<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. 25
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 25
- ------------------------------------------------------------------------
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:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On _________________ pursuant to paragraph (b)
[X] 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 Safekeeping of Securities,
Distributor, and Transfer and
Redemption Agent
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, L.L.C. (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 investments, and at
least 65% of its total 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 approximately $ million to $ 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 July , 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, L.L.C. (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 investments, and at
least 65% of its total 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. 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 approximately $ million to $ 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 Fund's distributor, Funds
Distributor, Inc. (the "Distributor"), or to the Investment Manager at the
address set forth on the back of this Prospectus, 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., distribution fees legal and audit fees,
securities registration expenses and compensation of non-interested directors
of the Company). (See THE INVESTMENT MANAGER.) 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.
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>
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated 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 (a):
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 (c) 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 rate 96.5% 111.1% 67.0% 56.8% 62.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Year Ended December 31,
---------------------------------------------------------------
1990 1989 1988 1987 1986 (b) 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 (c) (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 rate 50.0% 70.8% 64.7% 79.9% 78.2% 80.0%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
</TABLE>
- ----------------------------------
(a) On , 1996 RCM Capital Management, L.L.C., the successor to the
business and operations of RCM Capital Management, a California limited
partnership, became the Investment Manager. (see THE INVESTMENT MANAGER)
(b) On July 9, 1986, RCM Capital Management, a California Limited Partnership,
the successor to the business and operations of Rosenberg Capital Managment,
became the investment manager.
(c) Total return measures 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 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.
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 to represent the Fund's performance more completely or
to compare such performance to other measures of investment return more
accurately, 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 investments, and at least 65% of its total assets, in equity and
equity-related securities of small- to medium-sized concerns, primarily
common stocks. For this purpose, cash and cash equivalents, and receivables
and related items, are not considered to be "investments in equity and
equity-related securities.'' 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 approximately $ million to $
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
its investments 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
- ------------------------------------------------------------------------------
Page 7
<PAGE>
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 in warrants, or a combination of warrants and common
stocks. Investment in warrants 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 be prudently exercised, in which event the
warrant may expire without being exercised, resulting in a loss of the Fund's
entire investment in the warrant. The Investment Manager anticipates that it
will invest in warrants only when such warrants may be sold publicly in the
secondary market, although the Investment Manager would not be precluded from
acquiring warrants in a private placement if it believes, in light of all the
circumstances, that such acquisition presents an attractive investment
opportunity for the Fund. The Investment Manager will limit the Fund's
investments in warrants to 10% of the Fund's total assets, measured at the
time of purchase.
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.
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.)
- ------------------------------------------------------------------------------
Page 8
<PAGE>
---------------------
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-
- ------------------------------------------------------------------------------
Page 9
<PAGE>
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
- ------------------------------------------------------------------------------
Page 10
<PAGE>
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-
- ------------------------------------------------------------------------------
Page 11
<PAGE>
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.
- ------------------------------------------------------------------------------
Page 12
<PAGE>
---------------------
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;
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
- ------------------------------------------------------------------------------
Page 13
<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 more than 5% of the value 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.
- ------------------------------------------------------------------------------
Page 14
<PAGE>
-------------------
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.
DEWITT F. BOWMAN,* Director. Mr. Bowman is a Principal of Pension Investment
Consulting, with which he has been associated since February 1994. From
February 1989 to January 1994 he was Chief Investment Officer for California
Public Employees Retirement System, a public pension fund. He serves as a
director of RREEF America REIT, Inc., a trustee of Brandes International Fund
and a trustee of the Pacific Gas and Electric Nuclear Decommissioning Trust.
He also serves as a director of RCM Equity Funds, Inc. ("RCM Equity").
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant.
From 1991 to 1994, she was President of Banyan Homes, Inc., a real estate
development and construction firm; and for eight years she was a management
consultant for McKinsey & Company, where she served a variety of Fortune 500
companies in all aspects of strategic management and organizational
structure. She also serves as a director of RCM Equity.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that
he served as the 49th Speaker of the House of Representatives and was the
representative of the 15th Congressional District of the State of Washington
from 1965 to 1994. Mr. Foley serves on the Board of Directors of the H.J.
Heinz Company, on the Global Advisory Board of Coopers & Lybrand L.L.P. and
on the Board of Overseers of Whitman College. He also serves as a director
of RCM Equity.
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of
Wood Island Associates, Inc., a registered investment adviser, with which he
has been associated since August 1991. From November 1987 to August 1991 he
was a Senior Vice President and Portfolio Manager of Siebel Capital
Management, Inc., a registered investment adviser. He also serves as a
director of RCM Equity.
GEORGE G.C. PARKER,* Director. Mr. Parker is Associate Dean for Academic
Affairs and Director of the MBA Program at the Graduate School of Business at
Stanford University, with which he has been associated since 1973. Mr. Parker
has served on the Board of Directors of the California Casualty Group of
Insurance Companies since 1977; BB&K Holdings, Inc., a holding company for
financial services companies, since 1980; H. Warshow & Sons, Inc., a
manufacturer of specialty textiles, since 1982; and Zurich Reinsurance
Centre, Inc., a large reinsurance underwriter, since 1994. Mr. Parker served
on the Board of Directors of the University National Bank & Trust Company
from 1986 to 1995. He also serves as a director of RCM Equity.
- ---------------------
* Member, Audit Committee of the Company.
- ------------------------------------------------------------------------------
Page 15
<PAGE>
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.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr.
Ingram is Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. ("FDI"). From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company. He is also President, Treasurer and Chief Financial Officer of RCM
Equity.
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior Vice
President and General Counsel of FDI and an officer of certain investment
companies advised or administered by the Dreyfus Corporation. From February
1992 to April 1994, Mr. Pelletier served as Counsel for The Boston Company
Advisors, Inc. From August 1990 to February 1992, Mr. Pelletier was employed
as an Associate at Ropes & Gray. He is also a Vice President and Secretary of
RCM Equity.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Ms. Bachman is
Assistant Vice President and Counsel of FDI with which she has been
associated since September 1995. From since September 1995 to present she is
Counsel to Premier Mutual Fund Services, Inc. and an officer of certain
investment companies advised or administered by the Dreyfus Corporation.
Prior to September 1995, she was enrolled at Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, Ms. Bachman was
an Assistant at the National Association for Public Interest Law. She is also
Vice President and Assistant Secretary of RCM Equity.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is a Senior
Paralegal for FDI with which she has been associated since January 1996. From
June 1994 to January 1996 she was a Manager of SEC Registration for Scudder,
Stevens & Clark, Inc. From 1988 to May 1994, she was Senior Paralegal at The
Boston Company Advisors, Inc. She is also an Assistant Secretary of RCM
Equity.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is the Manager of Treasury,
Services and Administration for FDI with which she has been associated since
1994. From 1989 to 1994 she was an Assistant Vice President and Client
Manager for The Boston Company. She is also Assistant Treasurer of of RCM
Equity.
- ---------------------
* Member, Audit Committee of the Company.
- ------------------------------------------------------------------------------
Page 16
<PAGE>
The Company's Audit Committee, consisting of Messrs. [Bowman, Parker and
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
receives a fee of $6,000 per year plus $1,000 for each Board meeting
attended, and is reimbursed for his or her travel and other expenses incurred
in connection with attending Board meetings. The Investment Manager bears
this expense. The Directors receive no pension or retirement benefits from
the Company. Ms. Farr and Messrs. Bowman, Foley, Greene and Parker are
directors of RCM Equity Funds, Inc., a registered investment company that is
advised by the Investment Manager. The Directors are not directors 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 Investment Manager. 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 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, a member of the Investment Manager's [Governing Board]; the
other members of the Steering Committee are John A. Kriewall, G. Nicholas
Farwell and Huachen Chen (a [principal] of the Investment Manager and a
manager of one of the Fund's portfolios).
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 shares of the Fund's
Capital Stock on June 30, 1996, constituting less than 1% of total shares
outstanding at that date.
- ------------------------------------------------------------------------------
Page 17
<PAGE>
No director or officer of the Company was a beneficial owner of
any shares the Fund's outstanding Common Stock as of June 30, 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, L.L.C. (the "Investment Manager"), a Delaware limited liability
company 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 April, 1996, as the successor to the
business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization headquartered in
Frankfurt Germany, whose principal executive offices are located at
Gallunsanlage 7, 60041 Frankfurt am Main. With total consolidated assets as
of December 31, 1995 of DM 484 billion ($696 billion), and approximately 1600
offices and 45,000 employees in over 60 countries around the world, Dresdner
is Germany's second largest bank. Dresdner provides a full range of banking
services, including traditional lending activities, mortgages, securities,
project finance and leasing, to private customers and financial and
institutional clients. In the United States, Dresdner maintains branches in
New York and Chicago and an agency in Los Angeles. As of the date of this
[Prospectus], the nine members of the [Governing Board] of the Investment
Manager are _______________, ______________, and ______________, each of whom
were appointed by Dresdner, and _______________, _______________,
______________, ______________, _______________, and _____________, each of
whom were appointed by RCM Limited. The chief executive officer of the
Investment Manager is William L. Price.
Pursuant to a Management Agreement among RCM Limited, the Investment Manager,
and Dresdner, RCM Limited manages, operates and makes all decisions regarding
the day-to-day business and affairs of the Investment Manager, subject to the
oversight of the [Governing Board]. RCM Limited is a California limited
partnership consisting of ___ limited partners and one general partner, RCM
General Corporation, a California corporation ("RCM General"). The 1_
limited partners of RCM Limited, each of whom is a [principal] of the
Investment Manager, are also the shareholders of RCM General. As of the date
of this Prospectus, the following persons are limited partners of RCM Limited
and shareholders of RCM General: Claude N. Rosenberg, Jr., Michael J.
Apatoff, Huachen Chen, Ellen M. Courtien, Eamonn F. Dolan, G. Nicholas
Farwell, Joanne L. Howard, Stephen Kim, John A. Kriewall, John D. Leland,
Jr., Melody L. McDonald, Lee N. Price, Walter C. Price, Jr., William L.
Price, Jeffrey S. Rudsten, Gary W. Schreyer, Kenneth B. Weeman, Jr. and
Andrew C. Whitelaw.
- ------------------------------------------------------------------------------
Page 18
<PAGE>
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 , 1996. 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. 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 Global 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 at a special
meeting on May 28, 1996, and was approved for renewal by the unanimous vote
of the Board of Directors of the Company on March 20, 1996. The Management
Agreement will continue in effect until , 1998. 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., distribution
fees and expenses 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 directors 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 daily
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
- ------------------------------------------------------------------------------
Page 19
<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-
- ------------------------------------------------------------------------------
Page 20
<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-
- ------------------------------------------------------------------------------
Page 21
<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.
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
- ------------------------------------------------------------------------------
Page 22
<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
- ------------------------------------------------------------------------------
Page 23
<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.
- ------------------------------------------------------------------------------
Page 24
<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, L.L.C. 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 "Distributor") by sending a signed, completed subscription form to the
Funds Distributor, Inc. Distributor at Four Embarcadero Center, San
Francisco, California 94111. (telephone (415) ). Subscription forms
can also 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
- ------------------------------------------------------------------------------
Page 25
<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
- ------------------------------------------------------------------------------
Page 26
<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
- ------------------------------------------------------------------------------
Page 27
<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.
- ------------------------------------------------------------------------------
Page 28
<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
- ------------------------------------------------------------------------------
Page 29
<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.
- ------------------------------------------------------------------------------
Page 30
<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
- ------------------------------------------------------------------------------
Page 31
<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 Company is
authorized to issue 1,000,000,000 shares of Capital Stock (par value $0.0001
per share) of which 300,000,000 shares have been designated as shares of RCM
Growth Equity Fund. 100,000,000 shares have been designated as shares of RCM
Small Cap Fund, and 100,000,000 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 June 30, 1996, there were 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:
- ------------------------------------------------------------------------------
Page 32
<PAGE>
NAME AND % OF SHARES
ADDRESS OF SHARES OUTSTANDING AS OF
BENEFICIAL OWNER HELD JUNE 30, 1996
- ------------------------- -------- --------------
U.S. Trust Company N.Y.
Ernst & Young U.S. Master Trust
770 Broadway, 10th Floor
New York, New York 10003
Fidelity Management Trust Co.
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
Bankers Trust Company
Chevron Corporation Annuity Trust
M/S 3021
34 Exchange Place, 2nd Floor
Jersey City, New Jersey 07302
Chase Manhattan Bank NA
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.
- ------------------------------------------------------------------------------
Page 33
<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.
- ------------------------------------------------------------------------------
Page 34
<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.
Funds Distributor, Inc., Four Embarcadero Center, San Francisco, California
94111 serves as a distributor to the Fund.
RCM Capital Trust Company serves as transfer and redemption agent for the
Fund's 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 Trust Company
Four Embarcadero Center, Suite 2800
San Francisco, California 94111
DISTRIBUTOR
Funds Distributor, Inc.
Four Embarcadero Center
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
July , 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, L.L.C. (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 investments 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 common
stock or securities convertible into common stock have a total market
capitalization of up to $750 million at the time of acquisition. Under normal
market conditions, at least 65% of the Fund's total assets will be invested
in equity and equity-related securities of such concerns. 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 July , 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, L.L.C. (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 investments
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 common stock or securities
convertible into common stock have a total market capitalization, at the time
of acquisition, of up to $750 million. Under normal market conditions, the
Fund will invest at least 65% of its total assets in equity and
equity-related securities of such concerns. 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 $1.5 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 the Fund's distributor, Funds
Distributor, Inc. (the "Distributor") or the Investment Manager at the
address set forth on the back of this Prospectus, 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., distribution fees, legal and
audit fees, securities registration expenses and compensation of
non-interested directors of the Company). (See THE INVESTMENT MANAGER.)
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.
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>
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their opinion appearing 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 (a):
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
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
AVERAGE COMMISSION RATE PAID 0.05421
----------
----------
TOTAL RETURN (6) 34.08% (2.16%) 9.20% 22.14%
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
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>
- -----------------------
(a) On , 1996, RCM Capital Management, L.L.C., the successor to the
business and Operations of RCM Capital Management, a California Limited
Partnership, became the investment manager.
(b) 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) 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 to represent the Fund's performance more completely or
to compare such performance to other measures of investment return more
accurately, 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
investments in equity and equity-related securities of small-sized concerns
(common stocks or securities convertible into common stocks). For this
purpose, cash and cash equivalents and receivables and related items will not
be considered to be "investments in equity and equity-related securities."
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 common stock or securities convertible into common stock have
a total market capitalization of up to $750 million at the time of
acquisition. 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 total assets in equity and equity-related
securities of such concerns.
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 $1 billion at the time of acquisition.
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 $1 billion,
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 $1.5 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 is not
expected to exceed $500 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
- -----------------------------------------------------------------------------
Page 7
<PAGE>
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 in warrants, or a combination of warrants and common
stocks. Investment in warrants 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 be prudently exercised, in which event the
warrant may expire without being exercised, resulting in a loss of the Fund's
entire investment in the warrant. The Investment Manager anticipates that it
will invest in warrants only when such warrants may be sold publicly in the
secondary market, although the Investment Manager would not be precluded from
acquiring warrants in a private placement if it believes, in light of all the
circumstances, that such acquisition presents an attractive investment
opportunity for the Fund. The Investment Manager will limit the Fund's
investments in warrants to 10% of the Fund's total assets, measured at the
time of purchase.
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
- -----------------------------------------------------------------------------
Page 8
<PAGE>
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.)
- -----------------------------------------------------------------------------
Page 9
<PAGE>
--------------------------
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-
- -----------------------------------------------------------------------------
Page 10
<PAGE>
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
- -----------------------------------------------------------------------------
Page 11
<PAGE>
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.
- -----------------------------------------------------------------------------
Page 12
<PAGE>
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.
- -----------------------------------------------------------------------------
Page 13
<PAGE>
--------------------
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;
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
- -----------------------------------------------------------------------------
Page 14
<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 the value 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.
- -----------------------------------------------------------------------------
Page 15
<PAGE>
--------------------
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.
DEWITT F. BOWMAN*, Director. Mr. Bowman is Principal of Pension Investment
Consulting, with which he has been associated since February 1994. From
February 1989 to January 1994 he was Chief Investment Officer for California
Public Employees Retirement System, a public pension fund. He serves as a
director of RCM Equity Funds, Inc., a director of RREEF America REIT, Inc., a
trustee of Brandes International Fund and a trustee of the Pacific Gas and
Electric Nuclear Decommissioning Trust.
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant.
From 1991 to 1994, she was President of Banyan Homes, Inc., a real estate
development and construction firm; and for eight years she was a management
consultant for McKinsey & Company, where she served a variety of Fortune 500
companies in all aspects of strategic management and organizational
structure.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that
he served as the 49th Speaker of the House of Representatives and was the
representative of the 15th Congressional District of the State of Washington
from 1965 to 1994. Mr. Foley serves on the Board of Directors of the H.J.
Heinz Company, on the Global Advisory Board of Coopers & Lybrand L.L.P. and
on the Board of Overseers of Whitman College.
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of
Wood Island Associates, Inc., a registered investment adviser, with which he
has been associated since August 1991. From November 1987 to August 1991 he
was a Senior Vice President and Portfolio Manager of Siebel Capital
Management, Inc., a registered investment adviser. He serves as a director of
RCM Equity Funds, Inc.
GEORGE G.C. PARKER*, Director. Mr. Parker is Associate Dean for Academic
Affairs and Director of the MBA Program at the Graduate School of Business at
Stanford University, with which he has been associated since 1973. Mr. Parker
has served on the Board of Directors of the California Casualty Group of
Insurance Companies since 1977; BB&K Holdings, Inc., a holding company for
financial services companies, since 1980; H. Warshow & Sons, Inc., a
manufacturer of specialty textiles, since 1982; and Zurich Reinsurance
Centre, Inc., a large reinsurance underwriter, since 1994. Mr. Parker served
on the Board of Directors of the University National Bank & Trust Company
from 1986 to 1995.
- ---------------------
* Member, Audit Committee of the Company.
- -----------------------------------------------------------------------------
Page 16
<PAGE>
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.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr.
Ingram is Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. ("FDI"). From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company. He is also President, Treasurer and Chief Financial Officer of RCM
Equity.
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior Vice
President and General Counsel of FDI and an officer of certain investment
companies advised or administered by the Dreyfus Corporation. From February
1992 to April 1994, Mr. Pelletier served as Counsel for The Boston Company
Advisors, Inc. From August 1990 to February 1992, Mr. Pelletier was employed
as an Associate at Ropes & Gray. He is also a Vice President and Secretary of
RCM Equity.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Ms. Bachman is
Assistant Vice President and Counsel of FDI with which she has been
associated since September 1995. From since September 1995 to present she is
Counsel to Premier Mutual Fund Services, Inc. and an officer of certain
investment companies advised or administered by the Dreyfus Corporation.
Prior to September 1995, she was enrolled at Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, Ms. Bachman was
an Assistant at the National Association for Public Interest Law. She is also
Vice President and Assistant Secretary of RCM Equity.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is a Senior
Paralegal for FDI with which she has been associated since January 1996. From
June 1994 to January 1996 she was a Manager of SEC Registration for Scudder,
Stevens & Clark, Inc. From 1988 to May 1994, she was Senior Paralegal at The
Boston Company Advisors, Inc. She is also an Assistant Secretary of RCM
Equity.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is the Manager of Treasury,
Services and Administration for FDI with which she has been associated since
1994. From 1989 to 1994 she was an Assistant Vice President and Client
Manager for The Boston Company. She is also Assistant Treasurer of of RCM
Equity.
- ---------------------
* Member, Audit Committee of the Company.
- -----------------------------------------------------------------------------
Page 17
<PAGE>
The Company's Audit Committee, consisting of Messrs. [Bowman, Parker and 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 receives
a fee of $6,000 per year plus $1,000 for each Board meeting attended, and is
reimbursed for his or her travel and other expenses incurred in connection with
attending Board meetings. The Investment Manager bears this expense. The
Directors receive no pension or retirement benefits from the Company.
Ms. Farr and Messrs. Bowman, Foley, Green and Parker are directors of RCM Equity
Funds, Inc., a registered investment company advised by the Investment Manager.
The Directors are not directors of any other 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 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 Investment Manager.
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 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, a member of the Investment Manager's [Governing Board]; the
other members
- -----------------------------------------------------------------------------
Page 18
<PAGE>
of the Steering Committee are John A. Kriewall, G. Nicholas Farwell and
Huachen Chen. (A [principal] of the Investment Manager and a manager of one
of the Fund's portfolios).
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 ______ shares of the Fund's Capital Stock on
________, 1996, constituting less than 1% of total shares outstanding at that
date. No director or officer of the Company was a beneficial owner of any
shares of the Fund's outstanding Common Stock as of June 30, 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, L.L.C. (the "Investment Manager"), a Delaware limited liability
company, 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 RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization headquartered in Frankfurt
Germany, whose principal executive offices are located at Gallunsanlage 7, 60041
Frankfurt am Main. With total consolidated assets as of December 31, 1995 of
DM 484 billion ($696 billion), and approximately 1600 offices and 45,000
employees in over 60 countries around the world, Dresdner is Germany's second
largest bank. Dresdner provides a full range of banking services, including
traditional lending activities, mortgages, securities, project finance and
leasing, to private customers and financial and institutional clients. In the
United States, Dresdner maintains branches in New York and Chicago and an agency
in Los Angeles. As of the date of this [Prospectus], the nine members of the
[Governing Board] of the Investment Manager are _______________, ______________,
and ______________, each of whom were appointed by Dresdner, and
_______________, _______________, ______________, ______________, and
_____________, each of whom were appointed by RCM Limited. The chief
executive officer of the Investment Manager is William L. Price.
Pursuant to a Management Agreement among RCM Limited, the Investment Manager,
and Dresdner, RCM Limited manages, operates and makes all decisions regarding
the day-to-day business and affairs of the Investment Manager, subject to the
oversight of the [Governing Board]. RCM Limited is a California limited
partnership consisting of ___ limited partners and one general partner, RCM
General Corporation, a California corporation ("RCM General"). The 1_ limited
partners of RCM Limited, each of whom is a [principal] of the Investment
Manager, are also the shareholders of RCM General. As of the date of this
Prospectus, the following persons are limited partners of RCM Limited and
shareholders of RCM General: Claude N. Rosenberg, Jr., Michael J. Apatoff,
Huachen Chen, Ellen M. Courtien, Eamonn F. Dolan, G. Nicholas Farwell, Joanne L.
Howard, Stephen Kim, John A. Kriewall, John D. Leland, Jr., Melody L. McDonald,
Lee N. Price, Walter C. Price, Jr., William L. Price, Jeffrey S. Rudsten, Gary
W. Schreyer, Kenneth B. Weeman, Jr. and Andrew C. Whitelaw.
- -----------------------------------------------------------------------------
Page 19
<PAGE>
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 _________, 1996. 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. 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 Global 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 at a special
meeting on May 28, 1996, and was approved for renewal by the unanimous vote of
the Board of Directors of the Company on March 20, 1996. The Management
Agreement will continue in effect until _______, 1998. 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 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
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.
- -----------------------------------------------------------------------------
Page 20
<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 directors 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 daily 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
- -----------------------------------------------------------------------------
Page 21
<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
- -----------------------------------------------------------------------------
Page 22
<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.
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
- -------------------------------------------------------------------------------
Page 23
<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.
- -------------------------------------------------------------------------------
Page 24
<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
- -------------------------------------------------------------------------------
Page 25
<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 L.L.C. 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
Funds Distributor, Inc. (the "Distributor") by sending a signed, completed
subscription form to the Distributor at Four Embarcadero Center, San
Francisco, California 94111 (telephone (415) ________). Subscription forms
can also be obtained from the Investment Manager or the Company. The Company,
on behalf of the Fund, does not have dealer agreements.
