<PAGE>
[LOGO]
SMALL CAP FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
<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 19.98% over the six months ended June 30, 1996. In addition to
registering strong absolute performance for the period, the Fund finished
significantly ahead of the 10.36% return posted by its primary benchmark, the
Russell 2000 Index.
U.S. equities posted strong positive returns in the first half of 1996,
extending the extraordinary gains of the prior year, and surprising many
observers. Consensus expectations going into the year called for a slowing
economic environment including low inflation and continued declines in
interest rates. By early in the second quarter, however, signs of economic
re-acceleration appeared, and inflation fears began to surface. Despite the
shifting consensus macroeconomic outlook, equity mutual fund cash flows
reached record levels in the first half of 1996, and the market for initial
public offerings exploded. Stocks of all capitalizations participated in the
advance, although small cap issues got off to a very weak start in the month
of January. The relative strength of the small cap sector bottomed in
February, and the Russell 2000 Index finished the first quarter just slightly
behind the broader large cap market (as measured by the S&P 500 Stock Index).
Small cap stocks continued to register strong gains in April and May and the
Russell 2000 Index outperformed the S&P 500 Stock Index in the second quarter
and the six month period overall, but the relative strength of the secondary
cap sector versus large cap equities deteriorated markedly by the end of the
first half. In addition to outperforming its primary benchmark, the Fund's
performance for the year-to-date period through June 30, 1996 was 988 basis
points ahead of the S&P 500's. Returns were aided by the growth stock focus
of RCM Capital Management, L.L.C. ("RCM"), investment manager of the Fund.
Growth investment styles significantly outperformed value styles in the first
half of 1996.
Industry strategies that were positive contributors to the Fund's
relative performance in the first half included overweightings in the strong
business services sector (10% versus 5% in the Russell 2000 Index) and in the
leisure time products and services group (5% versus 3% in the benchmark).
These strategic overweightings contributed approximately 120 basis points in
relative performance for the period. Utilities, general finance and banking
were lagging industry groups which were underweighted in the Fund, thereby
adding to relative performance.
On the negative side, overweighting the poorly performing
electronics/new technology industry group hurt the Fund's relative
performance in the first six months of 1996. This sector suffered from a
prolonged inventory correction experience by semiconductor manufacturers and
other technology
<PAGE>
component suppliers. Performance in the group came under additional pressure
at the end of the first half as several technology companies announced that
they would post disappointing earnings reports for the second quarter. The
Fund's underweighted positioning in energy also had a modestly negative
impact on relative performance for the period. Due to RCM's growth stock
orientation, it is typical for the Fund to have only modest exposure in this
sector. Although the Fund's average cash position of about 5% during the
first half of 1996 was at the lower end of its "normal" range, cash had a
negative impact on relative performance given the rising market environment.
Stock picking was a much more important factor in the Fund's relative
outperformance in the first half than was industry strategy. Individual stock
selection within the electronics/new technology sector was actually a strong
positive contributor to relative performance. The Fund's holdings in this
group were up an aggregate of 13% versus a decline of approximately 4% for
the Russell 2000 Index stocks in this group. During the first half of 1996,
the Fund's major holdings in this industry included Computer Products (+85%
total return during the period), Methode Electronics (+56%), and Allen Group
(+41%). Stock selection in the health care services group also added to
relative performance, owing to the Fund's meaningful positions in stocks such
as Rural/Metro Corporation (+100%), Community Health Systems (+45%), and
Orthodontic Centers of America (+54%). The Fund experienced positive
contributions from stock picking in several additional industry groups during
the first half, including technology services, drugs/hospital supplies, and
business services.
Negative stock selection was experienced in the computer and office
equipment group. Relative performance was hurt in particular by a large drop
in Micros Systems (-76%), causing the aggregate performance of RCM's holdings
to fall well short of the total return of approximately 33% posted by the
Russell 2000 Index stocks in this industry.
Going into the second half of 1996, the equity investment environment
turned quite treacherous. A series of stronger-than-expected economic
releases generated fears that the Federal Reserve would be forced into a
series of rate hikes to keep growth and inflation in tow. U.S. stocks
suffered a violent correction in the first few weeks of July. As is typical,
the small cap sector of the market has exhibited more volatility on the
downside than have the larger cap universes during this corrective phase. RCM
acknowledges that volatility in both directions may remain high in the near
term, but believes that significant longer-term investment opportunities
continue to exist in quality small capitalization growth stocks.
