<PAGE>
[LOGO]
SMALL CAP FUND
ANNUAL REPORT
1995
<PAGE>
RCM SMALL CAP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The value of an investment in the RCM Small Cap Fund (the "Fund") appreciated by
34.08% over the 12 months ended December 31, 1995. The Fund finished the year
564 basis points ahead of its primary benchmark, the Russell 2000 Index, which
registered a return of 28.44% for the year. However the Fund's primary
emphasis, small capitalization growth stocks, disadvantaged the Fund in
comparison to broader market benchmarks such as the S&P 500 Composite Index,
which returned 37.59% in 1995.
U.S. stocks and bonds rallied strongly in the first half of 1995 after
performing poorly in 1994. Investors appeared to have abandoned their fears
that the Federal Reserve Board would tighten monetary policy and embraced the
"soft landing" economic scenario. Returns on equities of all capitalization
ranges benefited from declining interest rates. RCM Capital Management, a
California Limited Partnership ("RCM"), the Fund's investment manager, believes
that weakness in the U.S. dollar and increasing evidence of economic strength in
Europe were among the factors which led to the relative outperformance of large
capitalization equities versus small cap stocks, particularly in the first
quarter of 1995. At mid-year, the Russell 2000 benchmark was up "only" 14.42%,
compared to the S&P 500 return of 20.19%. The Fund trailed its primary
benchmark by 155 basis points through the first six months of the year.
Contributing factors included the Fund's underweighting in the strong interest
sensitive sectors of the market and an overweighting in health care services
stocks, which were disastrous performers in the first half of the year.
The stock market continued its impressive advance through the third quarter.
The summer months of 1995 were characterized by powerful rallies in small
capitalization universes, which were fueled by strong cash flows into mutual
funds, an upward move in the U.S. dollar and positive earnings reports. The
technology sector continued to lead the market (though it showed signs of
topping by the end of the third quarter) and the health care services group
rebounded from a weak performance in the second quarter. The Fund outperformed
the Russell 2000 Index in each month of the third quarter, more than making up
for the shortfall versus this benchmark in the first half of the year. Returns
were also ahead of the Russell 2000 in the fourth quarter, resulting in
performance for the second half of 1995 being 654 basis points above the primary
benchmark.
Looking at the year as a whole, the Fund's strategy on industry weightings was a
positive factor in performance relative to the Russell 2000. A modest
overweighting in the strong drugs and hospital supplies group and a more
significant overweighting in the technology sector both added to performance.
The Fund finished 1995 with approximately 22% of its total investments invested
in technology-related issues (versus the benchmark weighting of approximately
16%). The Fund held meaningful positions in strong subgroups within technology,
including networking, components and technology services. Despite overweighting
the electronics/new technology sector, the Fund was not heavily exposed to the
commodity semiconductor and semiconductor equipment stocks. While this lack of
exposure hurt the Fund's performance in the first half of 1995, it enhanced
relative returns late in the year when these stocks came under extreme selling
pressure. Automotive related stocks and raw/basic materials were lagging
industry groups underweighted by the Fund in
(Continued)
<PAGE>
1995, thereby adding to performance. On the negative side, the Fund's
overweighting in transportation services hurt relative performance. Holdings
in the regional trucking group came under pressure due to intensified
competition and a weak pricing environment, and exposure to this industry was
reduced significantly in the second half of 1995. The Fund's underweighting
in the interest sensitive and financial industry groups (5% versus 23%,
excluding utilities, in the Russell 2000 Index at the end of 1995) was also a
negative factor in relative performance from an industry strategy
perspective. These groups were strong performers during 1995 as interest
rates declined. However, due to the growth stock orientation of RCM, it is
typical for the Fund to have only modest exposure in the interest sensitive
sector. Although the Fund's average cash position of about 7% for the year
was within its "normal" range, cash was a negative contributor to relative
performance given the rising market environment.
Stock picking by RCM added significantly to the Fund's performance in 1995.