- -------------------------------------------------------------------------------
Page 26
<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.
- -------------------------------------------------------------------------------
Page 27
<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.
- -------------------------------------------------------------------------------
Page 28
<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.
- -------------------------------------------------------------------------------
Page 29
<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
- -------------------------------------------------------------------------------
Page 30
<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
- -------------------------------------------------------------------------------
Page 31
<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
- -------------------------------------------------------------------------------
Page 32
<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 Company is
authorized to issue 1,000,000,000 shares of Capital Stock (par value $0.0001
per share) of which 100,000,000 shares have been designated as shares of RCM
Small Cap Fund. 300,000,000 shares have been designated as shares of RCM Growth
Equity Fund and 100,000,000 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-
- -----------------------------------------------------------------------------
Page 33
<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 June 30, 1996, there were _____________ 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 JUNE 30, 1996
- ------------------------------- ----------- -----------------
Fidelity Management Trust Co.
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
The Northern Trust Company
The J. Paul Getty Trust
P.O. Box 3577
Terminal Annex
Los Angeles, California 90051
Bankers Trust Company
Chevron Corporation Annuity Trust
648 Grassmere Park Road
Nashville, Tennessee 37211
Chase Manhattan Bank, N.A
Employees Retirement Plan
Florida Progress Corporation
3 Metro Tech Center
Brooklyn, New York 11245
State Street Bank & Trust Company
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.
Funds Distributor, Inc., Four Embarcadero Center, San Francisco, CA 94111
serves as distributor to the Fund.
RCM Capital Trust Company, Four Embarcadero Center, Suite 2800,
San Francisco, CA 94111 serves as transfer and redemption agent for the Fund's
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 Trust Company
Four Embarcadero Center, Suite 2800
San Francisco, California 94111
DISTRIBUTOR
Funds Distributor, Inc.
Four Embarcadero Center
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
July , 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, L.L.C. (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 July __, 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, L.L.C.
(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 Fund's distributor, Funds
Distributor, Inc. (the "Distributor"), or to the Investment Manager at the
address set forth on the back of this Prospectus, 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
next two years 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., distribution fees, legal and audit fees, securities registration
expenses and compensation of non-interested directors of the Company).
(See THE INVESTMENT MANAGER.) 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.
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 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 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:(a)
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 (b) 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>
- -----------------------
(a) On ________, 1996 RCM Capital Management, L.L.C., the successor to the
business and operations of RCM Capital Management, a California Limited
Partnership, became the investment manager.
(b) Total return measures the change in value of an investment over the
period indicated.
(c) 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%.
(d) 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.
- ------------------------------------------------------------------------------
Page 5
<PAGE>
----------------------
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,
- ------------------------------------------------------------------------------
Page 6
<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
- ------------------------------------------------------------------------------
Page 7
<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
- ------------------------------------------------------------------------------
Page 8
<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
- ------------------------------------------------------------------------------
Page 9
<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
- ------------------------------------------------------------------------------
Page 10
<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
- ------------------------------------------------------------------------------
Page 11
<PAGE>
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
- ------------------------------------------------------------------------------
Page 12
<PAGE>
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
- ------------------------------------------------------------------------------
Page 13
<PAGE>
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
- ------------------------------------------------------------------------------
Page 14
<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
- ------------------------------------------------------------------------------
Page 15
<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
- ------------------------------------------------------------------------------
Page 16
<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
- ------------------------------------------------------------------------------
Page 17
<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.
- ------------------------------------------------------------------------------
Page 18
<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
- ------------------------------------------------------------------------------
Page 19
<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
- ------------------------------------------------------------------------------
Page 20
<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;
- ------------------------------------------------------------------------------
Page 21
<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.
DEWITT F. BOWMAN,* Director. Mr. Bowman is a Principal of Pension Investment
Consulting, with which he has been associated since February 1994. From February
1989 to January 1994 he was Chief Investment Officer for California Public
Employees Retirement System, a public pension fund. He serves as a director of
RREEF America REIT, Inc., a trustee of Brandes International Fund and a trustee
of the Pacific Gas and Electric Nuclear Decommissioning Trust. He also serves as
a director of RCM Equity Funds, Inc. ("RCM Equity").
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant.
From 1991 to 1994, she was President of Banyan Homes, Inc., a real estate
development and construction firm; and for eight years she was a management
consultant for McKinsey & Company, where she served a variety of Fortune 500
companies in all aspects of strategic management and organizational structure.
She also serves as a director of RCM Equity.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that he
served as the 49th Speaker of the House of Representatives and was the
representative of the 15th Congressional District of the State of Washington
from 1965 to 1994. Mr. Foley serves on the Board of Directors of the H.J. Heinz
Company, on the Global Advisory Board of Coopers & Lybrand L.L.P. and on the
Board of Overseers of Whitman College. He also serves as a director of RCM
Equity.
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of
Wood Island Associates, Inc., a registered investment adviser, with which he has
been associated since August 1991. From November 1987 to August 1991 he was a
Senior Vice President and Portfolio Manager of Siebel Capital Management, Inc.,
a registered investment adviser. He also serves as a director of RCM Equity.
GEORGE G.C. PARKER,* Director. Mr. Parker is Associate Dean for Academic Affairs
and Director of the MBA Program at the Graduate School of Business at Stanford
University, with which he has been associated since 1973. Mr. Parker has served
on the Board of Directors of the California Casualty Group of Insurance
Companies since 1977; BB&K Holdings, Inc., a holding company for financial
services companies, since 1980; H. Warshow & Sons, Inc., a manufacturer of
specialty textiles, since 1982; and Zurich Reinsurance Centre, Inc., a large
reinsurance underwriter, since 1994. Mr. Parker served on the Board of Directors
of the University National Bank & Trust Company from 1986 to 1995. He also
serves as a director of RCM Equity.
- ---------------------
* Member, Audit Committee of the Company.
- ------------------------------------------------------------------------------
Page 22
<PAGE>
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.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr. Ingram
is Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. ("FDI"). From March 1994 to November
1995, Mr. Ingram was Vice President and Division Manager of First Data Investor
Services Group. From 1989 to 1994, Mr. Ingram was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company. He is also
President, Treasurer and Chief Financial Officer of RCM Equity.
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior Vice
President and General Counsel of FDI and an officer of certain investment
companies advised or administered by the Dreyfus Corporation. From February 1992
to April 1994, Mr. Pelletier served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, Mr. Pelletier was employed as an
Associate at Ropes & Gray. He is also a Vice President and Secretary of RCM
Equity.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Ms. Bachman is
Assistant Vice President and Counsel of FDI with which she has been associated
since September 1995. From since September 1995 to present she is Counsel to
Premier Mutual Fund Services, Inc. and an officer of certain investment
companies advised or administered by the Dreyfus Corporation. Prior to September
1995, she was enrolled at Fordham University School of Law and received her
J.D. in May 1995. Prior to September 1992, Ms. Bachman was an Assistant at
the National Association for Public Interest Law. She is also Vice President
and Assistant Secretary of RCM Equity.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is a Senior Paralegal
for FDI with which she has been associated since January 1996. From June 1994 to
January 1996 she was a Manager of SEC Registration for Scudder, Stevens & Clark,
Inc. From 1988 to May 1994, she was Senior Paralegal at The Boston Company
Advisors, Inc. She is also an Assistant Secretary of RCM Equity.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is the Manager of Treasury,
Services and Administration for FDI with which she has been associated since
1994. From 1989 to 1994 she was an Assistant Vice President and Client Manager
for The Boston Company. She is also Assistant Treasurer of RCM Equity.
- --------------
* Member, Audit Committee of the Company.
- ------------------------------------------------------------------------------
Page 23
<PAGE>
The Company's Audit Committee, consisting of messrs. [Bowman, Parker and 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 receives
a fee of $6,000 per year plus $1,000 for each Board meeting attended, and is
reimbursed for his or her 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.
The Directors receive no pension or retirement benefits from the Company. Ms.
Farr and Messrs. Bowman, Foley, Greene and Parker are directors of RCM Equity
Funds, Inc., a registered investment company that is advised by the Investment
Manager. The Directors are not directors 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, a member of the Investment Managers [Governing Board]; the
other members of the Steering Committee are John D. Leland, William S. Stack and
Huachen Chen. (A [principal] of the Investment Manager and a manager of one
of the Fund's portfolios).
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 ______ shares of the Fund's Capital Stock on
- ------------------------------------------------------------------------------
Page 24
<PAGE>
June 30, 1996, constituting ___% of total shares outstanding at that date.
No director or officer of the Company was a beneficial
owner of any shares of the Fund's outstanding Common Stock as of June 30,
1996. In addition, The Pension Plan for Salaried Employees of Travelers
Insurance Company and Its Affiliates was the owner of _______ shares of the
Fund's Capital Stock on June 30, 1996, constituting __% of its total shares
outstanding.
- ------------------------------------------------------------------------------
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, L.L.C. (the "Investment Manager"), a Delaware limited liability
company 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, 1996, as the successor to the
business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization headquartered in Frankfurt
Germany, whose principal executive offices are located at Gallunsanlage 7, 60041
Frankfurt am Main. With total consolidated assets as of December 31, 1995 of
DM 484 billion ($696 billion), and approximately 1600 offices and 45,000
employees in over 60 countries around the world, Dresdner is Germany's second
largest bank. Dresdner provides a full range of banking services, including
traditional lending activities, mortgages, securities, project finance and
leasing, to private customers and financial and institutional clients. In the
United States, Dresdner maintains branches in New York and Chicago and an agency
in Los Angeles. As of the date of this [Prospectus], the nine members of the
[Governing Board] of the Investment Manager are _______________, ______________,
and ______________, each of whom were appointed by Dresdner, and
_______________, _______________, ______________, ______________,
_______________, and _____________, each of whom were appointed by RCM Limited.
The chief executive officer of the Investment Manager is William L. Price.
Pursuant to a Management Agreement among RCM Limited, the Investment Manager,
and Dresdner, RCM Limited manages, operates and makes all decisions regarding
the day-to-day business and affairs of the Investment Manager, subject to the
oversight of the [Governing Board]. RCM Limited is a California limited
partnership consisting of ___ limited partners and one general partner, RCM
General Corporation, a California corporation ("RCM General"). The 1_ limited
partners of RCM Limited, each of whom is a [principal] of the Investment
Manager, are also the shareholders of RCM General. As of the date of this
Prospectus, the following persons are limited partners of RCM Limited and
shareholders of RCM General: Claude N. Rosenberg, Jr., Michael J. Apatoff,
Huachen Chen, Ellen M. Courtien, Eamonn F. Dolan, G. Nicholas Farwell, Joanne L.
Howard, Stephen Kim, John A. Kriewall, John D. Leland, Jr., Melody L. McDonald,
Lee N. Price, Walter C. Price, Jr., William L. Price, Jeffrey S. Rudsten, Gary
W. Schreyer, Kenneth B. Weeman, Jr. and Andrew C. Whitelaw.
- ------------------------------------------------------------------------------
Page 25
<PAGE>
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 ___________, 1996. 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. 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 was approved by the Fund's stockholders at a special
meeting on May 28, 1996, and was approved by the Board of Directors on March 20,
1996. The Management Agreement will continue in effect until ____________,
1998. 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
- ------------------------------------------------------------------------------
Page 26
<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 next two years 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.
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Page 27
<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
- ------------------------------------------------------------------------------
Page 28
<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%.
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
- ------------------------------------------------------------------------------
Page 29
<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.
- ------------------------------------------------------------------------------
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"), 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).
- ------------------------------------------------------------------------------
Page 30
<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
- ------------------------------------------------------------------------------
Page 31
<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.
- ------------------------------------------------------------------------------
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, L.L.C. 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
Funds Distributor, Inc. (the "Distributor") by sending a signed, completed
subscription form to the Distributor at Four Embarcadero Center, San
Francisco, California 94111 (telephone (415) ________). Subscription forms
can also 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
- ------------------------------------------------------------------------------
Page 32
<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
- ------------------------------------------------------------------------------
Page 33
<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
- ------------------------------------------------------------------------------
Page 34
<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
- ------------------------------------------------------------------------------
Page 35
<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
- ------------------------------------------------------------------------------
Page 36
<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
- ------------------------------------------------------------------------------
Page 37
<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
- ------------------------------------------------------------------------------
Page 38
<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 1,000,000,000 shares of capital stock (par value
$.0001 per share) of which 100,000,000 shares have been designated as shares of
RCM International Growth Equity Fund A, 300,000,000 shares have been
designated as shares of RCM Growth Equity Fund and 100,000,000 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
- ------------------------------------------------------------------------------
Page 39
<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 June 30, 1996, there
were _______ 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 JUNE 30, 1996
- ------------------------------------------ -------- ------------------
<S> <C> <C>
RCM Capital Management Profit Sharing Plan
4 Embarcadero Center
Suite 3000
San Francisco, California 94111
The Pension Plan for Salaried Employees of
Travelers Insurance
Company and Its Affiliates
388 Greenwich Street
New York, New York 10013
</TABLE>
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 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.
- ------------------------------------------------------------------------------
Page 40
<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.
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.
- ------------------------------------------------------------------------------
Page 41
<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.
Funds Distributor, Inc., Four Embarcadero Center, San Francisco, California
94111 serves as distributor to the Fund.
RCM Capital Trust Company, Four Embarcadero Center, Suite 2800 serves as
transfer and redemption agent for the Fund's 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.
- ------------------------------------------------------------------------------
Page 42
<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.
- ------------------------------------------------------------------------------
Page 43
<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.
- ------------------------------------------------------------------------------
GERMANY
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
Page 44
<PAGE>
- ------------------------------------------------------------------------------
JAPAN
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
UNITED KINGDOM
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
Page 45
<PAGE>
- ------------------------------------------------------------------------------
APPENDIX B: CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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, 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
- ------------------------------------------------------------------------------
Page 46
<PAGE>
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
- ------------------------------------------------------------------------------
Page 47
<PAGE>
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
- ------------------------------------------------------------------------------
Page 48
<PAGE>
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
- ------------------------------------------------------------------------------
Page 49
<PAGE>
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.
- ------------------------------------------------------------------------------
Page 50
<PAGE>
- ------------------------------------------------------------------------------
OPTIONS ON SECURITIES AND SECURITIES INDICES
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Page 51
<PAGE>
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
- ------------------------------------------------------------------------------
Page 52
<PAGE>
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.
- ------------------------------------------------------------------------------
CURRENCY MANAGEMENT TECHNIQUES
- ------------------------------------------------------------------------------
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 Trust Company
Four Embarcadero Center, Suite 2800
San Francisco, California 94111
DISTRIBUTOR
Funds Distributor, Inc.
Four Embarcadero Center
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
July , 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. (a) Restated Articles of Incorporation of Registrant, as amended and
now in effect (previously filed with Post-Effective Amendment
No. 20, April 28, 1995).
(b) Form of Articles of Amendment to Restated Articles of
Incorporation of Registrant.
(c) Form of Articles Supplementary to Restated Article of
Incorporation of Registrant.
2. (a) By-Laws of Registrant, as amended (previously filed with Post-
Effective Amendment No. 18, April 28, 1994).
(b) Form of Amendment to By-Laws of Registrant.
3. None.
4. (a) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Growth Equity Fund.
(b) Proof of specimen of certificate of Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Small Cap Fund.
(c) Proof of specimen of certificate of Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM International Growth
Equity Fund A.
(d) 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
Service Agreement between Registrant and on behalf of the RCM
Growth Equity Fund RCM Capital Management, L.L.C.
(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, L.L.C.
(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, L.L.C.
C-1
<PAGE>
6. (a) Form of Agreement by and among RCM Capital Management, a
California Limited Partnership, RCM Equity Funds, Inc., the
Registrant and Funds Distributor, Inc. ("FDI").
(b) Form of Distribution Agreement between the Registrant and FDI.
(c) Form of Fee Letter Agreement by and among RCM Capital
Management, a California Limited Partnership, RCM Equity Funds,
Inc., the Registrant and Funds Distributor, Inc. ("FDI").
(d) Form of Selling Agreement.
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. (a) Form of Transfer Agency Agreement between Registrant, RCM Capital
Management, L.L.C. and its transfer agent, RCM Capital Trust
Company.
(b) Form of Agreement between RCM Capital Management, L.L.C. and
Registrant related to the use by Registrant of the name "RCM".
10. Opinion of Morrison & Foerster as to legality of securities being
registered (previously filed with Pre-Effective Amendment No. 1,
May 9, 1979).
11. Consent of Coopers & Lybrand L.L.P.
12. None.
13. None.
14. None.
15. None.
16. None.
17. Financial Data Schedule.
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,
L.L.C. (the "Investment Manager"), which is a wholly owned subsidiary of
Dresdner Bank AG ("Dresdner"), an international banking organization formed
under the laws of the Federal Republic of Germany.
Organizations directly or indirectly affiliated with Dresdner, which are engaged
in the securities and/or investment advisory business are Dresdner Securities
(USA) Inc., a registered broker-dealer ("Dresdner USA"), Kleinwort Benson North
American, Inc., a merchant banking group based in the United Kingdom
("Kleinwort"), Oeschle International Advisors L.P., ("Oeschle"), a registered
investment adviser, and Thornton Management Group Ltd. ("Thornton"), a
registered investment adviser. Accordingly, Dresdner USA, Kleinwort, Oeschle
and Thronton may be deemed to be under common control with the Company.
In addition, the day-to-day operations of the Investment Manager are the
responsibility of 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 Fund's Combined Prospectus and Statement of
Additional Information under "The Investment Manager." Accordingly, RCM
Limited and RCM General may be deemed to be under common control with the
Company.
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 RCS are also officers or employees of the Investment Manager.
Accordingly, Equity Funds and RCS may be deemed to be under common control with
the Company.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 31, 1996
TITLE OF CLASS NUMBER OF RECORD-HOLDERS
RCM Growth Equity Fund
Common Stock
($0.0001 par value) 77
RCM Small Cap Fund
Common Stock
($0.0001 par value) 55
RCM International
Growth Equity Fund A
Common Stock
($0.0001 par value) 13
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, 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 Investment Manager is a limited liability company, whose two members are
Dresdner Bank AG ("Dresdner") and Dresdner North America Holding, Inc.
("Dresdner Holding"). Dresdner Holding is a wholly owned subsidiary of Dresdner.
Dresdner, whose principal executive offices are located at Gallusanlage 7, 60041
Frankfurt am Main, Frankfurt, Germany, is an international banking organization
that provides a full range of banking services including traditional lending
activities, mortgages, securities, project financing and leasing. Dresdner has
been a member of the Investment Manager since April 30, 1996.
C-4
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. ("FDI"), whose principal offices are located at One
Exchange Place, Boston Massachusetts 02109, is the principal underwriter of the
Registrant. FDI is an indirectly wholly owned subsidiary of Boston
Institutional Group, Inc. a holding company, all of whose outstanding shares are
owned by key employees. FDI is a broker dealer registered under the Securities
Exchange Act of 1934, as amended.
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
HT Insight Funds
The Harris Insight Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Fund
RCM Equity Funds, Inc.
Skyline Funds
Waterhouse Investors Cash Management Mutual Funds
FDI does not act as a depositor or investment adviser of any investment
companies
(b) The following is a list of officers, directors and partners of FDI. The
Principal directors and officers of FDI are set forth below:
Name and Principal Positions and Offices with Positions and Offices with
Business Address Funds Distributor, Inc. Registrant
- --------------------------------------------------------------------------------
Marie E. Connolly Director, President and None
Chief Executive Officer
Richard W. Ingram Senior Vice President President
John E. Pelletier Senior Vice President and Vice President and
General Counsel Secretary
Donald R. Roberson Senior Vice President None
Joseph F. Tower III Senior Vice President, None
Treasurer and Chief
Financial Officer
Rui M. Moura First Vice President None
Bernard A. Whalen First Vice President None
John W. Gomez Director None
William J. Nutt Director 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 Funds Distributor, Inc., the Company's distributor, at Four
Embarcadero Center, San Francisco, California 94111 and its investment manager,
RCM Capital Management, L.L.C., 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. 25 to the Registration Statement pursuant to Rule 485(a) under the
Securities Act of 1933 and has duly caused this Post-effective Amendment No. 25
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
June 7, 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. 25 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 June 7, 1996
and President
/s/ William L. Price
----------------------------
William L. Price
(2) Principal Financial Officer Treasurer June 7, 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 June 7, 1996
/s/ Caroline M. Hirst*
----------------------------
Caroline M. Hirst
(4) Directors
/s/ Claude N. Rosenberg, Jr.* June 7, 1996
----------------------------
Claude N. Rosenberg, Jr.
/s/ John D. Leland, Jr.* June 7, 1996
----------------------------
John D. Leland, Jr.
/s/ John A. Kriewall* June 7, 1996
----------------------------
John A. Kriewall
/s/ G. Nicholas Farwell* June 7, 1996
----------------------------
G. Nicholas Farwell
/s/ Michael J. Apatoff* June 7, 1996
----------------------------
Michael J. Apatoff
/s/ Kenneth B. Weeman, Jr.* June 7, 1996
----------------------------
Kenneth B. Weeman, Jr.
/s/ Kenneth E. Scott* June 7, 1996
----------------------------
Kenneth E. Scott
By: /s/ William L. Price June 7, 1996
----------------------------
William L. Price
as Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
1. (a) Restated Articles of Incorporation of Registrant, as amended and
now in effect (previously filed with Post-Effective Amendment
No. 20, April 28, 1995).
(b) Form of Articles of Amendment to Restated Articles of
Incorporation of Registrant.
(c) Form of Articles Supplementary to Restated Article of
Incorporation of Registrant.
2. (a) By-Laws of Registrant, as amended (previously filed with Post-
Effective Amendment No. 18, April 28, 1994).
(b) Form of Amendment to By-Laws of Registrant.
3. None.
4. (a) Proof of specimen of certificate for Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Growth Equity Fund.
(b) Proof of specimen of certificate of Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM Small Cap Fund.
(c) Proof of specimen of certificate of Capital Stock ($0.0001 par
value) of Registrant, on behalf of RCM International Growth
Equity Fund A.
(d) 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, on behalf of the RCM
Growth Equity Fund RCM Capital Management, L.L.C.
(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, L.L.C.
(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, L.L.C.
6. (a) Form of Agreement by and among RCM Capital Management, a
California Limited Partnership, RCM Equity Funds, Inc., the
Registrant and Funds Distributor, Inc. ("FDI").
(b) Form of Distribution Agreement between the Registrant and FDI.
(c) Form of Fee Letter Agreement by and among RCM Capital
Management, a California Limited Partnership, RCM Equity Funds,
Inc., the Registrant and Funds Distributor, Inc. ("FDI").
(d) Form of Selling Agreement.
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. (a) Form of Transfer Agency Agreement between Registrant, RCM Capital
Management, L.L.C. and its transfer agent, RCM Capital Trust
Company.
(b) Form of Agreement between RCM Capital Management, L.L.C. and
Registrant related to the use by Registrant of the name "RCM".
10. Opinion of Morrison & Foerster as to legality of securities being
registered (previously filed with Pre-Effective Amendment No. 1,
May 9, 1979).
11. Consent of Coopers & Lybrand L.L.P.
----
17. Financial Data Schedule
----
<PAGE>
RCM Capital Funds, Inc.
