the last trading day of the contract and the price at which the index or
currency contract was originally written. See APPENDIX B: CERTAIN PORTFOLIO
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MANAGEMENT TECHNIQUES for further information about futures and futures
options.
OPTIONS TRANSACTIONS. The Fund may purchase and sell (write) listed covered
put and call options on stocks and stock indexes 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 the Fund may not in each case exceed 5% of the market
value of the net assets of the Fund as of the date of purchase. In
addition, the Fund will not purchase or sell options if, immediately
thereafter, more than 25% 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. An option on a securities index gives the
holder the right, in return for the premium paid, to require the writer to
pay cash equal to the difference between the closing price of the index and
the exercise rice of the option, times a specified multiplier. Put and call
options are traded on U.S. and foreign exchanges. A put option is covered
if the writer maintains cash or cash equivalents 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. See APPENDIX B: CERTAIN
PORTFOLIO MANAGEMENT TECHNIQUES for further information about options.
WHEN-ISSUED, FIRM COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS. The Fund
may purchase securities on a delayed delivery or "when-issued" basis and
may enter into firm commitment agreements (transactions in which the
payment obligation and interest rate are fixed at the time of the
transaction but the settlement is delayed). Delivery and payment for these
securities typically occur 15 to 45 days after the commitment to purchase,
but delivery and payment can be scheduled for shorter or longer periods,
based upon the agreement of the buyer and the seller. No interest accrues
to the purchaser during the period before delivery. The Fund normally will
not enter into these transactions for the purpose of leverage, but may sell
the right to receive delivery of the securities before the settlement date.
The value of the securities at settlement may be more or less than the
agreed upon price.
The Fund will segregate cash, U.S Government securities or other liquid,
high quality debt securities in an amount sufficient to meet its payment
obligations with respect to any such transactions. To the extent that
assets are segregated for this purpose, the Fund's liquidity and the
ability of the Investment Manager to manage its portfolio may be adversely
affected.
PORTFOLIO TURNOVER. The Fund may invest in securities on either a long-term
or short-term basis. The Fund may invest with the expectation of short-term
capital appreciation if the Investment Manager believes that such action
will benefit the Fund's shareholders. The 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 shareholder 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 the Fund's portfolio without regard to the length of
the holding period for such securities, it is possible that the 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 the 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
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appropriate or desirable to do so. Turnover will be influenced by sound
investment practices, the Fund's investment objectives, and the need for
funds for the redemption of the Fund's shares.
The Investment Manager anticipates that annual portfolio turnover rate
should not exceed 100%, but the turnover rate will not be a limiting factor
when the Investment Manager deems portfolio changes appropriate, and the
Fund's portfolio turnover rate may exceed 100% in certain years or during
certain periods. A 100% portfolio turnover rate would occur if the value of
purchases OR sales of portfolio securities (whichever is less) for a year
(excluding purchases of U.S. Treasury issues and securities with a maturity
of one year or less) were equal to 100% 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 higher turnover rate could also occur during
the first year of Fund operations, and during periods when the Fund's
assets are growing or shrinking. A higher portfolio turnover rate would
increase aggregate brokerage commission expenses, which must be borne
directly by the Fund and ultimately by the Fund's shareholders, and may
under certain circumstances make it more difficult for the Fund to qualify
as a regulated investment company under the Internal Revenue Code. (See
EXECUTION OF PORTFOLIO TRANSACTIONS and DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS.) The portfolio turnover for the year ended December 31, 1995 was
87%.
OTHER INVESTMENT POLICIES AND TECHNIQUES. From time to time, it may be
advantageous for the Fund to borrow money rather than sell portfolio
positions to raise the cash to meet redemption requests. Accordingly, the
Fund may borrow from banks or through reverse repurchase agreements or
"roll" transactions, but only in connection with meeting requests for
redemption of the Fund's shares. The Fund also may borrow up to 5% of its
total assets for temporary or emergency purposes other than to meet
redemptions. However, the Fund will not borrow money for leveraging
purposes. The Fund may continue to purchase securities while borrowings are
outstanding, but will not do so when the Fund's borrowings exceed 5% of its
total assets. The 1940 Act permits the Fund to borrow only from banks and
only to the extent that the value of its total assets, less its liabilities
other than borrowings, is equal to at least 300% of all borrowings
(including the proposed borrowing), and requires the Fund to take prompt
action to reduce its borrowings if this limit is exceeded. For this
purpose, reverse repurchase and roll transactions are considered to be
borrowings.
A reverse repurchase agreement involves a transaction by which a borrower
(such as the Fund) sells a security to a purchaser (a member bank of the
Federal Reserve System or a recognized securities dealer) and
simultaneously agrees to repurchase the security at an agreed-upon price on
an agreed-upon date within a number of days (usually not more than seven)
from the date of purchase. A "roll" transaction is similar to a reverse
repurchase agreement, except that the security repurchased is substantially
similar, but not identical, to the security sold (such as securities issued
by the same U.S. Government agency or instrumentality, having the same
original term to maturity and the same rate of interest, but backed by a
different pool of mortgage obligations than the security sold by the Fund).
The Fund is authorized to make loans of portfolio securities, for the
purpose of realizing additional income, to broker-dealers or other
institutional investors deemed creditworthy by the Board of Directors. The
borrower must maintain with the Fund's custodian collateral consisting of
cash, U.S. Government securities or other liquid, high grade debt equal to
at least 100% of the value of the borrowed securities, plus any accrued
interest. The Fund will receive any interest paid on the loaned securities,
and a fee and/or a portion of the interest earned on the collateral.
In making purchases within the above policies (which may be changed without
shareholder consent), the Fund and the Investment Manager
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<PAGE>
will be subject to all of the restrictions referred to under INVESTMENT
RESTRICTIONS. If a percentage restriction on an investment or utilization
of assets set forth 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. The 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.
The Fund's investment objective is a fundamental policy that may not be
changed without a vote of its shareholders. Except as otherwise stated
under INVESTMENT RESTRICTIONS the Fund's investment policies are not
fundamental and may be changed without a vote of the shareholders. If there
is a change in the Fund's investment objective or policies, shareholders
should consider whether the Fund remains an appropriate investment in light
of their then current financial positions and needs.
---------------------
INVESTMENT AND RISK CONSIDERATIONS
---------------------
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 U.S.
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
or 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 significantly over short periods of time, and are generally
determined by the forces of supply and demand and other factors beyond the
Fund's 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 the 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, the 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
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<PAGE>
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
Fund, including the withholding of dividends and limitations on the
repatriation of currencies. In addition, the Fund 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 home 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, there is generally
less government regulation of securities markets, securities exchanges,
securities dealers, and listed and unlisted companies in foreign countries
than in the U.S.
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 the Fund due to subsequent declines in the value of the
portfolio security or, if the 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 the 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 government members is subject to a
variety of political, economic and other factors, as well as the financial
performance of the organization.
DEPOSITORY RECEIPTS. As noted above, the Fund may invest in ADRs, EDRs,
GDRs and similar instruments. 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 the
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 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 often more uniform and more exacting than those
to which many non-U.S. 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
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<PAGE>
to disclose material information in the U.S. The information that is
available concerning the issuers of the securities underlying EDRs and 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.
EMERGING MARKET SECURITIES. The Fund may invest up to 30% at its total
assets in securities of companies that are organized or headquartered in
emerging market countries. There are special risks associated with
investments in emerging market securities that are in addition to the usual
risks of investing in securities of issuers located in developed foreign
markets around the world, and investors 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 may continue to be adversely affected by
economic conditions in the countries in which they trade. In addition,
custodial services and other costs relating to investment in foreign
markets may be more expensive in emerging markets than in many developed
foreign markets, which could reduce the Fund's investment return 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 countries 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 the 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 Fund's investments in those countries.
INVESTMENTS IN SMALLER COMPANIES. The Fund may invest up to 10% of its
total assets in securities of issuers with market capitalizations below
$100 million ("smaller capitalization companies") if the Investment Manager
believes that the securities of such companies offer opportunities for
appreciation. The Fund may invest without limitation in securities of
issuers with market capitalizations of $100 million or greater. Investing
in the securities of smaller capitalization companies involves greater risk
and the possibility of greater portfolio price volatility than investing
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<PAGE>
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 larger, more established firms.
Moreover, smaller capitalization companies often face competition from
larger or more established firms that have greater resources. In addition,
the smaller capitalization companies in which the Fund 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, the
Fund may have to sell them over an extended period of time below the
original purchase price. Investments by the Fund in smaller capitalization
companies may be regarded as speculative.
The Fund will not invest more than 5% of its total assets, calculated at
the time of purchase, in securities issued by companies that (including
predecessors) 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 AND WARRANTS. As noted above, the Fund may invest in
convertible securities and warrants. 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 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 the 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.
Investment in warrants also involves certain risks, including the possible
lack of a liquid market for resale, potential price fluctuations as a
result of speculation or other factors, and the failure of the price of the
underlying security to reach or have reasonable prospects of reaching the
level at which the warrant can prudently be exercised, in which event the
warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment in the warrant.
DEBT OBLIGATIONS. As noted above, the Fund may purchase non-convertible
debt obligations rated at the time of purchase BBB or higher by Standard &
Poor's or Baa or higher by Moody's, or if unrated determined by the
Investment Manager to be of comparable quality. Although securities rated
BBB or Baa 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.
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<PAGE>
OTHER PORTFOLIO MANAGEMENT TECHNIQUES. As indicated above, the Fund may
engage for hedging purposes in stock options and stock index option
transactions, futures and futures option transactions, and various other
currency management transactions, and may also engage in currency
transactions to enhance returns. There can be no assurance as to the
success of any such operations. Although hedging strategies could minimize
the risk of loss due to a decline in the value of a hedged security or
currency, they could also limit any potential gain from an increase in the
value of the Fund's security or currency. Furthermore, currency
transactions entered into for the purposes of enhancing returns may not be
successful, resulting in losses to the Fund. See APPENDIX B: CERTAIN
PORTFOLIO MANAGEMENT TECHNIQUES for information regarding the risks of
these Portfolio management techniques.
OTHER CONSIDERATIONS. As noted above (see INVESTMENT OBJECTIVES AND
POLICIES-INVESTMENT IN ILLIQUID SECURITIES), the Fund may acquire illiquid
securities. Such securities involve 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 the Fund might not be
able to dispose of such securities promptly or at reasonable prices.
