<PAGE>
------------------------------
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
---------------------------
RCM SMALL CAP FUND
OFFERED BY:
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATES TO RCM
SMALL CAP FUND, A SERIES OF RCM CAPITAL FUNDS, INC., SPECIALIZING IN EQUITY AND
EQUITY-RELATED SECURITIES OF SMALL CAPITALIZATION COMPANIES
-------------------------------------
RCM SMALL CAP FUND (THE "FUND") is a diversified no-load series of RCM Capital
Funds, Inc. (the "Company"), an open-end management investment company. Shares
of the Fund may be purchased and redeemed at their net asset value without a
sales or redemption charge. (See HOW TO PURCHASE SHARES and REDEMPTION OF
SHARES.) THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO INSTITUTIONS
AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT
AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER,
RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE COMPANY EXPECTS TO
CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER MAY FOR DISCRETIONARY
ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES
AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH CLIENTS, SUBJECT ONLY TO
GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY
EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by investing,
during normal conditions, at least 80% of its assets in equity and
equity-related securities of small-sized concerns (common stocks or securities
convertible into common stocks). (See INVESTMENT OBJECTIVE AND POLICIES.) Such
investments will be chosen with regard to their potential for capital
appreciation. The Investment Manager will not take into consideration the tax
effect of long-term versus short-term capital gains loss recognition when making
investment decisions as it is anticipated that the majority of investors will be
tax-exempt institutions. Current income will be considered only as part of total
investment return and will not be emphasized. "Small-sized concerns" is defined
as encompassing companies whose equity securities have a total market
capitalization of up to $750 million at the time of purchase; however, under
normal market conditions, at least 65% of the Fund's assets will be invested in
equity and equity-related securities of companies whose equity securities have a
total market capitalization of up to $500 million at the time of purchase. There
can be no assurance the Fund will meet its investment objective.
This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Fund that prospective investors should know
before investing. Investors should read this document and retain it for future
use.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus and
Statement of Additional Information in connection with the offer contained in
this Combined Prospectus and Statement of Additional Information, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Combined Prospectus and Statement of
Additional Information is not an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction, or to any person
to whom it is unlawful to make such offer or solicitation in such jurisdiction.
------------------------------
The Date of this Combined Prospectus and Statement of
Additional Information is April 28, 1995.
------------------------------
<PAGE>
------------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
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............................................................... 17
The Investment Manager............................................................... 20
Execution of Portfolio Transactions.................................................. 22
Investment by Employee Benefit Plans................................................. 25
How to Purchase Shares............................................................... 27
Net Asset Value...................................................................... 29
Redemption of Shares................................................................. 30
Dividends, Distributions and Tax Status.............................................. 31
Description of Capital Stock......................................................... 35
Shareholder Reports.................................................................. 36
Counsel.............................................................................. 37
Independent Accountants.............................................................. 37
Safekeeping of Securities, Distributor, and Transfer and Redemption Agent............ 37
Additional Information............................................................... 38
Financial Statements................................................................. 38
</TABLE>
<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, 1994, incorporated
by reference herein, and elsewhere in this Combined Prospectus and Statement of
Additional Information (hereinafter this "Prospectus").
RCM CAPITAL FUNDS, INC. (THE "COMPANY") is an open-end management investment
company. RCM Small Cap Fund (the "Fund") is a diversified no-load series of the
Company. THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY TO INSTITUTIONS
AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT
AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER,
RCM CAPITAL MANAGEMENT (THE "INVESTMENT MANAGER"). THE COMPANY EXPECTS TO
CONTINUE THIS POLICY IN THE FUTURE. THE INVESTMENT MANAGER MAY FOR DISCRETIONARY
ACCOUNT CLIENTS BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES
AND REDEMPTIONS OF SHARES OF THE FUND HELD BY SUCH CLIENTS SUBJECT ONLY TO
GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY
EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by investing,
during normal market conditions, at least 80% of its assets in equity and
equity-related securities of small-sized concerns (common stocks, or securities
convertible into common stocks). Such investments will be chosen with regard to
their potential for capital appreciation. Current income from the Fund's
investment portfolio will be considered only as a part of total investment
return and will not be emphasized. "Small-sized concerns" is defined as
encompassing companies whose equity securities have a market capitalization, at
the time of acquisition of up to $750 million at the time of purchase; however,
under normal market conditions, the Fund will invest at least 65% of its assets
in equity and equity-related securities of companies whose equity securities
have a total market capitalization up to $500 million at the time of purchase
and no more than 35% of its net assets in equity and equity-related securities
of companies whose equity securities have a total market capitalization in
excess of $500 million, but less than $750 million. There can be no assurance
that the Fund will meet its investment objective. The Fund will sell or transfer
securities whenever, as of the end of a calendar quarter, the issuer's market
capitalization exceeds $1 billion.
The Fund will accept subscriptions only when its net assets, at cost, are below
$750 million. When the value of its net assets reaches $750 million, the Fund
will be closed to new investments until such time as the Fund's net assets, at
cost, are reduced by redemption to a level below $750 million. This restriction
on new investments shall not apply to reinvestments of dividends and capital
gains distributions.