Overall, this was a much more important contributor to relative performance
than was the Fund's strategy on industry weightings, and stock selection was
strongly positive in several industries. Health care services stocks were
very weak in the first half of 1995, as investors' concerns about pricing and
reimbursement issues caused HMO and nursing home stocks in particular to come
under severe pressure. This group rebounded strongly in the second half of
the year, with health care services stocks held by the Fund (including
Physician Reliance Network, Renal Treatment Centers and Maxicare Health Plans)
up an average of 39% compared to an average gain of 19% for health care
services stocks in the Russell 2000 Index. The Fund's holdings in the drugs
and hospital supplies group gained 90% compared to an average return of 64%
for the benchmark stocks in this very strong sector. Idexx Labs, Lunar Corp
and Autoimmune were significant holdings and were among the Fund's
outstanding performers in this group. The Fund also experience positive
stock selection in the business services group (up 52% versus 33% for the
Russell 2000 business services stocks), with contributions from such issues
as Wallace Computer Services, Robert Half International, and Comverse
Technology. Meaningful contributions from positive stock selection were also
achieved in the retail, computer, food, and general finance groups. On the
negative side, stock selection in the transportation services area hurt
relative performance. The Fund's holdings (including Old Dominion Freight,
American Freightways and TNT Freightways) declined 2% compared to a gain of
15% for the stocks in the benchmark group. The industrial equipment,
beverage/tobacco and energy groups also registered modest negative impacts
from adverse stock selection.
Although small cap equities underperformed large cap equities in 1995, it was
an extraordinary year in terms of absolute returns for investors in U.S.
stocks across all capitalization ranges. Like many market observers, RCM
believes that similar gains are unlikely in the current year. Going into
1996, signs of slowing economic growth are abundant, and earnings
expectations are undergoing downward revisions in some industries. However,
RCM believes that a slow growth macroeconomic environment is likely to favor
the growth style of investing, particularly if Federal Reserve policy is
oriented toward lowering interest rates. Within this context , RCM believes
that small capitalization growth stocks are favorably positioned, given the
higher relative earnings growth rates of small-sized companies.
Page 2
<PAGE>
RCM Small Cap Fund
Performance Summary
________________________________________________________________________________
[GRAPH]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The chart above shows the performance of the RCM Small Cap Fund since the
Fund's inception versus the Russell 2000 Index. The chart represents a
cumulative return of 74.96%+ for the Fund. The average annual total return
from the Fund's inception was 15.01%*+. The chart assumes a hypothetical
$10,000 initial investment in the Fund and reflects all Fund expenses.
Average Annual Total Returns+
December 31, 1995
1 Year Life of
Fund*
34.08% 15.01%
+ RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS AT NET ASSET VALUE.
* THE FUND BEGAN OPERATIONS ON JANUARY 4, 1992.
The data above represent past performance of the Fund, and may not be
indicative of future results. The investment return and principal value of
an investment in the Fund will fluctuate, so that shares, when redeemed, may
be worth more or less than their original cost.