ARTICLES OF AMENDMENT
RCM Capital Funds, Inc., a Maryland corporation, having its principal
office in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation, as heretofore amended, is
further amended, as of the effective time of these Articles of Amendment to
reduce the par value of the shares of the Corporation's capital stock from $0.10
per share to $0.0001 per share, by:
(a) Amending the clause "par value $0.10 per share" in Article Fifth
paragraph 1.(a) and "par value of $.10 per share" in Article FIFTH paragraph
1.(b) of the Corporation's Articles of Amendment and Restatement to read "par
value $.0001 per share".
(b) Striking out Article FIFTH 1.(c) of the Articles of Amendment and
Restatement and inserting in lieu thereof the following:
1.(c) The aggregate par value of all shares having a par value is
$2,500.
SECOND: The amendments to the Charter of the Corporation as set
forth above have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation by the vote required by law.
<PAGE>
IN WITNESS WHEREOF, RCM Capital Funds, Inc. has caused these Articles
of Amendment to be executed by its President and witnessed by its Secretary on
this ____ day of June, 1996. The President of the Corporation who signed these
Articles of Amendment acknowledges them to be the act of the Corporation and
states under the penalties of perjury that, to the best of his knowledge,
information and belief, the matters and facts set forth herein relating to
authorization and approval hereof are true in all material respects.
RCM Capital Funds, Inc.
By:
----------------------------------
William L. Price, President
WITNESS:
- ----------------------------
Timothy B. Parker, Secretary
<PAGE>
RCM Capital Funds, Inc.
ARTICLES SUPPLEMENTARY
RCM Capital Funds, Inc., a Maryland corporation, having its principal
office in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The number of shares of common stock that the Corporation is
authorized to issue is increased by nine hundred and seventy five million
(975,000,000) shares, each with a par value of $.0001, of which ninety-two
million (92,000,000) shares of capital stock are classified as RCM Small Cap
Fund, two hundred and eighty-eight million (288,000,000) shares of capital stock
are classified as RCM Growth Equity Fund, and ninety five million five hundred
thousand (95,500,000) shares of capital stock are classified as RCM
International Growth Equity Fund A and the remainder are unclassified.
SECOND: Immediately before the increase, the Corporation was
authorized to issue twenty-five million (25,000,000) shares of capital stock,
par value $.0001 per share, and having an aggregate par value of Two Thousand
Five Hundred Dollars ($2,500), such shares having the following designations:
DESIGNATIONS NUMBER OF SHARES
------------ ----------------
RCM Small Cap Fund 8,000,000
RCM Growth Equity Fund 12,000,000
RCM International Growth Equity Fund A 4,500,000
Unclassified 500,000
As increased, the Corporation is authorized to issue One Billion (1,000,000,000)
shares of capital stock, par value $.0001 per share, having an aggregate par
value of One Hundred Thousand Dollars ($100,000), as follows:
DESIGNATIONS NUMBER OF SHARES
------------ ----------------
RCM Small Cap Fund 100,000,000
RCM Growth Equity Fund 300,000,000
RCM International Growth Equity Fund A 100,000,000
<PAGE>
Unclassified 500,000,000
THIRD: The shares of the RCM Small Cap Fund, RCM Growth Equity Fund
and RCM International Growth Equity Fund A, respectively, of the Corporation so
classified by the Board of Directors shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as heretofore set forth
in the Corporation's Charter with respect to the RCM Small Cap Fund, RCM Growth
Equity Fund and RCM International Growth Equity Fund A, respectively.
FOURTH: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
FIFTH: The Board of Directors of the Corporation increased the
total number of shares of capital stock that the Corporation has authority to
issue pursuant to Section 2-105(c) of the Maryland General Corporation Law and
classified the said shares pursuant to authority contained in the Charter of the
Corporation.
IN WITNESS WHEREOF, RCM Capital Funds, Inc. has caused these Articles
Supplementary to be executed by its President and witnessed by its Secretary on
this ____ day of June, 1996. The President of the Corporation who signed these
Articles Supplementary acknowledges them to be the act of the Corporation and
states under the penalties of perjury that, to the best of his knowledge,
information and belief, the matters and facts set forth herein relating to
authorization and approval hereof are true in all material respects.
RCM Capital Funds, Inc.
By:
----------------------------------
William L. Price, President
WITNESS:
- ----------------------------
Timothy B. Parker, Secretary
<PAGE>
EXHIBIT 2(b)
RCM CAPITAL FUNDS, INC.
FORM OF AMENDMENTS TO BY-LAWS
Section 3.01 was amended by deleting the last sentence thereof and adding in its
place the following sentence:
"Until changed by a by-law or amendment thereof so adopted, number of
directors shall be six (6)."
Section 5.02 was amended and restated in its entirety as follows:
"SECTION 5.02. ELECTION. TERM OF OFFICE AND QUALIFICATIONS. The
Chairman and Vice-Chairman of the Board of Directors, the President and
Vice-Presidents, Secretary and Assistant Secretaries, and Treasurer and
Assistant Treasurers of the Corporation shall be chosen by the Board of
Directors. Except as provided by the By-Laws, each officer chosen by the
Board of directors shall hold office for such term as may be set by the
Board of Directors."
Section 5.06 was amended and restated in its entirety as follows:
SECTION 5.06. THE PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall have general supervision
over the affairs of the Corporation, and shall perform all such other
duties as may be prescribed by the Board of Directors. In the absence of
the Chairman and Vice-Chairman of the Board of Directors, he or another
officer designated by him shall preside at meetings of the Board of
Directors and at meetings of stockholders.
<PAGE>
EXHIBIT 4(a)
INCORPORATED UNDER THE LAWS OF THE
STATE OF MARYLAND
NUMBER SHARES
RCM CAPITAL FUNDS, INC.
RCM Growth Equity Fund Series
(Par Value $0.0001)
THIS CERTIFIED THAT _________________________________________ IS THE
REGISTERED HOLDER OF ________________________________________ SHARES
of the RCM Growth Equity Fund Series Common Stock of RCM CAPITAL FUNDS, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OF BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE
HEREUNTO AFFIXED
THIS_________________ DAY OF _________________ AD. ______
------------------------------- --------------------------
Secretary President
SHARES Par Value EACH
$0.0001
<PAGE>
CERTIFICATE
FOR
SHARES
RCM Growth Equity
Fund Series Common
Stock of RCM CAPITAL
FUNDS, INC.
ISSUED TO
DATED
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN
ONE CLASS OF CAPITAL STOCK AND THE BOARD OF
DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH A
FULL STATEMENT OF THE BOARD OF DIRECTORS'
AUTHORITY AND OF THE DESIGNATIONS AND ANY
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF
REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE TO ANY
STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
FOR VALUE RECEIVED, __________ HEREBY SELL, ASSIGN AND TRANSFER
UNTO _______________________________________________________________
______________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
_____________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________ ______
In presence of __________________________________________
__________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4(b)
INCORPORATED UNDER THE LAWS OF THE
STATE OF MARYLAND
NUMBER SHARES
RCM CAPITAL FUNDS, INC.
RCM Small Cap Fund Series
(Par Value $0.0001)
THIS CERTIFIED THAT _________________________________________ IS THE
REGISTERED HOLDER OF ________________________________________ SHARES
of the RCM Small Cap Fund Series Common Stock of RCM CAPITAL FUNDS, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OF BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE
HEREUNTO AFFIXED
THIS_________________ DAY OF _________________ AD. ______
------------------------------- --------------------------
Secretary President
SHARES Par Value EACH
$0.0001
<PAGE>
CERTIFICATE
FOR
SHARES
RCM Small Cap
Fund Series Common
Stock of RCM CAPITAL
FUNDS, INC.
ISSUED TO
DATED
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN
ONE CLASS OF CAPITAL STOCK AND THE BOARD OF
DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH A
FULL STATEMENT OF THE BOARD OF DIRECTORS'
AUTHORITY AND OF THE DESIGNATIONS AND ANY
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF
REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE TO ANY
STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
FOR VALUE RECEIVED, __________ HEREBY SELL, ASSIGN AND TRANSFER
UNTO _______________________________________________________________
______________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
_____________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________ ______
In presence of __________________________________________
__________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4(c)
INCORPORATED UNDER THE LAWS OF THE
STATE OF MARYLAND
NUMBER SHARES
RCM CAPITAL FUNDS, INC.
RCM International Growth Equity Fund A Series
(Par Value $0.0001)
THIS CERTIFIED THAT _________________________________________ IS THE
REGISTERED HOLDER OF ________________________________________ SHARES
of the RCM International Growth Equity Fund A Series Common Stock of RCM
CAPITAL FUNDS, INC. TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE
HOLDER HEREOF IN PERSON OF BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE
HEREUNTO AFFIXED
THIS_________________ DAY OF _________________ AD. ______
------------------------------- --------------------------
Secretary President
SHARES Par Value EACH
$0.0001
<PAGE>
CERTIFICATE
FOR
SHARES
RCM International Growth Equity
Fund A Series Common
Stock of RCM CAPITAL
FUNDS, INC.
ISSUED TO
DATED
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN
ONE CLASS OF CAPITAL STOCK AND THE BOARD OF
DIRECTORS MAY AUTHORIZE ADDITIONAL CLASSES OF
CAPITAL STOCK. THE CORPORATION WILL FURNISH A
FULL STATEMENT OF THE BOARD OF DIRECTORS'
AUTHORITY AND OF THE DESIGNATIONS AND ANY
PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF
REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE TO ANY
STOCKHOLDER UPON REQUEST WITHOUT CHARGE.
FOR VALUE RECEIVED, __________ HEREBY SELL, ASSIGN AND TRANSFER
UNTO _______________________________________________________________
______________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
_____________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________ ______
In presence of __________________________________________
__________________________
NOTICE THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5(a)
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY
AND SERVICE AGREEMENT
THIS AGREEMENT is entered into this day of __________, 1996 by and between
RCM Capital Management, _______________________ (the "Investment Manager") and
RCM Capital Funds Inc. (the "Company"), on behalf of RCM Growth Equity Fund, a
series of the Company ("Fund").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF THE INVESTMENT MANAGER
(a) Subject to express provisions and limitations set forth in the
Company's Articles of Incorporation, By-Laws, Form N-1A Registration
Statement under the Investment Company Act of 1940, as amended (the "1940
Act") and under the Securities Act of 1933, as amended (the "1933 Act"),
and the Fund's prospectus as in use from time to time, as well as to the
factors affecting the Company's status as a regulated investment company
under the Internal Revenue Code of 1954, as amended, the Company hereby
grants to the Investment Manager and the Investment Manager hereby accepts
full discretionary authority to manage the investment and reinvestment of
the cash and securities in the account of the Fund (the Portfolio.)
presently held by Chase Manhattan Bank, NA (the "Custodian"), the proceeds
thereof, and any additions thereto, in the Investment Manager's discretion.
In its duties hereunder, the Investment Manager shall further be bound by
any and all determinations by the Board of Directors of the Company
relating to the investment policies of the Fund, which determinations shall
be communicated in writing to the Investment Manager. For all purposes
herein, the Investment Manager shall be deemed an independent contractor of
the Company.
2. POWERS OF THE INVESTMENT MANAGER
The Investment Manager is empowered, through any of its partners or
employees:
(a) to invest and reinvest in shares, stocks, bonds, notes and other
obligations of every description issued or incurred by governmental bodies,
corporations, mutual funds, trusts, associations or firms, in trade
acceptances and other commercial paper, and in loans and deposits at
interest on call or on time, whether or not secured by collateral;
(b) to purchase and sell commodities or commodities contracts and
investments in put, call, straddle, or spread options, and
(c) to lend its portfolio securities to brokers, dealers and other
financial institutions;
(b) to buy, sell, or exercise rights and warrants to subscribe for stock
or securities; and
(c) to take such other action, or direct the Custodian to take such other
action, as may be necessary or desirable to carry out the purpose and
intent of the foregoing.
<PAGE>
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) The Investment Manager shall provide adequate facilities and qualified
personnel for the placement of, and shall place, orders for the purchase,
or other acquisition, and sale, or other disposition, of portfolio
securities for the Company;
(b) unless otherwise specified in writing to the Investment Manager by the
Company,' all orders for the purchase and sale of securities for the
Portfolio shall be placed in such markets and through such brokers as in
the Investment Manager's best judgment shall offer the most favorable price
and market for the execution of each transaction; provided, however, that,
subject to the above, the Investment Manager may place orders with
brokerage firms which have sold shares of the Company or which furnish
statistical and other information to the Investment Manager, taking into
account the value and quality of the brokerage services of such firms,
including the availability and quality of such statistical and other
information. Receipt by the Investment Manager of any such statistical and
other information and services shall not be deemed to give rise to any
requirement for abatement of the advisory fee payable to the Investment
Manager pursuant to Section 5 hereof and Appendix A hereto;
(c) the Company understands and agrees that the Investment Manager may
effect securities transactions which cause the Company to pay an amount of
commission in excess of the amount of commission another broker or dealer
would have charged. Provided, however, that the Investment Manager
determines in good faith that such amount of commission is reasonable in
relation to the value of Company share sales, statistical, brokerage and
other services provided by such broker or dealer, viewed in terms of either
the specific transaction or the Investment Manager's overall
responsibilities to the Company and other non-investment company clients
for which the Investment Manager exercises investment discretion. The
Company also understands that the receipt and use of such services will not
reduce the Investment Manager's customary and normal research activities:
(d) the Company understands and agrees:
(i) that the Investment Manager performs investment management
services for various clients and that the Investment Manager may take
action with respect to any of its other clients which may differ from
action taken or from the timing or nature of action taken with respect
to the Portfolio, so long as it is the Investment Manager's policy, to
the extent practical, to allocate investment opportunities to the
Portfolio over a period of time on a fair and equitable basis relative
to other clients;
(ii) that the Investment Manager shall have no obligation to
purchase or sell for the Portfolio any security which the Investment
Manager or its partners or employees, may purchase or sell for its or
their own accounts or the account of any other client, if in the
opinion of the Investment Manager such transaction or investment
appears unsuitable, impractical or undesirable for the Portfolio; and
(iii) that on occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interests of the
Company as well as other clients of the Investment Manager, the
Investment Manager, to the extent permitted by applicable
-2-
<PAGE>
laws and regulations, may aggregate the securities to be so sold or
purchased when the Investment Manager believes that to do so will be
in the best interests of the Company. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transaction, shall be made by the Investment Manager in the manner
the Investment Manager considers to be the most equitable and
consistent with its fiduciary obligations to the Company and to such
other clients.
4. ALLOCATION OF EXPENSES OF THE COMPANY
(a) The Company is responsible for payment of the following ordinary
operating expenses: (i) brokerage and commission expenses, (ii) Federal,
state or local taxes, incurred by, or levied on, the Company, (iii)
interest charges on borrowings, (iv) charges and expenses of the Company's
custodian, and (v) payment of all Investment Management or advisory fees
including fees payable under Section 5 hereof and Appendix A hereto:
(b) the Investment Manager shall provide persons to perform all executive,
administrative, clerical and bookkeeping functions of the Company and shall
assume all ordinary operating expenses not assumed by the Company under
4(a) hereof; and
(c) the Company is responsible for payment of any extraordinary expenses
incurred. A good faith determination of what constitutes an extraordinary
expense shall be made by the Board of Directors of the Company, which good
faith determination shall include the affirmative vote of all non-
interested directors of the Company.
5. COMPENSATION OF THE INVESTMENT MANAGER
(a) In consideration of the services performed by the Investment Manager
hereunder, the Fund will pay or cause to be paid to the Investment Manager,
as they become due and payable, management fees determined in accordance
with the attached Schedule of Fees (Appendix A). In the event of
termination, any management fees paid in advance pursuant to such fee
schedule will be prorated as of the date of termination and the unearned
portion thereof will be returned to the Company.
(b) the net asset value of the Company used in fee calculations shall be
determined in the manner set forth in the Articles of Incorporation and By-
Laws and Prospectus of the Company after the close of the New York Stock
Exchange composite tape on the last business day of each month the New York
Stock Exchange is open.
(c) the Company hereby authorizes the Investment Manager to charge the
Portfolio, subject to the provisions in Section 6 hereof, for the full
amount of fees as they become due and payable pursuant to the attached
schedule of fees; provided, however, that a copy of a fee statement
covering said payment shall be sent to the Custodian and to the Company.
6. EXPENSE LIMITATION
(a) On the first business day of the second month of each fiscal year, the
Investment Manager agrees to pay the Company the amount, if any, by which
ordinary operating expenses of the Company for the preceding fiscal year
(except interest and taxes and
-3-
<PAGE>
extraordinary expenses) exceed 1% of the average net assets of the Company
for that year, determined monthly. Costs incurred in connection with
brokerage fees and commissions, which are capitalized in accordance with
generally accepted accounting principles applicable to investment
companies, shall be accounted for as capital items and not as expenses.
(b) In paying the quarterly Investment Management fee to the Investment
Manager, the Company shall reduce the amount of such fee by the amount, if
any, by which the Company's ordinary operating expenses for the previous
quarter (except interest and taxes and extraordinary expenses) exceeded on
an annualized basis 1% of the Company's average net asset value of the
Fund's shares, determined monthly; provided, however, that the Company
shall 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 Company
would be entitled under Section 6(a) hereof.
7. SERVICE TO OTHER CLIENTS
Nothing contained in this Agreement shall be construed to prohibit the
Investment Manager from performing investment advisory, management,
distribution or other services for other investment companies and other
persons, trusts or companies, or to prohibit affiliates of the Investment
Manager from engaging in such businesses or in other related or unrelated
businesses.
8. INDEMNIFICATION
The Investment Manager shall have no liability to the Company, or its
stockholders, for any error of judgment, mistake of law, or for any loss
arising out of any investment, or for any other act or omission in the
performance of its obligations to the Company not involving willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder.
9. DURATION OF AGREEMENT
This Agreement shall continue in effect until the close of business on
____________, 1998. This Agreement may thereafter be renewed from year to
year by mutual consent, provided that such renewal shall be specifically
approved at least annually by (i) the Board of Directors of the Company, or
by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Company, and (ii) a majority of those directors
who arc not parties to this Agreement or interested persons (as defined in
the 1940 Act) of any such party cast in person at a meeting called for the
purpose of voting on such approval. Such mutual consent to renewal shall
not be deemed to have been given unless evidenced by a writing signed by
both parties hereto.
10. TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Company on sixty (60) days' written notice to the
-4-
<PAGE>
Investment Manager, or by the Investment Manager on like notice to the
Company. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate originals by their officers hereunto duly authorized as
of the date first above written.
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
_________________________ ON BEHALF OF
RCM GROWTH EQUITY FUND
By: ____________________ By: ________________________
ATTEST: ATTEST:
_________________________ _____________________________
-5-
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY,
AND SERVICE AGREEMENT
BETWEEN RCM CAPITAL MANAGEMENT, _____________________
AND RCM CAPITAL FUNDS, INC.
SCHEDULE OF FEES
FOR RCM GROWTH EQUITY FUND
Effective Date: _________________, 1996
The Fund will pay a monthly fee to the Investment Manager based on the average
daily net assets of the Fund, at the annualized rate of 0.75% of the value of
the Fund's average daily net assets.
Average Daily Net Assets Fee
________________________ ___
On all sums 0.75% annually
Dated: __________________, 1996
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
_______________________ ON BEHALF OF
RCM GROWTH EQUITY FUND
By: ____________________________ By: __________________________
ATTEST: ATTEST:
By: ___________________________ By: __________________________
<PAGE>
EXHIBIT 5(b)
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY
AND SERVICE AGREEMENT
THIS AGREEMENT is entered into this day of _____________, 1996 by and
between RCM Capital Management, _______________________ (the "Investment
Manager") and RCM Capital Funds Inc. (the Company), on behalf of RCM Small Cap
Fund, a series of the Company ("Fund").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF THE INVESTMENT MANAGER
(a) Subject to express provisions and limitations set forth in the
Company's Articles of Incorporation, By-Laws, Form N-1A Registration
Statement under the Investment Company Act of 1940, as amended (the "1940
Act") and under the Securities Act of 1933, as amended (the "1933 Act"),
and the Fund's prospectus as in use from time to time, as well as to the
factors affecting the Company's status as a regulated investment company
under the Internal Revenue Code of 1986, as amended, the Company hereby
grants to the Investment Manager and the Investment Manager hereby accepts
full discretionary authority to manage the investment and reinvestment of
the cash and securities in the account of the Fund (the "Portfolio")
presently held by Chase Manhattan Bank, NA (the "Custodian"), the proceeds
thereof, and any additions thereto, in the Investment Manager's discretion.
In its duties hereunder, the Investment Manager shall further be bound by
any and all determinations by the Board of Directors of the Company
relating to the investment policies of the Fund, which determinations shall
be communicated in writing to the Investment Manager. For all purposes
herein, the Investment Manager shall be deemed an independent contractor of
the Company.
2. POWERS OF THE INVESTMENT MANAGER
Subject to the limitations provided in Section 1 hereof, the Investment
Manager is empowered hereby, through any of its partners or appropriate
employees, for the benefit of the Fund:
(a) to invest and reinvest in shares, stocks, bonds, notes and other
obligations of every description issued or incurred by governmental bodies,
corporations, mutual funds, trusts, associations or firms, in trade
acceptances and other commercial paper, and in loans and deposits at
interest on call or on time, whether or not secured by collateral;
(b) to purchase and sell commodities or commodities contracts and
investments in put, call, straddle, or spread options;
(c) to lend its portfolio securities to brokers, dealers and other
financial institutions;
(d) to buy, sell, or exercise rights and warrants to subscribe for stock
or securities, and
<PAGE>
(e) to take such other action, or direct the Custodian to take such other
action, as may be necessary or desirable to carry out the purpose and
intent of the foregoing.
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) The Investment Manager shall provide adequate facilities and qualified
personnel for the placement of, and shall place, orders for the purchase,
or other acquisition, and sale, or other disposition, of portfolio
securities for the Fund;
(b) unless otherwise specified in writing to the Investment Manager by the
Fund, all orders for the purchase and sale of securities for the Portfolio
shall be placed in such markets and through such brokers as in the
Investment Manager's best judgment shall offer the most favorable price and
market for the execution of each transaction; provided, however, that,
subject to the above, the Investment Manager may place orders with
brokerage firms which have sold shares of the Fund or which furnish
statistical and other information to the Investment Manager, taking into
account the value and quality of the brokerage services of such firms,
including the availability and quality of such statistical and other
information. Receipt by the Investment Manager of any such statistical and
other information and services shall not be deemed to give rise to any
requirement for abatement of the advisory fee payable to the Investment
Manager pursuant to Section 5 hereof and Appendix A hereto;
(c) the Fund understands and agrees that 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 or dealer would have
charged, provided, however, that the Investment Manager determines in good
faith that such amount of commission is reasonable in relation to the value
of Fund share sales, statistical, brokerage and other services provided by
such broker or dealer, viewed in terms of either the specific transaction
or the Investment Manager's overall responsibilities to the Fund and other
clients for which the Investment Manager exercises investment discretion.
The Fund also understands that the receipt and use of such services will
not reduce the Investment Manager's customary and normal research
activities:
(d) the Fund understands and agrees:
(i) The Investment Manager performs investment management services
for various clients and that the Investment Manager may take action
with respect to any of its other clients which may differ from action
taken or from the timing or nature of action taken with respect to the
Portfolio, so long as it is the Investment Manager's policy, to the
extent practical to allocate investment opportunities to the Portfolio
over a period of time on a fair and equitable basis relative to other
clients;
(ii) that the Investment Manager shall have no obligation to
purchase or sell for the Portfolio any security which the Investment
Manager or its partners or employees, may purchase or sell for its or
their own accounts or the account of
-2-
<PAGE>
any other client, if in the opinion of the Investment Manager such
transaction or investment appears unsuitable, impractical or
undesirable for the Portfolio; and
(iii) that on occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interests of the Fund
as well as other clients of the Investment Manager, the Investment
Manager, to the extent permitted by applicable laws and regulations,
may aggregate the securities to be so sold or purchased when the
Investment Manager believes that to do so will be in the best
interests of the Company. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the
transaction, shall be made by the Investment Manager in the manner the
Investment Manager considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to such other clients.