Page 2
<PAGE>
RCM SMALL CAP FUND
PERFORMANCE SUMMARY
______________________________________________________________________________
$22,000
$20,993
$20,000
$19,596
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
--------------------------------------------------------------------
1992 1993 1994 1995 1996
_____ RCM Small Cap Fund ===== Russell 2000 Index
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 109.93%+ for the Fund. The average annual total return
from the Fund's inception was 20.37%*+. The chart assumes a hypothetical
$10,000 initial investment in the Fund and reflects all Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS+
JUNE 30, 1996
- -----------------------
1 Year | Life of
| Fund*
- ----------|------------
42.53% | 20.37%
- -----------------------
The data above represents 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.
# The Russell 2000 Index is composed of the 2,000 smallest securities in the
Russell 3000 Index, which is composed of 3,000 large U.S. companies by
market capitalization and represents approximately 98% of the U.S. equity
market.
+ Returns assume reinvestment of all dividends and capital gains
distributions at net asset value.
* The Fund began operations on January 4, 1992.
Page 3
<PAGE>
RCM CAPITAL FUNDS, INC.
STOCKHOLDER MEETING RESULTS
A Special Meeting of Stockholders of the RCM Capital Funds, Inc. (the
"Company") was held on Tuesday, May 28, 1996. The number of shares issued,
outstanding and eligible to vote as of April 18, 1996 (the "Record Date") was
7,110,217. Present were 5,477,386 shares in person or represented by proxy,
or 77.04% of the shares outstanding on the Record Date. The matters voted
upon by stockholders and the resulting votes for each matter are presented
below:
1. Each person nominated as a director was elected as set forth below:
For Withhold
----------- ------------
Kenneth E. Scott 5,109,781 332,162
DeWitt F. Bowman 5,245,037 196,905
Thomas S. Foley 4,910,846 531,097
Frank P. Greene 5,109,781 332,162
Pamela A. Farr 5,109,781 332,162
George G.C. Parker 5,109,781 332,162
2. An Amendment to the Articles of Incorporation of the Company to reduce the
par value of the shares of the Company was approved: For: 4,849,864;
Against: 517,895; Abstain 74,184.
3. The selection by the Board of Directors of Coopers & Lybrand L.L.P. as
independent public accountants for the fiscal year ending December 31,
1996 was approved: For: 5,367,761; Against: 0; Abstain: 74,182.
In addition, certain matters were presented to the stockholders of the RCM
Small Cap Fund (the "Fund") for approval or ratification. As of the Record
Date, there were 2,950,841 shares of the Fund outstanding and eligible to
vote. At the Special Meeting 2,306,393 shares were present in person or by
proxy, or 78.16% of the shares outstanding on the Record Date. The matters
voted upon by stockholders of the Fund and the resulting votes for each
matter are presented below:
1. The new Investment Management Agreement between the Company, on behalf of
the Fund, and RCM Capital Management, L.L.C. was approved: For: 2,249,677;
Against: 0; Abstain: 43,811.
2. Certain revisions to the investment objectives of the Fund were approved:
For: 1,904,118; Against: 345,624; Abstain: 43,745.
3. A revision to the fundamental investment policies of the Fund regarding
investment in warrants was approved: For: 1,903,958; Against: 345,746;
Abstain: 43,783.