A number of transactions in which the Fund may engage are subject to the
risks of default by the other party to the transaction. If the seller of
securities pursuant to a repurchase agreement defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss. If bankruptcy proceedings are commenced with respect to the seller,
realization upon the collateral by the Fund may be delayed or limited. Roll
transactions entered into by the Fund involve the risk that the market
value of the securities sold by the Fund may decline below the price at
which the Fund is committed to purchase similar securities. Additionally,
in the event the buyer of securities under a roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Similarly, when the Fund engages in when-issued,
forward commitment and delayed 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's incurring a loss or missing an opportunity to
obtain a price 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.
Borrowing also involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on
the assets that were retained rather than sold to meet the needs for which
funds were borrowed). Under adverse market conditions, the Fund might have
to sell portfolio securities to meet interest or principal payments at a
time when fundamental investment considerations would not favor such sales.
To the extent the borrowing is in the form of reverse repurchase
agreements, the Fund is subject to risks that are similar to those of
repurchase agreements. The Fund will be non-diversified within the meaning
of the 1940 Act. As a non-diversified fund, the Fund may invest a greater
percentage of its assets in the securities of any single issuer than
diversified funds, and may be more susceptible to risks associated with a
single economic, political or regulatory occurrence than diversified funds.
However, in order to meet the requirements of the Internal Revenue Code of
1986 for qualification as a regulated investment company, the Fund must
diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the market value of its assets is represented by
cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of
any one issuer limited
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<PAGE>
for purposes of this calculation to an amount not greater than 5% of the
value of the Fund's total assets, and (ii) not more than 25% of the Fund's
total assets may be invested in the securities of any one issuer (other
than the U.S. Government or other regulated investment companies).
---------------------
INVESTMENT RESTRICTIONS
---------------------
The 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. The "vote of a
majority of the outstanding voting securities" of the Fund, as defined in
Section 2(a)(42) of the 1940 Act, means the vote (i) of 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) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. These restrictions provide that
the Fund may not:
1. Invest more than 25% of 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);
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 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 this purpose, reverse repurchase
agreements and roll transactions covered by segregated accounts are
considered to be borrowings. The 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 the Fund from purchasing or selling futures
contracts, futures options, forward foreign currency exchange
positions, and currency options;
5. Issue senior securities as defined in the 1940 Act, except
that the Fund may borrow money as permitted by restriction 4
above. For this purpose, reverse repurchase, roll and other
transactions covered by segregated accounts are not
considered to be senior securities;
6. 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;
7. 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
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<PAGE>
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.
The Fund will not enter into repurchase agreements with
maturities in excess of 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;
8. 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 10% of the value of its net assets
in securities that are illiquid;
9. 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;
10. Purchase portfolio securities from or sell portfolio securities to its
officers, directors, or other "interested persons" (as
defined in the 1940 Act) of the Company, other than otherwise
unaffiliated broker-dealers;
11. 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 market value of
the Fund's net assets;
12. 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 Commodities Futures Trading
Commission. The Fund has no current intention of entering into
commodities contracts except for stock index and currency
futures and futures options; or
13. 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.
The Fund has also adopted certain investment restrictions that are not
fundamental policies and that may be changed by the Board of Directors
without approval of the Fund's outstanding voting securities. These
restrictions provide that the Fund may not:
1. Invest in interests in oil, gas, or other mineral
exploration or development programs;
2. Make short sales of securities or maintain short positions, except
that the Fund may maintain short positions in connection with
its use of options, futures contracts, options on futures
contracts, forward foreign currency exchange transactions, and
currency options;
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<PAGE>
3. Invest more than 5% 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);
4. 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).
The Fund 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.
---------------------
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.
WILLIAM L. PRICE,*+ Chairman of the Board, President and Director. Mr.
Price is a Principal of RCM Capital Management ("RCM"), with which he has
been associated since 1977.1 He is also a Limited Partner of RCM Limited
L.P., a California limited partnership ("RCM Limited"), the sole General
Partner of RCM; a Director, Executive Vice President, and a shareholder of
RCM General Corporation ("RCM General"); the sole General Partner of RCM
Limited; Chairman of the Board, President, Chief Executive Officer and
Director of RCM Equity Funds, Inc., an open-end management investment
company ("RCM Equity"); Executive Vice President and Trustee of RCM Capital
Trust Company ("RCM Trust"); a General Partner of RREEF Partners, a
California general partnership comprised of principals of RCM Limited
(RREEF Partners owns an interest in RREEF America Partners, a real estate
investment manager); and a shareholder of The RREEF Corporation, a real
estate investment manager.
CLAUDE N. ROSENBERG, JR.,*+ Vice Chairman of the Board and Director. Mr.
Rosenberg is the Senior Principal of RCM, with which he has been associated
since 1970. (See THE INVESTMENT MANAGER.) He is also a limited partner of
RCM Limited; a shareholder of RCM General; Chairman of the Board, Director
and Chief Executive Officer of RCM Trust; a General Partner of RREEF
Partners; and a shareholder of The RREEF Corporation.
- ------------------------------
* Member, Executive Committee of the Company.
+ Director who is an "interested person" of the Company, as
defined in Section 2(a)(19) of the 1940 Act.
1 RCM Capital Management ("RCM") was established in July 1986, as the
successor to Rosenberg Capital Management (which was established in
1970). Any historical references herein to RCM prior to
July, 1986 refer to the operations of Rosenberg Capital Management.
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<PAGE>
JOHN D. LELAND, JR.,*+ Vice President and Director. Mr. Leland is a Principal
of RCM, with which he has been associated since 1972. He is also a Limited
Partner of RCM Limited; a shareholder of RCM General; Vice President of RCM
Trust; a General Partner of RREEF Partners; and a shareholder of The RREEF
Corporation.
G. NICHOLAS FARWELL,+ Vice President and Director. Mr. Farwell is a Principal
of RCM, with which he has been associated since 1980. He is also a Limited
Partner of RCM Limited; a shareholder of RCM General; and a General Partner
of RREEF Partners.
MICHAEL J. APATOFF,+ Vice President, Chief Operating Officer and Director.
Mr. Apatoff is a Principal and Chief Operating Officer of RCM, with which he
has been associated since 1991. He is also a Limited Partner of RCM Limited;
Director, Executive Vice President and shareholder of RCM General; Vice
President of RCM Strategic Global Government Fund, Inc., a closed-end
management investment company ("RCS"); Vice President, Chief Operating
Officer and Director of RCM Equity; and Director and Vice President of RCM
Trust. From 1986 to 1991 he was an Executive Vice President and Chief
Operating Officer of the Chicago Mercantile Exchange.
KENNETH B. WEEMAN, JR.,+ Vice President and Director. Mr. Weeman is a
Principal of RCM, with which he has been associated since 1979. He also is a
limited partner of RCM Limited; a shareholder of RCM General; Vice President
of RCM Equity; Vice President of RCM Trust; and a General Partner of RREEF
Partners.
JOHN A. KRIEWALL,+ Director. Mr. Kriewall is a Principal of RCM, with which
he has been associated since 1973. He is also a limited partner of RCM
Limited; Executive Vice President and a shareholder of RCM General; and a
General Partner of RREEF Partners.
KENNETH E. SCOTT,** Director. Mr. Scott is the Ralph M. Parsons Professor of
Law and Business at Stanford Law School, where he has been since 1972. He is
also a director of certain registered investment companies managed by Benham
Capital Management.
WALTER C. PRICE, JR., Vice President. Mr. Price is a Principal of RCM, with
which he has been associated with since 1974.(1) He is also a limited partner
of RCM Limited; a shareholder of RCM General; and a General Partner of RREEF
Partners.
HUACHEN CHEN, Vice President. Mr. Chen is a Principal of RCM, with which he
has been associated since 1985. He is also a limited partner of RCM Limited;
a shareholder of RCM General; and Vice President of RCM Equity.
SUSAN C. GAUSE, Treasurer and Chief Financial Officer. Ms. Gause is the
Director of Finance at RCM, with which she has been associated since 1994.
She is also Treasurer and Chief Financial Officer of RCS; Treasurer and Chief
Financial Officer of RCM Equity; and Chief Financial Officer, Treasurer, and
Trust Officer of RCM Trust. From December 1990 to June 1994, she was employed
by Citicorp Bankers Leasing, where she was Chief Financial Officer and
Controller.
ANTHONY AIN, Vice President and General Counsel. Mr. Ain is a Senior Vice
President and General Counsel at RCM, with which he has been associated since
April 1992. He is also General Counsel and Secretary of RCM Limited; Vice
President, General Counsel and Secretary of RCM General; Vice President,
General Counsel and Secretary of RCS; Vice
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* Member, Executive Committee of the Company.
** Member, Audit Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in
Section 2(a)(19) of the 1940 Act.
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<PAGE>
President, General Counsel and Secretary of RCM Equity; and Vice President,
General Counsel and Secretary of RCM Trust. From September 1988 to April
1992, he was employed by the United States Securities and Exchange
Commission, where he was senior special counsel and counsel to a Commissioner.
CAROLINE M. HIRST, Vice President and Principal Accounting Officer. Ms. Hirst
is Director of Investment Operations at RCM, with which she has been
associated since December 1994. She is also Vice President and Principal
Accounting Officer of RCS and Vice President and Principal Acounting Officer
of RCM Equity. From February 1980 to April 1994, she was employed by Morgan
Grenfell Asset Management, Ltd., where she served as Head of International
Administration.
WILLIAM S. STACK, Vice President. Mr. Stack is a member of the Equity
Portfolio Management Team and the Chief Investment Officer of International
Equities at RCM, with which he has been associated since 1994. He is also a
Director of RCM General and Vice President and Director of RCM Equity. From
October 1985 to August 1994, he was employed by Lexington Management
Corporation, where he was a Managing Director and Chief Investment Officer
and managed mutual funds and investments in global, international and
domestic securities.
TIMOTHY B. PARKER, Secretary and Associate General Counsel. Mr. Parker is
Deputy General Counsel of RCM, with which he has been associated since 1993.
He is also Secretary and Associate General Counsel of RCS; Assistant
Secretary and Associate General Counsel of RCM Equity; and Assistant
Secretary of RCM Trust. From 1989 to 1993, he was an associate in the law
firm of Orrick, Herrington & Sutcliffe.