Investments in small-sized concerns may involve greater risks than investments
in larger or more established firms. These firms may have limited or
unprofitable operating histories, limited financial resources and inexperienced
management, and they may face competition from larger or more established firms
that have greater resources. Their securities are frequently traded in the over-
the-counter market or on regional exchanges where low trading volumes may result
in erratic or abrupt price movements. The value of the Fund's shares will
fluctuate because of the fluctuations in the value of securities in the Fund's
portfolio. When the
<PAGE>
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 defined in the Investment Advisers Act of 1940, to institutional
and individual clients.
Shares of the Fund are purchased without a sales charge. The minimum initial
investment is $10,000 and the minimum subsequent investment is $1,000. The
Company acts as transfer and redemption agent for the Fund's shares. (See HOW TO
PURCHASE SHARES and REDEMPTION OF SHARES.)
Shareholder inquiries may be directed to the Company or the Investment Manager
in writing to Four Embarcadero Center, Suite 3000, San Francisco, California
94111, or by telephone at (415) 954-5400.
------------------------------
SUMMARY OF FEES AND EXPENSES
---------------------------
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- -------------------------------------------------------
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Hypothetical Example of
Effect of Expenses 1 year 3 years 5 years 10 years
- -------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
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, 1994 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.
- --------------------------------------------------------------------------------
Page 2
<PAGE>
For more information concerning fees and expenses of the Fund, see FINANCIAL
HIGHLIGHTS, THE INVESTMENT MANAGER, EXECUTION OF PORTFOLIO TRANSACTIONS, and
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.
In accordance with applicable SEC regulations, this example assumes that: (1)
the percentage amounts listed under Annual Fund Operating Expenses remain the
same in each year of the one, three, five, and ten year periods; (2) the amount
of the Fund's assets remains constant at the level at the end of its most
recently completed fiscal year; and (3) all dividends and distributions will be
reinvested by the shareholder. This example also reflects recurring fees charged
to all investors. SEC regulations require that the example be based on a $1,000
investment, although the minimum initial purchase of Fund shares is actually
$10,000. (See HOW TO PURCHASE SHARES.)
The Fund is responsible for the payment of certain of its operating expenses,
including brokerage and commission expenses; taxes levied on the Fund; interest
charges on borrowings (if any); charges and expenses of the Fund's custodian;
and payment of investment management fees due to the Investment Manager. The
Investment Manager is responsible for all of the Fund's other ordinary operating
expenses (e.g., legal and audit fees, securities registration expenses and
compensation of non-interested directors of the Company). Expenses attributable
to the Fund are charged against the assets of the Fund. General expenses of the
Company's three series, the Fund, RCM Growth Equity Fund and RCM International
Growth Equity Fund A, are allocated among the three series in a manner
proportionate to the net assets of each series, on a transactional basis or on
such other basis as the Board of Directors deems equitable. (See THE INVESTMENT
MANAGER.)
Clients of the Investment Manager who are shareholders of the Fund will, through
the Fund, pay a fee to the Investment Manager on the portion of their assets
invested in shares of the Fund. However, such clients will not pay additional
fees to the Investment Manager on the portions of their assets invested in the
Fund. A Client's assets not invested in shares of the Fund will be subject to
fees in accordance with the Investment Management Agreement or Investment
Advisory Agreement between the Client and the Investment Manager. Clients who
invest in shares of the Fund will generally pay an aggregate fee which is higher
than that paid by other Clients not invested in the Fund. (See INVESTMENT
MANAGER and INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
- --------------------------------------------------------------------------------
Page 3
<PAGE>
------------------------------
FINANCIAL HIGHLIGHTS
---------------------------
The following supplementary information has been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their opinion appearing elsewhere
in the Fund's 1994 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 three years
ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 124.94 $ 121.82 $ 100.00
-------- -------- --------
Net investment income (loss)............................................. (0.51) (0.01) 0.31
Net realized and unrealized gain (loss) on investments................... (2.43) 10.90 21.82
-------- -------- --------
Net increase (decrease) in net asset value resulting from investment
operations.............................................................. (2.94) 10.89 22.13
-------- -------- --------
Distributions:
Net investment income.................................................. (0.00) (0.00) (0.31)
Net realized gain on investments....................................... (8.99) (7.77) (0.00)
-------- -------- --------
Total distributions.................................................. (8.99) (7.77) (0.31)
-------- -------- --------
Net asset value, end of period........................................... $ 113.01 $ 124.94 $ 121.82
-------- -------- --------
-------- -------- --------
TOTAL RETURN*.............................................................. (2.16%) 9.20% 22.14%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)....................................... $415,647 $660,049 $457,994
-------- -------- --------
-------- -------- --------
Ratio of expenses to average net assets.................................... 1.1% 0.9% 0.7%
-------- -------- --------
-------- -------- --------
Ratio of net investment income (loss) to average net assets................ (0.3%) 0.0% 0.4%
-------- -------- --------
-------- -------- --------
Portfolio turnover......................................................... 117.7% 80.0% 72.0%
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------------------
* 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 value ("ERV"). The ending value divided by the initial
investment converted to a percentage equals total return. The formula thus used,
as required by the SEC, is:
P(1+T)N = ERV
The resulting percentage indicates the positive or negative investment results
that an investor would have experienced from reinvested dividends and capital
gain distributions and changes in share price during the period.