Page 4
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
CONSUMER DURABLES SECTOR 1.36%
AUTOMOTIVE RELATED 0.92%
173,000 Tower Automotive Inc. * $ 4,238,500
OTHER CONSUMER DURABLES 0.44%
66,500 AptarGroup Inc. 2,011,625
CONSUMER NON-DURABLES SECTOR 11.04%
FOOD AND FOOD PROCESSING 0.73%
201,100 UniMark Group Inc. * 3,343,288
GENERAL RETAIL 1.58%
20,000 Big B Inc. 190,000
92,400 Loehmann's Inc. * 2,125,200
99,000 Orchard Supply Hardware Stores Corp. * 2,982,375
55,000 Proffitt's Inc. * 1,952,500
------------
7,250,075
------------
HOUSEHOLD/RELATED NON-DURABLES 1.41%
290,100 Armor All Products Corp. 4,315,238
145,300 Guest Supply Inc. * 2,179,500
------------
6,494,738
------------
LEISURE TIME PRODUCTS/SERVICES 7.32%
233,600 Apple South Inc. 6,248,800
176,000 Bristol Hotel Co. * 5,720,000
293,000 Cooker Restaurant Corp. 3,918,875
247,500 Doubletree Corp. * 8,786,250
273,000 Interstate Hotels Co. * 6,074,250
390,000 Uno Restaurant Corp. * 2,925,000
------------
33,673,175
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
CYCLICAL/CAPITAL GOODS SECTOR 14.64%
AEROSPACE/DEFENSE 1.26%
327,000 Wyman-Gordon Co. * $ 5,804,250
BUILDING AND CONSTRUCTION 2.87%
212,000 Jacobs Engineering Group Inc. * 5,591,500
85,000 NCI Building Systems Inc. * 2,868,750
225,000 Watsco Inc. 4,725,000
------------
13,185,250
------------
CHEMICALS AND TEXTILES 0.48%
97,500 Osmonics Inc. * 2,193,750
INDUSTRIAL EQUIPMENT 2.44%
100,000 Applied Power Inc. Class A 2,800,000
222,000 Duriron Co. Inc. 5,328,000
125,000 Furon Co. 3,093,750
------------
11,221,750
------------
RAW AND BASIC MATERIALS 1.21%
168,000 Commercial Metals Co. 5,586,000
TRANSPORTATION SERVICES 6.38%
301,400 Covenant Transport Inc. Class A * 5,123,800
303,000 Expeditors International of Washington Inc. 9,393,000
128,000 Heartland Express Inc. * 3,424,000
172,900 Mark VII Inc. * 3,479,613
256,200 Railtex Inc. * 6,597,150
70,000 Swift Transportation Co. Inc. * 1,338,750
------------
29,356,313
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
ENERGY SECTOR 2.07%
OIL AND RELATED SERVICES 2.07%
10,000 BJ Services Co. * $ 351,250
12,000 Barrett Resources Corp. * 357,000
109,000 Camco International Inc. 3,692,375
270,000 Forcenergy Gas Exploration Inc. * 5,096,250
------------
9,496,875
------------
HEALTHCARE SECTOR 21.88%
DRUGS & HOSPITAL SERVICES 8.51%
35,500 Allergan Ligand Retinoid Theraputics Inc. * 1,011,750
53,100 Anesta Corp. * 650,475
79,500 Autoimmune Inc. * 745,313
26,000 Cardiac Pathways Corp. * 377,000
50,250 Cyberonics Inc. * 301,500
182,800 Endosonics Corp. * 3,267,550
311,200 Gelman Sciences Inc. * 7,040,900
24,500 IDEC Pharmaceuticals Corp. * 566,563
38,500 ImmuLogic Pharmaceutical Corp. * 351,313
66,100 LUNAR Corp. * 2,280,450
45,750 Magainin Pharmaceuticals Inc. * + 480,375
33,000 MedImmune Inc. * 561,000
72,300 Penederm Inc. * 1,229,100
309,800 Physio-Control International Corp. * 5,460,225
89,000 SangStat Medical Corp. * 1,513,000
107,700 Sepracor Inc. * 1,615,500
60,000 Sofamor/Danek Group Inc. * 1,665,000
42,000 Virus Research Institute Inc. * 383,250
282,000 VISX Inc. * 9,623,250
------------
39,123,514
------------
DRUGS & HOSPITAL SUPPLIES 0.20%
143,000 Bone Care International Inc. * 929,500
HEALTH CARE SERVICES 13.17%
30,000 American HomePatient Inc. * 1,327,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 7
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
HEALTH CARE SERVICES
(CONTINUED)
148,000 American Medical Response Inc. * $ 5,217,000
85,000 Arbor Health Care Co. * 2,316,250
295,000 CIMA Labs Inc. * 2,212,500
206,000 Curative Technologies Inc. * 5,407,500
70,000 Genesis Health Ventures Inc. * 2,196,250
70,000 Harborside Healthcare Corp. * 717,500
193,600 Home Health Corp. of America Inc. * 2,625,700
400,900 Maxicare Health Plans Inc. * 7,566,988
264,000 Multicare Cos. Inc. * 5,016,000
111,900 Orthodontic Centers of America Inc. * 2,965,350
181,100 Renal Treatment Centers Inc. * 5,206,625
143,600 RoTech Medical Corp. * 2,800,200
116,000 Rural/Metro Corp. * 3,973,000