Page 3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of RCM Capital Funds, Inc:
We have audited the accompanying statement of assets and liabilities of RCM
Small Cap Fund (the "Fund"), including the statement of investments in
securities and net assets as of December 31, 1995, and the related statement
of operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the four years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1995 by correspondence with custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
Small Cap Fund as of December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and financial highlights for each of the four years in
the period then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
February 9, 1996
Page 4
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- --------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
CONSUMER DURABLES SECTOR 2.27%
AUTOMOTIVE RELATED 0.00%
1,100 Special Devices Inc. * $ 14,300
OTHER CONSUMER DURABLES 2.27%
211,500 AptarGroup Inc. 7,904,813
150,000 Lifetime Hoan Corp. * 1,387,500
-----------
9,292,313
-----------
CONSUMER NON-DURABLES SECTOR 14.19%
FOOD AND FOOD PROCESSING 1.07%
28,000 Dekalb Genetics Corp. Class B 1,263,500
93,500 Dreyers Grand Ice Cream Inc. 3,108,875
-----------
4,372,375
-----------
GENERAL RETAIL 5.61%
262,000 Big B Inc. 2,620,000
82,300 Global DirectMail Corp. * 2,263,250
148,800 Movie Gallery Inc. * 4,538,400
187,500 Orchard Supply Hardware Corp. * 3,867,188
282,600 Proffitts Inc. * 7,418,250
104,000 Quality Food Centers Inc. 2,288,000
-----------
22,995,088
-----------
HOUSEHOLD/RELATED NON-DURABLES 2.76%
276,200 Armor All Products Corp. 5,006,125
158,200 Guest Supply Inc. * 3,579,275
107,500 Sola International Inc. * 2,714,375
-----------
11,299,775
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 5
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- --------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
LEISURE TIME PRODUCTS/SERVICES 4.75%
205,200 Apple South Inc. $ 4,411,800
199,000 Bristol Hotel Co. * 4,850,625
292,000 Doubletree Corp. * 7,665,000
370,000 Uno Restaurant Corp. * 2,543,750
-----------
19,471,175
-----------
CYCLICAL/CAPITAL GOODS SECTOR 12.00%
BUILDING AND CONSTRUCTION 3.08%
275,000 Michael Baker Corp. * 1,375,000
262,800 Jacobs Engineering Group Inc. * 6,570,000
188,300 NCI Building Systems Inc. * 4,660,425
-----------
12,605,425
-----------
INDUSTRIAL EQUIPMENT 3.25%
50,000 ABC Rail Products Corp. * 1,106,250
74,000 Applied Power Inc. Class A 2,220,000
273,400 Duriron Co. Inc. 6,390,725
179,000 Furon Co. 3,580,000
-----------
13,296,975
-----------
RAW AND BASIC MATERIALS 0.91%
150,000 Commercial Metals Co. 3,712,500
TRANSPORTATION SERVICES 4.76%
332,300 Expeditors International of Washington Inc. 8,681,338
120,000 Harper Group Inc. 2,130,000
115,469 Heartland Express Inc. * 2,280,513
202,000 Mark VII Inc. * 3,131,000
30,000 Midwest Express Holdings Inc. * 832,500
49,000 Railtex Inc. * 1,029,000
70,000 TNT Freightways Corp. 1,408,750
-----------
19,493,101
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 6
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- --------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
ENERGY SECTOR 2.43%
OIL AND RELATED SERVICES 2.43%
82,000 BJ Services Co. * $ 2,378,000
45,000 Devon Energy Corp. 1,147,500