This formula reflects the following assumptions: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial investment;
(2) reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated. Total return may be calculated for one year, five
years, ten years, and for other periods, and will typically be updated on a
quarterly basis. The average annual compound rate of return over various periods
may also be computed by utilizing ending values as determined above.
Average total returns for the one and three year periods ended December 31, 1994
are -2.16% and 9.28%, respectively.
In addition, in order more completely to represent the Fund's performance or
more accurately to compare such performance to other measures of investment
return, the Fund also may include in advertisements and shareholder reports
other total return performance data based on time-weighted, monthly-linked total
returns computed on the percentage change of the month-end net asset value of
the Fund after allowing for the effect of any cash additions and withdrawals
recorded during the month. Returns may be quoted for the same or different
periods as those for which average total return is quoted.
The Fund's investment results will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and operating expenses, so
that any investment results reported should not be considered representative of
what an investment in the Fund may earn in any future period. These factors and
possible differences in calculation methods should be considered when comparing
the Fund's investment results with those published for
- --------------------------------------------------------------------------------
Page 5
<PAGE>
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.
------------------------------
INVESTMENT OBJECTIVE AND POLICIES
---------------------------
The Fund is designed to provide investors with a vehicle for investment
primarily in a diversified group of equity and equity-related securities of
small-sized concerns. The Fund's investment objective is to seek appreciation of
capital by investing, during normal conditions, at least 80% of its assets in
equity and equity-related securities of small-sized concerns (common stocks or
securities convertible into common stocks). Such investments will be chosen with
regard to their potential for capital appreciation. Current income from the
Fund's investment portfolio will be considered only as a part of total return
and will not be emphasized. "Small-sized concerns" is defined under applicable
law as encompassing companies whose equity securities have a total market
capitalization of up to $750 million (at the time of purchase of the securities
of such a company). This investment objective is fundamental and cannot be
changed without shareholder approval. Under normal market conditions, the Fund
will invest at least 65% of its assets in equity and equity-related securities
of companies whose equity securities have a total market capitalization up to
$500 million at the time of purchase and no more than 35% of its assets in
equity and equity-related securities of companies whose equity securities have a
total market capitalization at the time of purchase in excess of $500 million,
but less than $750 million.
Under normal market conditions, the Fund will not purchase equity and
equity-related securities of companies whose equity securities have a total
market capitalization of greater than $750 million at the time of purchase. The
market capitalization of each issuer's equity securities will be evaluated on a
quarterly basis. The Fund will not be required to sell portfolio securities
solely on account of the fact that the market capitalization of the issuer's
equity securities has exceeded $750 million, or be prevented from purchasing or
be required to sell other portfolio securities as a result of such change.
However, the Fund will sell or transfer portfolio securities whenever, as of the
end of a calendar quarter, the issuer's market capitalization exceeds $1
billion. There is no minimum market capitalization for an issuer's equity
securities to be considered an appropriate investment for the Fund. Although the
market capitalization of portfolio securities at the time of purchase is used
for compliance purposes, the Fund anticipates that the average market
capitalization of the portfolio at market value will approximate $300 million to
$400 million and that the average market capitalization of the portfolio at
market value will not exceed $450 million. There can be no assurance that the
Fund's investment objective will be achieved.
Critical factors which will be considered by the Investment Manager in the
selection of securities will include the economic and political outlook, the
values of individual securities relative to other securities investment
alternatives, trends in the determinants of corporate profits, and management
capability and practices. Generally speaking, disposal of a portfolio security
will be based upon
- --------------------------------------------------------------------------------
Page 6
<PAGE>
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.
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 is 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, 1994, 1993 and 1992 was 117.7%, 80.0% and
72.0%, respectively. The increase in the Fund's portfolio turnover rate in 1994
was primarily due to a consolidation in the number of portfolio positions held
by the Fund during the year and the departure of one of the Fund's primary
portfolio managers.
- --------------------------------------------------------------------------------
Page 7
<PAGE>
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 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 sub-custody 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.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
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 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
- --------------------------------------------------------------------------------
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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.)
------------------------------
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,
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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 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. (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
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<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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.