271,500 Summit Care Corp. * 5,973,000
6,600 Total Renal Care Holdings Inc. * 278,850
29,900 Transition Systems Inc. * 852,150
8,700 Universal Health Services Inc., Class B * 227,288
165,000 Veterinary Centers of America Inc. * 3,691,875
------------
60,571,526
------------
INTEREST SENSITIVE SECTOR 6.34%
BANKING 3.61%
170,000 Community First Bankshares Inc. 3,995,000
133,100 Silicon Valley Bancshares * 3,427,325
145,000 Texas Regional Bancshares Inc. Class A 3,625,000
100,000 ValliCorp Holdings Inc. 1,700,000
77,000 WestAmerica Bancorporation 3,869,250
------------
16,616,575
------------
GENERAL FINANCE 1.07%
198,900 AMRESCO Inc. * 3,406,163
66,000 Oxford Resources Corp. * 1,534,500
------------
4,940,663
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 8
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
INSURANCE 1.66%
192,000 American Travellers Corp. * $ 4,416,000
48,000 CMAC Investment Corp. 2,760,000
12,000 Executive Risk Inc. 459,000
------------
7,635,000
------------
SERVICES/MEDIA SECTOR 15.22%
BUSINESS AND FOOD SERVICES 12.36%
555,000 Allied Waste Industries Inc. * 4,925,625
101,000 Caribiner International Inc. * 3,244,625
239,200 G & K Services Inc. Class A 6,817,200
204,400 Inference Corp. Class A * 4,905,600
221,000 Iron Mountain Inc. * 4,641,000
214,000 Personnel Group of America, Inc. * 5,269,750
492,000 Philip Environmental Inc. * 3,874,500
158,000 The Registry Inc. * 4,621,500
106,800 Renaissance Solutions Inc. * 3,030,450
76,000 Romac International * 1,938,000
12,000 SITEL Corp. * 504,000
335,000 Tetra Tech Inc. * 6,700,000
46,000 United Waste Systems Inc. * 1,483,500
90,800 Unitog Co. 2,565,100
90,000 Wilmar Industries Inc. * 2,340,000
------------
56,860,850
------------
COMMUNICATION SERVICES 2.06%
102,500 American Mobile Satellite Corp . * 1,588,750
102,000 Arch Communications Group Inc . * 1,899,750
85,000 CommNet Cellular Inc . * 2,550,000
83,000 Orbital Sciences Corp . * 1,348,750
98,300 Tel-Save Holdings Inc. * 2,088,875
------------
9,476,125
------------
MEDIA SERVICES 0.80%
83,000 Heritage Media Corp. Class A * 3,309,625
15,000 Central European Media Entertainment Ltd. Class A * 375,000
------------
3,684,625
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 9
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
TECHNOLOGY SECTOR 23.81%
COMPUTERS AND OFFICE EQUIPMENT 4.53%
410,000 Black Box Corp. * $ 9,737,500
146,800 Comverse Technology Inc. * 4,477,400
236,000 Micros Systems Inc. * 6,578,500
8,405 Radius Inc. * 23,114
------------
20,816,514
------------
ELECTRONICS AND NEW TECHNOLOGY 13.92%
322,000 Actel Corp. * 5,957,000
14,000 Allen Group Inc. * 304,500
168,000 Altron Inc. * 3,402,000
105,000 CP Clare Corp. * 2,703,750
785,000 Computer Products Inc. * 13,443,125
225,000 Continental Circuits Corp. * 2,643,750
71,000 Elantec Semiconductor Inc. * 639,000
323,000 Kent Electronics Corp. * 10,093,750
301,000 Methode Electronics Inc. Class A 5,117,000
227,000 Network Equipment Technologies Inc. * 4,823,750
367,600 Network General Corp. * 7,903,400
258,100 Sanmina Corp. * 6,968,700
------------
63,999,725
------------
TECHNOLOGY SERVICES 5.36%
72,000 Aspen Technologies Inc. * 3,960,000
112,000 BISYS Group Inc. * 4,228,000
57,200 FileNet Corp. * 2,087,800
48,400 Integrated Systems Inc. * 1,939,025
8,000 NETCOM On-line Communications Services Inc. * 216,000
67,000 PMT Services Inc. * 1,917,875
96,800 SPSS Inc. * 2,420,000
186,800 Unison Software Inc. * 4,716,700
167,000 Wonderware Corp. * 3,152,120
------------
24,637,520
------------
TOTAL EQUITY INVESTMENTS
(COST $350,667,827) 96.36% 443,147,726
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 10
<PAGE>
RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ ------------------------------------------- ---------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
MONEY MARKET FUNDS 0.53%
2,444,858 Seven Seas Series Money Market Fund $ 2,444,858
Principal COMMERCIAL PAPER 2.17%
- -----------
10,000,000 General Electric Capital Corp.