4. ALLOCATION OF EXPENSES OF THE COMPANY
(a) The Company is responsible for payment of the following ordinary
operating expenses: (I) brokerage and commission expenses, (ii) Federal,
state or local taxes, incurred by, or levied on, the Company, (iii)
interest charges on borrowings, (iv) charges and expenses of the Company's
custodian, and (v) payment of all Investment Management or advisory fees
payable under Section 5 hereof and Appendix A hereto:
(b) the Investment Manager shall provide persons to perform all executive,
administrative, clerical and bookkeeping functions of the company and shall
assume all ordinary operating expenses not assumed by the Company under
4(a) hereof; and
(c) the Company is responsible for payment of any extraordinary expenses
incurred. A good faith determination of what constitutes an extraordinary
expense shall be made by the Board of Directors of the Company, which good
faith determination shall include the affirmative vote of all non-
interested directors of the Company.
5. COMPENSATION OF THE INVESTMENT MANAGER
(a) In consideration of the services performed by the Investment Manager
hereunder, the Fund will pay or cause to be paid to the Investment Manager,
as they become due and payable, management fees determined in accordance
with the attached Schedule of Fees (Appendix A). In the event of
termination, any management fees paid in advance pursuant to such fee
schedule will be prorated as of the date of termination and the unearned
portion thereof will be returned to the Fund;
(b) the net asset value of the Fund's portfolio used in fee calculations
shall be determined in the manner set forth in the Articles of
Incorporation and By-Laws of the Company and the Fund's prospectus as of
the close of regular trading on the New York Stock Exchange on the last
business day of each month the New York Stock Exchange is open; and
-3-
<PAGE>
(c) the Fund hereby authorizes the Investment Manager to charge the
Portfolio, subject to the provisions in Section 6 hereof, for the full
amount of fees as they become due and payable pursuant to the attached
schedule of fees; provided, however, that a copy of a fee statement
covering said payment shall be sent to the Custodian and to the Company.
6. EXPENSE LIMITATION
(a) On the first business day of the second month of each fiscal year, the
Investment Manager agrees to pay the Fund the amount, if any, by which
ordinary operating expenses of the Company for the preceding fiscal year
(except interest and taxes and extraordinary expenses) exceed 15% of the
average net assets of the Fund for that year, determined monthly. Costs
incurred in connection with brokerage fees and commissions, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, shall be accounted for as capital items
and not as expenses; and
(b) in paying the quarterly Investment Management fee to the Investment
Manager, the Fund shall reduce the amount of such fee by the amount, if
any, by which the Company's ordinary operating expenses for the previous
quarter (except interest and taxes and extraordinary expenses) exceeded on
an annualized basis 1.25% of the average net asset value of the Fund's
shares, determined monthly; provided, however, that the Fund shall 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 second month of the current
fiscal year under Section 6(a) hereof if such reductions had not occurred.
7. SERVICE TO OTHER CLIENTS
Nothing contained in this Agreement shall be construed to prohibit the
Investment Manager from performing investment advisory, management,
distribution or other services for other investment companies and other
persons, trusts or companies, or to prohibit affiliates of the Investment
Manager from engaging in such businesses or in other related or unrelated
businesses.
8. STANDARD OF CARE
The Investment Manager shall have no liability to the Fund, or its
stockholders, for any error of judgment, mistake of law, or for any loss
arising out of any investment, or for any other act or omission in the
performance of its obligations to the Fund not involving willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder.
9. DURATION OF AGREEMENT
This Agreement shall continue in effect until the close of business on
____________, 1998. This Agreement may thereafter be renewed from year to
year by mutual consent,
-4-
<PAGE>
provided that such renewal shall be specifically approved at least annually
by (i) the Board of Directors of the Company, or by the vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the
Company, and (ii) a majority of those directors who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such
party cast in person at a meeting called for the purpose of voting on such
approval. Such mutual consent to renewal shall not be deemed to have been
given unless evidenced by a writing signed by both parties hereto.
10. TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Company on sixty (60) days' written notice to the Investment
Manager, or by the Investment Manager on like notice to the Company. This
Agreement shall automatically terminate in the event of its assignment (as
defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the date first above written.
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
_____________________________ ON BEHALF OF
RCM SMALL CAP FUND
By: _________________________ By: _________________________
ATTEST: ATTEST:
_____________________________ _____________________________
-5-
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY,
AND SERVICE AGREEMENT
BETWEEN RCM CAPITAL MANAGEMENT, _______________________
AND RCM CAPITAL FUNDS, INC.
SCHEDULE OF FEES
FOR RCM SMALL CAP FUND
Effective Date: _________________, 1996
The Fund will pay a monthly fee to the Investment Manager based on the average
daily net assets of the Fund, at the annualized rate of 1.00% of the value of
the Fund's average daily net assets.
Average Daily Net Assets Fee
________________________ ___
On all sums 1.00% annually
Dated: __________________, 1996
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
________________________ ON BEHALF OF
RCM SMALL CAP FUND
By: ____________________________ By: __________________________
ATTEST: ATTEST:
By:________________________________ By: __________________________
<PAGE>
EXHIBIT 5(c)
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY
AND SERVICE AGREEMENT
THIS AGREEMENT is entered into this ____day of ____________, 1996 by and
between RCM Capital Management, _______________, (the "Investment Manager"), and
RCM Capital Funds, Inc. (the "Company"), on behalf of RCM International Growth
Equity Fund A, a series of the Company (the "Fund").
1. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT OF THE INVESTMENT MANAGER
(a) Subject to express provisions and limitations set forth in the
Company's Articles of Incorporation, By-Laws, Form N-lA Registration
Statement under the Investment Company Act of 1940, as amended (the "1940
Act") and under the Securities Act of 1933, as amended (the "1933 Act"),
and the Fund's prospectus as in use from time to time, as well as to the
factors affecting the Company's status as a regulated investment company
under the Internal Revenue Code of 1986, as amended, the Company hereby
grants to the Investment Manager and the Investment Manager hereby accepts
full discretionary authority to manage the investment and reinvestment of
the cash, securities, and other assets of the Fund (the "Portfolio")
presently held by State Street Bank & Trust Company (the "Custodian"), any
proceeds thereof, and any additions thereto, in the Investment Manager's
discretion. In the performance of its duties hereunder, the Investment
Manager shall further be bound by any and all determinations by the Board
of Directors of the Company relating to the investment objectives policies
or restrictions of the Fund, which determinations shall be communicated in
writing to the Investment Manager. For all purposes herein, the Investment
Manager shall be deemed an independent contractor of the Company.
2. POWERS OF THE INVESTMENT MANAGER
Subject to the limitations provided in Section 1 hereof, the
Investment Manager is empowered hereby, through any of its partners,
principals, or appropriate employees, for the benefit of the Fund:
(a) to invest and reinvest in shares, stocks, bonds, notes and
other obligations of every description issued or incurred by governmental
bodies, corporations, mutual funds, trusts, associations or firms, in trade
acceptances and other commercial paper, and in loans and deposits at
interest on call or on time, whether or not secured by collateral;
(b) to purchase and sell commodities or commodities contracts and
investments in put, call, straddle, or spread options;
(c) to enter into forward, future, or swap contracts with respect
to the purchase and sale of securities, currencies, commodities, and
commodities contracts;
(d) to lend its portfolio securities to brokers, dealers and other
financial institutions;
1 of 6
<PAGE>
(e) to buy, sell, or exercise options, rights and warrants to
subscribe for stock or securities; and
(f) to engage in any other types of investment transactions
described in the Fund's Prospectus and Statement of Additional Information;
and
(g) to take such other action, or to direct the Custodian to take
such other action, as may be necessary or desirable to carry out the
purpose and intent of the foregoing.
3. EXECUTION OF PORTFOLIO TRANSACTIONS
(a) The Investment Manager shall provide adequate facilities and
qualified personnel for the placement of, and shall place, orders for the
purchase, or other acquisition, and sale, or other disposition, of
portfolio securities or other portfolio assets for the Fund.
(b) Unless otherwise specified in writing to the Investment Manager
by the Fund, all orders for the purchase and sale of securities for the
Portfolio shall be placed in such markets and through such brokers as in
the Investment Manager's best judgment shall offer the most favorable price
and market for the execution of each transaction; provided, however, that,
subject to the above, the Investment Manager may place orders with
brokerage firms that have sold shares of the Fund or that furnish
statistical and other information to the Investment Manager, taking into
account the value and quality of the brokerage services of such firms,
including the availability and quality of such statistical and other
information. Receipt by the Investment Manager of any such statistical and
other information and services shall not be deemed to give rise to any
requirement for abatement of the advisory fee payable to the Investment
Manager pursuant to Section 5 hereof and Appendix A hereto.
(c) the Fund understands and agrees that 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, provided, however, that the Investment Manager determines in good
faith that such amount of commission is reasonable in relation to the value
of Fund share sales, statistical, brokerage and other services provided by
such broker, viewed in terms of either the specific transaction or the
Investment Manager's overall responsibilities to the Fund and other clients
for which the Investment Manager exercises investment discretion. The Fund
also understands that the receipt and use of such services will not reduce
the Investment Manager's customary and normal research activities.
(d) The Fund understands and agrees that:
(i) the Investment Manager performs investment management
services for various clients and that the Investment Manager may take
action with respect to any of its other clients which may differ from
action taken or from the timing or nature of action taken with respect to
the Portfolio, so long as it is the Investment Manager's policy, to the
extent practical, to allocate investment opportunities to the Portfolio
over a period of time on a fair and equitable basis relative to other
clients;
2 of 6
<PAGE>
(ii) the Investment Manager shall have no obligation to
purchase or sell for the Portfolio any security which the Investment
Manager or its principals or employees, may purchase or sell for its or
their own accounts or the account of any other client, if in the opinion of
the Investment Manager such transaction or investment appears unsuitable,
impractical or undesirable for the Portfolio;
(iii) on occasions when the Investment Manager deems the
purchase or sale of a security to be in the best interests of the Fund as
well as other clients of the Investment Manager, the Investment Manager, to
the extent permitted by applicable laws and regulations, may aggregate the
securities to be so sold or purchased when the Investment Manager believes
that to do so will be in the best interests of the Fund. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, shall be made by the Investment Manager in the
manner the Investment Manager considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other
clients; and
(iv) the Investment Manager does not prohibit any of its
principals or employees from purchasing or selling for their own accounts
securities that may be recommended to or held by the Investment Manager's
clients.
4. ALLOCATION OF EXPENSES OF THE COMPANY AND THE FUND
(a) The Investment Manager will bear all expenses related to
salaries of its employees and to the Investment Manager's overhead in
connection with its duties under this Agreement. The Investment Manager
also will pay all fees and salaries of the Company's directors and officers
who are affiliated persons (as such term is defined in the 1940 Act) of the
Investment Manager.
(b) Except for the expenses specifically assumed by the Investment
Manager, the Fund will pay all of its expenses, including, without
limitation, fees and expenses of the directors not affiliated with the
Investment Manager attributable to the Fund; fees of the Investment
Manager; fees of the Fund's administrator, custodian and subcustodians for
all services to the Fund (including safekeeping of funds and securities and
maintaining required books and accounts); transfer agent, registrar and
dividend reinvestment and disbursing agent interest charges; taxes;
charges and expenses of the Fund's legal counsel and independent
accountants; charges and expenses of legal counsel provided to the non-
interested directors of the Company; expenses of repurchasing shares of the
Fund; expenses of printing and mailing share certificates, stockholder
reports, notices, proxy statements and reports to governmental agencies;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; expenses connected with
negotiating, or effecting purchases or sales of portfolio securities or
registering privately issued portfolio securities; expenses of calculating
and publishing the net asset value of the Fund's shares; expenses of member
ship in investment company associations; premiums and other costs associated
with the acquisition of a mutual fund directors and officers errors and
3 of 6
<PAGE>
omissions liability insurance policy; expenses of fidelity bonding and
other insurance premiums; expenses of stockholders' meetings; and SEC and
state blue sky registration fees.
(c) The expenses borne by the Fund pursuant to Section 4(b) shall
include the Fund's proportionate share of any such expenses of the Company,
which shall be allocated among the Fund and the other series of the Company
on such basis as the Company shall deem appropriate.
5. COMPENSATION OF THE INVESTMENT MANAGER
(a) In consideration of the services performed by the Investment
Manager hereunder, the Fund will pay or cause to be paid to the Investment
Manager, as they become due and payable, management fees determined in
accordance with the attached Schedule of Fees (Appendix A). In the event of
termination, any management fees paid in advance pursuant to such fee
schedule will be prorated as of the date of termination and the unearned
portion thereof will be returned to the Fund.
(b) The net asset value of the Fund's portfolio used in fee
calculations shall be determined in the manner set forth in the Articles of
Incorporation and By-Laws of the Company and the Fund's prospectus as of
the close of regular trading on the New York Stock Exchange on the last
business day of each month the New York Stock Exchange is open.
(c) The Fund hereby authorizes the Investment Manager to charge the
Portfolio, subject to the provisions in Section 6 hereof, for the full
amount of fees as they become due and payable pursuant to the attached
schedule of fees; provided, however, that a copy of a fee statement
covering said payment shall be sent to the Custodian and to the Company.
6. SERVICE TO OTHER CLIENTS
Nothing contained in this Agreement shall be construed to prohibit the
Investment Manager from performing investment advisory, management,
distribution or other services for other investment companies and other
persons, trusts or companies, or to prohibit affiliates of the Investment
Manager from engaging in such businesses or in other related or unrelated
businesses.
7. STANDARD OF CARE
The Investment Manager shall have no liability to the Fund, or its
stockholders, for any error of judgment, mistake of law, or for any loss
arising out of any investment, or for any other act or omission in the
performance of its obligations to the Fund not involving willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties hereunder. The federal securities laws impose
liabilities under certain circumstances on persons who act in good faith,
and therefore nothing herein shall in any way constitute a waiver or
limitation of any rights which the undersigned may have under any federal
securities laws.
4 of 6
<PAGE>
8. DURATION OF AGREEMENT
This Agreement shall continue in effect until the close of business on
____________, 1998. This Agreement may thereafter be renewed from year to
year by mutual consent, provided that such renewal shall be specifically
approved at least annually by (i) the Board of Directors of the Company, or
by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Company, and (ii) a majority of those directors
who are not parties to this Agreement or interested persons (as defined in
the 1940 Act) of any such party cast in person at a meeting called for the
purpose of voting on such approval. Such mutual consent to renewal shall
not be deemed to have been given unless evidenced by a writing signed by
both parties hereto.
9. TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by the Board of Directors of the Company or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities
of the Company on sixty (60) days' written notice to the Investment
Manager, or by the Investment Manager on like notice to the Company. This
Agreement shall automatically terminate in the event of its assignment (as
defined in the 1940 Act).
5 of 6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the date first above written.
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
_______________________ ON BEHALF OF
RCM INTERNATIONAL GROWTH
EQUITY FUND A
By: ____________________________ By: _____________________________
ATTEST: ATTEST:
By: ________________________________ By: ________________________________
6 of 6
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT, POWER OF ATTORNEY,
AND SERVICE AGREEMENT
BETWEEN RCM CAPITAL MANAGEMENT, ________________________
AND RCM CAPITAL FUNDS, INC.
SCHEDULE OF FEES
FOR RCM INTERNATIONAL GROWTH EQUITY FUND A
Effective Date: _________________, 1996
The Fund will pay a monthly fee to the Investment Manager based on the average
daily net assets of the Fund, at the annualized rate of 0.75% of the value of
the Fund's average daily net assets.
Average Daily Net Assets Fee
________________________ ___
On all sums 0.75% annually
Dated: __________________, 1996
RCM CAPITAL MANAGEMENT, RCM CAPITAL FUNDS, INC.
________________________ ON BEHALF OF
RCM INTERNATIONAL
GROWTH EQUITY FUND A
By: ____________________________ By: __________________________
ATTEST: ATTEST:
By: ________________________________ By: __________________________
<PAGE>
AGREEMENT
AGREEMENT made this _______ day of __________, 1996 by and among RCM Capital
Management ("RCM"), a California limited partnership, RCM Equity Funds, Inc., an
open end management investment company (the "Company"), RCM Capital Funds, Inc.
an open end management investment company (the "Corporation") and Funds
Distributor, Inc. ("FDI"), a Massachusetts corporation. The Company and the
Corporation are collectively referred to herein as the "Companies."
WHEREAS, RCM serves as investment adviser to and provides certain administrative
services for the Companies, which are registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), and which are comprised of the
investment series listed on Schedule A, as such Schedule shall be automatically
amended from time to time (each a "Fund," collectively, the "Funds");
WHEREAS, the Companies have entered into distribution agreements with FDI
(the "Distribution Agreements") for the distribution by FDI of shares of common
stock (the "Shares") in the Companies or in a Fund;
WHEREAS, in furtherance of FDI's duties and responsibilities as set forth in the
Distribution Agreements, one or more employees of FDI (who may be registered
with the National Association of Securities Dealers ("NASD") as representatives
of FDI), shall be based in an FDI branch office (an Office of Supervisory
Jurisdiction as defined by the NASD's Rules of Fair Practice) in San Francisco
(such FDI employees shall hereinafter be referred to as "Registered
Representatives");
WHEREAS, such Registered Representatives shall provide marketing and sales
services to the Companies pursuant to the Distribution Agreements;
WHEREAS, RCM, the Companies and FDI desire to enter into this Agreement pursuant
to which FDI will perform certain administrative services for the Companies and
for RCM with respect to each Fund;
NOW THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree as follows:
1. SERVICES PROVIDED BY FDI. FDI will assist the Companies and RCM in
providing services with respect to each Fund as may be reasonably requested by
the Company, the Corporation or RCM from time to time. To the extent consistent
with FDI's compensation hereunder and at the direction of the Company, the
Corporation or RCM specific assignments may include:
(a) The provision of the following advice and assistance to the Company,
the Corporation and/or to RCM: (i) advice with regard to various compliance
<PAGE>
requirements under the 1940 Act; and (ii) assistance in the resolution of
technical issues of a compliance or non-compliance nature;
(b) Gathering of information deemed necessary by the Company, the
Corporation and/or RCM to support: (i) required state regulatory filings
and (ii) required federal regulatory filings;
(c) As mutually agreed to by the parties hereto, the preparation of
statistical and research data;
(d) The provision of advice and counsel to the Company, the
Corporation and/or RCM with respect to regulatory matters, including
monitoring regulatory and legislative developments that may affect the
Funds and assisting the Company and/or the Corporation in routine
regulatory examinations or investigations;
(e) Assistance in the Company's and/or the Corporation's operations
and provision of general consulting services on a day to day, as needed
basis;
(f) Legal review of all Fund marketing materials and other sales
related materials to ensure compliance with the advertising rules of the
relevant regulatory authorities;
(g) As mutually agreed to by the parties hereto, provision of
services with regard to advertising, marketing and promotional activities
including but not limited to: (i) developing information, analysis and
reports, (ii) preparing, printing and distributing sales literature
brochures, letters, training materials and dealer guides and all similar
materials and advertisements as defined below, (iii) developing and
implementing audio and video advertising programs, (iv) arranging and
paying for the printing and distribution of prospectuses and reports of the
Funds to prospective shareholders, (v) arranging and paying for
telemarketing services and (vi) arranging and paying for fulfillment
services. Without limiting the generality of Section 18 hereof, all Fund
advertisements, sales literature, prospectuses and shareholder reports
shall state that the distributor of the Fund is "RCM Distributors, a
division of Funds Distributor, Inc." For purposes of this Agreement "sales
literature" and "advertisements" mean brochures, letters, training
materials and dealers' guides, materials for oral presentations and all
other similar materials, whether transmitted directly to potential
shareholders or published in print or audio-visual media, but does not
include generic materials that do not mention the Funds or the Shares;
(h) Use of reasonable efforts, in cooperation with RCM, to resolve as
of trades with respect to Shares of the Funds in order to mitigate the risk
of loss to FDI, RCM, the Company and/or the Corporation from such as of
trades;
2
<PAGE>
(i) In connection with the foregoing activities, maintenance of an office
facility (which may be in the offices of FDI or a corporate affiliate);
(j) In connection with the foregoing activities, the furnishing of
clerical services and internal executive and administrative services,
stationery and office supplies; and
(k) The provision of officers to the Company and the Corporation
including, but not limited to, President, Vice Presidents, Secretary,
Assistant Secretaries, Treasurer and Assistant Treasurers to assume certain
specified responsibilities.
2. SERVICES PROVIDED BY RCM, THE COMPANY AND THE CORPORATION. In furtherance
of the responsibilities under this Agreement RCM, the Company and the
Corporation will:
(a) Cause the Company's and the Corporation's administrator to
furnish any and all information and assist FDI in taking any other actions
that may be reasonably necessary in connection with (i) registration of the
Shares under the Securities Act of 1933 (the "1933 Act") and (ii) the
qualification for the Shares for sale in those states that the Funds and
FDI may designate;
(b) Cause the Company's and the Corporation's administrator to
monitor sales of the Shares to assure compliance with applicable state
securities laws;
(c) Report or cause the Company's and the Corporation's transfer
agent to provide sales-related complaints to FDI and consult with FDI
concerning the manner in which such complaints will be addressed;
(d) If applicable, cause the Company's and the Corporation's transfer
agent to give necessary information for the preparation of quarterly
reports in a form satisfactory to FDI regarding Rule 12b-1 fees, front-end
sales loads, back-end sales loads and other data regarding sales and sales
loads as required by the 1940 Act or as requested by the board of directors
of the Company and/or the Corporation;
(e) If applicable, cause the Company's and the Corporation's transfer
agent to provide FDI with all necessary historical information so that FDI
can calculate the maximum sales charges payable by the Funds pursuant to
the Rules of Fair Practice of the NASD and the actual sales charges paid by
the Funds; cause the Company's and the Corporation's transfer agent to
provide FDI with all of the ongoing necessary information so that FDI can
calculate the maximum sales charges payable by the Funds pursuant to the
Rules of Fair Practice of the NASD and the actual sales charges paid by the
Funds; and cause the Company's and the Corporation's transfer agent to
provide such information in a form satisfactory to FDI no less often than
monthly for every Fund and on a daily basis for any Fund for which FDI
determines that the remaining NASD sales change limit is approaching zero;
3
<PAGE>
(f) Support or cause the Company's or the Corporation's transfer
agent to support the servicing of the shareholders and, in connection
therewith, provide or cause the Company's transfer agent or the
Corporation's transfer agent to provide one or more persons during normal
business hours to respond to telephone questions concerning the Funds'
shareholders' accounts;
(g) Provide FDI with copies of, or access to, any documents that FDI
may reasonably request and notify FDI as soon as possible of any matter
materially affecting FDI's performance of its services under this
Agreement.