------------------------------
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
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<PAGE>
holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets;
2. Invest more than 25% of the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States of America, its agencies and instrumentalities);
3. Invest in foreign securities if immediately after and as a result of such
investment the value of the holdings of the Fund in foreign securities
exceeds 10% of the value of the Fund's total assets;
4. Acquire more than 10% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. Purchase or sell real estate; provided that the Fund may invest in readily
marketable securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
7. Invest in interests in oil, gas, or other mineral exploration or development
programs, or warrants to buy equity securities; provided however, that this
policy shall not prevent the ownership, holding or sale of warrants or other
rights where the grantor of the warrants or other rights is the issuer of
underlying securities owned by the Fund;
8. Issue senior securities, except that the Fund may borrow amounts, up to 5%
of the total assets taken at cost or at market value, whichever is lower,
and only from banks as a temporary measure for extraordinary or emergency
purposes and the Fund may engage in activities listed in Investment
Restriction 10. The Fund will not mortgage, pledge, hypothecate or in any
other manner transfer as security for an indebtedness any of its assets;
9. Purchase securities on margin, but it may obtain such short-term credit from
banks as may be necessary for the clearance of purchases and sales of
securities;
10. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, and (ii) the purchase of bank
obligations such as certificates of deposit, bankers' acceptances and other
short-term debt obligations. Notwithstanding the foregoing, the Fund may:
(i) enter into repurchase agreements with respect to commercial paper,
certificates of deposit and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and (ii) loan portfolio
securities to brokers, dealers and other financial institutions where such
loan is callable by the Fund at any time on reasonable notice and is fully
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;
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12. Act as an underwriter of securities issued by other persons, or invest more
than 5% of the value of its net assets in securities that are illiquid;
13. Invest more than 5% of its net assets in the securities of any issuer which
shall have a record of less than three years of continuous operation
(including the operation of any predecessor);
14. Purchase the securities of any other investment company or investment trust,
except by purchase in the open market where, to the best information of the
Company, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase and such purchase
does not result in such securities exceeding 5% of the value of the Fund's
total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;
15. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs or average prices among them,
is not deemed to result in a securities trading account);
16. Purchase from or sell portfolio securities to its officers, directors, or
other "interested persons" (as defined in the 1940 Act) of the Company,
other than otherwise unaffiliated broker-dealers;
17. Purchase or retain the securities of an issuer if, to the Company's
knowledge, one or more of the directors, officers, partners or employees of
the Company or the Investment Manager individually own beneficially more
than 1/2 of 1% of the securities of such issuer and together own
beneficially more than 5% of such securities;
18. Purchase or sell stock index futures or purchase related options if,
immediately thereafter, more than 30% of the value of its net assets would
be hedged, or the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premiums paid for related options would
exceed 5% of the market value of the Fund's total assets; or
19. Purchase commodities or commodity contracts, except that the Fund may
purchase securities of an issuer which invests or deals in commodities or
commodity contracts, and except that the Fund may enter into futures and
options contracts only for hedging purposes. The Fund has no current
intention of entering into commodities contracts except for stock index
futures and related options.
The Fund also is subject to other restrictions under the 1940 Act; however, the
registration of the Company under the 1940 Act does not involve any supervision
by any Federal or other agency of the Company's management or investment
practices or policies, other than incident to occasional or periodic compliance
examinations conducted by the SEC staff.
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------------------------------
DIRECTORS AND OFFICERS
---------------------------
The names and addresses of the directors and officers of the Company and their
principal occupations and certain other affiliations during the past five years
are given below. Unless otherwise specified, the address of each of the
following persons is Suite 3000, Four Embarcadero Center, San Francisco,
California 94111.
WILLIAM L. PRICE,*+ Chairman of the Board, President and Director. Mr. Price is
a Principal of RCM Capital Management ("RCM"), with which he has been associated
since 1977.(1) He is also a limited partner of RCM Limited L.P., a California
limited partnership ("RCM Limited"), the sole General Partner of RCM; a
Director, Executive Vice President, and a shareholder of RCM General Corporation
("RCM General"), the sole General Partner of RCM Limited; Executive Vice
President and Trustee of RCM Capital Trust Company ("RCM Trust"); a General
Partner of RREEF Partners, a California general partnership comprised of
principals of RCM Limited (RREEF Partners owns an interest in RREEF America
Partners, a real estate investment manager); and a shareholder of The RREEF
Corporation, a real estate investment manager.
CLAUDE N. ROSENBERG, JR.,*+ Vice Chairman of the Board and Director. Mr.
Rosenberg is the Senior Principal of RCM, with which he has been associated
since 1970. (See THE INVESTMENT MANAGER.) He is also a limited partner of RCM
Limited; Chairman of the Board, President, Chief Executive Officer, and a
shareholder of RCM General; Chairman of the Board, Trustee and Chief Executive
Officer of RCM Trust; a General Partner of RREEF Partners; and a shareholder of
The RREEF Corporation.
JOHN D. LELAND, JR.,*+ Vice President and Director. Mr. Leland is a Principal
of RCM, with which he has been associated since 1972. He is also a limited
partner of RCM Limited; a shareholder of RCM General; Vice President of RCM
Trust; a General Partner of RREEF Partners; and a shareholder of The RREEF
Corporation.
G. NICHOLAS FARWELL,+ Vice President and Director. Mr. Farwell is a Principal
of RCM, with which he has been associated since 1980. He is also a limited
partner of RCM Limited; a shareholder of RCM General; and a General Partner of
RREEF Partners.
MICHAEL J. APATOFF,+ Vice President, Chief Operating Officer and Director. Mr.