5.32% maturing 7/8/96 9,989,656
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $12,434,514) 2.70% 12,434,514
------------
TOTAL INVESTMENTS (COST $363,102,341) ** 99.06% 455,582,240
OTHER ASSETS LESS LIABILITIES 0.94% 4,316,439
------------
NET ASSETS 100.00% $459,898,679
============
</TABLE>
________________
* Non income-producing security.
** For Federal income tax purposes, cost is $364,305,259 and unrealized
appreciation (depreciation) of equity securities is as follows:
Unrealized appreciation $ 99,577,821
Unrealized depreciation (8,300,840)
------------
Net unrealized appreciation $ 91,276,981
============
+ Securities are registered pursuant to Rule 144A and may be deemed to be
restricted for resale.
The accompanying notes are an integral part of the financial statements.
Page 11
<PAGE>
RCM SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (cost $363,102,341) (Note 1) $ 455,582,240
Cash 572,100
Receivable for Fund shares sold 6,491,381
Receivable for securities sold 4,106,440
Interest receivable 55,230
Dividends receivable 45,440
-------------
Total Assets 466,852,831
-------------
LIABILITIES:
Payable for securities purchased 5,797,283
Payable for investment management fees (Note 4) 1,046,680
Payable for Fund shares repurchased 96,800
Payable for custodian fees 13,389
-------------
Total Liabilities 6,954,152
-------------
NET ASSETS $ 459,898,679
-------------
-------------
NET ASSET VALUE PER SHARE
($459,898,679 DIVIDED BY 33,776,658 shares outstanding) $ 13.62
-------------
-------------
NET ASSETS CONSIST OF:
Paid in capital $ 277,643,688
Accumulated net investment loss (1,104,077)
Accumulated net realized gain on investments 90,879,169
Net unrealized appreciation of investments 92,479,899
-------------
NET ASSETS $ 459,898,679
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 12
<PAGE>
RCM SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest $ 580,475
Dividends 519,255
------------
Total income 1,099,730
------------
Expenses:
Investment management fees (Note 4) 2,176,107
Custodian fees 26,900
Miscellaneous expenses 800
------------
Total expenses 2,203,807
------------
Net investment loss (1,104,077)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 71,220,838
Net unrealized appreciation of investments 8,043,337
------------
Net realized and unrealized gain for the period 79,264,175
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 78,160,098
------------
------------
</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
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 Year ended
(Unaudited) December 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (1,104,077) $ (978,987)
Net realized gain on investments 71,220,838 63,212,427
Net unrealized appreciation on investments 8,043,337 66,594,922
------------- -------------
Net increase in net assets resulting from operations 78,160,098 128,828,362
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (Note 1) - (47,579,854)
NET DECREASE FROM CAPITAL SHARE TRANSACTIONS (NOTE 2) (27,828,088) (87,329,307)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS 50,332,010 (6,080,799)
NET ASSETS:
Beginning of period 409,566,669 415,647,468
------------- -------------
End of period $ 459,898,679 $ 409,566,669
------------- -------------
------------- -------------
</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 and the six months ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Six months ended Year Ended December 31,
June 30, 1996 ------------------------------------------------------------
(Unaudited) (a) 1995 1994 1993 1992
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: (b)
Net asset value, beginning of period $ 11.35 $ 9.42 $ 10.41 $ 10.15 $ 8.33
--------- -------- --------- --------- ---------
Net investment income (loss) (0.03) (0.04) (0.04) (0.00) 0.03
Net realized and unrealized gain (loss)
on investments 2.30 3.21 (0.20) 0.91 1.82
--------- -------- --------- --------- ---------
Net increase (decrease) in net asset value
resulting from investment operations 2.27 3.17 (0.24) 0.91 1.85
--------- -------- --------- --------- ---------
Distributions:
Net investment income (0.00) (0.00) (0.00) (0.00) (0.03)
Net realized gain on investments (0.00) (1.24) (0.75) (0.65) (0.00)
--------- -------- --------- --------- ---------
Total distributions (0.00) (1.24) (0.75) (0.65) (0.03)
--------- -------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.62 $ 11.35 $ 9.42 $ 10.41 $ 10.15
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
TOTAL RETURN (c) 19.98% 34.08% (2.16%) 9.20% 22.14%
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Average commission rate paid per share $ 0.05444 $ 0.05421 - - -
--------- --------
--------- --------
Net assets, end of period (in 000's) $ 459,899 $ 409,567 $ 415,647 $ 660,049 $ 457,994
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Ratio of expenses to average net assets 1.0% (d) 1.0% 1.1% 0.9% 0.7%
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Ratio of net investment income (loss) to
average net assets (0.5%)(d) (0.2%) (0.3%) 0.0% 0.4%
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Portfolio turnover 56.1% (e) 83.9% 117.7% 80.0% 72.0%
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</TABLE>
- -----------------
(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see Note 4).