(h) Report to FDI, to the extent that RCM, the Company or the
Corporation are aware of, any and all actions or inactions by any
Registered Representative or securities dealers, financial institutions and
other industry professionals such as investment advisers and estate
planning firms that have entered into agreements with FDI for the
solicitation of Fund Shares (collectively referred to herein as "Selling
Broker Dealers") that (i) fail to comply with the terms of any selling
agreements, (ii) violate any applicable laws of any governmental
authorities, including the NASD's Rules of Fair Practice, or (iii) violate
any other agreement or procedure with which such Selling Broker-Dealer or
Registered Representative is required to comply; and
(i) (i) Submit the form of confirmation statement to be used for
sale of the Shares to FDI for its approval and cause the Company's transfer
agent and the Corporation's transfer agent to provide to customers of the
Selling Broker-Dealers ("Customers") and to the Selling Broker-Dealers such
confirmations of all transactions in the Shares as may be required by the
1934 Act and the selling agreements, and (ii) use reasonable efforts to
monitor the Company's transfer agent and the Corporation's transfer agent
in its preparation and mailing of such confirmations regarding the sales of
the Shares and report to FDI any deficiencies of which RCM, the Company, or
the Corporation are aware in the transfer agent's performance of such
activities.
In addition, as soon as practicable after the effective date of this Agreement,
RCM shall sublease office space to FDI for the Office of Supervisory
Jurisdiction. The terms of the sublease shall be subject to a final agreement
as negotiated by RCM and FDI.
3. COMPENSATION.
(a) For the services to be rendered and expenses to be assumed by FDI
under this Agreement, each Fund will pay to FDI, for its services, a fee in
accordance with the terms set forth in the Fee Letter Agreement dated as of
_________, 1996 by and among FDI, RCM the Company and the Corporation as
the same may be amended from time to time (the "Fee Letter Agreement").
FDI shall bear all
4
<PAGE>
expenses in connection with the performance of its services under this
Agreement except those enumerated in the Fee Letter Agreement.
(b) FDI will employ certain persons listed on Schedule B, as such
schedule may be amended from time to time, who shall be exclusively
dedicated to the sales and marketing activities of the Company and/or the
Corporation. In addition to those persons listed in Schedule B, FDI will
from time to time employ or associate with itself such person or persons as
FDI may believe to be particularly suited to assist it in performing
services under this Agreement. Such person or persons may be officers and
employees who are employed by both FDI (and/or an affiliated company) and
the Company and/or the Corporation. The compensation of such person or
persons shall be paid by FDI or a corporate affiliate of FDI and no
obligation shall be incurred on behalf of the Company, the Corporation, or
RCM in such respect.
(c) FDI acknowledges and agrees that any expenditures and obligations
of a Fund pursuant to this Section 3 and Section 6 hereof shall be
enforceable only against the assets and property of such Fund and not
against the assets and property of any other Fund of the Corporation or
Company of which it is a series.
(d) RCM shall promptly reimburse the Company and the Corporation, and
shall indemnify and hold each of them and each of the Funds harmless from
and against, all expenditures and obligations of the Company and the
Corporation pursuant to this Section 3. Such reimbursement shall be made
within one (1) business day after delivery by the Company or the
Corporation, as the case may be, to RCM of reasonably satisfactory evidence
of such expenditure or satisfaction of such obligation. RCM acknowledges
and agrees that, in the event it fails to pay any reimbursement when due
with respect to a Fund, the amount of such unpaid reimbursement shall be
offset by the Company or the Corporation, as the case may be, against the
advisory fees payable by it to RCM with respect to such Fund.
4. EFFECTIVE DATE. This Agreement shall become effective with respect to a
Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date Funds Distributor, Inc. becomes the
distributor of the shares of such Fund; in which case Schedule A to this
Agreement shall be deemed amended to include such Fund from and after such
date).
5. TERM. This Agreement shall continue for an initial one-year period and
shall continue thereafter for successive one-year terms unless notice not to
renew is given by the non-renewing party to the other parties at least 60 days
prior to the expiration of the then current term. This Agreement shall
automatically terminate if: (i) FDI ceases to be the distributor of all of the
Funds under the Distribution Agreements; or (ii) RCM ceases to be the investment
adviser to all of the Funds.
5
<PAGE>
6. STANDARD OF CARE AND INDEMNIFICATION.
(a) The Corporation or the Company, as the case may be, shall cause each
Fund to: (i) indemnify and hold harmless FDI and RCM against any losses,
claims, damages or liabilities, or actions in respect thereof, to which FDI
or RCM may become subject, including amounts paid in settlement with the
prior written consent of the Company or the Corporation, insofar as such
losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or result from the failure of the Corporation or the Company,
as the case may be, to comply with the terms of this Agreement with respect
to any Fund; and (ii) reimburse FDI and RCM for reasonable legal or other
expenses reasonably incurred by FDI or RCM in connection with investigating
or defending against any such loss, claim, damage, liability or action. A
Fund shall not be liable to FDI or RCM for any action taken or omitted by
FDI or RCM in bad faith, with willful misfeasance, with gross negligence or
in reckless disregard by FDI or RCM of its obligations and duties. The
indemnities in this Section shall, upon the same terms and conditions,
extend to and inure to the benefit of each of the directors and officers of
FDI and RCM and any person controlling FDI or RCM within the meaning of
Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of
1934 (the "1934 Act").
(b) FDI will: (i) indemnify and hold harmless each Fund and RCM against
any losses, claims, damages or liabilities, or actions in respect thereof,
to which a Fund or RCM may become subject, including amounts paid in
settlement with the prior written consent of FDI, insofar as such losses,
claims, damages or liabilities, or actions in respect thereof, arise out of
or result from the failure of FDI to comply with the terms of this
Agreement; and (ii) reimburse each Fund and RCM for reasonable legal or
other expenses reasonably incurred by such Fund or RCM in connection with
investigating or defending against any such loss, claim, damage, liability
or action. FDI shall not be liable to a Fund or RCM for any action taken
or omitted by such Fund or RCM in bad faith, with willful misfeasance with,
gross negligence or in reckless disregarded by such Fund or RCM of its
obligations and duties. The indemnities in this Section shall, upon the
same terms and conditions, extend to and inure to the benefit of each of
the directors and officers of each of the Company, the Corporation, and RCM
and any person controlling the Company, the Corporation or RCM within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.
(c) RCM will: (i) indemnify and hold harmless each Fund and FDI against
any losses, claims, damages or liabilities, or actions in respect thereof,
to which a Fund or FDI may become subject, including amounts paid in
settlement with the prior written consent of RCM, insofar as such losses,
claims, damages or liabilities, or actions in respect thereof, arise out of
or result from the failure of RCM to comply with the terms of this
Agreement; and (ii) reimburse each Fund and FDI for reasonable legal or
other expenses reasonably incurred by such Fund or FDI in
6
<PAGE>
connection with investigating or defending against any such loss, claim,
damage, liability or action. RCM shall not be liable to a Fund or FDI for
any action taken or omitted by such Fund or FDI in bad faith, with willful
misfeasance with, gross negligence or in reckless disregarded by such Fund
or FDI of its obligations and duties. The indemnities in this Section
shall, upon the same terms and conditions, extend to and inure to the
benefit of each of the directors and officers of each of the Company, the
Corporation, and FDI and any person controlling the Company, the
Corporation or FDI within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act.
(d) (i) Promptly after an indemnified party (or, if such indemnified
party is not a natural person, a responsible officer of such indemnified
party) receives notice or otherwise becomes aware of the commencement of
any action or other assertion of any losses, claims, damages or liabilities
by any third party, such indemnified party shall, if a claim in respect
thereof is to be made pursuant to this Section 6, notify the indemnitor of
the same in writing (such notice, a "claim notice"); but the omission so to
notify the indemnitor will not relieve the indemnitor from any liability
that it may have to such indemnified party otherwise than under this
Section 6. The failure of an indemnified party to promptly send a claim
notice shall not relieve the indemnitor from any liability except to the
extent that the indemnitor shall have been prejudiced as a result of the
failure or delay in giving such claim notice. In the event that the
indemnified party notifies the indemnitor in writing of its waiver of any
right to indemnification pursuant to this Section 6 in respect of any
losses, claims, damages or liabilities or portion thereof, the provisions
of clause (ii) of this Section 6(d) shall not apply.
(ii) Promptly following receipt of a claim notice, the indemnitor,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnitor may designate in contesting such losses,
claims, damages or liabilities and shall pay the reasonable fees and
disbursements of such counsel related to such contest. In any such
contest, any indemnified party shall have the right to retain its own
counsel, but the reasonable fees and expenses of such counsel shall be at
the expense of such indemnified party unless (A) the indemnitor and the
indemnified party shall have mutually agreed to the retention of such
counsel or (B) the named parties to any such contest (including any
impleaded parties) include both the indemnitor (or any other parties the
indemnitor may designate) and the indemnified party and representation of
all such parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. It is understood that the
indemnitor shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties.
The indemnitor may, at its option, at any time upon written notice to the
indemnified party, assume the responsibility for contesting any losses,
claims, damages or liabilities and may designate counsel reasonably
satisfactory to the indemnified
7
<PAGE>
party in connection therewith, provided that the counsel so designated
would have no actual or potential conflict of interest in connection with
such representation. Unless it shall assume the responsibility for
contesting any losses, claims, damages or liabilities, the indemnitor shall
not be liable for any settlement or compromise of such losses, claims,
damages or liabilities or portion thereof, which settlement or compromise
is effected without its written consent (which shall not be unreasonably
withheld), but if settled or compromised with such consent or if there be a
final judgment for the plaintiff asserting such losses, claims or
liabilities, the indemnitor agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement, compromise
or judgment. If the indemnitor assumes responsibility for contesting any
losses, claims, damages or liabilities, it shall be entitled to settle or
compromise such losses, claims, damages or liabilities or portion thereof
with the consent of the indemnified party (which shall not be unreasonably
withheld) or, if such settlement or compromise provides for release of the
indemnified party in connection with all matters relating to such losses,
claims, damages or liabilities, or, with respect to the settlement or
compromise of a portion of such losses, claims, damages or liabilities, all
matters relating to such portion of such losses, claims, damages or
liabilities, that have been asserted against the indemnified party by the
other parties to such settlement or compromise, without the consent of the
indemnified party. In the event that any expense paid by the indemnitor
pursuant to this Section 6(d) is subsequently determined to not be required
to be borne by the indemnitor, the indemnified party that received such
payment shall promptly refund the amount so paid to the indemnitor. If the
indemnitor assumes responsibility for contesting any losses, claims,
damages or liabilities, the indemnitor shall keep the indemnified party
apprised, on a current basis, of matters concerning such contest, including
without limitation (i) providing the indemnified party with reasonable
notice of and opportunity to be present in person and/or by counsel at
proceedings or discussions of settlement or compromise; (ii) providing the
indemnified party with copies of and opportunity to comment on filings,
papers or settlement agreements proposed to be filed or served by or on
behalf of the indemnitor; and (iii) providing the indemnified party with
copies of filings, papers and proposed settlement agreements received by
the indemnitor from or on behalf of persons asserting such losses, claims,
damages or liabilities.
(e) If the indemnification provided for in Section 6(a), (b) or (c) shall
for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 6(a), (b) or (c) in respect of any claim,
demand, liability or expense, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such claim, demand, liability or expense,
or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by such party; or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i)
8
<PAGE>
above but also the relative fault of each party with respect to the matters
that give rise to such claim, demand, liability or expense, or action in
respect thereof, as well as any other relevant equitable considerations.
The parties agree that it would not be just and equitable if contributions
pursuant to this Section 6(e) were to be determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the claim, demand, liability or
expense, or action in respect thereof, referred to above in this Section
6(e) shall be deemed to include, for purposes of this Section 6(e), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(e), FDI shall not be
required to contribute any amount in excess of (i) the total net
underwriting discounts and commissions received by FDI with respect to the
Shares sold under the Distribution Agreements and retained by FDI after
payments to the Selling Broker Dealers; plus (ii) the amount of total
"Excess Amount" compensation received by FDI with respect to Fee Letter
Agreement as such term is defined in the Fee Letter Agreement. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(f) The obligation to indemnify and provide contribution pursuant to this
Section 6 shall survive the termination of this Agreement.
(g) All notices to or consents by a Fund, the Company or the Corporation
pursuant to this Section 6 shall be given to or made by the board of
directors of the Company or the Corporation, as the case may be.
7. RECORD RETENTION AND CONFIDENTIALITY. FDI shall keep and maintain on
behalf of the Company and the Corporation all books and records which the
Company, the Corporation and FDI are, or may be, required to keep and maintain
in connection with the services to be provided hereunder pursuant to any
applicable statutes, rules and regulations, including without limitation Rules
31a-1 and 31a-2 under the 1940 Act. FDI further agrees that all such books and
records shall be the respective property of the Company and the Corporation and
FDI shall make such respective books and records available for inspection by the
Company, the Corporation, RCM, their independent accountants and agents and the
Securities and Exchange Commission at reasonable times and otherwise keep
confidential all books and records and other information relative to the Company
or the Corporation and their shareholders; except when requested to divulge
such information by duly-constituted authorities or court process; provided,
however, that upon receiving notice to divulge any such information which is not
in the opinion of FDI or its counsel clearly required to be disclosed by the
1940 Act and the rules and regulations thereunder, FDI shall promptly provide
notice to the board of directors of the Company and/or the Corporation and shall
cooperate with the Company and/or the Corporation with their efforts, if any, to
contest the request to divulge such information.
9
<PAGE>
8. RIGHTS OF OWNERSHIP. All computer programs and procedures developed by FDI
to perform the services to be provided by FDI under this Agreement are the
property of FDI. All records and other data except such computer programs and
procedures are the exclusive property of the Company or the Corporation and all
such other records and data will be furnished to RCM, the Company and/or the
Corporation in appropriate form as soon as practicable after termination of
this Agreement for any reason.
9. RETURN OF RECORDS. FDI may at its option at any time, and shall promptly
upon the demand of RCM, the Company and/or the Corporation, turn over to RCM,
the Company and/or the Corporation and cease to retain FDI's files, records and
documents created and maintained by FDI pursuant to this Agreement which are no
longer needed by FDI in the performance of its services or for its legal
protection. If not so turned over to RCM , the Company and/or the Corporation ,
such documents and records will be retained by FDI for six years from the year
of creation. At the end of such six-year period, such records and documents
will be turned over to RCM, the Company and/or the Corporation unless RCM , the
Company and/or the Corporation authorizes in writing the destruction of such
records and documents.
10. REPRESENTATIONS OF RCM. RCM represents and warrants that this Agreement
has been duly authorized by RCM and, when executed and delivered by RCM, will
constitute a legal, valid and binding obligation of RCM, enforceable against RCM
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
11. REPRESENTATIONS OF THE COMPANY. The Company represents and warrants that
this Agreement has been duly authorized by the Company and, when executed and
delivered by the Company, will constitute a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
12. REPRESENTATIONS OF THE CORPORATION. The Corporation represents and
warrants that this Agreement has been duly authorized by the Corporation and,
when executed and delivered by the Corporation, will constitute a legal, valid
and binding obligation of the Corporation, enforceable against the Corporation
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
13. REPRESENTATIONS OF FDI. FDI represents and warrants that this Agreement
has been duly authorized by FDI and, when executed and delivered by the FDI,
will constitute a legal, valid and binding obligation of FDI, enforceable
against FDI in accordance with its
10
<PAGE>
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
14. NOTICES. Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to RCM at the following address: RCM
Capital Management, 4 Embarcadero Center, San Francisco, CA 94111, Attention:
President with a copy to the General Counsel; to the Company at the following
address: 4 Embarcadero Center, San Francisco, CA 94111, Attention: President
with a copy to Secretary; to the Corporation at the following address: 4
Embarcadero Center, San Francisco, CA 94111, Attention: President with a copy
to Secretary; and to FDI at the following address: One Exchange Place, Tenth
Floor, Boston, MA 02109, Attention: President with a copy to General Counsel,
or at such other address as either party may from time to time specify in
writing to the other party pursuant to this Section.
15. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
16. ASSIGNMENT. This Agreement and the rights and duties hereunder shall not
be assignable by any of the parties hereto except by the specific written
consent of all parties hereto. However, this Agreement shall be assignable from
RCM to RCM Capital Management, L.L.C., a Delaware limited liability company
without the prior written consent of the other parties hereto.
17. GOVERNING LAW. This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of The Commonwealth of Massachusetts.
18. CONDUCT OF BUSINESS. All actions to be performed by FDI under the
Distribution Agreements and under this Agreement shall be conducted by RCM
Distributors, a division of Funds Distributors, Inc.
19. AMENDMENTS. This Agreement (except Schedule A which may be automatically
amended from time to time) may be amended only by a written instrument signed by
all parties hereto.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
RCM CAPITAL MANAGEMENT
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
RCM EQUITY FUNDS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
RCM CAPITAL FUNDS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
FUNDS DISTRIBUTOR, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
12
<PAGE>
Dated: ___________, 1996
SCHEDULE A
TO THE AGREEMENT
BETWEEN
RCM CAPITAL MANAGEMENT;
RCM EQUITY FUNDS, INC.:
RCM CAPITAL FUNDS, INC.
AND
FUNDS DISTRIBUTOR, INC.
RCM EQUITY FUNDS, INC.
RCM Global Technology Fund
RCM CAPITAL FUNDS, INC.
RCM Small Cap Fund
RCM Growth Equity Fund
RCM International Growth Equity Fund A
RCM CAPITAL MANAGEMENT
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
RCM EQUITY FUNDS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
13
<PAGE>
RCM CAPITAL FUNDS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
FUNDS DISTRIBUTOR, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
14
<PAGE>
Dated: ___________, 1996
SCHEDULE B
None as of ____________, 1996
15
<PAGE>
DISTRIBUTION AGREEMENT
RCM CAPITAL FUNDS, INC.
4 EMBARCADERO
28TH FLOOR
SAN FRANCISCO, CA 94111
____________, 1996
Funds Distributor, Inc.
One Exchange Place
Tenth Floor
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this agreement, the distributor of (a) shares of
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Exhibit, shares of the Fund. For purposes of this agreement the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by, and
in accordance with, the registration statement and prospectus then in effect
under the Securities Act of 1933, as amended, and will transmit promptly any
orders received by you for purchase or redemption of Shares to the Transfer and
Dividend Disbursing Agent for the Fund of which the Fund has notified you in
writing.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you may enter into sales or servicing
agreements with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, the
Investment Company Act of 1940, as amended, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended and the National
Association of Securities Dealers, Inc.'s (the "NASD") Rules of Fair Practice,
Constitution and By-Laws. You represent and warrant that you are a broker-dealer
registered with the Securities and Exchange Commission and that you are
registered with the relevant securities regulatory agencies in all fifty states,
the District of Columbia and Puerto Rico. You also represent and warrant that
you are a member of the NASD.
1
<PAGE>
1.4 You shall file Fund advertisements, sales literature and other
marketing and sales related materials with the appropriate regulatory agencies
and shall obtain such approvals for their use as may be required by the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. and/or state securities administrators.
1.5 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind
deemed by the parties hereto to render sales of a Fund's Shares not in the best
interest of the Fund, the parties hereto may decline to accept any orders for,
or make any sales of, any Shares until such time as those parties deem it
advisable to accept such orders and to make such sales and each party shall
advise promptly the other party of any such determination.
1.6 The Fund agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and all
expenses in connection with maintaining facilities for the issue and transfer of
Shares and for supplying information, prices and other data to be furnished by
the Fund hereunder, and all expenses in connection with the preparation and
printing of the Fund's prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; provided however, that
the Fund shall not pay any of the costs of advertising or promotion for the sale
of Shares.
1.7 The Fund agrees to execute any and all documents and to furnish any
and all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
qualification of Shares for sale in such states as you may designate to the Fund
and the Fund may approve, and the Fund agrees to pay all expenses which may be
incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this agreement.
1.8 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Fund or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such information, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with: (a) semi-annual reports and annual audited reports of
the Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) quarterly earnings statements prepared by the Fund,
(c) a monthly itemized list of the securities in the Fund's or, if applicable,
each Series' portfolio, (d) monthly balance sheets as soon as practicable after
the end of each month, and (e) from time to time such additional information
regarding the Fund's financial condition as you may reasonably request.
1.9 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended, with respect to the Shares have been carefully prepared in
conformity with the requirements of said Acts and rules and regulations of the
Securities and Exchange Commission thereunder. As used in this agreement the
terms "registration statement" and "prospectus" shall mean any registration
statement and prospectus, including the statement of additional information
incorporated by
2
<PAGE>
reference therein, filed with the Securities and Exchange Commission and any
amendments and supplements thereto which at any time shall have been filed with
said Commission. The Fund represents and warrants to you that any registration
statement and prospectus, when such registration statement becomes effective,
will contain all statements required to be stated therein in conformity with
said Acts and the rules and regulations of said Commission; that all statements
of fact contained in any such registration statement and prospectus will be true
and correct when such registration statement becomes effective; and that neither
any registration statement nor any prospectus when such registration statement
becomes effective will include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Fund may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Fund's counsel, be necessary
or advisable. If the Fund shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Fund of a
written request from you to do so, you may, at your option, terminate this
agreement or decline to make offers of the Fund's securities until such
amendments are made. The Fund shall not file any amendment to any registration
statement or supplement to any prospectus without giving you reasonable notice
thereof in advance; provided, however, that nothing contained in this agreement
shall in any way limit the Fund's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Fund may deem advisable, such right being in all respects
absolute and unconditional.
1.10 The Fund authorizes you and any dealers with whom you have entered
into dealer agreements to use any prospectus in the form furnished by the Fund
in connection with the sale of Shares. The Fund agrees to indemnify, defend and
hold you, your several officers and directors, and any person who controls you
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the reasonable cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which you, your officers and directors, or any such
controlling persons, may incur under the Securities Act of 1933, as amended,
the Investment Company Act of 1940, as amended, or common law or otherwise,
arising out of or on the basis of any untrue statement, or alleged untrue
statement, of a material fact required to be stated in either any registration
statement or any prospectus or any statement of additional information, or
arising out of or based upon any omission, or alleged omission, to state a
material fact required to be stated in any registration statement, any
prospectus or any statement of additional information or necessary to make the
statements in any of them not misleading, except that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling person will
not be deemed to cover any such claim, demand, liability or expense to the
extent that it arises out of or is based upon any such untrue statement, alleged
untrue statement, omission or alleged omission made in any registration
statement, any prospectus or any statement of additional information in reliance
upon information furnished by you, your officers, directors or any such
controlling person to the Fund or its representatives for use in the preparation
thereof, and except that the Fund's agreement to indemnify you and the Fund's
representations and warranties set out in paragraph 1.9 of this Agreement will
not be deemed to cover any liability to the Funds or their shareholders to which
you would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties, or by reason of your
reckless disregard of your obligations and duties under this Agreement
("Disqualifying Conduct"). The Fund's agreement to indemnify you, your officers
and
3
<PAGE>
directors, and any such controlling person, as aforesaid, is expressly
conditioned upon the Fund's being notified of any action brought against you,
your officers or directors, or any such controlling person, such notification to
be given by letter, by facsimile or by telegram addressed to the Fund at its
address set forth above within a reasonable period of time after the summons or
other first legal process shall have been served. The failure so to notify the
Fund of any such action shall not relieve the Fund from any liability which the
Fund may have to the person against whom such action is brought by reason of any
such untrue, or alleged untrue, statement or omission, or alleged omission,
otherwise than on account of the Fund's indemnity agreement contained in this
paragraph 1.10. The Fund will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such case, such
defense shall be conducted by counsel of good standing chosen by the Fund and
approved by you. In the event the Fund elects to assume the defense of any such
suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Fund does not elect to assume
the defense of any such suit, the Fund will reimburse you, your officers and
directors, or the controlling person or persons named as defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
you or them. The Fund's indemnification agreement contained in this paragraph
1.10 and the Fund's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any controlling
person, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to your benefit, to the benefit of your several
officers and directors, and their respective estates, and to the benefit of any
controlling persons and their successors. The Fund agrees promptly to notify
you of the commencement of any litigation or proceedings against the Fund or any
of its officers or Board members in connection with the issue and sale of
Shares.