360,000 Forcenergy Gas Exploration Inc. * 3,960,000
107,000 Nowsco Well Service Ltd. 1,337,500
50,000 Nuevo Energy Co. * 1,118,750
-----------
9,941,750
-----------
HEALTHCARE SECTOR 27.59%
DRUGS & HOSPITAL SERVICES 11.17%
70,000 Allergan Ligand Retinoid Theraputics Units * 1,242,500
53,100 Anesta Corp. * 491,175
33,000 Athena Neurosciences Inc. * 404,250
144,500 Autoimmune Inc. * 1,625,625
62,250 Cyberonics Inc. * 295,688
59,000 Cytotherapeutics Inc. * 1,010,375
308,900 Gelman Sciences Inc. * 7,799,725
57,300 ImmuLogic Pharmaceutical Corp. * 1,103,025
75,000 Invacare Corp. 1,893,750
349,950 LUNAR Corp. * 9,623,625
48,250 Magainin Pharmaceuticals Inc. * 633,281
205,000 Metra Biosystems Inc. * 3,536,250
80,300 Penederm Inc. * 913,413
377,000 Physio-Control International * 6,738,875
50,000 Respironics Inc. * 1,050,000
96,000 SangStat Medical Corp. * 996,000
119,700 Sepracor Inc. * 2,199,488
85,000 Sofamor/Danek Group Inc. * 2,411,875
42,700 Thermolase Corp. * 1,104,863
6,000 Thermedics Inc. * 166,500
42,200 Vical Inc. * 511,675
-----------
45,751,958
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 7
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- --------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
HEALTH CARE SERVICES 16.42%
190,600 American Medical Response Inc. * $ 6,194,500
2,500 American Oncology Resources Inc. * 121,563
40,000 Amerisource Health Corp. * 1,320,000
201,000 Arbor Health Care Co. * 3,517,500
140,000 Cima Labs Inc. * 840,000
231,000 Community Health Systems Inc. * 8,229,375
178,300 Curative Technologies Inc. * 2,540,775
77,500 Genesis Health Ventures Inc. * 2,828,750
456,000 Maxicare Health Plans Inc. * 12,255,000
159,600 Multicare Cos. Inc. * 3,830,400
61,000 Orthodontic Centers of America Inc. * 2,943,250
47,500 Physician Reliance Network Inc. * 1,888,125
76,000 Renal Treatment Centers Inc. * 3,344,000
125,200 Rural/Metro Corp. * 2,832,650
95,000 Sterling House Corp. * 914,375
252,000 Summit Care Corp. * 5,764,500
89,000 Veterinary Centers of America * 1,501,875
253,500 Vivra Inc. * 6,369,188
-----------
67,235,826
-----------
INTEREST SENSITIVE SECTOR 5.65%
BANKING 3.56%
158,500 Community First Bankshares 3,605,875
120,700 Silicon Valley Bancshares * 2,896,800
100,500 Texas Regional Bancshares Inc. 1,683,375
132,800 ValliCorp Holdings Inc. 1,842,600
68,000 WestAmerica Bancorporation 2,941,000
20,000 Zions Bancorp 1,605,000
-----------
14,574,650
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 8
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- --------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
GENERAL FINANCE 0.81%
60,000 California Federal Bank * 945,000
5,000 Charter One Financial Inc. 153,125
40,000 First Financial Corp. 920,000
58,000 Oxford Resources Corp. * 1,305,000
-----------
3,323,125
-----------
INSURANCE 1.28%
148,000 American Travellers Corp. * 4,162,500
22,000 CMAC Investment Corp. 968,000
2,000 Trenwick Group Inc. 112,500
-----------
5,243,000
-----------
SERVICES/MEDIA SECTOR 10.38%
BUSINESS AND FOOD SERVICES 6.03%
131,000 Franklin Quest Co. * 2,554,500
250,200 G & K Services Inc. Class A 6,380,100
104,300 Healthcare Services Group Inc. * 977,813
30,000 Interim Services Inc. * 1,042,500
339,000 Personnel Group of America, Inc. * 4,957,875
122,700 Renaissance Solutions Inc. * 1,748,475