It is presently anticipated that regular meetings of the Board of Directors
will be held on a quarterly basis. The Executive Committee will meet if
necessary when the full Board does not meet, for the purpose of reviewing the
Fund's investment portfolio. The Executive Committee has the authority to
exercise all of the powers of the Company's Board of Directors at any time
when the Board is not in session, except the power to declare dividends or
distributions, authorize the issuance of securities, amend the Company's
By-Laws, recommend to stockholders of the Company any action requiring their
approval or as otherwise required by the 1940 Act. The Company's Audit
Committee, whose sole present member is Mr. Scott, meets with the Company's
independent accountants to exchange 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 who is not a
director, officer or employee of the Investment Manager or any company
affiliated with theInvestment Manager (an "Outside Director") receives a fee
of $6,000 per year plus $1,000 for each Board meeting attended, and is
reimbursed for his travel and other expenses incurred in connection with
attending Board meetings. The Investment Manager bears this expense, except
for a portion of the meeting fee which is allocated to and borne by the Fund.
Mr. Scott receives no pension or retirement benefits from the Company and is
not a director of any other registered investment company that is advised by
the Investment Manager or any of its affiliates or any other fund that holds
itself out to investors as related to the Company.
William S. Stack is the primary portfolio manager for the Fund. Oversight of
the investment management of the Fund is the responsibility of the Investment
Manager's International Steering Committee. The Steering Committee is chaired
by William L. Price, the Chairman and President of the Company; the other
members of the Steering Committee are John D. Leland, William S. Stack and
Huachen Chen.
The RCM Capital Management Profit Sharing Plan (the "Plan") is a plan limited
to principals and employees of the Investment Manager. The Plan, which is
exempt from federal income taxation under Section 501 of the Internal Revenue
Code of 1986, was the owner of 24,652 shares of the Fund's Capital Stock on
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Page 24
<PAGE>
March 31, 1996, constituting 8.2% of total shares outstanding at that date.
Each director or officer of the Company listed in this prospectus (other than
Mr. Scott) is a beneficiary of this trust and has vested rights in its
assets. Otherwise, no director or officer of the Company was a beneficial
owner of any shares of the Fund's outstanding Common Stock as of March 31,
1996. In addition, The Pension Plan for Salaried Employees of Travelers
Insurance Company and Its Affiliates was the owner of 255,220 shares of the
Fund's Capital Stock on March 31, 1996, constituting 85% of its total shares
outstanding.
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THE INVESTMENT MANAGER
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The Company's Board of Directors has overall responsibility for the operation
of the Fund. 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 Fund. The Company, on behalf
of the Fund, has retained as the Fund's Investment Manager RCM Capital
Management (the "Investment Manager"), a limited partnership with principal
offices at Suite 3000, Four Embarcadero Center, San Francisco, California
94111. The Investment Manager is actively engaged in providing investment
supervisory services to institutional and individual clients, and is
registered under the Investment Advisers Act of 1940. The Investment Manager
was established in July, 1986, as the successor to the business and
operations of Rosenberg Capital Management (established in 1970). The general
partner and controlling person of the Investment Manager is RCM Limited,
which is the successor in interest to RCM General, the former general
partner. RCM Limited is managed by its general partner, RCM General
Corporation, a California corporation. RCM Limited has 19 limited partners,
all of whom are principals of RCM Capital Management and shareholders of RCM
General Corporation; Claude N. Rosenberg, Jr.; John D. Leland, Jr.; Lee N.
Price; Gary W. Schreyer; William L. Price; Walter C. Price, Jr.; John A.
Kriewall; Edward C. Derkum; Jeffrey S. Rudsten; Kenneth B. Weeman, Jr.;
Andrew C. Whitelaw; G. Nicholas Farwell; Ellen M. Courtien; Melody L.
McDonald; Michael J. Apatoff; Eamonn F. Dolan; Joanne L. Howard; Stephen Kim;
and Huachen Chen.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc.,
a wholly owned subsidiary of Travelers Group Inc. ("Travelers"). Travelers,
whose principal executive offices are located at 388 Greenwich Street, New
York, New York 10013, is a financial services holding company engaged,
through its subsidiaries, principally in the business of consumer financing,
insurance services, and investment services. The common stock of Travelers is
listed on the New York Stock Exchange. The limited partner does not have the
power to control the management or operations of the Investment Manager.
Pursuant to the agreement between Primerica Corporation, the predecessor of
Travelers, and RCM Limited, Travelers has an option to acquire the remaining
interest of the Investment Manager from RCM Limited in the year 2000.
In December 1995, the Investment Manager entered into an Agreement of
Purchase and Sale pursuant to which it will become an entity wholly owned by
Dresdner Bank AG, an international banking organization headquartered in
Frankfurt, Germany. It is expected that the day-to-day operations of the
Investment Manager will not be affected and that the individuals who are
primarily responsible for the management of the Fund's
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<PAGE>
portfolio will remain the same. The closing of the transaction is subject to
a number of contingencies, including the receipt of certain regulatory
approvals. The transaction is currently expected to close in mid-1996.
Because the transaction may constitute an "assignment" of the Fund's
Management Agreement with the Investment Manager under the 1940 Act, and thus
a termination of such Management Agreement, the Fund will seek prior approval
of a new management agreement from the Fund's Board of Directors and
stockholders prior to the closing of the transaction. The terms of the new
management agreement are expected to be substantially the same as those of
the current Management Agreement, and the transaction will be described in
more detail in the proxy statement being sent to stockholders.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreement") dated December 20, 1994. The
Investment Manager manages the Fund's investments, provides various
administrative services, and supervises the Fund's daily business affairs,
subject to the authority of the Board of Directors. In addition, the
Investment Manager provides persons satisfactory to the Company's Board of
Directors to act as officers and employees of the Company. Such officers and
employees, as well as certain directors of the Company, may be principals or
employees of the Investment Manager. The Investment Manager is also the
investment manager for RCM Growth Equity Fund and RCM Small Cap Fund, the
other series of the Company, RCM Global Technology Fund, a series of RCM
Equity Funds, Inc., an open-end management investment company, and RCM
Strategic Global Government Fund, Inc., a closed-end management investment
company, and is sub-adviser to Bergstrom Capital Corporation, a closed-end
management investment company.
The Management Agreement will continue in effect until December 20, 1996. It
may be renewed from year to year thereafter, provided that any such renewals
have been specifically approved at least annually by (i) a majority of the
Board of Directors of the Company, 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.
The 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)
legal and audit fees, (g) SEC and "Blue Sky" registration expenses, and (h)
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 providing
services to the Fund. Expenses attributable to the Fund are charged against
the assets of the Fund. General expenses of the Company's three series, the
Fund, RCM Growth Equity Fund and RCM Small Cap Fund, are allocated among the
three series in a manner proportionate to the net assets of each series, on a
transactional basis, or on such other basis as the Board of Directors deems
equitable.
For the services rendered by the Investment Manager under the Management
Agreement, the Fund will pay a quarterly fee to the Investment Manager based
on the average daily net assets of the Fund, at the annualized rate of 0.75%
of the Fund's average net assets. This is higher than the fee paid by most
other registered investment companies. For the year ended December 31, 1995,
the Fund incurred
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<PAGE>
net investment management fees aggregating $41,875.
CLIENTS OF THE INVESTMENT MANAGER WHO ARE SHAREHOLDERS OF THE FUND WILL PAY A
FEE AT THIS RATE ONLY ON THE PORTION OF THEIR ASSETS INVESTED IN SHARES OF
THE FUND. HOWEVER, SUCH CLIENTS WILL NOT PAY ADDITIONAL FEES TO THE
INVESTMENT MANAGER ON THE PORTIONS OF THEIR ASSETS INVESTED IN THE FUND.
ASSETS NOT INVESTED IN SHARES OF THE FUND WILL BE SUBJECT TO FEES IN
ACCORDANCE WITH THE INVESTMENT MANAGEMENT AGREEMENT OR THE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE CLIENT AND THE INVESTMENT MANAGER. CLIENTS WHO
INVEST IN SHARES OF THE FUND WILL GENERALLY PAY AN AGGREGATE FEE WHICH IS
HIGHER THAN THAT PAID BY OTHER CLIENTS NOT INVESTED IN THE FUND.
The Investment Manager has voluntarily agreed to limit Fund expenses as
follows for at least the first year of Fund operations: On the first business
day of February, the Investment Manager will pay the Fund the amount, if any,
by which ordinary operating expenses of the Company attributable to the Fund
for the preceding fiscal year (except interest, taxes and extraordinary
expenses) exceed 1% of the average net assets of the Fund for that year,
determined monthly. However, in paying the quarterly investment management
fee to the Investment Manager, the Fund will reduce the amount of such fee by
the amount, if any, by which the Fund's ordinary operating expenses for the
previous quarter (except interest, taxes and extraordinary expenses) exceeded
on an annualized basis 1% of the Fund's average net asset value, determined
monthly; provided, however, that the Fund will pay to the Investment Manager
on the first day of June the amount, if any, by which any such reductions
exceeded the amount to which the Fund would be entitled in the preceding
February under the immediately preceding sentence if such a reduction had not
occurred. The Investment Manager will provide the Company with at least
thirty days advance notice of any termination or modification of this expense
limitation.
The Management Agreement is terminable without penalty on sixty days' written
notice by a vote of the majority of the Fund's outstanding voting securities,
by a vote of the majority of the Company's Board of Directors, or by the
Investment Manager on sixty days' written notice and will automatically
terminate in the event of its assignment.
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EXECUTION OF PORTFOLIO TRANSACTIONS
- ------------------------------------------------------------------------------
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the
broker or dealer to be used in each specific transaction using its 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 each 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
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<PAGE>
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
or dealer. This may or may not be a broker or dealer 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.
Subject to the requirement of seeking best available prices and execution,
the Investment Manager may, in circumstances in which two or more brokers are
in a position to offer comparable prices and 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 the Fund to pay an amount of commission in excess of
the amount of commission another broker would have charged. In selecting 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 Manager exercises
investment discretion. The Investment Manager continually evaluates all
commissions paid in order to ensure that the commission represents 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 Fund) and it is recognized that the Fund may be charged a
commission paid to a broker or dealer who supplied research services not
utilized by the Fund. However, the Investment Manager expects that the 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 available prices and
execution, the Investment Manager may also place orders with brokerage firms
that have sold shares of the Fund. However, to date the Fund has not marketed
any of its shares through brokers and the Investment Manager has thus not
utilized this authority. The Investment Manager has made and will make no
commitments to place orders
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<PAGE>
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. During 1995, all
brokerage commissions paid by the Fund were paid to such brokers.