1.11 You agree to indemnify, defend and hold the Fund, its several officers
and Board members, and any person who controls the Fund within the meaning of
Section 15 of the Securities Act of 1933, as amended, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
reasonable cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith)
which the Fund, its officers or Board members, or any such controlling person,
may incur under the Securities Act of 1933, as amended, the Investment Company
Act of 1940, as amended, or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Fund, its officers or
Board members, or such controlling person resulting from such claims or demands,
(a) shall arise out of or be based upon any unauthorized sales literature,
advertisements, information, statements or representations or any Disqualifying
Conduct in connection with the offering and sale of any Shares, or (b) shall
arise out of or be based upon any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by you to the Fund
specifically for use in the Fund's registration statement and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by you to the Fund and required to be stated in such answers or
necessary to make such information not misleading. Your agreement to indemnify
the Fund, its officers and Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any action
brought against the Fund, its officers or Board members, or any such controlling
person, such notification to be given by letter, by facsimile or by telegram
addressed to you at your address set
4
<PAGE>
forth above within a reasonable period of time after the summons or other first
legal process shall have been served. You shall have the right to control the
defense of such action, with counsel of your own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged misstatement or omission
on your part, and in any other event the Fund, its officers or Board members, or
such controlling person shall each have the right to participate in the defense
or preparation of the defense of any such action. The failure so to notify you
of any such action shall not relieve you from any liability which you may have
to the Fund, its officers or Board members, or to such controlling person by
reason of any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement contained in
this paragraph 1.110. This agreement of indemnity will inure exclusively to the
Fund's benefit, to the benefit of the Fund's officers and Board members, and
their respective estates, and to the benefit of any controlling persons and
their successors. You agree promptly to notify the Fund of the commencement of
any litigation or proceedings against you or any of your officers or directors
in connection with the issue and sale of Shares.
1.12 No Shares shall be offered by either you or the Fund under any of the
provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10 of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.12 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase any Shares from any shareholder
in accordance with the provisions of the Fund's prospectus or charter documents.
1.13 The Fund agrees to advise you immediately in writing:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation of
any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement of
a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
5
<PAGE>
2. Offering Price
Shares of any class of the Fund offered for sale by you shall be offered at
a price per share (the "offering price") approximately equal to (a) the net
asset value (determined in the manner set forth in the Fund's charter documents)
plus (b) a sales charge, if any and except to those persons set forth in the
then-current prospectus, which shall be the percentage of the offering price of
such Shares as set forth in the Fund's then-current prospectus. The offering
price, if not an exact multiple of one cent, shall be adjusted to the nearest
cent. In addition, Shares of any class of the Fund offered for sale by you may
be subject to a contingent deferred sales charge as set forth in the Fund's
then-current prospectus. You shall be entitled to receive any sales charge or
contingent deferred sales charge in respect of the Shares. Any payments to
dealers shall be governed by a separate agreement between you and such dealer
and the Fund's then-current prospectus.
3. Term
This Agreement shall become effective with respect to the Fund as of the
date hereof and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Fund's Board or (ii) by a vote of a majority of the Shares
of the Fund or the relevant Series, as the case may be, provided that in either
event its continuance also is approved by a majority of the Board members who
are not "interested persons" of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
agreement is terminable with respect to a Fund, without penalty, on not less
than sixty days' notice, by the Fund's Board of Directors, by vote of a majority
of the outstanding voting securities of such Fund, or by you. This Agreement
will automatically and immediately terminate in the event of its "assignment."
(As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the Investment Company Act of 1940). You agree to notify
the Fund immediately upon the event of your expulsion or suspension by the NASD.
This Agreement will automatically and immediately terminate in the event of your
expulsion or suspension by the NASD.
4. Miscellaneous
4.1 The Fund recognizes that, except to the extent otherwise agreed to by
the parties hereto, your directors, officers and employees may from time to time
serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that you or your
affiliates may enter into distribution or other agreements with such other
corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
6
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding and indicate your acceptance hereof by signing below, whereupon it
shall become a binding agreement between us.
Very truly yours,
RCM CAPITAL FUNDS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Accepted:
FUNDS DISTRIBUTOR, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
7
<PAGE>
EXHIBIT A
SERIES OF FUNDS
RCM CAPITAL FUNDS, INC.
RCM Small Cap Fund
RCM Growth Equity Fund
RCM International Growth Equity Fund A
8
<PAGE>
EXHIBIT 6(c)
____________, 1996
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
RCM Capital Management
Re: Fee Letter Agreement
Gentlemen:
This letter constitutes our agreement with respect to compensation to be paid to
Funds Distributor, Inc. ("FDI"), under the terms of an Agreement dated as of
________, 1996 by and among RCM Capital Management, a California limited
partnership ("RCM"), RCM Equity Funds, Inc. (the "Company"), RCM Capital Funds,
Inc. (the "Corporation") and FDI (the "Agreement"). All terms used herein shall
have the same meanings as set forth in the Agreement.
For the services provided by FDI under the Agreement, each of the Companies will
cause each of its Funds to pay a monthly fee (the "Fee") to FDI calculated as
follows:
[Qualifying Costs (as hereinafter defined)]
plus [Qualifying Expenses with respect to such Fund (as hereinafter
defined)]
plus [Excess Amount with respect to such Fund (as hereinafter
defined)]
less [Qualifying Receipts with respect to such Fund (as hereinafter
defined)]
less [Qualifying Expense Advances with respect to such Fund (as
hereinafter defined)]
Within five business days following the end of each calendar month, RCM shall,
in accordance with the Procedures (as hereinafter defined), deliver to the
Corporation and the Company a statement setting forth its calculation of the Fee
for such preceding month with respect to each Fund. Within five business days
following receipt of RCM's statement and except as to any amount disputed in
good faith by the Company or the Corporation, each of the Companies shall pay to
FDI the Fee due for such preceding month with respect to each of its Funds.
FDI shall pay Qualifying Costs and Qualifying Expenses as and when they become
due. From time to time as and when requested by FDI, the Company and the
Corporation shall advance funds against Qualifying Expenses that FDI will need
to pay during the applicable calendar month ("Qualifying Expense Advances"),
provided FDI furnishes evidence satisfactory to the Company and the Corporation
that the Qualifying Expense Advance will be applied against such Qualifying
Expenses for that month. FDI shall not use monies received as a Qualifying
Expense Advance in a particular month with respect to a Fund for purposes other
than directly paying Qualifying Expenses of such Fund occurring during such
month. Unless otherwise agreed to in writing by the Company or the Corporation,
as the case may be, FDI shall immediately pay to the Company or the Corporation,
as the
<PAGE>
case may be, the amount of any Qualifying Expense Advance that is not paid for
Qualifying Expenses within thirty days of receipt of such amount by FDI.
Neither the Company nor the Corporation shall be required to pay any Qualifying
Expense Advances to FDI during any such month with respect to a Fund to the
extent that Qualifying Receipts with respect to such Fund equal or exceed
Qualifying Expenses during such month with respect to such Fund.
If the sum of Qualifying Expense Advances and Qualifying Receipts for any
calendar month with respect to a Fund exceed the sum of Qualifying Costs,
Qualifying Expenses and the Excess Amount for such month with respect to such
Fund, FDI shall pay the Company or the Corporation, as the case may be, the
amount of such excess within fifteen business days after the end of such month,
unless otherwise agreed to in writing by the Company or the Corporation, as the
case may be.
In connection with FDI's services and duties required under this Fee Letter
Agreement and the Agreement, FDI, RCM and the Companies agree to comply with the
procedures set forth in Attachment 1 hereto (the "Procedures"). Attachment 1
may be amended from time to time by mutual agreement of FDI, RCM and the
Companies.
The allocation of each Fund's monthly share of the Excess Amount, Qualifying
Costs, Qualifying Expenses, Qualifying Expense Advances and Qualifying Receipts
shall be calculated by RCM based on information supplied by FDI (in accordance
with the Procedures) and shall be sent in an invoice to the Company and/or the
Corporation so that each Fund may pay its monthly fee to FDI.
For purposes this Fee Letter Agreement, the following terms shall have the
meaning indicated:
"EXCESS AMOUNT" means: (a) a monthly fee of $8,334 for the Corporation; plus (b)
the greater of a monthly fee of $6,250 or a fee calculated daily and paid
monthly at an annual rate equal of 0.02 of 1% of the combined average daily net
assets of the Company and the average daily net retail assets of the Corporation
(as used herein "retail assets" of the Corporation shall mean Shares of the
Funds offered by the Corporation that are held by investors that are not
institutional, high net worth, or other clients of RCM) up to $1 billion; plus
0.015 of 1% of the combined average daily net assets of the Company and the
average daily net retail assets of the Corporation in excess of $1 billion up to
$2.5 billion; plus 0.01 of 1% of the combined average daily net assets of the
Company and the average daily retail net assets of the Corporation in excess of
$2.5 billion up to $5 billion; plus 0.005 of 1% of the combined average daily
net assets of the Company and the average daily net retail assets of the
Corporation in excess of $5 billion. For any calendar month in which the
Agreement is not in effect for the full month, this amount shall be prorated.
The portion of the Excess Amount described under (a) above for each month shall
be allocated among the Corporation's Funds in proportion to the average daily
net assets of each Fund of the Corporation for such month. The portion of the
Excess Amount described under (b) above for each month shall be allocated among
the Funds in proportion to the average daily net assets of the Company and the
average daily net retail assets of the Corporation for such month.
<PAGE>
"QUALIFYING COSTS" means any of those costs set forth on Attachment 2 hereto, to
the extent such costs were undertaken and billed in accordance with the
Procedures and to the extent such costs do not exceed the limits set forth in
the Procedures. Qualifying Costs reasonably attributable to the operations of a
Fund for a month shall be allocated to such Fund, and all other Qualifying Costs
shall be allocated among the Funds in proportion to the average daily net assets
of the Company and the average daily net retail assets of the Corporation for
such month. Attachment 2 may be amended from time to time by mutual agreement
of RCM, the Companies and FDI. The Companies and RCM acknowledge and agree that
the costs set forth in Attachment 2 are intended to represent FDI's reasonable
costs of providing the services and duties required of it under the Agreement,
and that to the extent such services and duties materially change from time to
time and/or to the extent such costs materially change, RCM, the Companies and
FDI shall in good faith negotiate written amendments to Attachment 2 that
reasonably reflect such circumstance.
"QUALIFYING EXPENSES" with respect to a Fund means any payment by FDI for sales,
marketing, telemarketing and fulfillment services and payments to a third party,
made or required to be made during the applicable calendar month, to the extent
such payment has been identified in writing by the Company or the Corporation,
as the case may be, in accordance with the Procedures as a Qualifying Expense
with respect to such Fund. FDI will only pay for Qualifying Expenses that have
been preapproved by RCM for reimbursement to the Company and/or the Corporation
in accordance with the Procedures.
"QUALIFYING RECEIPTS" with respect to a Fund means any payment during the
applicable calendar month by such Fund to FDI which has been identified in
writing by the Company or the Corporation, as the case may be, in accordance
with the Procedures as a Qualifying Receipt.
<PAGE>
If the foregoing accurately sets forth our agreement and you intend to be
legally bound thereby, please execute a copy of this letter and return it to us.
Very truly yours,
FUNDS DISTRIBUTOR, INC.
By:
------------------------
Name:
----------------------
Title:
---------------------
Accepted By:
RCM CAPITAL MANAGEMENT
By:
-------------------------
Name:
-----------------------
Title:
----------------------
RCM CAPITAL FUNDS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
RCM EQUITY FUNDS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
ATTACHMENT 1
PROCEDURES
<PAGE>
FUNDS DISTRIBUTOR, INC. /RCM
FINANCIAL PROCEDURES
I. SUMMARY
The following procedures identify the process agreed to by Funds
Distributor, Inc. (FDI) and the "Companies", as defined in the agreement
between FDI and RCM Capital Management, RCM Capital Funds, Inc., RCM Equity
Funds, Inc. for the presentment, approval and payment of all amounts due to
FDI for services as outlined in the Fee Letter Agreement.
II. MONTHLY INVOICE PROCESS
1.) FDI will provide to RCM an invoice detailing amounts due to FDI in a
form consistent with the attached example. This invoice will be
delivered to RCM via facsimile machine and mail on the third business
day after the end of the applicable month.
2.) RCM will review and deliver to the Corporation and the Company a
statement setting forth its calculation of the fee within 5 business
days following the end of the month. The fee owed will be calculated
on a per fund basis.
3.) The Companies will remit to FDI within 5 days of receipt of RCM's
statement. Payments due by wire transfer to FDI:
Bank Name: Boston Safe Deposit and Trust
ABA No.: 011001234
Account No.: 162272
Attention: Funds Distributor, Inc. Attn: Paul Prescott
RCM Distribution Fees
4.) RCM will repay the Companies within one business day after delivery of
satisfactory evidence of such obligations consistent with paragraph
3(d) of the agreement between FDI, RCM and the Companies.
III. QUALIFYING EXPENSES
Qualifying expenses as defined in the "Agreement" include Telemarketing,
Fulfillment, Marketing, Sales and Third Party Payments. Reimbursement for
these expenditures are based on a pre-approval process for a contract or
budget for certain types of expenditures as shown in the Qualified Expense
Approval Form.
1.) Determine the amount of required expenditure, contract or budget for
specific initiatives.
<PAGE>
2.) Complete qualified expense approval form for planned expenditures.
3.) Submit form to FDI/RCM for approval.
4.) As invoices/payment requests for approved expenditures are received by
FDI invoices will be paid and subsequently disclosed to RCM through
the invoicing process.
5.) In cases where a qualified expense advance is required, FDI will
follow step VI as shown in these procedures.
IV. QUALIFYING COSTS
1.) As FDI hires new San Francisco based employees to support RCM, a
budget must be done, or updated to show the anticipated total costs
for the employee (see Budget Qualified Cost Form).
2.) All budgets and budget updates must be reviewed and approved by both
FDI and RCM.
3.) Qualifying costs will be included in the monthly invoice process, as
described in step II of these procedures.
4.) As long as costs billed are conforming to the budgeted amounts,
payment to FDI cannot be reasonably withheld.
5.) Upon request, FDI will provide additional support for miscellaneous
expenses such as postage, supplies and other administrative expenses
not specifically budgeted for.
V. QUALIFYING RECEIPTS
1.) During the course of any month FDI may receive payments from the
Funds, RCM or a third party which are deemed as qualified receipts.
These payments will be used to offset expenditures made by FDI in
performance of the services described in the agreement.
2.) Using the attached Qualifying Receipts Form, RCM must identify the
receipts by FDI as qualifying receipts to be used to pay for services
provided. Without this notification/approval from RCM, FDI will not
consider receipts as a qualifying receipts.
3.) Qualifying receipts will be used in the month received to pay for
services being rendered and will be shown as part of the monthly
invoice presented to RCM.
<PAGE>
VI. QUALIFYING EXPENSE ADVANCES
1.) During the course of any month FDI may be required to pay certain
qualifying expenses to include marketing, sales, telemarketing,
fulfillment and third party payments. To the extent that required
qualifying expenses exceed qualifying receipts received in the current
month, FDI may request an advance payment to be used to satisfy the
qualified expense requirement.
2.) FDI will provide to RCM a detailed listing of the proposed qualified
expenses for which it is seeking an advance.
3.) FDI will adjust the qualified expense total for any qualified receipts
received in the current month.
4.) Qualified expense advances, if approved by RCM, will be provided to
FDI within two days of receipt of the request.
5.) FDI will process payments to the identified parties in the qualified
expense request within 24 hours of the receipt of cash from the
Companies. Payments to FDI as part of the qualified expense advance
should be sent to:
Bank Name: Boston Safe Deposit and Trust
ABA No.: 011001234
Account No.: 162272
Attention: Funds Distributor, Inc., Attn: Paul Prescott
Qualified Expense Advance
VII. BOARD REPORTING
RCM will allocate to each fund its proportionate share of Qualifying Costs,
Qualifying Expenses, Excess Amount Qualifying Receipts and Qualifying
Expense Advances. RCM and FDI will report to the Board of the Company and
the Corporation on a quarterly basis` expenses paid by each fund and
reimbursed by RCM under the Fee Letter Agreement for their ratification.
<PAGE>
INVOICE
RCM
Address
City, State, Zip
ATTENTION:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESCRIPTION OF SERVICES RENDERED:
For services rendered to RCM as outlined and defined in the Fee Letter Agreement
dated: ___________ and the Distribution Agreement dated: ___________.
I. Excess Amount: (A) Monthly Fee Corporation $8,334
(B) Retail Asset Based Fee for the
Quarter of $6,250 or 6,250
The Calculated/Asset Based Fee
-------
Total Excess Amount $14,584
II. Qualifying Costs:
[Detail]
Total Qualifying Costs
-------
III. Qualifying Expenses:
Sales
Marketing
Telemarketing
Fulfillment
Third Party Payments
Total Qualifying Expenses
-------
Total Gross Payments Required
-------
Less Qualifying Receipts Received ( )
-------
Qualifying Expense Advance Received ( )
-------
Net Payment due to FDI (owed) to RCM $
-------
If you have any questions regarding this invoice, please contact Paul Prescott
at (617)248-6314.
<PAGE>
FUNDS DISTRIBUTOR, INC./RCM
QUALIFYING EXPENSE FORM
For the period ending:
QUALIFYING EXPENSES
CATEGORIES
MARKETING: (Examples of expenditures)
- Materials
- Prospectus
- Image Work
- NASD Filing Fees
- Graphics & Design
Sub Total $
----------
SALES:
- Promotions
- Sales Meetings
Sub Total $
----------
TELEMARKETING:
- Vendor Contracts
- 1-800 Lines (where applicable)
- Client Specific Systems Enhancements
Sub Total $
----------
FULFILLMENT EXPENSES:
- Postage
- Kit Assembly
Sub Total $
----------
THIRD PARTY PAYMENTS:
- Shareholder Servicing Fees
- 12b-1 Fees
Sub Total $
----------
FUNDS DISTRIBUTOR, INC.
Prepared by: Date:
------------------------- --------------
<PAGE>
FUNDS DISTRIBUTOR, INC./RCM
QUALIFYING RECEIPTS APPROVAL
For The Period: Date:
----------- -----------
QUALIFYING RECEIPTS:
Date Received $Amounts Received Source
- ------------- ----------------- ------
Date:
- -------------------------------- ----------
Funds Distributor, Inc.
Acknowledgment of Qualified Receipt
Date:
- -------------------------------- ----------
RCM
Acknowledgment of Qualified Receipt
<PAGE>
FUNDS DISTRIBUTOR, INC./RCM
QUALIFYING EXPENSE ADVANCE REQUEST
Date:
-----------
QUALIFYING EXPENSES: The amounts identified below represent expenditures FDI
will make on behalf of RCM/the Companies. Upon receipt
of advance, FDI will process these payments.
CATEGORIES
MARKETING:
[Detail]
Sub Total $
----------
SALES:
[Detail]
Sub Total $
----------
TELEMARKETING:
[Detail]
Sub Total $
----------
FULFILLMENT EXPENSES:
[Detail]
Sub Total $
----------
THIRD PARTY PAYMENTS:
[Detail]
Sub Total $
----------
Date:
- -------------------------------- ----------
Funds Distributor, Inc.
Acknowledgment of Qualified Expense Advance
Date:
- -------------------------------- ----------
RCM
Acknowledgment of Qualified Expense Advance
<PAGE>
FUNDS DISTRIBUTOR, INC./RCM
QUALIFYING COSTS BUDGET
Category of Costs $Amounts
- ----------------- --------
Salary
Benefits
Incentives
Travel and Entertainment
Conferences
Training
Occupancy
Equipment
Telephone
Registered Representative Costs
Miscellaneous and Office Administration
Total Annual Cost $
-------------
Approved By:
Date:
- -------------------------------- ----------
Funds Distributor, Inc.
Date:
- -------------------------------- ----------
RCM
<PAGE>
FUNDS DISTRIBUTOR, INC./RCM
QUALIFYING EXPENSE APPROVAL
CATEGORY OF EXPENSE: (Please Check One) APPROVAL REQUIRED: (Please Check One)
/ / Marketing / / Budgeted
/ / Sales / / Annual Contract
/ / Telemarketing
/ / Fulfillment
/ / Third Party Payments
1.) Description of Expenditure
2.) Estimated/Actual Cost
3.) Time Period Covered
4.) Note attachments if any which further describes the requirement (s):
/ / Yes / / No
Date:
- -------------------------------- ----------
Submitted By
Approved By:
Date:
- -------------------------------- ----------
Funds Distributor, Inc.
Date:
- -------------------------------- ----------
RCM
<PAGE>
1
SIGNATURE/OVERSIGHT PROCEDURES
EXECUTION OF NEW SELLING AGREEMENT PROCEDURES
The following procedures will apply to the execution of all new selling
agreements entered into between Funds Distributor, Inc. ("Funds Distributor")
and new selling agents as determined by Registered Representatives.
Prior to the execution of any selling agreement by an officer of Funds
Distributor, the following will occur:
- The Registered Representative will forward to Funds Distributor's
legal department a completed Selling Agent Request Form (copy attached
hereto) which contains a manually executed signature of the Registered
Representative along with accompanying due diligence information. The
execution of such Selling Agent request form will represent to Funds
Distributor's legal department that the Registered Representative has
undertaken sufficient measures to ensure that the proposed selling
agent meets all requirements established for selling Broker-Dealers by
applicable law, the Funds or Funds Distributor.
- Completed Selling Agent Request Form will be reviewed by Funds
Distributor's legal department for proper authorization and due
diligence.
- Any questions which arise during Funds Distributor's legal department
review will be directed to the Registered Representative.
- If in order, Agreement will be signed by an officer of Funds
Distributor and returned to the Registered Representative for the
selling agents execution.
*Contact Person:
John Pelletier
Karen Jacoppo-Wood
<PAGE>
SELLING AGREEMENT REQUEST FORM
To:
---------------------------
From:
-------------------------
Tel. #: Fax #
------------------ --------------------
Date:
-------------------------
Proposed Selling Agent name and address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Type of Agreement (check one):
___ Bank Agreement
___ Bank Affiliated Broker-Dealer Agreement
___ Broker-Dealer Agreement
___ RIA Agreement
- ----------------------------------------
Authorized Registered Representative
FUNDS DISTRIBUTOR CONTACT PERSONS
John Pelletier
Karen Jacoppo-Wood
<PAGE>
2
DRAFT
SIGNATURE/OVERSIGHT PROCEDURES
REGISTRATION STATEMENTS
Registration Statements, Pre-effective Amendments, and Post-effective Amendments
filed on Form N-1A will be prepared by the RCM Legal Department. After the
filing has been prepared and reviewed by the RCM Legal Department, the following
will occur:
- Registration Statements, accompanied by a completed signature request
form (see copy attached), will be forwarded to Funds Distributor* for
appropriate fund officer's signature.
- Completed signature request form will be reviewed for proper
authorization.
- Any questions which may arise during review will be directed to RCM
Legal Department.
- If not in order, documents will be returned to RCM Legal Department
with explanation.
- If in order, Registration Statement will be signed by fund officer and
returned to RCM Legal Department.