Apatoff is a Principal and Chief Operating Officer of RCM, with which he has
been associated since 1991. He is also a limited
- ------------------------
* Member, Executive Committee of the Company.
** Member, Audit Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in Section
2(a)(19) of the 1940 Act.
1 RCM Capital Management ("RCM") was established in July, 1986 as the
successor to Rosenberg Capital Management (which was established in 1970).
Any historical references herein to RCM prior to July, 1986 refer to the
operations of Rosenberg Capital Management.
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partner of RCM Limited; a Director, Executive Vice President and shareholder of
RCM General; Vice President of RCM Strategic Global Government Fund, Inc.; a
closed-end management investment company ("RCS"); and Trustee and Vice President
of RCM Trust. From 1986 to 1991 he was an Executive Vice President and Chief
Operating Officer of the Chicago Mercantile Exchange.
KENNETH B. WEEMAN, JR.,+ Vice President and Director. Mr. Weeman is a Principal
of RCM, with which he has been associated since 1979. He is also a limited
partner of RCM Limited; a shareholder of RCM General; Vice President of RCM
Trust; and a General Partner of RREEF Partners.
JOHN A. KRIEWALL,+ Director. Mr. Kriewall is a Principal of RCM, with which he
has been associated since 1973. He is also a limited partner of RCM Limited;
Executive Vice President and a shareholder of RCM General; and a General Partner
of RREEF Partners.
KENNETH E. SCOTT,** Director. Mr. Scott is the Ralph M. Parsons Professor of
Law and Business at Stanford Law School, where he has been since 1967. He is
also a director of certain registered investment companies managed by Benham
Capital Management.
WALTER C. PRICE, JR., Vice President. Mr. Price is a Principal of RCM, with
which he has been associated since 1974. He is also a limited partner of RCM
Limited; a shareholder of RCM General; and a General Partner of RREEF Partners.
HUACHEN CHEN, Vice President. Mr. Chen is a Principal of RCM, with which he has
been associated since 1985. He is also a limited partner of RCM Limited and a
shareholder of RCM General.
SUSAN C. GAUSE, Treasurer, Principal Accounting Officer and Chief Financial
Officer. Ms. Gause is the Director of Finance at RCM, with which she has been
associated since 1994. She is also Treasurer, Principal Accounting Officer and
Chief Financial Officer of RCS, and Chief Financial Officer, Treasurer, and
Trust Officer of RCM Trust. From December 1990 to June 1994, she was employed by
Citicorp Bankers Leasing, where she was Chief Financial Officer and Controller.
Prior to that she was Assistant Controller and Accounting Manager at Sierra
Capital Realty Advisers, from December 1988 to December 1990.
ANTHONY AIN, Vice President, Secretary and General Counsel. Mr. Ain is General
Counsel at RCM, with which he has been associated since April 1992. He is also
General Counsel and Secretary of RCM Limited; Vice President, General Counsel
and Secretary of RCM General; Vice President, General Counsel and Secretary of
RCS; and Vice President, General Counsel and Secretary of RCM Trust. From
September 1988 to April 1992 he was employed by the SEC, where he was senior
special counsel and counsel to a Commissioner.
WILLIAM S. STACK, Vice President. Mr. Stack is a member of the Equity Portfolio
Management Team and the Chief Investment Officer of International Equities at
RCM, with which he has been associated since 1994. He is also a Director of RCM
General. From October 1985 to August 1994, he was employed by Lexington
Management Corporation, where he was a Managing Director and Chief Investment
- ------------------------
* Member, Executive Committee of the Company.
** Member, Audit Committee of the Company.
+ Director who is an "interested person" of the Company, as defined in Section
2(a)(19) of the 1940 Act.
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<PAGE>
Officer and managed mutual funds and investment in global, international and
domestic securities.
It is presently anticipated that regular meetings of the Board of Directors will
be held on a quarterly basis. The Executive Committee of the Company will meet
as required when the full Board does not meet, for the purpose of reviewing the
Fund's investment portfolio. The Executive Committee has the authority to
exercise all of the powers of the Company's Board of Directors at any time when
the Board is not in session, except the power to declare dividends or
distributions, authorize the issuance of securities, amend the Company's
By-Laws, recommend to stockholders of the Company any action requiring their
approval or as otherwise required by the 1940 Act. The Company's Audit
Committee, whose sole present member is Mr. Scott, meets with the Company's
independent accountants to exchange views and information and to assist the full
Board in fulfilling its responsibilities relating to corporate accounting and
reporting practices.
Mr. Scott receives a fee of $6,000 per year plus $1,000 for each Board meeting
attended, and is reimbursed for his travel and other expenses incurred in
connection with attending Board meetings. The Investment Manager bears this
expense. Mr. Scott receives no pension or retirement benefits from the Company
and is not a director of any other registered investment Company advised by the
Investment Manager or any of its affiliates, or any other fund that holds itself
out to investors as related to the Company.