The Fund 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 Fund 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 price and execution, whether or not that counterparty is
the primary market maker for that security. In all cases, the Investment
Manager will attempt to negotiate the best market price and execution.
For the fiscal year ended December 31, 1995, the Fund paid in brokerage
commissions $207,486, and the Fund's portfolio turnover rate during such
period was 87%.
As noted above, the limited partner of the Investment Manager is RCM
Acquisition, Inc., a wholly owned, indirect subsidiary of Travelers. Smith
Barney Inc. ("Smith Barney") is a wholly owned subsidiary of Travelers, and
The Robinson-Humphrey Company Inc. ("Robinson-Humphrey") is a wholly owned
subsidiary of Smith Barney. Smith Barney and Robinson-Humphrey are registered
broker-dealers. The Investment Manager believes that it is in the best
interests of the Fund to have the ability to execute brokerage transactions,
when appropriate, through Smith Barney and Robinson-Humphrey. Accordingly,
the Investment Manager intends to execute brokerage transactions on behalf of
the Fund through Smith Barney and Robinson-Humphrey, when appropriate, and to
the extent consistent with applicable laws and regulations. In all such
cases, Smith Barney or Robinson-Humphrey will act as agent for the Fund, and
the Investment Manager will not enter into any transaction on behalf of the
Fund in which Smith Barney or Robinson-Humphrey is acting as principal for
its own account. In connection with such agency transactions, Smith Barney or
Robinson-Humphrey 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 Smith Barney or Robinson-Humphrey, as the case may be, are no 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 Fund.
The Investment Manager performs investment management and advisory services
for various clients, including pension, profit-sharing and other employee
benefit trusts, as well as individuals. In many cases, portfolio transactions
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 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
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<PAGE>
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
Fund, there can be no assurance that any investment will be proportionately
allocated among clients according to any particular or predetermined standard
or criteria. The Investment Manager will not include orders on behalf of any
affiliated entity in any aggregated transaction that includes orders placed
on behalf of the Fund.
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INVESTMENT BY EMPLOYEE BENEFIT PLANS
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All shareholders of the Fund are (and are expected in the future to be)
organizations and individuals to whom the Investment Manager also provides
discretionary investment supervisory or investment advisory services. For
discretionary account clients that are employee benefit plans subject to the
Employee Retirement Income Security Act of 1974) "ERISA"), investments in
shares of the Fund requires a special form of approval procedure by the
plans' independent "fiduciaries," as described below.
ERISA provides that, when an employee benefit plan invests in any security
issued by an investment company registered under the 1940 Act (such as the
Company), the assets of such plan will be deemed to include that security,
but shall not, solely by reason of such investment, be deemed to include any
assets of the investment company. ERISA also provides that the investment by
an employee benefit plan in securities issued by an investment company
registered under the 1940 Act will not cause the investment company or the
investment company's adviser to be deemed a "fiduciary" or a "party in
interest" with respect to such employee benefit plan, as those terms are
defined in Title I of ERISA, or a "disqualified person" with respect to such
plan for purposes of the Internal Revenue Code of 1986.
The Investment Manager does not intend to cause the Fund to invest in the
securities of a company that is a sponsor of an employee benefit plan owning
shares of the Fund. However, should such an investment occur, either by
portfolio decisions of the Investment Manager or by the purchase of shares by
an employee benefit plan, the shares held by the Fund would not be considered
"employer securities" within the meaning of ERISA Section 407 (which limits
the amount of employer securities which may be held by certain employee
benefit plans) for an employee benefit plan owning shares of the Fund.
Although only the shares of the Fund and not its underlying investments will
be considered assets of an employee benefit plan purchasing the Fund's
shares, the ERISA Conference Report of the U.S. Congress indicates that, for
purposes of determining whether the investments of an employee benefit plan
meet the diversification requirements of ERISA Section 404, it is appropriate
to apply the diversification rule by examining the diversification of
investments by the Fund. The Department of Labor has indicated its
concurrence in this position in Advisory Opinion 75-93 (November 4, 1975).
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<PAGE>
The Investment Manager presently anticipates that shares of the Fund will be
purchased by employee benefit plans that have appointed or may appoint the
Investment Manager as "investment manager" (within the meaning of ERISA
Section 3(38)) of some or all of their assets. The Department of the Treasury
and the Department of Labor have promulgated a "Prohibited Transaction Class
Exemption" (Prohibited Transaction Exemption 77-4, 42 Fed. Reg. 18732 (April
8, 1977)) exempting from the prohibited transaction restrictions of ERISA the
purchase and sale by an employee benefit plan of shares of a registered,
open-end investment company when a fiduciary with respect to the plan (e.g.,
an investment manager) is also the investment adviser for the investment
company, provided certain conditions are met. It is the intention of the Fund
and the Investment Manager to take all necessary steps to satisfy these
conditions when the transaction so requires. The applicable conditions are:
1. The employee benefit plan (the "plan") does not pay a sales commission
in connection with such purchase or sale. (The Fund does not charge a
sales commission in connection with the sale of its capital stock.)
2. The plan does not play a redemption fee in connection with the sale by
the plan to the investment company of its shares unless:
(a) the redemption fee is paid to the investment company, and
(b) the fee is disclosed in the investment company prospectus in
effect both at the time of the purchase of such shares and at the
time of such sale. (The Fund does not charge a redemption fee.)
3. The plan does not pay an investment management fee with respect to plan
assets invested in such shares for the entire period of the investment.
This does not preclude payment of fees by the investment company under the
terms of the Management Agreement adopted in accordance with Section 15 of
the 1940 Act. (The Investment Manager does not charge a separate
management fee on plan assets invested in shares of the Fund.)
4. A second fiduciary with respect to the plan, who is independent of and
unrelated to the fiduciary/investment adviser or any affiliate of the
adviser, must receive a prospectus issued by the investment company, and a
full and detailed written disclosure of the investment advisory and other
fees charged or paid by the plan and the investment company, including the
nature and extent of any differential between the rates of such fees, the
reasons why the fiduciary/investment adviser may consider purchases of
investment company stock to be appropriate, and whether there are any
limitations on the fiduciary/investment adviser with respect to which
plan assets may be invested in shares of the investment company and, if
so, the nature of such limitations.
5. On the basis of the prospectus and the additional disclosure materials
described above, the second fiduciary approves the purchases and sales.
The approval may be limited solely to the investment advisory and other
fees paid by the investment company in relation to the fees paid by the
plan and need not relate to any other aspect of the investment. The
approval must either:
(a) set forth in the plan document or investment management agreement,
or
(b) indicated in writing prior to each purchase or sale, or
(c) indicated in writing prior to the commencement or continuation of a
specified purchase or sale
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<PAGE>
program in the shares of such investment company.
6. The second fiduciary or any successor thereto is notified in writing of
any change in any of the rates of fees referred to in Paragraph 5 and
approves in writing the continuation of the purchases and sales and the
continued holding of shares acquired prior to the change. Such approval
may be limited solely to the investment advisory and other fees.
As noted above, the Fund and the Investment Manager intend to conform with
the above provisions in connection with investments in the Fund by employee
benefit plans managed by the Investment Manager. The Fund and Investment
Manager solicit approval of specified purchase programs as described in
Paragraph 5(c) above. Such a program will establish a purchase limitation
based either on a specific dollar amount or on a percentage of the total
assets of a plan which are committed to investment in equity and
equity-related securities supervised by the Investment Manager.
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HOW TO PURCHASE SHARES
- ------------------------------------------------------------------------------
THE FUND CURRENTLY OFFERS ITS SHARES SOLELY TO INSTITUTIONS AND INDIVIDUALS
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR AN INVESTMENT
ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL
MANAGEMENT. THE FUND EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. IN THIS
CAPACITY, THE INVESTMENT MANAGER MAY BE AUTHORIZED TO DETERMINE THE AMOUNT
AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES HELD BY DISCRETIONARY
CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THE
INVESTMENT MANAGER'S DISCRETIONARY CLIENTS. (See INVESTMENT BY EMPLOYEE
BENEFIT PLANS above.)
Shares of the Fund are offered on a continuous basis at the net asset value
per share (next determined after acceptance of orders), without any sales or
other charge. The initial investment must be at least $50,000, and there is a
$1,000 minimum for additional investments other than through the Fund's
automatic dividend reinvestment plan (see DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS). The Company has delegated to the Investment Manager the right at any
time to waive, increase, or decrease the minimum requirements applicable to
initial or subsequent investments.
Eligible investors or their duly authorized agents may purchase shares from
the Company by sending a signed, completed subscription form to the Company
at Suite 3000, Four Embarcadero Center, San Francisco, California 94111
(telephone (415) 954-5400). Subscription forms can be obtained from the
Investment Manager or the Company. The Company, on behalf of the Fund, does
not have dealer agreements.
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on
that day. The Company reserves the right to reject any order at its sole
discretion. Orders received after the close of the New York Stock Exchange
composite tape, or on any day on
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<PAGE>
which the New York Stock Exchange is not open for trading, will be priced at
the close of the New York Stock Exchange composite tape on the next
succeeding date on which the New York Stock Exchange is open for trading. Net
asset value normally is not calculated for any day on which an order for
shares is not received or on which shares are not surrendered for redemption.
Upon receipt of the subscription form in good order, the Company will open a
shareholder account in accordance with the investor's registration
instructions. A confirmation statement reflecting the current transaction
along with a summary of the status of the account as of the transaction date
will be forwarded to the investor.
Payment for shares purchased should be made by check or money order, made
payable to:
State Street Bank and Trust Company
U.S. Mutual Funds Services Division
P.O. Box 1713
Boston,
Massachusetts 02105
Attn: RCM International Growth Equity
Fund A
Account I005
For overnight delivery, the address is:
1776 Heritage Drive
North Quincy, Massachusetts 02171
Investors may also wire funds in payment of orders to the above address.
Wired funds should include the following: the shareholder's registration name
and account number with the Company and the name of the Fund.
The Company will issue share certificates of the Fund only for full shares
and only upon the specific request of the shareholder. Confirmation
statements showing transactions in the shareholder account and a summary of
the status of the account serve as evidence of ownership of shares of the
Fund.