*Contact Person:
John Pelletier
Dick Ingram
Karen Jacoppo-Wood
<PAGE>
LEGAL DEPARTMENT
SIGNATURE REQUEST FORM
To:
---------------------------
From:
-------------------------
Tel. #: Fax #
------------------ --------------------
Date:
-------------------------
RIC/Fund Name:
------------------------------------
Document Title:
-----------------------------------
Purpose of
Document:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Due Date:
---------------------
RCM Approval:
Signature: Date:
------------------------------ ----------
Name:
Title:
FDI Approval:
Signature: Date:
------------------------------ ----------
Fund Officer
RCM AUTHORIZED SIGNATORIES FUNDS DISTRIBUTOR CONTACT PERSONS
Anthony Ain John Pelletier
Timothy Parker Dick Ingram
Karen Jacoppo-Wood
<PAGE>
2a
SIGNATURE/OVERSIGHT PROCEDURES
RESOLUTION OF FAILED TRADES
Representatives of Funds Distributor will review RCM's internal procedures
regarding the resolution of failed trades (Procedures to be attached). In
facilitating Funds Distributor's oversight role regarding the resolution of
failed trades, Funds Distributor also requests the following:
- RCM will provide to Funds Distributor a (Weekly/Monthly) aging report
detailing all outstanding/delinquent trades.
*Contact Person:
Dick Ingram
Mary Nelson
<PAGE>
2b
SIGNATURE/OVERSIGHT PROCEDURES
SHAREHOLDER COMPLAINTS
Representatives of Funds Distributor, Inc. ("Funds Distributor") will review
RCM's internal procedures regarding shareholder complaints (Procedures to be
attached). In facilitating Funds Distributor's oversight role regarding
shareholder complaints, Funds Distributor requests the following:
- RCM will provide to Funds Distributor a (Weekly/Monthly) report
detailing the volume of shareholder complaints and a record of the
timely response to such complaints.
- In instances where Funds Distributor directly receives a shareholder
complaint, Funds Distributor will forward a copy of such complaint to
RCM's Correspondence Secretary.
- RCM will provide Funds Distributor with immediate notification of any
shareholder lawsuits.
*Contact Person:
John Pelletier
Dick Ingram
Karen Jacoppo-Wood
<PAGE>
3
SIGNATURE/OVERSIGHT PROCEDURES
(CUSTODY AGREEMENTS, TRANSFER AGENCY AGREEMENTS,
REPURCHASE AGREEMENTS, ETC.)
The following procedures will apply to the execution by officers of the RCM
Capital Funds and the RCM Equity Funds of any agreements not otherwise covered
under separate specific approval procedures.
Prior to the execution of any agreement by a fund officer, the following will
occur:
- RCM will forward to the appropriate fund officer at Funds Distributor
a completed Signature Request Form (copy attached hereto) which
contains a manually executed signature of an authorized RCM
representative along with all applicable due diligence information.
The execution of such Signature Request Form will represent to Funds
Distributor and the appropriate fund officer that RCM has undertaken
sufficient measures to ensure that the fund's execution of the
agreement meets all requirements established for such agreements by
applicable law, the RCM Capital Funds, the RCM Equity Funds or Funds
Distributor.
- Completed signature request form will be reviewed by Funds Distributor
for proper authorization.
- Any questions which may arise during Funds Distributor's review will
be directed to RCM Legal Department.
- If not in order, filing will be returned to RCM Legal Department with
explanation.
- If in order, documents will be signed by the appropriate fund officer
and returned to RCM Legal Department.
*Contact Person:
John Pelletier
Dick Ingram
Karen Jacoppo-Wood
<PAGE>
LEGAL DEPARTMENT
SIGNATURE REQUEST FORM
To:
---------------------------
From:
-------------------------
Tel. #: Fax #
------------------ --------------------
Date:
-------------------------
RIC/Fund Name:
------------------------------------
Document Title:
-----------------------------------
Purpose of
Document:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Due Date:
---------------------
RCM Approval:
Signature: Date:
------------------------------ ----------
Name:
Title:
FDI Approval:
Signature: Date:
------------------------------ ----------
Fund Officer
RCM AUTHORIZED SIGNATORIES FUNDS DISTRIBUTOR CONTACT PERSONS
Anthony Ain John Pelletier
Timothy Parker Dick Ingram
Karen Jacoppo-Wood
<PAGE>
4
SIGNATURE/OVERSIGHT PROCEDURES
RULE 24e(2)/24f(2) SHARE REGISTRATION
Documents pertaining to filing of fund share registration statements pursuant to
Rule 24e(2) or 24f(2) will be prepared by the fund accountant. The fund
accountant will provide FDI with certain financial information contained in such
filing. After the filing documents have been prepared and reviewed by RCM, the
following will occur:
- Filing documents, accompanied by a completed signature request form
(see copy attached), will be forwarded to appropriate fund officer for
signature*.
- Financial statements providing the basis for the financial information
contained in the filing documents will be provided in "blueprint" form
to Funds Distributor by the fund accountant.
- Documents will be reviewed by Funds Distributor utilizing the
financial statements.
- Completed signature request form will be reviewed by Funds Distributor
for proper authorization.
- Any questions which may arise during review will be directed to RCM or
the fund accountant as appropriate.
- If not in order, Funds Distributor will contact the appropriate
entities or persons with an explanation and, if necessary, documents
will be returned to RCM and/or the fund accountant, as appropriate,
with explanation.
- If in order, documents will be signed by fund officer and returned to
the RCM Legal Department by the request date specified in the
completed signature request form.
- To the extent that Funds Distributor must provide an opinion letter to
which another Fund service provider is the source of knowledge, that
service provider must provide Funds Distributor with an opinion letter
supporting the data that it provides Funds Distributor.
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
5
SIGNATURE/OVERSIGHT PROCEDURES
FORM N-SAR SEMI-ANNUAL REPORT
Semi-annual report on form N-SAR will be prepared for filing by the fund
accountant. The fund accountant will provide the RCM and Funds Distributor with
certain financial information required on Form N-SAR. After form has been
completed, the following will occur:
- Form N-SAR, accompanied by completed signature request form (see copy
attached), will be forwarded to Funds Distributor for fund officer
signature*.
- Form will be reviewed by Funds Distributor.
- Completed Signature Request form will be reviewed for proper
authorization.
- Any questions which may arise during review will be directed to RCM or
the fund accountants as appropriate.
- If not in order, Funds Distributor will contact the appropriate
entities or persons with an explanation and, if necessary, form will
be returned to RCM and/or the fund accountant, as appropriate, with
explanation.
- If in order, form will be signed by fund officer and returned to RCM
by the request date specified in the completed signature request form.
*Contact Person:
Dick Ingram
Mary Nelson
<PAGE>
6
SIGNATURE/OVERSIGHT PROCEDURES
TAX RETURNS
All tax and information returns will be prepared and reviewed by the funds
auditor. When returns are completed and reviewed, the following will occur:
- Tax and information returns, signed by independent auditors and
accompanied by a completed signature request form (see copy attached),
will be forwarded to Funds Distributor for fund officer signature*.
- All returns will be reviewed by Funds Distributor.
- Completed signature request form will be reviewed for proper
authorization.
- Any questions which arise during review will be directed to the funds
auditor.
- In not in order, return will be returned to the funds auditor with
explanation.
- If in order, return will be signed by fund officer and returned to the
fund auditor.
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
7
SIGNATURE/OVERSIGHT PROCEDURES
SEC EXAMINATION/INQUIRIES
When the Securities and Exchange Commission conducts a periodic examination of
the Funds or makes written inquiries for specific information, the following
will occur:
- RCM* will promptly inform Funds Distributor* of such examination or
written inquiry.
- RCM will inform Funds Distributor of the specific nature of the
information requested for examination or by inquiry.
- Funds Distributor will be actively involved with any SEC examinations.
- RCM will submit to Funds Distributor the written response to SEC
written inquiries.
- RCM will forward to Funds Distributor and each fund officer a copy of
the comment letter received from the SEC upon completion of
examination.
- RCM will forward to Funds Distributor and each fund officer a copy of
the response to the comment letter.
*Contact Person:
John Pelletier
Dick Ingram
Karen Jacoppo-Wood
<PAGE>
8
SIGNATURE/OVERSIGHT PROCEDURES
AUDIT REPRESENTATION LETTER
The process of examining financial statements of the Funds by independent
auditors includes the receipt of a letter from the Funds in which various
representations are made. This letter will be prepared by the independent
auditors. Upon completion of this letter, the following will occur:
- Letter will be reviewed and signed by RCM authorized signatory.
- Letter will be sent to Funds Distributor for review and fund officer
signature*.
- Letter will be reviewed by Funds Distributor.
- To the extent that Funds Distributor must provide an audit
representation letter to which another Fund service provider is the
source of knowledge (i.e. the fund auditor), that service provider
must provide Funds Distributor with an opinion letter supporting the
audit representation letter or any other data that it provides Funds
Distributor.
- If not in order, letter will be returned to RCM or the fund auditor
with explanation.
- If in order, letter will be signed by fund officer and returned to
independent auditors.
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
9
SIGNATURE/OVERSIGHT PROCEDURES
VALUATION OF MUTUAL FUND PORTFOLIO SECURITIES
In connection with the valuation of mutual fund portfolio securities, it is
sometimes necessary to convene a meeting of the Funds Portfolio Securities
Pricing Committee to place a value on a portfolio security for the purpose of
calculating NAV per share.
- A fund officer will be present at meeting, either in person or by
conference call.
- Meeting minutes or memo of Pricing Committee decisions will be sent to
Funds Distributor.
In addition, because of the complexities or large universe of various portfolio
securities (i.e., GNMA and Tax-Exempt Securities), an independent pricing
service is utilized to price such securities.
- Funds Distributor* will be informed by RCM of any change of
independent pricing service.
In connection with money market funds, it is necessary to monitor any deviation
of a fund's net asset value per share calculated using market values from the
fund's net asset value per share calculated using amortized cost prices.
- RCM or the fund accountant will send Funds Distributor*, on a daily
basis, a schedule which indicates each money market fund's net asset
value per share calculated at amortized cost and market value.
- RCM or the fund accountant will send Funds Distributor*, on a monthly
basis, a schedule for each fund, indicating the fund's total net
assets, dividend per share and net asset value per share calculated at
amortized cost and market value.
- RCM will notify Funds Distributor* when RCM intends to apprise a
fund's Board of Directors of information concerning the fund's net
asset value per share.
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
10
SIGNATURE/OVERSIGHT PROCEDURES
CHANGE IN NET ASSET VALUE PER SHARE
If a fund's net asset value per share changes after the day of calculation and
shareholder account processing, the following will occur:
- RCM or the fund accountant will send Funds Distributor* a schedule
which will indicate the fund and change in net asset value per share.
- RCM or the fund accountant will document the change in net asset value
per share and forward to Funds Distributor* accompanied by completed
signature request form (see copy attached).
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
CHANGE IN NET ASSET VALUE PER SHARE
SIGNATURE REQUEST FORM
To:
---------------------------
From:
-------------------------
Tel. #: Fax #
------------------ --------------------
Date:
-------------------------
RIC/Fund Name:
------------------------------------
Restated NAV Per Share:
---------------------------
Documentation of Change in NAV:
-------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RCM Approval:
Signature: Date:
------------------------------ ----------
Name:
Title:
Funds Distributor Approval:
Signature: Date:
------------------------------ ----------
Fund Officer
RCM AUTHORIZED SIGNATORIES FUNDS DISTRIBUTOR CONTACT PERSONS
Judy Wilkinson Dick Ingram
Mary Nelson
<PAGE>
11
SIGNATURE/OVERSIGHT PROCEDURES
RECLAIM OF TAXES WITHHELD FROM
DIVIDENDS ON FOREIGN SECURITIES
Forms necessary to reclaim taxes withheld from dividends paid on foreign
securities are coordinated by the funds auditor. When these forms require the
signature of a fund officer, the following will occur:
- Completed forms, accompanied by completed signature request form (see
copy attached), will be forwarded to Funds Distributor for fund
officer signature*.
- Form will be reviewed by Funds Distributor.
- Completed signature request form will be reviewed by Funds Distributor
for proper authorization.
- Any questions which arise during review will be directed to the funds
auditor.
- If not in order, form will be returned to the funds auditor with
explanation.
- If in order, form will be signed by fund officer and returned to the
funds auditor.
*Contact Persons:
Dick Ingram
Mary Nelson
<PAGE>
12
PROCEDURES FOR AUTHORIZATION
AND PAYMENT OF FUND EXPENSES
These procedures are intended to ensure that all Fund expenses are properly
authorized and evidenced by two authorizing signatures. In addition, they
provide for a regular review of accrued expenses on the books of the Fund. This
review is intended to monitor actual bills received and paid as well as
anticipated future bills and compare them to the accrued balances on the books.
Accrued expenses shall be monitored to ensure that the daily NAV is accurate.
AUTHORIZATION AND PAYMENT
All bills for fund expenses should be first approved by Judy Wilkinson at RCM
Capital Management ("RCM"). Any bills received by the Funds will be forwarded
to RCM for the initial authorizing signature.
After reviewing the bill and providing the first approval signature, RCM will
forward the bill to FDI for approval by the Fund's Treasurer or his designee.
After providing the second authorizing signature, FDI will forward the bill to
RCM for payment. A copy of the bill should be delivered to the fund accountant
to record properly in the expenses of the Fund.
EXPENSE REVIEW AND PRO FORMA
Each month RCM or the fund accountant will prepare a schedule for each fund that
shows bills actually paid, adds all anticipated bills and compares this number
to the actual and anticipated accruals for fund expenses as shown on the books
of the Fund. This analysis will be forwarded to FDI as Treasurer of the Fund so
that the adequacy of the accruals are timely reviewed and adjusted, if
necessary.
*Contact Person:
Dick Ingram
Mary Nelson
<PAGE>
ATTACHMENT 2
STAFFING RELATED COSTS:
None as of __________, 1996
OVERHEAD COSTS:
None as of __________, 1996
<PAGE>
Dear Sirs:
As the principal underwriter of shares of certain registered
investment companies presently or hereafter managed, advised or administered by
RCM Capital Management, L.L.C., shares of which companies are distributed by us
at their respective net asset values plus sales charges as applicable, pursuant
to our Distribution Agreements with such companies (the "Funds"), we invite you
to participate as a non-exclusive principal in the distribution of shares of any
and all of the Funds upon the following terms and conditions:
1. You are to offer and sell such shares only at the public offering prices
which shall be currently in effect, in accordance with the terms of the
then current Prospectuses and Statements of Additional Information of the
Funds subject in each case to the delivery prior to or at the time of such
sales of the then current Prospectus. You agree to act only as principal
in such transactions and nothing in this Agreement shall constitute either
of us the agent of the other or shall constitute you or any of the Funds
the agent of the other. In all transactions in these shares between you
and us, we are acting as agent for the Funds and not as principal. All
orders are subject to acceptance by us and become effective only upon
confirmation by us. We reserve the right in our sole discretion to reject
any order. The minimum dollar purchase of shares of the Funds shall be the
applicable minimum amounts described in the then current Prospectuses and
Statements of Additional Information and no order for less than such
amounts will be accepted.
2. On each purchase of shares by you from us, the total sales charges and
discount to selected dealer, if any, shall be as stated in each Fund's then
current Prospectus. Such sales charges and discount to selected dealers
are subject to reductions under a variety of circumstances as described in
each Fund's then current Prospectus and Statement of Additional
Information. To obtain these reductions, we must be notified when the sale
takes place which would qualify for the reduced charge. There is no sales
charge or discount to selected dealers on the reinvestment of any dividends
or distributions.
3. All purchases of shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective Prospectus shall
be considered an individual transaction for the purpose of determining the
concession from the public offering price to which you are entitled as set
forth in paragraph 2 hereof.
4. As a member of the selling group, you agree to purchase shares of the Funds
only through us or from your customers. Purchases through us shall be made
only for your own investment purposes or for the purpose of covering
purchase orders already received from your customers, and we agree that we
will not place orders for the purchase of shares from a Fund except to
cover purchase orders already received by us. Purchases from your
customers shall be at a price not less than the net asset value quoted by
each such Fund at the time of such purchase. Nothing herein contained
shall prevent you from selling any shares of a Fund for the account of a
record holder to us or to such Fund at the net asset value quoted by us and
charging your customer a fair commission for handling the transaction.
<PAGE>
5. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding.
6. You agree to sell shares of the Funds only (a) to your customers at the
public offering prices then in effect or (b) to us as agent for the Funds
or to each such Fund itself at the redemption price, as described in each
Fund's then current effective Prospectus.
7. Settlement shall be made promptly, but in no case later than the time
customary for such payments after our acceptance of the order or, if so
specified by you, we will make delivery by draft on you, the amount of
which draft you agree to pay on presentation to you. If payment is not so
received or made, the right is reserved forthwith to cancel the sale or at
our option to resell the shares to the applicable Fund, at the then
prevailing net asset value in which latter case you agree to be responsible
for any loss resulting to such Fund or to us from your failure to make
payment as aforesaid.
8. If any shares sold to you under the terms of this Agreement are repurchased
by a Fund or by us as agent, or for the account of that Fund or are
tendered to that Fund for purchase at liquidating value under the terms of
the Articles of Incorporation or other document governing such Fund within
seven (7) business days after the date of confirmation to you of your
original purchase order therefor, you agree to pay forthwith to us the full
amount of the concession allowed to you on the original sale and we agree
to pay such amount to the Fund when received by us. We shall notify you of
such repurchase within ten (10) days of the effective date of such
repurchase.
9. All sales will be subject to receipt of shares by us from the Funds. We
reserve the right in our discretion without notice to you to suspend sales
or withdraw the offering of shares entirely, or to modify or cancel this
Agreement.
10. From time to time during the term of this Agreement we may make payments to
you pursuant to one or more of the distribution and/or service plans
adopted by certain of the Funds pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") in consideration of your furnishing
distribution and/or shareholder services hereunder with respect to each
such Fund. We have no obligation to make any such payments and you waive
any such payments until we receive monies therefor from the Fund. Any such
payments made pursuant to this Section 10 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as we may from time to time
advise you in writing but in any event not in excess of the amounts
permitted by the plan in effect with respect to each particular Fund and
will be based on the dollar amount of Fund shares which are owned of record
by your firm as nominee for your customers or which are owned by those
customers of your firm whose records, as maintained by the Funds or their
agents, designate your firm as the customer's dealer of record. Any such
payments shall be in addition to the selling concession, if any, allowed to
you pursuant to this Agreement. No
<PAGE>
such fee will be paid to you with respect to shares purchased by you and
redeemed by the funds or by us as agent within seven business days after
the dates of confirmation of such purchase.
(b) The provisions of this Section 10 relate to the plan adopted by a
particular Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any
person authorized to direct the disposition of monies paid or payable by a
Fund pursuant to this Section 10 shall provide the Fund's Board of
Directors, and the Directors shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
(c) The provisions of this Section 10 applicable to each Fund shall remain
in effect for not more than a year and thereafter for successive annual
periods only so long as such continuance is specifically approved at least
annually in conformity with Rule 12b-1 and the Act. The provisions of this
Section 10 shall automatically terminate with respect to a particular plan
in the event of the assignment (as defined by the Act) of this Agreement,
in the event such plan terminates or is not continued or in the event this
Agreement terminates or ceases to remain in effect. In addition, the
provisions of this Section 10 may be terminated at any time, without
penalty, by either party with respect to any particular plan on not more
than 60 days' nor less than 30 days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
11. No person is authorized to make any representations concerning the Funds or
shares of the Funds except those contained in each Fund's then current
effective Prospectus or Statement of Additional Information and any such
information as may be released by a Fund as information supplemental to
such Prospectus or Statement of Additional Information. In purchasing
shares through us you shall rely solely on the representations contained in
each Fund's then current effective Prospectus or Statement of Additional
Information and supplemental information above-mentioned. You agree not to
furnish or cause to be furnished to any person or display or publish any
information or materials relating to the Funds (including, without
limitation, promotional materials and sales literature, advertisements,
press releases, announcements, statements, posters, signs or other similar
materials), except such information and materials as may be furnished to
you by us, and such other information and materials as may be approved in
writing by us.
12. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each such
Prospectus or Statement of Additional Information will be supplied by us to
members of the selling group in reasonable quantities upon request.
13. With respect to Funds offering shares subject to a front-end sales charge,
shares subject to a contingent deferred sales charge, and/or institutional
class shares not subject to a sales charge, you shall conform to such
written compliance standards as we have provided you in the past or may
from time to time provide to you in the future.
<PAGE>
14. We, our affiliates and the Funds shall not be liable for any loss, expense,
damages, costs or other claim arising out of any redemption or exchange
pursuant to telephone instructions from any person or our refusal to
execute such instructions for any reason.
15. All communications to us shall be sent to us at Funds Distributor Inc., One
Exchange Place, 10th Floor, Boston, MA 02109. Any notice to you shall be
duly given if mailed or telegraphed to you at your address as registered
from time to time with the National Association of Securities Dealers, Inc.
16. This Agreement may be terminated upon written notice by either party at any
time, and shall automatically terminate upon its attempted assignment by
you, whether by operation of law or otherwise, or by us otherwise than by
operation of law.
17. By accepting this Agreement, you represent that you are registered as a
broker-dealer under the Securities Exchange Act of 1934, are qualified to
act as a dealer in the states or other jurisdictions where you transact
business, and are a member in good standing of the National Association of
Securities Dealers, Inc., and you agree that you will maintain such
registrations, qualifications, and membership in good standing and in full
force and effect throughout the term of this Agreement. You further agree
to comply with all applicable Federal laws, the laws of the states or other
jurisdictions concerned, and the rules and regulations promulgated
thereunder and with the Constitution, By-Laws and Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and that you will not
offer or sell shares of the Funds in any state or jurisdiction where they
may not lawfully be offered and/or sold.
If you are offering and selling shares of the Funds in jurisdictions
outside the several states, territories, and possessions of the United
States and are not otherwise required to be registered, qualified, or a
member of the National Association of Securities Dealers, Inc., as set
forth above, you nevertheless agree to observe the applicable laws of the
jurisdiction in which such offer and/or sale is made, to comply with the
full disclosure requirements of the Securities Act of 1933 and the
regulations promulgated thereunder, to conduct your business in accordance
with the spirit of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. You agree to indemnify and hold the Funds,
their investment advisor, and us harmless from loss or damage resulting
from any failure on your part to comply with applicable laws.
18. You agree to maintain records of all sales of shares made through you and
to furnish us with copies of each record on request.
19. This Agreement and all amendments to this Agreement shall take effect with
respect to and on the date of any orders placed by you after the date set
forth below or, as applicable, after the date of the notice of amendment
sent to you by the undersigned.
<PAGE>
20. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and shall be binding upon both parties hereto
when signed and accepted by you in the space provided below.
FOR FUNDS DISTRIBUTOR INC.:
- --------------------------------------- ------------------------
By: Date
FOR :
------------------------------
(Name of Dealer)
------------------------------
(Address)
------------------------------
(City, State Zip)
BY: ITS:
------------------------------ -------------------- ------------
Authorized Signature Title Date
------------------------------
Print Name
<PAGE>
TRANSFER AGENCY AGREEMENT
This TRANSFER AGENCY AGREEMENT is made as of the __ day of _________,
1996, between RCM Capital Funds, Inc., a Maryland Corporation (the "Company"),
RCM Capital Trust Company, a California state-chartered trust company (the
"Transfer Agent") and RCM Capital Management, L.L.C., a Delaware limited
liability company (the "Investment Manager").
WHEREAS, the Company desires that the Transfer Agent perform certain
services for the Company, on behalf of each of its series; RCM Growth Equity
Fund, RCM Small Cap Fund and RCM International Growth Equity Fund (the "Funds"),
each an open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended;
WHEREAS, the Transfer Agent is willing to perform such services on the
terms and covenants set forth in this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SERVICES. Transfer Agent shall perform for the Company the transfer
agent services set forth in Schedule A hereto with respect to each Fund.