21,500 Robert Half International Inc. * 900,313
55,000 SITEL Corp. * 1,684,375
5,000 Tetra Tech Inc. * 113,750
45,500 United Waste Systems Inc. * 1,694,875
110,000 Unitog Co. 2,653,750
-----------
24,708,326
-----------
COMMUNICATION SERVICES 2.19%
86,500 American Mobile Satellite Corp. * 2,649,063
61,900 Arch Communications Group Inc. * 1,485,600
103,000 CommNet Cellular Inc. * 2,974,125
102,400 Midcom Communications Inc. * 1,868,800
-----------
8,977,588
-----------
</TABLE>
* Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 9
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
MEDIA SERVICES 2.16%
40,000 Emmis Broadcasting Corp. Class A * $ 1,240,000
133,000 Heritage Media Corp. Class A * 3,408,125
81,000 Central European Media Entertainment Ltd. Class A * 1,660,500
204,000 Comcast UK Cable Partners Ltd. * 2,550,000
------------
8,858,625
------------
TECHNOLOGY SECTOR 23.24%
COMPUTERS AND OFFICE EQUIPMENT 3.29%
75,000 Comverse Technology Inc. * 1,500,000
243,000 Micros Systems Inc. * 11,967,750
------------
13,467,750
------------
ELECTRONICS AND NEW TECHNOLOGY 13.44%
126,500 Allen Group Inc. 2,830,438
119,900 Altron Inc. * 3,597,000
408,000 Black Box Corp. * 6,681,000
935,000 Computer Products Inc. * 10,752,500
212,100 Continental Circuits Corp. * 3,446,625
147,000 Information Storage Devices Inc. * 1,635,375
130,500 Kent Electronics Corp. * 7,617,938
27,000 Lattice Semiconductor Corp. * 880,875
180,500 Methode Electronics Inc. Class A 2,572,125
261,800 MICOM Communications Corp. * 1,996,225
210,000 Network Equipment Technologies Inc. * 5,748,750
121,500 Network General Corp. * 4,055,063
62,500 Sanmina Corp. * 3,242,188
------------
55,056,102
------------
TECHNOLOGY SERVICES 6.51%
155,000 American Management Systems Inc. * 4,650,000
68,000 Aspen Technology Inc. * 2,295,000
209,000 BISYS Group Inc. * 6,426,750
115,000 Brock Control Systems Inc. * 1,236,250
</TABLE>
*Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 10
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------------- ----------- -------------
<S> <C> <C> <C>
TECHNOLOGY SERVICES (CONTINUED)
20,500 CBT Group PLC Sponsored ADR * $ 1,086,500
65,000 FileNet Corp. * 3,055,000
55,000 PMT Services Inc. * 1,663,750
23,000 Security Dynamics Technologies Inc. * 1,253,500
289,500 Unison Software Inc. * 4,993,867
------------
26,660,617
------------
TOTAL EQUITY INVESTMENTS
(COST $315,915,782) 97.75% 400,352,344
------------
SHORT-TERM INVESTMENTS
MONEY MARKET FUNDS 0.86%
3,518,911 Seven Seas Series U.S. Government Money Market Fund 3,518,911
PRINCIPAL COMMERCIAL PAPER 1.22%
- -----------
$5,000,000 Ford Motor Credit Co.
5.75% maturing 1/12/96 4,991,215
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $8,510,126) 2.08% 8,510,126
------------
TOTAL INVESTMENTS (COST $324,425,908) (a) 99.83% 408,862,470
OTHER ASSETS LESS LIABILITIES 0.17% 704,199
------------
NET ASSETS 100.00% $409,566,669
------------
------------
</TABLE>
- ---------------
(a) For Federal income tax purposes, cost is $325,628,826 and unrealized
appreciation (depreciation) of equity securities is as follows:
Unrealized appreciation $ 95,184,048
Unrealized depreciation (11,950,404)
------------
Net unrealized appreciation $ 83,233,644
------------
------------
*Non-income producing
The accompanying notes are an integral part of the financial statements.