In its discretion, the Company may accept securities of equal value instead
of cash in payment of all or part of the subscription price for the Fund's
shares offered by this Prospectus. Any such securities (a) will be valued at
the close of the New York Stock Exchange composite tape on the day of
acceptance of the subscription in accordance with the method of valuing the
Fund's portfolio described under NET ASSET VALUE; (b) will have a tax basis
to the Fund equal to such value; (c) must not be "restricted securities"; and
(d) must be permitted to be purchased in accordance with the Fund's
investment objective and policies set forth in this Prospectus and must be
securities that the Fund would be willing to purchase at that time.
Prospective shareholders considering this method of payment should contact
the Company in advance to discuss the securities in question and the
documentation necessary to complete the transaction. Share purchases with
securities will not be taxable transactions to shareholders of the Fund which
are exempt from Federal income taxation under Section 501(a) of the Code.
- ------------------------------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------------------------------
The net asset value of each share of the Fund on which the subscription and
redemption prices are based is determined by the sum of the market value of
the securities and other assets owned by the Fund less its liabilities,
computed in accordance with the Articles of Incorporation and By-Laws of the
Company. The net asset value of a share is the quotient obtained by
- ------------------------------------------------------------------------------
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<PAGE>
dividing the net assets of the Fund (i.e., the value of the assets of the
Fund less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the total number of shares of the
Fund outstanding. The net asset value of the Fund's shares will be calculated
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m. Eastern Time (unless weather, equipment failure or other factors
contribute to an earlier closing time), on the last day of each month that
the New York Stock Exchange is open for trading, and on any day that the New
York Stock Exchange is open for trading and on which there is a sale or
redemption of the Fund's shares.
For purposes of this computation, 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 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 NASDAQ 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. 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 Fund will be
valued in such manner as the Board of Directors of the Company 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 may 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.
The Fund may use a pricing service approved by its Board of Directors to
value long-term 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
trading characteristics, indications of value from dealers, and other market
data. Such services may use electronic data processing techniques
- ------------------------------------------------------------------------------
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<PAGE>
and/or a matrix system to determine valuations. The procedures of such
services are reviewed periodically by the officers of the Fund under the
general supervision of the 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.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
Subject only to the limitations described below, the Company's Articles of
Incorporation require that the Company redeem the shares of the Fund tendered
to it, as described below, at a redemption price equal to the net asset value
per share as next computed following the receipt of all necessary redemption
documents. There is no redemption charge.
Payment for shares redeemed will be made within seven days after receipt by
the Company of: (a) a written request for redemption, signed by each
registered owner or his duly authorized agent exactly as the shares are
registered, which clearly identifies the exact names in which the account is
registered, the account number and the number of shares or the dollar amount
to be redeemed; (b) stock certificates for any shares to be redeemed which
are held by the shareholder; and (c) the additional documents required for
redemptions by corporations, executors, administrators, trustees and
guardians, as applicable. Redemptions will not become effective until all
documents in the form required have been received by the Company. A
shareholder in doubt as to what documents are required should contact the
Company.
If the Company is requested to redeem shares for which it has not yet
received payment, the Company will delay or cause to be delayed the mailing
of a redemption check until such time as it has assured itself that payment
has been collected for the purchase of such shares. The delay may be up to 15
days. Delays in the receipt of redemption proceeds may be avoided if shares
are purchased through the use of wire-transferred funds or other methods
which do not entail a clearing delay in the Fund receiving "good funds" for
its use.
Upon execution of the redemption order, a confirmation statement will be
forwarded to the shareholder indicating the number of shares sold and the
proceeds thereof. Proceeds of all redemptions will be paid by check or
Federal Funds wire no later than seven days subsequent to execution of the
redemption order except as may be provided below.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the New York Stock Exchange is
closed (other than customary weekend or holiday closing) or during which the
SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable,
or as a result of which it is not reasonably practical for the Fund fairly to
determine the value of its net assets, or for such other periods as the SEC
may by order permit for the protection of shareholders of the Fund.
Payments will be made wholly in cash unless the Board of Directors of the
Company believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. Under such
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<PAGE>
circumstances, payment of the redemption price could be made either in cash
or in portfolio securities selected in the discretion of the Board of
Directors of the Company and taken at their value used in determining the
redemption price, 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 the Fund at
the request of the redeeming shareholder, if the Fund 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 investor in converting the securities to cash.
Because the net asset value of the Fund's shares will fluctuate as a result
of changes in the market value of securities owned, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
- ------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
- ------------------------------------------------------------------------------
It is the intention of the Fund to distribute to its shareholders all of each
fiscal year's net investment income and net realized capital gains, if any,
on the Fund's investment portfolio. The amount and time of any such
distribution must necessarily depend upon the realization by the Fund of
income and capital gains from investments.
Each income dividend and capital gains distribution, if any, declared by the
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
shareholder or its 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 shareholder or its 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 shareholders entitled to such payment. Any dividend
and distribution election will remain in effect until the Company is notified
by the shareholder in writing to the contrary.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December by the Fund and
made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the Fund pays the
dividend no later than January 31 of the following year.
The Company intends to qualify the Fund as a "regulated investment company"
under Subchapter M of the Code. The 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 the Fund. In addition, net
capital gains, net investment income, and operating expenses will be
determined separately for the Fund. By complying with the applicable
provisions of the Code, the Fund will not be subject to federal income taxes
with respect to net investment income and net realized capital gains
distributed to its shareholders.
To qualify under Subchapter M, the Fund must (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or
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<PAGE>
other disposition of stock, securities or currencies and certain options,
futures, and forward contracts; (b) derive less than 30% of its gross income
from the sale or other disposition of stock or securities held less than
three months; and (c) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the Fund's assets is
represented by 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 (ii) not more than 25% of the value of its total assets 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 the 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. The 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 the 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 the 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. The Fund intends to meet these distribution requirements to avoid the
excise tax liability.
Shareholders 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 the Fund whether paid in additional shares of the Fund or
in cash. To the extent that dividends received by the Fund would qualify for
the 70% dividends received deduction available to corporations, the Fund must
designate in a written notice to shareholders 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 shareholder must hold the Fund
shares paying the dividends upon which a dividend received deduction is based
for at least 46 days. Shareholders, 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 the Fund under federal, state, and
local tax laws.
Clients who purchase shares of the Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for the shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
Federal law requires the Company to withhold 31% of income from dividends,
capital gains distributions and/or redemptions (including exchanges) that
occur in certain shareholder
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<PAGE>
accounts if the shareholder has not properly furnished a certified correct
Taxpayer Identification Number and has not certified that withholding does
not apply. Amounts withheld are applied to the shareholder's federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in an overpayment of taxes.
Under the Code, distributions of net investment income by the Fund to a
shareholder 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 shareholder") 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 the Fund to a foreign
shareholder 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 shareholders 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 shareholder who is a nonresident alien
individual, such distributions ordinarily will be subject to U.S. 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.
Many of the options, future contracts and forward contracts entered into by
the Fund are "Section 1256 contracts". Any gains or losses on Section 1256
contracts are generally considered 60% 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 the 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.
Generally, the hedging transactions and other transactions in options,
futures and forward contracts undertaken by the Fund may result in
"straddles" for U. S. federal income tax purposes. The straddle rules may
affect the character of gains or losses realized by the Fund. In addition,
losses realized by the 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 Fund are not entirely clear.
Hedging transactions may increase the amount of short-term capital gain
realized by the Fund which is taxed as ordinary income when distributed to
shareholders. The Fund may make one or more of the elections available under
the Code which are applicable to straddle positions. If the 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 shareholders, and
which will be taxed to shareholders 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 the Fund will be able to engage in
hedging transactions and other transactions involving options, futures
contracts or forward contracts.
Under the Code, gains or losses attributable to fluctuations and exchange
rates which occur between the time the 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
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<PAGE>
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 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 the Fund's
investment company taxable income to be distributed to shareholders as
ordinary income.
The 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. To the extent the Fund does
pay foreign withholding or other foreign taxes on certain of its investments,
investors will not be able to deduct their pro rata shares of such taxes in
computing their taxable income and will not be able to take their share of
such taxes as a credit against their United States income taxes.
Each shareholder will receive, following the end of each fiscal year of the
Company, full information on dividends, capital gains distributions and other
reportable amounts with respect to shares of the Fund for tax purposes,
including information such as the portion taxable as capital gains, and the
amount of dividends, if any, eligible for the federal dividends received
deduction for corporate taxpayers.
The foregoing is a general abbreviated summary of present United States
Federal income tax laws and regulations applicable to dividends and
distributions by the Fund. Investors 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.
- ------------------------------------------------------------------------------
DESCRIPTION OF CAPITAL STOCK
- ------------------------------------------------------------------------------
The Company was incorporated in Maryland on March 16, 1979. The authorized
capital stock of the Company is 25,000,000 shares of capital stock (par value
$.10 per share) of which 4,500,000 shares have been designated as shares of
RCM International Growth Equity Fund A, 12,000,000 shares have been
designated as shares of RCM Growth Equity Fund and 8,000,000 shares have been
designated as shares of RCM Small Cap Fund. The Company's Board of Directors
has authorized the issuance of three series of shares of capital stock, each
representing an interest in one of three investment portfolios, RCM
International Growth Equity Fund A, RCM Growth Equity Fund and RCM Small Cap
Fund, and the Board of Directors may, in the future, authorize the issuance
of other series of capital stock representing shares of additional investment
portfolios or funds. All shares of the Company have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by
series is required by law or where the matter involved affects only one
series. There are no conversion or preemptive rights in connection with any
shares of the Company. All shares of the Fund when duly issued will be fully
paid and non-assessable. The rights of the holders of shares of the Fund may
not be modified except by vote of the
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<PAGE>
majority of the outstanding shares of the Fund. Certificates are not issued
unless requested and are never issued for fractional shares. Fractional
shares are liquidated when an account is closed. As of March 31, 1996, there
were 300,320 shares of the Fund outstanding; on that date the following were
known to the Fund to own of record more than 5% of the Fund's capital stock:
<TABLE>
<CAPTION>
% OF SHARES
NAME AND ADDRESS SHARES OUTSTANDING AS OF
OF BENEFICIAL OWNER HELD MARCH 31, 1996
- ------------------------------------------ -------- ------------------
<S> <C> <C>
RCM Capital Management Profit Sharing Plan 24,652 8.2%
4 Embarcadero Center
Suite 3000
San Francisco, California 94111
The Pension Plan for Salaried Employees of 255,220 85.5%
Travelers Insurance
Company and Its Affiliates
388 Greenwich Street
New York, New York 10013
</TABLE>
All shareholders of the Fund are also clients of the Investment Manager. (See
INVESTMENT BY EMPLOYEE BENEFIT PLANS.) As investment manager for
discretionary account clients, the Investment Manager may be authorized to
determine the amount and timing of purchases and redemptions of the Fund's
shares held by such clients, subject only to general restrictions and
approvals of such clients. As a result, the Investment Manager under law may
also be deemed the beneficial owner of all of the outstanding shares of the
Fund and in "control" of the Fund on account of such beneficial ownership.