(b) Stock split 12:1 at the close of business on June 17, 1996 (see Note 2).
All prior period per share amounts were restated to reflect the stock split.
(c) Total return measures the change in value of an investment over the
period indicated.
(d) Annualized.
(e) Not annualized.
The accompanying notes are an integral part of the financial statements.
Page 15
<PAGE>
RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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 Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amount of assets and liabilities.
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 and expenses are accrued daily.
c. FEDERAL INCOME TAXES:
It is the policy of the Fund to comply with the requirements for
qualification as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). It is also the intention
of the Fund to make distributions sufficient to avoid imposition of any
excise tax under Section 4982 of the Code. Therefore, no provision has
been made for Federal or excise taxes on income and capital gains.
Page 16
<PAGE>
RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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. CAPITAL SHARES
At June 30, 1996, there were 1,000,000,000 shares of the Company's common
stock authorized, at $0.0001 par value. Of this amount, 100,000,000 were
classified as shares of the Fund; 300,000,000 were classified as shares of
RCM Growth Equity Fund; 100,000,000 were classified as shares of RCM
International Growth Equity Fund A; and 500,000,000 shares remain
unclassified. As of the close of business on June 17, 1996, each
outstanding share of capital stock of the Fund was split into 12 shares of
capital stock, resulting in a total of 33,476,643 outstanding shares of
capital stock of the Fund. Transactions in capital shares for the Fund
shown below were retroactively restated to reflect the stock split:
CAPITAL SHARE TRANSACTIONS
Six months ended June 30, 1996
(Unaudited)
-----------------------------------
Shares Amount
------------ ------------
Shares sold 3,564,953 $ 45,891,938
Shares repurchased (5,869,923) (73,720,026)
------------ -------------
Net decrease (2,304,970) $(27,828,088)
============ =============
Year ended December 31, 1995
------------------------------------
Shares Amount
------------ -------------
Shares sold 6,672,852 $ 75,194,368
Shares issued in connection with
reinvestment of distributions 4,215,828 46,437,296
Shares repurchased (18,943,232) (208,960,971)
------------ --------------
Net decrease (8,054,552) $ (87,329,307)
============ ==============
At June 30, 1996, five shareholders held more than 5% of the outstanding
shares of the Fund individually and 46% in aggregate.
Page 17
<PAGE>
RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales proceeds of investment securities by the Fund,
excluding short-term securities, aggregated $233,529,566 and $269,866,788,
respectively, for the six months ended June 30, 1996.
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
On June 14, 1996, all of the outstanding general and limited partnership
interests in the Fund's investment manager, RCM Capital Management, a
California Limited Partnership ("Old RCM"), were acquired by RCM Capital
Management, L.L.C. ("RCM"), a wholly owned subsidiary of Dresdner Bank AG,
an international banking organization headquartered in Frankfurt, Germany.
Because the transaction may have constituted an "assignment" of the
Fund's management agreement with Old RCM under the Investment Company Act
of 1940, and thus a termination of such management agreement, the Fund
sought and obtained prior approval of a new management agreement from the
Company's Board of Directors and from the Fund's stockholders at a special
meeting of stockholders of the Company held on May 28, 1996. The terms of
the new management agreement are substantially the same as those of the
previous management agreement.
RCM manages the Fund's investments and provides various administrative
services, subject to the authority of the Board of Directors. The Fund
paid 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 six months ended June 30,
1996, the Fund recorded investment management fees aggregated $2,176,107.
As discussed above, the stockholders approved a new investment management
agreement between the Company, on behalf of the Fund, and RCM. Pursuant
to this new investment management agreement, the Fund pays investment
management fees monthly at an annualized rate of 1.0% of the Fund's
average daily net assets beginning July 1, 1996.
The RCM Capital Management Profit Sharing Plan, participation in which is
limited to employees of RCM, owned 312,910 shares of the Fund on June 30,
1996.
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