Page 11
<PAGE>
RCM SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31 1995
ASSETS:
Investments in securities, at value (cost $324,425,908) (Note 1) $408,862,470
Receivable for securities sold 3,854,179
Dividends receivable 120,821
Receivable for Fund shares sold 9,150
------------
Total Assets 412,846,620
------------
LIABILITIES:
Payable for securities purchased 1,998,128
Payable for investment management fees (Note 5) 1,239,206
Payable for Fund shares repurchased 27,000
Payable for custodian fees 15,617
------------
Total Liabilities 3,279,951
------------
NET ASSETS $409,566,669
------------
------------
NET ASSET VALUE PER SHARE
($409,566,669 DIVIDED BY 3,006,802 shares outstanding) $ 136.21
------------
------------
NET ASSETS CONSIST OF:
Paid in capital $305,471,776
Accumulated net realized gain on investments 19,658,331
Net unrealized appreciation of investments 84,436,562
------------
NET ASSETS $409,566,669
------------
------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 12
<PAGE>
RCM SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding tax of $9,813) $ 2,038,870
Interest 1,423,067
------------
Total income 3,461,937
------------
Expenses:
Investment management fees (Note 5) 4,385,825
Custodian fees 54,299
Miscellaneous expenses 800
------------
Total expenses 4,440,924
------------
Net investment loss (978,987)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 63,212,427
Net unrealized appreciation of investments 66,594,922
------------
Net realized and unrealized gain on investments 129,807,349
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $128,828,362
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 13
<PAGE>
RCM SMALL CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (978,987) $ (1,803,412)
Net realized gain on investments 63,212,427 35,770,272
Net unrealized appreciation (depreciation)
on investments 66,594,922 (51,956,607)
------------ -------------
Net increase (decrease) in net assets
resulting from operations 128,828,362 (17,989,747)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (Note 2) (47,579,854) (30,873,545)
NET DECREASE FROM CAPITAL SHARE
TRANSACTIONS (NOTE 3) (87,329,307) (195,537,932)
------------ -------------
NET DECREASE IN NET ASSETS (6,080,799) (244,401,224)
NET ASSETS:
Beginning of year 415,647,468 660,048,692
------------ ------------
End of year $409,566,669 $415,647,468
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 14
<PAGE>
RCM SMALL CAP FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding for
the four years ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1995 1994 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 113.01 $ 124.94 $ 121.82 $ 100.00
------- ------- ------- -------
Net investment income (loss) (0.44) (0.51) (0.01) 0.31
Net realized and unrealized gain (loss)
on investments 38.49 (2.43) 10.90 21.82
------- ------- ------- -------
Net increase (decrease) in net asset value
resulting from investment operations 38.05 (2.94) 10.89 22.13
------- ------- ------- -------
Distributions:
Net investment income (0.00) (0.00) (0.00) (0.31)
Net realized gain on investments (14.85) (8.99) (7.77) (0.00)
------- ------- ------- -------
Total distributions (14.85) (8.99) (7.77) (0.31)
------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 136.21 $ 113.01 $ 124.94 $ 121.82
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN * 34.08% (2.16%) 9.20% 22.14%
------- ------- ------- -------
------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $409,567 $415,647 $660,049 $457,994
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of expenses to average net assets 1.0% 1.1% 0.9% 0.7%
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of net investment income (loss) to
average net assets (0.2%) (0.3%) 0.0% 0.4%
-------- -------- -------- --------
-------- -------- -------- --------
Portfolio turnover 83.9% 117.7% 80.0% 72.0%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- --------------------
* Total return measures the change in value of an investment over
the period indicated.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 15
<PAGE>
RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
RCM Small Cap Fund (the "Fund") is a diversified series of RCM Capital
Funds, Inc. (the "Company"). The Company is organized as a Maryland
corporation and is registered under the Investment Company Act of 1940,
as amended, as an open-end management investment company.
The following is a summary of significant accounting policies
consistently followed by the Company in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles which require management to make estimates and
assumptions that affect the reported amount of assets and liabilities.
A. SECURITIES VALUATIONS:
Investment securities are stated at fair market value. Equity securities
traded on stock exchanges are valued at the last sale price on the
exchange or in the principal over-the-counter market in which such
securities are traded as of the close of business on the day the
securities are being valued. If there has been no sale on such day, then
the security will be valued at the closing bid price on such day. If no
bid price is quoted on such day, then the security will be valued by such
method as the Board of Directors of the Company in good faith deems
appropriate to reflect its fair market value. Readily marketable
securities traded only in the over-the-counter market that are not listed
on the National Association of Securities Dealers, Inc. Automated
Quotation System or similar foreign reporting service will be valued at
the mean bid price, or such other comparable sources as the Board of
Directors of the Company deems appropriate to reflect their fair market
value. Other portfolio securities held by the Fund will be valued at
current market value, if current market quotations are readily available
for such securities. To the extent that market quotations are not
readily available such securities will be valued by whatever means the
Board of Directors of the Company in good faith deems appropriate to
reflect their fair market value.
Short-term investments with a maturity of 60 days or less are valued at
amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Security transactions are recorded as of the date of purchase or sale.