Nevertheless, each shareholder of the Fund that is a client of the Investment
Manager retains the general authority to restrict or instruct the Investment
Manager with respect to investments in shares of the Fund.
Shares of the Company have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so.
In such event, the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the Board of Directors.
The Company is not required to hold a meeting of shareholders in any year in
which the 1940 Act does not require a shareholder vote on a particular
matter, such as election of directors. The Company will hold a meeting of its
shareholders for the purpose of voting on the question of removal of one or
more directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, or to assist in communicating with
its shareholders as required by Section 16(c) of the 1940 Act.
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<PAGE>
- ------------------------------------------------------------------------------
SHAREHOLDER REPORTS
- ------------------------------------------------------------------------------
The fiscal year of the Fund ends on December 31 of each year. The Fund will
issue to its shareholders semi-annual and annual reports; each annual report
will contain a schedule of the Fund's portfolio securities, audited annual
financial statements, and information regarding purchases and sales of
securities during the period covered by the report as well as information
concerning the Fund's performance in accordance with rules promulgated by the
SEC. In addition, shareholders will receive quarterly statements of the
status of their accounts reflecting all transactions having taken place
within that quarter. The Federal income tax status of shareholders'
distributions will also be reported to shareholders after the end of each
fiscal year.
- ------------------------------------------------------------------------------
COUNSEL
- ------------------------------------------------------------------------------
The validity of the shares offered by this Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker have 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 the Fund, assist in the
preparation of the 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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<PAGE>
- ------------------------------------------------------------------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER AND
REDEMPTION AGENT
- ------------------------------------------------------------------------------
State Street Bank and Trust Company, U.S. Mutual Funds Services Division,
P.O. Box 1713, Boston, Massachusetts 02105 serves as Custodian of all
securities and funds owned by the Fund in accordance with the terms of a
Custodial Agreement between the Company and the Custodian. The Custodian also
provides dividend paying services to the Fund.
The Company acts as its own transfer and redemption agent for its common
stock, and solicits orders from qualified investors to purchase Fund shares.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus does 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 statements and related forms may be
inspected at the Public Reference Room of the Commission at Room 1024, 450
5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and copies thereof
may be obtained from the Commission at prescribed rates.
Under an Agreement dated March 16, 1979, the Investment Manager (through its
predecessor, Rosenberg Capital Management) 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.
The Fund may from time to time compare its investment results with various
unmanaged indexes (which generally do not reflect deductions for
administrative and management costs and expenses) and indexes prepared by
consultants, mutual fund ranking entities, and financial publications,
including the following, among others:
1. The Morgan Stanley Capital International EAFE Market Capitalization-
Weighted and GDP-Weighted Indices, and the Morgan Stanley Emerging
Market-Free Index, which are widely recognized unmanaged indices
based on securities listed on exchanges in European, Australian and Far
Eastern markets, and various blends of such Indices.
2. The Standard & Poor's 500 Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500 of
the largest publicly traded stocks in the United States.
3. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc. and Morningstar, which rank mutual funds by overall
performance, investment objectives, and assets.
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<PAGE>
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Incorporated by reference herein are the financial statements of RCM
International Growth Equity Fund A, contained in the Fund's Annual Report to
Shareholders for the year ended December 31, 1995, including the Report of
Independent Accountants, dated February 9, 1996, 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. A copy of the Fund's Annual Report to
Shareholders is available, upon request, by calling the Fund at (415)
954-5400, or by writing the Fund at Four Embarcadero Center, Suite 3000, San
Francisco, California 94111.
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<PAGE>
- ------------------------------------------------------------------------------
APPENDIX A: INFORMATION REGARDING CERTAIN FOREIGN COUNTRIES
- ------------------------------------------------------------------------------
As indicated earlier, investments in securities of issuers that are organized
or headquartered in Japan, the United Kingdom and Germany may in each case
aggregate up to 65% of the Fund's total assets. In addition, the Fund may be
exposed in amounts greater than 25% of its total assets, as adjusted to
reflect currency transactions and securities positions, to the currencies of
each of such countries as well as the U.S. dollar. Because the Fund may
invest more than 25% of its total assets in each of such countries or
currencies, the following summaries are included to provide a brief general
discussion of the economic and certain other conditions of each of these
countries. The information in these summaries has been derived from sources
that the Fund believes to be reliable, but has not been independently
verified. In some cases the data are seasonally adjusted. Currency exchange
rate is a period average except for market capitalization data, which is
based on year-end exchange rates.
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 as well as
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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GERMANY
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The currency is the Deutschemark (December 31, 1995: GDM 1.4380 = $1 U.S.).
Gross Domestic Product was DM 3,462 billion ($1,075 billion) in 1995. The
current account balance in 1995 was a deficit of DM 27 billion ($34 billion),
which was 0.80% of the GDP. The annual rate of inflation in 1995 was 1.80%.
The average rate of inflation for the three years ending 1995 was 3.01%.
At the end of 1995 and 1994, market capitalization (in ECU millions) for the
main market in domestic equities was 361,872 and 334,497, an increase of
4.37%. The German Stock Index, DAX, which comprises 30 selected German blue
chip stocks, was 2,266.68, 2,106.5 and 2,253.9 at year-end 1993, 1994 and
1995, respectively.
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JAPAN
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The currency is the Yen (December 31, 1995: Y103.38 = $1 U.S.). Gross
Domestic Product was Y480 trillion ($4,643 billion) in 1995. The current
account balance in 1995 was a surplus of Y24 trillion ($232 billion), which
was 2.0% of the GDP. The annual rate of inflation in 1995 was -0.25%. The
average rate of inflation for the three years ending 1995 was 0.55%. Japan is
a highly industrialized nation with a population in excess of 120 million
people. At the end of 1995 and 1994, total market value of shares listed on
the Tokyo stock exchange was $3,464 billion and $3,553 billion respectively,
which was a decrease of 1.06%. The Nikkei stock average, which is calculated
on a formula similar to that used for the Dow Jones average in the United
States, was 17,417.24, 19,723 and 19,868 at year-end 1993, 1994 and 1995,
respectively.
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UNITED KINGDOM
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The currency is the Pound Sterling (December 31, 1995: L.1.55 = $1 U.S.).
Gross Domestic Product was L509 billion ($328 billion) in 1995. The current
account balance in 1995 was a deficit of L0.31 billion ($0.19 billion), which
was 0.60% of the GDP. The annual rate of inflation in 1995 was 3.41%. The
average rate of inflation for the three years ending 1995 was 2.49%.
At the end of 1995 and 1994, market capitalization (in ECU millions) for the
main market in domestic equities was 1,645 and 1,022, respectively, which was
an increase of 17.97%. The FT Industrial Ordinary Share Index, based on the
shares of 30 companies chosen to be representative of British industry and
commerce, was 3,418.40, 3,065.50 and 3,689.30 at year-end 1993, 1994 and
1995, respectively.
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APPENDIX B: CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES
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As indicated above, the Fund may engage in stock options and stock index
option transactions, futures and futures option transactions, and various
other currency management transactions. The following material provides
further information regarding these transactions and the associated risks.
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FUTURES TRANSACTIONS
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The Fund may purchase and sell stock index futures contracts and futures
options as a hedge against changes in market conditions that may result in
changes in the value of the Fund's portfolio securities, in accordance with
the strategies more specifically described below. The Fund will engage in
transactions in stock index futures contracts or futures options consistent
with the Fund's investment objective. A stock index (such as the Standard &
Poor's 500 Stock Price Index) assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included. The Fund may also 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 the index or currency at the
close of the last trading day of the contract and the price at which the
index or currency contract was originally written. In the case of futures
contracts traded on U.S. exchanges, the exchange itself or an affiliated
clearing corporation assumes 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 index or currency. No physical
delivery of the underlying stocks in the index or currency is made.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the Fund's Custodian (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 futures contract margin does not
involve the borrowing of funds by the 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 the 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
stock index or 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 the Fund has purchased a stock index futures
contract and the price of the underlying stock index has risen, that position
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will have increased in value and the Fund will receive from the FCM a
variation margin payment equal to that increased value. Conversely, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index 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, the 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.
CHARACTERISTICS OF FUTURES OPTIONS. The Fund may also purchase call options
and put options on stock index and currency futures contracts ("futures
options"). A futures option gives the holder the right, in return for the
premium paid, 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 holder 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. When the Investment Manager anticipates a significant
stock market or stock market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance at
a time when the Fund is not fully invested in equity securities. Such
purchase of a futures contract would serve as a temporary substitute for the
purchase of individual stocks which may later be purchased (with attendant
costs) in an orderly fashion. As such purchases of individual stocks are
made, an approximately equivalent amount of stock index futures would be
terminated by offsetting sales. Similarly, 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 Fund may sell stock index futures contracts in
anticipation of or during a general stock market or market sector decline
that may adversely affect the market values of the Fund's portfolio of equity
securities. To the extent that the Fund's portfolio of equity securities
changes in value in correlation with a given stock index, the sale of futures
contracts on that index would reduce the risk to the portfolio of a market
decline and, by so doing, would provide an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.
Similarly, 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 the Fund' 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 put options on stock
index futures contracts is analogous to the purchase of puts on individual
stocks, where an absolute level of protection from price fluctuation is
sought below which no additional economic loss would be incurred by the Fund.