Transfer Agent shall also perform for the Company such special services
incidental to the performance of the services enumerated herein as may be agreed
to by the parties from time to time. Transfer Agent shall perform such
additional services as are provided on any amendment to Schedule A hereof, in
consideration of such fees as the parties hereto may agree.
2. FEES. The Investment Manager shall pay the Transfer Agent for the
services to be provided by the Transfer Agent under this Agreement in accordance
with, and in the manner set forth in, Schedule B hereto. Fees for any additional
services to be provided by the Transfer Agent pursuant to an amendment to
Schedule A hereto shall be subject to mutual agreement at the time such
amendment to Schedule A is proposed.
3. REIMBURSEMENT OF EXPENSES. In addition to paying the Transfer Agent
the fees described in Section 2 hereof, the Investment Manager shall reimburse
the Transfer Agent for the Transfer Agent's reasonable out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
A. All freight and other delivery and bonding charges incurred by the
Transfer Agent in delivering materials to stockholders;
B. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by the Transfer Agent in
communications with the Funds' custodian, dealers, stockholders or
others
<PAGE>
as required for the Transfer Agent to perform the services to be
provided hereunder;
C. Costs of postage, couriers, stock computer paper, statements, labels,
envelopes, checks, reports, letters, tax forms, proxies, notices or
other forms of printed material which shall be required by the
Transfer Agent for the performance of the services to be provided
hereunder;
D. The cost of microfilm or microfiche of records or other materials; and
E. Any expenses the Transfer Agent shall incur at the written direction
of a duly authorized officer of the Company.
4. EFFECTIVE DATE. This Agreement shall become effective as of the date
first written above (the "Effective Date").
5. TERM. This Agreement shall continue in effect for an initial term of
one year from the Effective Date. Thereafter, this Agreement shall be renewed
automatically for successive one-year terms unless written notice not to renew
is given by the non-renewing party to the other party at least 60 days prior to
the expiration of the then-current term. Notwithstanding the foregoing, this
Agreement is terminable with respect to a particular Fund at any time on not
less than 50 days' notice by the Company's Board of Directors or by the Transfer
Agent. If an investment management agreement between the Company, on behalf of
any of its series, and the Investment Manager should be terminated for any
reason, the Investment Manager may, without notice terminate this Agreement.
6. UNCONTROLLABLE EVENTS. The Transfer Agent assumes no responsibility
hereunder, and shall not be liable for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control. The
Transfer Agent shall use its best efforts to minimize any such loss of data or
delay by all practicable steps, and to replace any lost data. The Transfer Agent
further agrees not to discriminate against the Company in favor of any other
customer of the Transfer Agent in making its computer time and personnel
available to input and process transactions hereunder when such a loss or delay
occurs.
7. LEGAL ADVICE. The Transfer Agent shall notify the Company at any time
the Transfer Agent believes that it is in need of the advice of counsel (other
than counsel in the regular employ of the Transfer Agent or any affiliated
companies) with regard to the Transfer Agent's responsibilities and duties
pursuant to this Agreement; and after so notifying the Company, the Transfer
Agent, at its discretion, shall be entitled to seek, receive and act upon advice
of reasonably qualified legal counsel of its choosing (who may be counsel to the
Company), such advice to be at the expense of the Company or Funds unless
relating to a matter involving the Transfer Agent willful misfeasance, bad
faith, gross negligence in the performance of its duties hereunder or reckless
disregard by it of its responsibilities and duties hereunder, and the Transfer
Agent shall in no event be
- 2 -
<PAGE>
liable to the Company or any Fund or any stockholder or beneficial owner of any
Fund for any action reasonably taken pursuant to such advice.
8. INSTRUCTIONS. Whenever the Transfer Agent is requested or authorized
to take action hereunder pursuant to instructions from a stockholder, or a
properly authorized agent of a stockholder ("Stockholder's agent"), concerning
an account in a Fund, the Transfer Agent shall be entitled to rely upon any
certificate, letter or other instrument or communication, believed by the
Transfer Agent to be genuine and to have been properly made, signed or
authorized by an officer or other authorized agent of the Company or by the
stockholder or stockholder's agent, as the case may be, and shall be entitled to
receive as conclusive proof of any fact or matter required to be ascertained by
it hereunder a certificate signed by an officer of the Company or any other
person authorized by the Company's Board of Directors or by the stockholders or
stockholder's agent, as the case may be.
9. STANDARD OF CARE. The Transfer Agent shall use its best efforts to
ensure the accuracy of all services performed under this Agreement, but shall
not be liable to the Company for any action taken or omitted by the Transfer
Agent in the absence of the Transfer Agent's bad faith, willful misfeasance, or
gross negligence in the performance of its duties hereunder or reckless
disregard by it of its obligations and duties hereunder.
10. RECORD RETENTION AND CONFIDENTIALITY. The Transfer Agent shall keep
and maintain on behalf of the Company all books and records which the Company or
the Transfer Agent is, or may be, required to keep and maintain pursuant to any
applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, relating to the
maintenance of books and records in connection with the services to be provided
hereunder. The Transfer Agent further agrees that all such books and records
shall be the property of the Company and to make such books and records
available for inspection by the Company or by the Securities and Exchange
Commission at reasonable times and otherwise to keep confidential all books and
records and other information relative to the Company and its stockholders, and
not to use such books and records for any purpose other than the performance of
its responsibilities and duties hereunder, except when requested to divulge such
information by duly constituted authorities, when the Transfer Agent may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested by a stockholder or stockholder's agent with respect to information
concerning an account as to which such stockholder has either a legal or
beneficial interest or when requested by the Company, the stockholder, or
stockholder's agent, or the dealer of record as to such account.
11. REPORTS. The Transfer Agent shall furnish to the Company and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Company in writing, such reports at such times as are prescribed in
Schedule C attached hereto, or as subsequently agreed upon by the parties
pursuant to an amendment to Schedule C. The
- 3 -
<PAGE>
Company agrees to examine each such report or copy promptly and to report or
cause to be reported any errors or discrepancies therein as soon as practicable.
12. RIGHTS OF OWNERSHIP. All computer programs and procedures developed to
perform services required to be provided by the Transfer Agent under this
Agreement are the property of the Transfer Agent. All records and other data
except such computer programs and procedures are the exclusive property of the
Company and all such other records and data shall be furnished to the Company in
appropriate form as soon as practicable after termination of this Agreement for
any reason.
13. RETURN OF RECORDS. The Transfer Agent may at its option at any time,
and shall promptly upon the Company's demand, turn over to the Company and cease
to retain the Transfer Agent's files, records and documents created and
maintained by the Transfer Agent pursuant to this Agreement which are no longer
needed by the Transfer Agent in the performance of its services or for its legal
protection. If not so turned over the Company, such documents and records shall
be retained by the Transfer Agent for six years from the year of creation. At
the end of such six-year period, such records and documents shall be turned over
the Company unless the Company authorizes in writing the destruction of such
records and documents.
14. BANK ACCOUNTS. The Company and the Funds shall establish and maintain
such bank accounts, with such bank or banks as are selected by the Company, as
are necessary in order that the Transfer Agent may perform the services required
to be performed hereunder. To the extent that the performance of such services
shall require the Transfer Agent directly to disburse amounts for payment of
dividends, redemption proceeds or other purposes, the Company and Funds shall
provide such bank or banks with all instructions and authorizations necessary
for the Transfer Agent to effect such disbursements.
15. REPRESENTATIONS OF THE COMPANY. The Company certifies to the Transfer
Agent that: (A) as of the close of business on the Effective Date, each Fund
which is in existence as of the Effective Date has authorized a certain number
of shares, and (B) by virtue of its Articles of Incorporation, shares of each
Fund which are redeemed by the Company may be sold by the Company from its
treasury, and (C) this Agreement has been duly authorized by the Company and,
when executed and delivered by the Company, will constitute a legal, valid and
binding obligation of the Trust, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties and to general equitable principles.
16. REPRESENTATIONS OF THE TRANSFER AGENT. The Transfer Agent represents
and warrants that: (A) the Transfer Agent has been in, and shall continue to be
in, substantial compliance with all provisions of law, including Section 17A(c)
of the Securities and Exchange Act of 1934, as amended, required in connection
with the performance of its duties under this Agreement; (B) the various
procedures and systems
- 4 -
<PAGE>
which the Transfer Agent has implemented with regard to safeguarding from loss
or damage attributable to fire, theft, or any other cause the blank checks,
records, and other data of the Company and the Transfer Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder; and (C) this Agreement has bee duly authorized by the Transfer Agent
and, when executed and delivered by the Transfer Agent, will constitute a legal,
valid and binding obligation of the Transfer Agent, enforceable against the
Transfer Agent in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties and to general equitable
principles.
17. INSURANCE. The Transfer Agent shall notify the Company should its
insurance with respect to professional liability or errors and omissions
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. The Transfer Agent shall notify the Company of
any material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Company from time to time as may be appropriate of the total outstanding claims
made by the Transfer Agent under its insurance coverage.
18. COMPLIANCE WITH LAW. Except for the obligations of the Transfer Agent
set forth in Section 10 hereof, the Company assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Company as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and any other laws,
rules and regulations of governmental authorities having jurisdiction.
19. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
not be assignable by either of the parties hereto except by the specific written
consent of the other party.
20. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of Maryland, without
regard to principles of conflicts of law.
21. LIMITATION OF LIABILITY OF THE DIRECTORS AND STOCKHOLDERS. The
Transfer Agent acknowledges and agrees that the obligations of the Company
entered into in the name or on behalf thereof by any of its Directors,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Directors, stockholders or representatives of
the Company personally, but bind only the assets of the Company, and the
Transfer Agent must look solely to the assets of the Company for the enforcement
of any claims against the Company.
- 5 -
<PAGE>
22. MISCELLANEOUS MATTERS. Section headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which the enforcement of the change, waiver, discharge or termination is
sought. Notices of any kind to be given to the Company hereunder by the Transfer
Agent shall be in writing and shall be duly given if mailed or delivered to the
Company at Four Embarcadero Center, Suite 3000, San Francisco, California 94111,
Attention: President, or at such other address or to such other individual as
shall be so specified by the Company to the Transfer Agent hereunder. Notices of
any kind to be given to the Transfer Agent hereunder by the Company shall be in
writing and shall be duly given if mailed or delivered to Four Embarcadero
Center, Suite 2800, San Francisco, California 94111, Attention: President, or at
such other address or to such other individual as shall be so specified by the
Transfer Agent to the Company hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
RCM CAPITAL FUNDS, INC.
By:
------------------------------------
Title:
RCM CAPITAL TRUST COMPANY
By:
------------------------------------
Title:
RCM CAPITAL MANAGEMENT, L.L.C.
By:
------------------------------------
Title:
- 6 -
<PAGE>
SCHEDULE A
TRANSFER AGENCY SERVICES
1. STOCKHOLDER TRANSACTIONS
a. Process stockholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identification numbers and wire
instructions.
c. Issue confirmations in compliance with Rule 10 of the
Securities Exchange Act of 1934, as amended.
d. Issue period statements for stockholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchasing of
new shares through dividend reinvestment.
2. STOCKHOLDER INFORMATION SERVICES
a. Make information available to stockholder servicing
unit regarding trade date, share price, current holdings,
yields, and dividend information.
b. Produce detailed history of transactions through
duplicate or special order statements upon request.
c. Provide mailing labels for distribution of financial
reports, prospectuses, proxy statements, or marketing
material to current stockholders.
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange Commission
and the states in which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue
Service forms for Funds and stockholder income and
capital gains.
c. Issue tax withholding reports to the Internal Revenue
Service.
A-1
<PAGE>
4. STOCKHOLDER ACCOUNT MAINTENANCE
a. Maintain all stockholder records for each account in the
Trust.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record stockholder account information changes.
d. Maintain account documentation files for each
stockholder.
5. OTHER SERVICES
a. As agreed, from time-to time.
A-2
<PAGE>
SCHEDULE B
TRANSFER AGENCY FEES
Annual fees: For so long as RCM Capital Management, L.L.C. acts as investment
manager to RCM Capital Funds, Inc. (the "Company"), the Transfer Agent shall
not be entitled to any fee for the services or for reimbursement of any
expenses in connection with the performance of this agreement, and the Company
shall have no obligation to make any payment to the the Transfer Agent
therefor.
B-1
<PAGE>
SCHEDULE C
REPORTS
I. Daily Stockholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Stockholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Sales Data Reports for Blue Sky Registration
V. Annual report by independent public accountants concerning the
Transfer Agent's stockholder system and internal accounting
control systems to be filed with the Securities and Exchange
Commission pursuant to Rule 17Ad-13 of the Securities Exchange
Act of 1934, as amended.
VI. Other reports as the parties agree
C-1
<PAGE>
EXHIBIT 9(b)
LICENSE AGREEMENT
AGREEMENT made as of the __ day of ___________, 1996 by and between RCM
Capital Management, L.L.C. ("RCM"), and RCM Capital Funds, Inc., a Maryland
corporation (the "Company").
RECITALS:
A. Rosenberg Capital Management, a predecessor of RCM, was established in
1970 and has used the phrase "Rosenberg" in its name and its business since that
time.
B. RCM Capital Management, L.L.C. was established in 1996 under the laws
of the State of Delaware, as the successor to the business and operations of
Rosenberg Capital Management and its successors, and has used the name RCM
Capital Management, L.L.C. at all times thereafter.
C. The Company, which is registered with the Securities and Exchange
Commission as an open-end management investment company, desires to use "RCM" in
its name and business operations (including in the name of each of its series).
D. On the terms set forth herein, RCM is willing to grant the Company a
license to use "RCM" in its name and operations as an investment company
(including in the name of each of its series).
E. RCM Capital Funds, Inc., a registered investment company, has entered
into a license agreement with RCM pursuant to which RCM has granted it a non-
exclusive license (including in the name of each of its series) to use "RCM" in
its name and business. In addition, RCM Strategic Global Government Fund, Inc.
and RCM Equity Funds, Inc., registered investment companies, have each entered
into a license agreement with RCM pursuant to which RCM has granted each of them
a non-exclusive license to use "RCM" in their names and businesses,
NOW, THEREFORE, in consideration of the premises and of the covenants
hereinafter contained, RCM and the Company do hereby agree as follows:
AGREEMENT:
1. RCM hereby grants the Company a revocable, non-exclusive and non-
transferable license to use the phrase "RCM" in its corporate name and in its
operations as an investment company (including in the name of each of its
series), subject to the terms and conditions set forth herein (the "License").
The Company shall at all times use such phrase in a manner which is designed to
enhance the reputation and goodwill associated with the phrase, and shall
comply with all laws, rules, regulations, ordinances and orders
-1-
<PAGE>
of all local, state and national authorities. The Company agrees that it shall
do nothing inconsistent with RCM's ownership of such phrase, and shall not apply
for registration or seek to obtain ownership of the phrase, or any similar mark,
in any state or nation. The provisions of the forgoing sentence of this Section
1 shall survive the termination of this Agreement, irrespective of the reason
therefor.
2. The Company acknowledges that the phrase "RCM" has incalculable value
to RCM and that RCM may, therefore, revoke its License at any time upon 60 days'
notice to the Company. As soon as practicable after any revocation, the Company
shall (i) change its corporate name so that such name will not thereafter
include the phrase "RCM," "Rosenberg Capital Management" or any variation or
derivative of such names, (ii) discontinue all use by it of the phrase "RCM" or
any variation or derivative thereof as part of its trade name or otherwise, and
(iii) cease using, and shall cause its agents to cease using, all letterhead
advertising materials and other materials (printed or otherwise) that include
the phrase "RCM" or any variation or derivative thereof. Without limiting the
foregoing, if the Investment Management Agreement between the Company and RCM
should be terminated for any reason, RCM may, without notice, revoke the
License.
3. The Company acknowledges that RCM has previously granted a license to
use the phrase "RCM" to RCM Capital Funds, Inc. in its name and its operations
and that RCM Capital Funds, Inc. may establish additional series in the future
using the RCM name. The Company further acknowledges that RCM has previously
granted licenses to RCM Strategic Global Government Fund, Inc. and RCM Equity
Funds, Inc. to use the phrase "RCM" in their names and in their operations.
4. RCM reserves and shall have the right to grant to any other company,
including without limitation, any other investment company, the right to use
"RCM" or Rosenberg Capital Management or any variations or derivatives of such
names in its name and no consent or permission of the Company shall be necessary
in connection with such grant; but, if required by any applicable laws of any
state or other jurisdiction, the Company will forthwith grant any consent, give
any permission and execute any certificate or instrument as may be requested by
RCM.
5. The Company shall not, without the express written permission of RCM,
grant consent or give permission to any other company or entity the right, to
use "RCM," "Rosenberg Capital Management" or any name similar to that of the
Company.
6. In the event that the Company should hereafter change its name and
eliminate the phrase RCM or any variation thereof from its name, the Company
hereby grants to RCM the right to cause the incorporation of other corporations
or the organization of other voluntary associations that may operate as
investment companies and that may have names similar to that to which the
Company may change its name and to own all or any portion of the shares of such
other corporations or associations and to enter into contractual relationships
with such other corporations or associations.
-2-
<PAGE>
7. This Agreement may be amended at any time by written agreement
executed by each of the parties.
8. This Agreement shall be governed by and shall be construed in
accordance with the internal, substantive laws of the State of California.
9. If any term or provision of this Agreement is held to be void or
unenforceable by any court of competent jurisdiction, only that objectionable
term or provision shall be deleted herefrom while the remainder of the term,
provision and agreement shall be enforceable.
10. No party's failure to enforce any provision or provisions of this
Agreement shall be deemed or in any way construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every provision of this Agreement. The rights granted the parties herein
are cumulative and shall not constitute a waiver of any party's right to assert
all other legal remedies available to it under the circumstances.
11. The Company acknowledges that money damages alone are not adequate
remedy for any breach by the Company of any provision of this Agreement.
Therefore, in the event of a breach or threatened breach of any provision of
this Agreement by the Company, the Company agrees and consents that RCM, in
addition to all other remedies, shall have the right to immediately seek, obtain
and enforce injunctive relief prohibiting the breach or compelling specific
performance, without the need to post any bond. Unless expressly set forth
herein to the contrary, all remedies set forth herein are cumulative and are in
addition to any and all remedies provided either party at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
RCM CAPITAL FUNDS, INC.
By:
--------------------------
President
RCM CAPITAL MANAGEMENT, L.L.C.
By: RCM LIMITED L.P.
General Partner
By: RCM GENERAL CORP.
General Partner
By:
--------------------------
-3-
<PAGE>
Executive Vice President
-4-
<PAGE>
To the Board of Directors of
RCM Capital Funds, Inc.:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 25 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
June 6, 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. 25 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
June 6, 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. 25 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
June 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000310619
<NAME> RCM GROWTH EQUITY FUND
<SERIES>
<NUMBER> 1
<NAME> RCM GROWTH EQUITY FUND
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1050229893
<INVESTMENTS-AT-VALUE> 1315721629
<RECEIVABLES> 17387291
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1333108920
<PAYABLE-FOR-SECURITIES> 4719061
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3099373
<TOTAL-LIABILITIES> 7818434
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 992951928
<SHARES-COMMON-STOCK> 5806825
<SHARES-COMMON-PRIOR> 6918472
<ACCUMULATED-NII-CURRENT> 49873
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 66845126
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 265443559
<NET-ASSETS> 1325290486
<DIVIDEND-INCOME> 9579076
<INTEREST-INCOME> 4876934
<OTHER-INCOME> 0
<EXPENSES-NET> (11209858)
<NET-INVESTMENT-INCOME> 3246152
<REALIZED-GAINS-CURRENT> 280992471
<APPREC-INCREASE-CURRENT> 152170790
<NET-CHANGE-FROM-OPS> 436409413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3221602
<DISTRIBUTIONS-OF-GAINS> 203938943
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 371800
<NUMBER-OF-SHARES-REDEEMED> (2404710)
<SHARES-REINVESTED> 921263
<NET-CHANGE-IN-ASSETS> (39795610)
<ACCUMULATED-NII-PRIOR> 29976
<ACCUMULATED-GAINS-PRIOR> (10172882)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (11038366)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11209858)
<AVERAGE-NET-ASSETS> 1475846323
<PER-SHARE-NAV-BEGIN> 197.31
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 66.36
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (35.45)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 228.23
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> RCM SMALL CAP FUND
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 324425908
<INVESTMENTS-AT-VALUE> 408862470
<RECEIVABLES> 3984150
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 412846620
<PAYABLE-FOR-SECURITIES> 1998128
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1281823
<TOTAL-LIABILITIES> 3279951
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 305471776
<SHARES-COMMON-STOCK> 3006802
<SHARES-COMMON-PRIOR> 3678015
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19658331
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84436562
<NET-ASSETS> 409566669
<DIVIDEND-INCOME> 2038870
<INTEREST-INCOME> 1423067
<OTHER-INCOME> 0
<EXPENSES-NET> 4440924
<NET-INVESTMENT-INCOME> (978987)
<REALIZED-GAINS-CURRENT> 63212427
<APPREC-INCREASE-CURRENT> 66594922
<NET-CHANGE-FROM-OPS> 128828362
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 47579854
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 556071
<NUMBER-OF-SHARES-REDEEMED> (1578603)
<SHARES-REINVESTED> 351319
<NET-CHANGE-IN-ASSETS> (6080799)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6852849
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (4385825)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (4440924)
<AVERAGE-NET-ASSETS> 439897234
<PER-SHARE-NAV-BEGIN> 113.01
<PER-SHARE-NII> (0.44)
<PER-SHARE-GAIN-APPREC> 38.49
<PER-SHARE-DIVIDEND> (0.00)
<PER-SHARE-DISTRIBUTIONS> (14.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 136.21
<EXPENSE-RATIO> .01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000310619
<NAME> RCM INTERNATIONAL GROWTH EQUITY FUND A
<SERIES>
<NUMBER> 3
<NAME> RCM INTERNATIONAL GROWTH EQUITY FUND A
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 30624269
<INVESTMENTS-AT-VALUE> 34257186
<RECEIVABLES> 355050
<ASSETS-OTHER> 8100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34620336
<PAYABLE-FOR-SECURITIES> 114813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158715
<TOTAL-LIABILITIES> 273528
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30344830
<SHARES-COMMON-STOCK> 297177
<SHARES-COMMON-PRIOR> 250000
<ACCUMULATED-NII-CURRENT> (64136)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 276914
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3789200
<NET-ASSETS> 34346808
<DIVIDEND-INCOME> 433479
<INTEREST-INCOME> 125927
<OTHER-INCOME> 0
<EXPENSES-NET> (216616)
<NET-INVESTMENT-INCOME> 342790
<REALIZED-GAINS-CURRENT> 547893
<APPREC-INCREASE-CURRENT> 3796450
<NET-CHANGE-FROM-OPS> 4687133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 320285
<DISTRIBUTIONS-OF-GAINS> 369783
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 41488
<NUMBER-OF-SHARES-REDEEMED> (391)
<SHARES-REINVESTED> 6080
<NET-CHANGE-IN-ASSETS> 9343132
<ACCUMULATED-NII-PRIOR> 10926
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (218054)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (392795)
<AVERAGE-NET-ASSETS> 28754819
<PER-SHARE-NAV-BEGIN> 100.01
<PER-SHARE-NII> 1.17
<PER-SHARE-GAIN-APPREC> 16.77
<PER-SHARE-DIVIDEND> (1.10)
<PER-SHARE-DISTRIBUTIONS> (1.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 115.58
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