The Investment Manager uses a system of multiple portfolio managers to manage
the Fund's assets. Under this system, the portfolio of the Fund is divided into
smaller segments ("portfolios"). Each portfolio is assigned to an individual
portfolio manager who is employed as a research and portfolio management
professional by the Investment Manager. Some of the Fund's portfolios may be
limited to particular industry groups, and a particular portfolio manager may be
responsible for more than one portfolio. Subject to the objectives for that
portfolio and to the Fund's overall investment objectives, guidelines, and
restrictions, the portfolio manager for each portfolio determines how that
portfolio will be invested. The primary portfolio managers for the Fund are the
following individuals:
JOHN A. KRIEWALL. Mr. Kriewall has managed one or more of the Fund's portfolios
since the Fund's inception in 1992. He is a member of the Investment Manager's
Equity Portfolio Management Team and is the Head of its Equity Research Division
and a principal of the firm, and he is a director of the Company. Mr. Kriewall
is also one of the primary portfolio managers of the RCM Growth Equity Fund. He
has been associated with the Investment Manager since 1973.
G. NICHOLAS FARWELL. Mr. Farwell has managed one or more of the Fund's
portfolios since the Fund's inception in 1992. He is a member of the Investment
Manager's Equity Portfolio Management Team, and he is a director of the Company.
Mr. Farwell is also one of the primary portfolio managers of the RCM Growth
Equity Fund. He has been associated with the Investment Manager since 1980.
GARY B. SOKOL. Mr. Sokol has managed one or more of the Fund's portfolios since
the Fund's inception in 1992. He is a senior research analyst and a senior vice
president of the Investment Manager. He has been associated with the Investment
Manager since 1988.
The establishment of objectives for each portfolio, the distribution and
redistribution of assets among portfolios, and the oversight
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<PAGE>
of the investment management of each portfolio is the responsibility of the
Investment Manager's Steering Committee. The Steering Committee is chaired by
William L. Price, the Chairman and President of the Company; the other members
of the Steering Committee are John A. Kriewall, G. Nicholas Farwell and Huachen
Chen.
The RCM Capital Management Profit-Sharing Plan (the "Plan") is a plan limited to
principals and employees of the Investment Manager. The Plan, which is exempt
from federal income taxation under Section 501 of the Internal Revenue Code of
1986, was the owner of 24,956 shares of the Fund's Capital Stock on March 31,
1995, constituting less than 1% of total shares outstanding at that date. Each
director or officer of the Company listed in this Prospectus (other than Mr.
Scott and Mr. Stack) is a beneficiary of this trust and has vested rights in its
assets. Otherwise, no director or officer of the Company was a beneficial owner
of any shares of the Fund's outstanding Common Stock as of March 31, 1995.
------------------------------
THE INVESTMENT MANAGER
---------------------------
The Company's Board of Directors has overall responsibility for the operation of
the Fund. Pursuant to such responsibility, the Board has approved contracts for
various financial organizations to provide, among other things, day to day
management services required by the Fund. The Company, on behalf of the Fund,
has retained as the Fund's Investment Manager RCM Capital Management (the
"Investment Manager"), a limited partnership with principal offices at Suite
3000, Four Embarcadero Center, San Francisco, California 94111. The Investment
Manager is actively engaged in providing investment supervisory services to
institutional and individual clients, and is registered under the Investment
Advisers Act of 1940.
The Investment Manager was established in July, 1986, as the successor to the
business and operations of Rosenberg Capital Management (established in 1970).
The General Partner and controlling person of the Investment Manager is RCM
Limited, which is the successor in interest to RCM General, the former General
Partner. RCM Limited is managed by its General Partner, RCM General Corporation,
a California corporation. RCM Limited also has 19 limited partners, all of whom
are principals of the Investment Manager and shareholders of RCM General
Corporation: Claude N. Rosenberg, Jr.; John D. Leland, Jr.; Lee N. Price; Gary
W. Schreyer; William L. Price; Walter C. Price, Jr.; John A. Kriewall; Edward C.
Derkum; Jeffrey S. Rudsten; Kenneth B. Weeman, Jr.; Andrew C. Whitelaw; G.
Nicholas Farwell; Ellen M. Courtien; Melody L. McDonald; Michael J. Apatoff;
Eamonn F. Dolan, Joanne L. Howard; Stephen Kim; and Huachen Chen.
The sole limited partner of the Investment Manager is RCM Acquisition, Inc., a
wholly owned, indirect subsidiary of The Travelers Inc. ("Travelers").
Travelers, whose principal executive offices are located at 65 East 55th Street,
New York, New York 10022, is a financial services holding company engaged,
through its subsidiaries, principally in the businesses of life and property and
casualty insurance services, consumer finance services, and investment services.
The common stock of Travelers is listed for trading on the New York Stock
Exchange. Neither RCM Acquisition, Inc. nor Travelers has the power to control
the management or operations of the Investment Manager. Pursuant
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<PAGE>
to the agreement between Primerica Corporation, the predecessor of Travelers,
and RCM Limited L.P., Travelers has an option to acquire the remaining interest
of the Investment Manager from RCM Limited L.P. in the year 2000.