Put options may be purchased to hedge a portfolio of stocks or a position in
the futures contract upon which the put option is based against a possible
decline in market value. The purchase of a put option on a currency futures
contract can be used to hedge against unfavorable movements in currency
exchange
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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 stock
index futures contracts represents a means of obtaining temporary exposure to
market appreciation 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 stock
index itself, it may be less risky, because losses are limited to the premium
paid for the call option, when compared to the ownership of the stock index
futures contract or the underlying stock. Like the purchase of a stock index
futures contract, the Fund would purchase a call option on a stock index
futures contract to hedge against a market advance when the Fund is not fully
invested. Similarly, 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.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND FUTURES OPTIONS. The Fund
will not engage in transactions in stock index futures contracts or futures
options for speculation, but only as a hedge against changes in the value of
securities held in the Fund's portfolio, or securities which the Investment
Manager intends to purchase for the portfolio, resulting from actual or
anticipated changes in general market conditions. Such transactions will only
be effected when, in the view of the Investment Manager, they are
economically appropriate to the reduction of risks inherent in the ongoing
management of the Fund's investment portfolio. However, as described earlier,
the Fund may engage in transactions in currency futures contracts or futures
options to enhance returns as well as to hedge against unfavorable currency
movements.
The 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, the 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 and cash
equivalents 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.
TAX TREATMENT. The extent to which the Fund may engage in futures and futures
option transactions may be limited by the requirements of the Internal
Revenue Code of 1986 for qualification as a regulated investment company and
the Fund's intention to continue to qualify as such. Certain of these
transactions may be "Section 1256 contracts." Gains or losses on Section 1256
contracts generally are treated as 60% long-term and 40% short-term ("60/40")
capital gains or losses. Also, any Section 1256 contracts that are held by
the Fund at the end of a taxable year (and, generally, for purposes of the 4%
excise tax, on October 31 of each year) are "marked-to-market" with the
result that unrealized gains or losses are treated as though they were
realized and the resulting gain or loss is generally treated as a 60/40 gain
or loss.
REGULATORY MATTERS. The Fund has filed a claim of exemption from registration
as a commodity pool with the Commodity Futures Trading Commission (the
"CFTC"). The Fund intends to conduct its futures trading activity in a manner
consistent with that exemption. The Investment Manager is registered with the
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CFTC as both a Commodity Pool Operator and as a Commodity Trading Advisor.
INVESTMENT AND RISK CONSIDERATIONS. There are several risks in connection
with the use of futures in the Fund 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 securities or currencies or currencies which
are the subject of the hedge is not always perfect. The price of the future
may move more than, or less than, the price of the securities or currencies
being hedged. If the price of the future moves less than the price of the
securities which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities or 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 securities or
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 securities or 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 securities or currencies
which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
securities or currencies being hedged and movements in the price of the
futures, the Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities or currencies being hedged, if
the historical volatility of the price of such securities or currencies has
been greater than the historical volatility of the securities or currencies.
Conversely, the Fund may buy or sell fewer futures contracts if the
historical volatility of the price of the securities or currencies being
hedged is less than the historical volatility of the securities or
currencies. It is also possible that, when the Fund has sold futures to hedge
its portfolio against decline in the market, the market may advance and the
value of the securities held in the Fund's portfolio may decline. If this
occurs, the Fund will lose money on the future and also experience a decline
in value in its portfolio securities.
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
may result in immediate and substantial loss or 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, and such losses are potentially unlimited.
However, the Fund would have sustained comparable losses if, instead of the
futures contract, it had invested in the underlying financial instrument and
sold the instrument after the decline.
When futures are purchased to hedge against a possible increase in the price
of stock before the Fund is able to invest its cash (or cash equivalents) in
stock in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes 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 securities or
currencies which are the subject of the hedge, the price of futures contracts
may not correlate perfectly with movement in the stock index or 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 index or 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
securities or currency market. Therefore, increased participation by
speculators in the futures market also may cause temporary price
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distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in the stock index
or currency and movements in the price of stock index or currency futures, a
correct forecast of general market or 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 reach, 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 the 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 a loss to the 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.
The Fund will only enter into futures contracts or purchase futures options
that are standardized and traded on 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. However, in the event futures contracts have been used to hedge
portfolio securities or currencies, an increase in the price of the
securities or 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 securities or 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 Fund for hedging purposes or to enhance
returns is subject to the Investment Manager's ability to predict correctly
movements in the direction of the securities and currency markets. For
example, if the Fund hedged against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increased instead, the Fund would lose part or all of the benefit of the
increased value of its stocks which it hedged because it would have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund had insufficient cash, it might have to sell securities to meet
daily variation margin requirements. Such sales of securities might be, but
would not necessarily be, at increased prices which would reflect the rising
market. As a result, the Fund might have to sell securities at a time when it
might be disadvantageous to do so. Similarly, if the 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 has 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.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
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The Fund may purchase covered "put" and "call" options with respect to
securities which are otherwise eligible for purchase by the Fund and with
respect to various stock indices subject to certain restrictions. The Fund
will engage in trading of such derivative securities exclusively for hedging
purposes.
PURCHASE PUT AND CALL OPTIONS. If the Fund purchases a put option, the Fund
acquires the right to sell the underlying security at a specified price at
any time during the term of the option (for "American-style" options) or on
the option expiration date (for "European-style" 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 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 the Fund is holding a
stock which it 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 sold.
If the Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the 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.
Prior to exercise or expiration, an option may be sold by the Fund when it
has remaining value through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased.
STOCK INDEX OPTIONS. The Fund may also purchase put and call options with
respect to the S&P 500 Stock Price Index and other stock indices. Such
options may be purchased as a hedge against changes resulting from market
conditions in the values of securities which are held in the 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 the Fund will realize a gain or loss
on the purchase or
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sale of an option on an index 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 the Fund of options on a
stock index would 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 the
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, the 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 Fund 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. The 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 traded option, and may be subject
to the Fund's restriction on investment in illiquid securities. In addition,
dealer options may involve the risk that the securities dealers participating
in such transactions will fail to meet their obligations under the terms of
the option.
RISKS OF INVESTING IN 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
securities; 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 the Fund may enter into options transactions may be
limited by the Internal Revenue Code requirements for qualification of an
Investor as a regulated investment company.
In addition, when trading options on foreign exchanges, many of the
protections afforded to participants in United States 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
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related transaction costs, this entire amount could be lost.
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. supervision.
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CURRENCY MANAGEMENT TECHNIQUES
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Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, the 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 by U.S. or foreign governments or central banks, or the failure
to intervene, 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
the 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. The 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, the Fund may enter into forward
foreign currency exchange contracts in order to protect against anticipated
changes in future foreign currency exchange rates. The Fund may engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Manager
determines that the there is a pattern of correlation between the two
currencies.
The 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. The Fund may enter into contracts to sell 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 the Fund if the value of
the hedged currency increased.
If the Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return or to buy foreign currency for any
purpose, the Fund will be required to place cash or liquid, high grade
- ------------------------------------------------------------------------------
Page 53
<PAGE>
debt 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 cash or securities 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 the 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 Fund will not enter into such transactions unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Manager.
OPTIONS ON FOREIGN CURRENCIES. The 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. The Fund may 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 there is a pattern of correlation between the two currencies. As with
other kinds of option transactions, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of
the premium received. The Fund could be required to purchase or sell 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 the Fund's position, the Fund may forfeit the entire
amount of the premium plus related transaction costs. In addition, the 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. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges.
CURRENCY SWAPS. The 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 Fund expects to achieve an acceptable
degree of correlation between its portfolio investments and its currency swap
positions entered into for hedging purposes. Currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the
swap will default on its contractual delivery obligations. The Fund will
maintain in a segregated account with the Fund's custodian cash and liquid,
high grade debt securities equal to 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 the net amount of swap is held in a
segregated account consisting of cash or liquid, high grade debt securities,
the Fund and the Investment Manager believe that swaps do not constitute
senior securities under the 1940 Act and accordingly, will not treat them as
being subject to the Fund's borrowing restriction.
The use of currency swaps is a highly specialized activity which involves
investment
- ------------------------------------------------------------------------------
Page 54
<PAGE>
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 the Fund would be less favorable than it would have been if
this investment technique were not used.
- ------------------------------------------------------------------------------
Page 55
<PAGE>
INVESTMENT MANAGER
RCM Capital Management
A California Limited Partnership
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION AGENT
RCM Capital Funds, Inc.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
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
Combined Prospectus and
Statement of Additional Information
April 29, 1996
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
Statements of Assets and Liabilities, Statement of Investments in
Securities and Net Assets, Statement of Operations and Statement of Changes
in Net Assets for RCM Capital Funds, Inc. (previously filed in Annual
Reports to Shareholders, February 27, 1996).
(b) EXHIBITS
1. Articles of Incorporation of Registrant, as amended and now in effect
(previously filed with Post-Effective Amendment No. 20, April 28,
1995).
2. By-Laws of Registrant, as amended (previously filed with Post-
Effective Amendment No. 18, April 28, 1994).
3. None.
4. (a) Proof of specimen of certificate for Capital Stock ($0.10 par
value) of Registrant (previously filed with Pre-Effective
Amendment No. 1, May 19, 1979).
(b) Relevant portion of the Articles of Incorporation defining the
rights of the holders of the securities being registered
(previously filed with Post-Effective Amendment No. 20, April 28,
1995).
5. (a) Form of Investment Management Agreement, Power of Attorney and
Services Agreement between Registrant and RCM Capital Management,
dated as of June 16, 1987 (previously filed with Post-Effective
Amendment No. 9, May 13, 1979).
(b) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of the RCM Small
Cap Fund, and RCM Capital Management, dated as of January 1, 1992
(previously filed with Post-Effective Amendment No. 14, November
26, 1991).
(c) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM
International Growth Equity Fund A, and RCM Capital Management,
dated as of December 20, 1994 (previously filed with Post-
Effective Amendment No. 21, June 22, 1995).
C-1
<PAGE>
6. None.
7. None.
8. (a) Custodian Agreement and remuneration schedule between Registrant
and its custodian bank, State Street Bank and Trust Company
(previously filed with Post-Effective Amendment No. 18, April 28,
1994).
(b) Amendment to Custodian Agreement between Registrant, and State
Street Bank and Trust Company (previously filed with Post-
Effective Amendment No. 18, April 28, 1994).
9. Agreement, dated as of March 16, 1979, between Rosenberg Capital
Management and Registrant related to the use by Registrant of the name
"RCM" (previously filed with Form N-1, March 19, 1979).
10. Opinion of Morrison & Foerster as to legality of securities being
registered (previously filed with Pre-Effective Amendment No. 1,
May 9, 1979), and Letter of Paul, Hastings, Janofsky & Walker.