Realized gains and losses on security transactions are determined on
identified cost basis for both financial statement and federal income tax
purposes. Interest income, foreign taxes and expenses are accrued daily.
C. FEDERAL INCOME TAXES:
It is the policy of the Fund to comply with the requirements for
qualifications as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). It is also the intention
of the Fund to make distributions sufficient to avoid imposition of any
excise tax under Section 4982 of the Code. Therefore, no provision has
been made for Federal or excise taxes on income and capital gains.
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<PAGE>
RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. DISTRIBUTIONS:
Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment securities
held by the Fund and timing differences.
2. DISTRIBUTIONS
On December 14, 1995 a distribution of $14.85 per share, aggregating
$47,579,854 was paid from investment operations. This per share amount
consisted of $7.62 short-term capital gains and $7.23 long-term capital
gains. The dividend was recorded on December 14, 1995 to shareholders of
record on the same date.
3. CAPITAL SHARES
At December 31, 1995, there were 25,000,000 shares of the Company's
common stock authorized, at $0.10 par value. Of this amount, 8,000,000
were classified as shares of the Fund; 12,000,000 were classified as
shares of RCM Growth Equity Fund; 4,500,000 were classified as shares of
RCM International Growth Equity Fund A; and 500,000 shares remain
unclassified. Transactions in capital shares of the Fund were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Year ended December 31, 1995
----------------------------
Shares Amount
---------- -------------
<S> <C> <C>
Shares sold 556,071 $ 75,194,368
Shares issued in connection with reinvestment
of distributions 351,319 46,437,296
Shares repurchased (1,578,603) (208,960,971)
---------- -------------
Net decrease (671,213) $ (87,329,307)
---------- -------------
---------- -------------
<CAPTION>
Year ended December 31, 1994
----------------------------
Shares Amount
---------- -------------
<S> <C> <C>
Shares sold 139,742 $ 16,375,155
Shares issued in connection with reinvestment
of distributions 277,252 30,525,490
Shares repurchased (2,021,972) (242,438,577)
---------- -------------
Net decrease (1,604,978) $(195,537,932)
---------- -------------
---------- -------------
</TABLE>
At December 31, 1995 one affiliated shareholder held 19% of the
outstanding shares of the Fund.
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RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales proceeds of investment securities by the Fund,
excluding short-term securities, aggregated $345,137,519 and
$472,158,658, respectively, for the year ended December 31, 1995.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
RCM Capital Management, a California Limited Partnership ("RCM") is the
Fund's investment manager. RCM 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 Fund
pays investment management fees quarterly to RCM at a rate of 1/4 of 1%
(approximately 1% on an annual basis) of the average net assets of the
Fund during the preceding quarter. For the year ended December 31, 1995,
the Fund recorded investment management fees aggregated $4,385,825.
The RCM Capital Management Profit Sharing Plan ("the Plan"),
participation in which is limited to officers and employees of RCM, owned
18,425 shares of the Fund on December 31, 1995. Certain officers and
directors of the Company are beneficiaries of the Plan and have vested
rights in its assets.
In December 1995, RCM entered into an Agreement of Purchase and Sale
pursuant to which RCM will become a wholly owned subsidiary of Dresdner
Bank AG, an international banking organization with headquarters in
Frankfurt, Germany. It is expected that the day-to-day operations of RCM
will not be affected and that the individuals who are primarily
responsible for the management of the Fund"s portfolio will remain the
same. The closing of the transaction is subject to a number of
contingencies, including the receipt of certain regulatory approvals. The
transaction is currently expected to close in mid-1996. Because the
transaction will constitute an "assignment" of the Fund"s management
agreement with RCM under the Investment Company Act of 1940, and thus a
termination of such management agreement, the Fund will seek prior
approval of a new management agreement from the Fund"s Board of Directors
and shareholders prior to the closing of the transaction. The terms of
the new management agreement are expected to be substantially the same as
those of the current management agreement.
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