The Investment Manager provides the Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreement") dated January 1, 1992. The Investment
Manager manages the Fund's investments, provides various administrative
services, and supervises the Fund's daily business affairs, subject to the
authority of the Board of Directors. In addition, the Investment Manager
provides persons satisfactory to the Company's Board of Directors to act as
officers and employees of the Company. Such officers and employees, as well as
certain directors of the Company, may be principals or employees of the
Investment Manager. The Investment Manager is also the investment manager for
RCM Growth Equity Fund and RCM International Growth Equity Fund A, the two other
series of the Company, RCM Strategic Global Government Fund, Inc., a closed-end
management investment company, and is sub-adviser to Bergstrom Capital
Corporation, a closed-end management investment company.
The Management Agreement was approved by the Fund's stockholders on April 28,
1993, and was most recently approved for renewal by the unanimous vote of the
Board of Directors of the Company on June 30, 1994. The Management Agreement
will continue in effect until July 1, 1995. 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.
The Investment Manager is, under the Management Agreement, responsible for all
of the Company's other ordinary operating expenses (e.g., legal and audit fees,
SEC and "Blue Sky" registration expenses, and compensation, if any, paid to
officers and employees of the Company), including the compensation of the
disinterested director of the Company. (See DIRECTORS AND OFFICERS.)
For the services rendered by the Investment Manager under the Management
Agreement, the Fund pays a quarterly fee to the Investment Manager equal to 1/4
of 1% (1%
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<PAGE>
on an annual basis) of the average month end net assets of the Fund. This is
higher than the fee paid by most other registered investment companies. For the
years ended December 31, 1994, 1993 and 1992, the Fund incurred investment
management fees aggregating $6,060,756, $5,028,115 and $854,998, 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, 1993 and 1994, 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 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
- --------------------------------------------------------------------------------
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<PAGE>
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 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 is
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
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<PAGE>
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 1994, 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, 1994, 1993 and 1992, the Fund paid in
brokerage commissions $4,228,279, $3,304,283 and $2,821,214, respectively, and
its turnover rates during such periods were 117.7%, 80.0% and 72.0%,
respectively.
As noted above, the limited partner of the Investment Manager is RCM
Acquisition, Inc., a wholly owned, indirect subsidiary of Travelers. Smith
Barney Inc. ("Smith Barney") is a wholly owned subsidiary of Travelers, and The
Robinson-Humphrey Company Inc. ("Robinson-Humphrey") is a subsidiary of Smith
Barney. Smith Barney and Robinson-Humphrey are registered broker-dealers. The
Investment Manager believes that it is in the best interests of the Fund to have
the ability to execute brokerage transactions through Smith Barney and
Robinson-Humphrey. Accordingly, the Investment Manager intends to execute
brokerage transactions on behalf of the Fund through Smith Barney and Robinson-
Humphrey, when appropriate, and to the extent consistent with applicable laws
and regulations. In all such cases, Smith Barney or Robinson-Humphrey will act
as agent for the Fund, and the Investment Manager will not enter into any
transaction on behalf of the Fund in which Smith Barney or Robinson-Humphrey is
acting as principal for its own account. In connection with such agency
transactions, Smith Barney or Robinson-Humphrey may receive compensation in the
form of a brokerage commission separate from the Investment Manager's management
fee. It is the Investment Manager's policy that such commissions be reasonable
and fair when compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities and that
the commissions paid to Smith Barney or Robinson-Humphrey, as the case may be,
are no higher than the commissions paid to that broker by any other similar
customer of that broker who receives brokerage and research services that are
similar in scope and quality to those received by the Fund.
The Investment Manager performs investment management and advisory services for
various clients, including pension, profit-sharing and other employee benefit
trusts, as well as individuals. In many cases, portfolio
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
6. The second fiduciary or any successor thereto is notified in writing of any
change in any of the rates of fees referred to in Paragraph 5 and approves
in writing the continuation of the purchases and sales and the continued
holding of shares acquired prior to the change. Such approval may be limited
solely to the investment advisory and other fees.
As noted above, the Fund and the Investment Manager intend to conform with the
above provisions in connection with investments in the Fund by employee benefit
plans managed by the Investment Manager. The Fund and Investment Manager solicit
approval of specified purchase programs as described in Paragraph 5(c) above.
Such a program will establish a purchase limitation based either on a specific
dollar amount or on a percentage of the total assets of a plan which are
committed to investment in equity and equity-related securities supervised by
the Investment Manager.
------------------------------
HOW TO PURCHASE SHARES
---------------------------
THE FUND CURRENTLY OFFERS ITS SHARES SOLELY TO INSTITUTIONS AND INDIVIDUALS WHO
HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR AN INVESTMENT ADVISORY
AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT. THE FUND
EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. IN THIS CAPACITY, THE INVESTMENT
MANAGER MAY BE AUTHORIZED TO DETERMINE THE AMOUNT AND TIMING OF PURCHASES AND
REDEMPTIONS OF SHARES HELD BY DISCRETIONARY CLIENTS SUBJECT ONLY TO GENERAL
AUTHORIZATIONS AND GUIDELINES OF THE INVESTMENT MANAGER'S DISCRETIONARY CLIENTS.