11. Consent of Coopers & Lybrand L.L.P.
12. None.
13. None.
14. None.
15. None.
16. Schedules of Performance Data Quotations.
17. Not Applicable.
18. None.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The investment manager of each series of the Company is RCM Capital
Management, a California Limited Partnership (the "Investment Manager"). The
general partner and controlling person of RCM is RCM Limited L.P., a California
limited partnership ("RCM Limited"). RCM Limited is managed by its general
partner, RCM General Corporation, a California corporation ("RCM General"). The
limited partners of RCM Limited are set forth in each Funds' Combined Prospectus
and Statement of Additional Information under "The Investment Manager." In
addition, certain of the officers and directors of the Company are officers or
employees of RCM. Accordingly, the Investment Manager, RCM Limited and RCM
General may be deemed to be under common control with the Company.
C-2
<PAGE>
The Investment Manager also serves as investment manager of RCM Global
Technology Fund, a series of RCM Equity Funds, Inc., an open-end management
investment company ("Equity Funds"), and RCM Strategic Global Government Fund,
Inc., a closed-end management investment company ("RCS"). Certain officers and
directors of Equity Funds and RCS are also officers or employees of RCM.
Accordingly, Equity Funds and RCS may be deemed to be under common control with
the Company.
The sole limited partner of the Investment Manager is RCM Acquisition,
Inc., ("RCM Acquisition") a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Pursuant to an agreement between Travelers and RCM Limited,
Travelers has an option to acquire RCM Limited's interest in RCM, as discussed
in more detail in each Fund's Prospectus under "The Investment Manager."
Accordingly, Travelers may be deemed to be under common control with the Funds.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1996
TITLE OF CLASS NUMBER OF RECORD-HOLDERS
RCM Growth Equity Fund 87
Common Stock
($0.10 par value)
RCM Small Cap Fund 63
Common Stock
($0.10 par value)
RCM International 5
Growth Equity Fund A
Common Stock
($0.10 par value)
ITEM 27. INDEMNIFICATION.
Section 2-418 of the General Corporation of Maryland empowers a
corporation to indemnify directors and officers of the Corporation under various
circumstances as provided in such statute. A director or officer who has been
successful on the merits or otherwise, in the defense of any proceeding, must be
indemnified against reasonable expenses incurred by such person in connection
with the proceeding. Reasonable expenses may be paid or reimbursed by the
Corporation in advance of the final disposition of the proceeding, after a
determination that the facts then known to those making the determination would
not preclude indemnification under the statute, and following receipt by the
Corporation of a written affirmation by the person that his or her standard of
conduct necessary for indemnification has been met and upon delivery of a
written undertaking by or on behalf of the person to repay the amount advanced
if it is ultimately determined that the standard of conduct has not been met.
C-3
<PAGE>
Article XI of the By-Laws of the Company contain indemnification
provisions conforming to the above statute and to the provisions of Section 17
of the Investment Company Act of 1940, as amended.
Effective September 30, 1988, the Company and the directors and
officers of the Company obtained coverage under an Errors and Omissions
insurance policy. The terms and conditions of policy coverage conform generally
to the standard coverage available throughout the investment company industry.
The coverage also applies to the Investment Manager and its partners and
employees.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the provisions of Maryland law and the
Company's Articles of Incorporation and By-Laws, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Certain directors, officers, employees or shareholders of RCM General
Corporation, the general partner of RCM Limited, which is the general partner of
the Company's Investment Manager, formerly were directors, officers, employees
or shareholders of The RREEF Corporation. The RREEF Corporation is a registered
investment adviser specializing in the management of equity real estate
investments for institutional, tax-exempt clients. Currently, no officer or
employee of RCM is a director, officer, employee or shareholder of The RREEF
Corporation. However, certain of such persons are former directors, officers,
employees or shareholders of The RREEF Corporation and in that capacity receive
certain retirement benefits. Claude N. Rosenberg, Jr., John D. Leland, Jr.,
Lee N. Price, Gary W. Schreyer, John A. Kriewall, Walter C. Price, Jr.,
William L. Price, Edward C. Derkum, Jeffrey S. Rudsten, Kenneth B. Weeman, Jr.,
Andrew C. Whitelaw, and G. Nicholas Farwell are General Partners of RREEF
Partners (a California general partnership). RREEF Partners is the holder of
24.85% interest in RREEF America Partners, a general partnership which is
registered as an investment adviser to group trusts (the RREEF MidAmerica Funds,
the RREEF USA Funds and the RREEF West Funds) designed to afford pension and
profit sharing plans and other investors exempt from federal income tax the
opportunity to make equity investments in real properties.
The sole limited partner of the Investment Manager is RCM Acquisition,
a wholly owned subsidiary of Travelers. Travelers, whose principal executive
offices are located at
C-4
<PAGE>
388 Greenwich Street, New York, New York 10013, is a financial services
holding company engaged, through its subsidiaries, principally in the
business of consumer financial, insurance services and investment services.
Securities of Travelers are listed for trading on the New York Stock
Exchange. RCM Acquisition has been the sole limited partner of RCM Capital
Management since July 1986.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) None.
(b) None.
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained and held in
the offices of the Company and its investment manager, RCM Capital Management,
Four Embarcadero Center, Suite 3000, San Francisco, California 94111.
Records covering portfolio transactions are also maintained and kept
by the Company's custodian, State Street Bank and Trust Company, U.S. Mutual
Funds Services Division, P.O. Box 1713, Boston, Massachusetts 02105.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, RCM Capital Funds, Inc. certifies that it meets
all of the requirements for effectiveness of this Post-Effective Amendment
No. 23 to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 23
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco, State of California, on
April 29, 1996.
RCM CAPITAL FUNDS, INC.
By: /s/ William L. Price
--------------------------------
Chairman of the Board and
President
Each person whose signature appears below hereby authorizes William L.
Price, Claude N. Rosenberg, Jr., Michael J. Apatoff, Susan C. Gause, and Anthony
Ain or any of them, as attorney-in-fact, to sign on his/her behalf, individually
and in each capacity stated below, any amendment to this Registration Statement
(including post-effective amendments) and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this Post-
effective Amendment No. 23 to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
(1) Principal Executive Officer Chairman of the Board April 29, 1996
and President
/s/ William L. Price
----------------------------
William L. Price
(2) Principal Financial Officer Treasurer April 29, 1996
/s/ Susan C. Gause*
----------------------------
Susan C. Gause
- --------------------------
* By William L. Price, pursuant to Power of Attorney filed with the
Securities and Exchange Commission with Registrant's Registration Statement
on Post-Effective Amendment no. 19 on March 8, 1995.
<PAGE>
SIGNATURE TITLE DATE
(3) Principal Accounting Officer Vice President April 29, 1996
/s/ Caroline M. Hirst*
----------------------------
Caroline M. Hirst
(4) Directors
/s/ Claude N. Rosenberg, Jr.* April 29, 1996
----------------------------
Claude N. Rosenberg, Jr.
/s/ John D. Leland, Jr.* April 29, 1996
----------------------------
John D. Leland, Jr.
/s/ John A. Kriewall* April 29, 1996
----------------------------
John A. Kriewall
/s/ G. Nicholas Farwell* April 29, 1996
----------------------------
G. Nicholas Farwell
/s/ Michael J. Apatoff* April 29, 1996
----------------------------
Michael J. Apatoff
/s/ Kenneth B. Weeman, Jr.* April 29, 1996
----------------------------
Kenneth B. Weeman, Jr.
/s/ Kenneth E. Scott* April 29, 1996
----------------------------
Kenneth E. Scott
By: /s/ William L. Price April 29, 1996
----------------------------
William L. Price
as Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
10 Letter of Paul, Hastings, Janofsky & Walker
----
11 Consent of Coopers & Lybrand
----
17 Financial Data Schedule
----
<PAGE>
PAUL, HASTINGS, JANOFSKY & WALKER
555 South Flower Street
Los Angeles, California 90071
April 26, 1996
WRITER'S DIRECT
DIAL NUMBER:
(213) 683-6297
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: RCM Capital Funds, Inc.
Post-Effective Amendment No. 23
to Form N-1A Registration Statement
File Nos. 2-63825, 811-2913
Ladies and Gentlemen:
As counsel to RCM Capital Funds, Inc. (the "Fund"), we have reviewed
the Combined Prospectus and Statement of Additional Information of the Fund
included in Post-Effective Amendment No. 23 (the "Amendment") to the Fund's
Registration Statement on Form N-1A under the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940. This will confirm, pursuant to
Rule 485(b)(4) under the 1933 Act, that the Amendment does not contain
disclosures that would render it ineligible to become effective pursuant to Rule
485(b) under the 1933 Act.
Very truly yours,
s/Michael Glazer
Michael Glazer
for PAUL, HASTINGS, JANOFSKY & WALKER
<PAGE>
To the Board of Directors of
RCM Capital Funds, Inc.:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 23 to the Registration Statement of RCM Capital Funds, Inc. on Form N-1A
(File No. 2-63825) of our report dated February 9, 1996, on our audit of the
financial statements and financial highlights of RCM Growth Equity Fund, which
report is included in the Annual Report to shareholders for the year ended
December 31, 1995 which is incorporated by reference in the Post-Effective
Amendment to the Registration Statement. We also consent to the references to
our Firm under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1996
<PAGE>
To the Board of Directors of
RCM Capital Funds, Inc.:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 23 to the Registration Statement of RCM Capital Funds, Inc. on Form N-1A
(File No. 2-63825) of our report dated February 9, 1996, on our audit of the
financial statements and financial highlights of RCM Small Cap Fund, which
report is included in the Annual Report to shareholders for the year ended
December 31, 1995 which is incorporated by reference in the Post-Effective
Amendment to the Registration Statement. We also consent to the references to
our Firm under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1996
<PAGE>
To the Board of Directors of
RCM Capital Funds, Inc.:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 23 to the Registration Statement of RCM Capital Funds, Inc. on Form N-1A
(File No. 2-63825) of our report dated February 9, 1996, on our audit of the
financial statements and financial highlights of RCM International Growth Equity
Fund A, which report is included in the Annual Report to shareholders for the
year ended December 31, 1995 which is incorporated by reference in the Post-
Effective Amendment to the Registration Statement. We also consent to the
references to our Firm under the caption "Independent Accountants."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1996
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