(See INVESTMENT BY EMPLOYEE BENEFIT PLANS above.)
Shares of the Fund are offered on a continuous basis at the net asset value per
share (next determined after acceptance of orders), without any sales or other
charge. The initial investment must be at least $10,000, and there is a $1,000
minimum for additional investments other than through the Fund's
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<PAGE>
automatic dividend reinvestment plan (see DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS). The Company reserves the right at any time to waive, increase, or
decrease the minimum requirements applicable to initial or subsequent
investments.
Eligible investors or their duly authorized agents may purchase shares from the
Company by sending a signed, completed subscription form to the Company at Suite
3000, Four Embarcadero Center, San Francisco, California 94111 (telephone (415)
954-5400). Subscription forms can be obtained from the Investment Manager or the
Company. The Company, on behalf of the Fund, does not have dealer agreements.
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape, on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on that
day. The Company reserves the right to reject any order at its sole discretion.
Orders received after the close of the New York Stock Exchange composite tape,
or on any day on which the New York Stock Exchange is not open for trading, will
be priced at the close of the New York Stock Exchange composite tape on the next
succeeding date on which the New York Stock Exchange is open for trading. Net
asset value normally is not calculated for any day on which an order for shares
is not received 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
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<PAGE>
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.
------------------------------
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 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 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
- --------------------------------------------------------------------------------
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<PAGE>
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 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.
- --------------------------------------------------------------------------------
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<PAGE>
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.
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.
- --------------------------------------------------------------------------------
Page 31
<PAGE>
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
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
- --------------------------------------------------------------------------------
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<PAGE>
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 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, non-resident
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). 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 non-resident 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
- --------------------------------------------------------------------------------
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<PAGE>
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 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
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<PAGE>
information on dividends, capital gains distributions and other reportable
amounts with respect to shares of the Fund for tax purposes, including
information such as the portion taxable as capital gains, and the amount of
dividends, if any, eligible for the federal dividends received deduction for
corporate taxpayers.
The foregoing is a general abbreviated summary of present United States Federal
income tax laws and regulations applicable to dividends and distributions by the
Fund. Investors are urged to consult their own tax advisers for more detailed
information and for information regarding any foreign, state, and local tax laws
and regulations applicable to dividends and distributions received.
------------------------------
DESCRIPTION OF CAPITAL STOCK
---------------------------
The Company was incorporated in Maryland on March 16, 1979. The authorized
capital stock of the Company is 25,000,000 shares of Capital Stock (par value
$0.10 per share) of which 8,000,000 shares have been designated as shares of RCM
Small Cap Fund. 12,000,000 shares have been designated as shares of RCM Growth
Equity Fund and 4,500,000 shares have been designated as shares of RCM
International Growth Equity Fund A. The Company's Board of Directors has
authorized the issuance of three series of shares of capital stock, each
representing an interest in one of three investment portfolios, RCM Growth
Equity Fund, RCM Small Cap Fund and RCM International Growth Equity Fund A, and
the Board of Directors may, in the future, authorize the issuance of other
series of capital stock representing shares of additional investment portfolios
or funds. All shares of the Company have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by series is required
by law or where the matter involved affects only one series. There are no
conversion or preemptive rights in connection with any shares of the Company.
All shares of the Fund when duly issued will be fully paid and non-assessable.
The rights of the holders of shares of the Fund may not be modified except by
vote of the majority of the outstanding shares of the Fund. Certificates are not
issued unless requested and are never issued for fractional shares. Fractional
shares are liquidated when an account is closed. As of March 31, 1995, there
were 3,385,723.445 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 Outstanding as
Address of of
Beneficial Owner Shares Held March 31, 1995
----------------------------------------- -------------- ----------------
<S> <C> <C>
Fidelity Management Trust Co. 544,566.738 16.08%
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
First Interstate Bank of Oregon 491,125.751 14.51%
State of Oregon and RCM Stock Fund
P.O. Box 2971
Salem, Oregon 97208
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
<TABLE>
<CAPTION>
% of Shares
Name and Outstanding as
Address of of
Beneficial Owner Shares Held March 31, 1995
----------------------------------------- -------------- ----------------
<S> <C> <C>
Bankers Trust Company 227,127.438 6.71%
Northrop Corp. Employee Benefits Master Trust
34 Exchange Place
Jersey City, New Jersey 07302
The Northern Trust Company 171,998.819 5.08%
The J. Paul Getty Trust
50 South LaSalle Street C-1N
Chicago, Illinois 60675
Chase Manhattan Bank, N.A. -- Directed Pension 170,395.580 5.03%
Armco Steel Company
3 Metrotech Center
Brooklyn, New York 11245
</TABLE>
Except as described below, 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 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 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
- --------------------------------------------------------------------------------
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<PAGE>
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., 333 Market Street, San Francisco, California 94105,
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 taxation.
The financial statements of the Fund incorporated by reference herein have been
audited by Coopers & Lybrand L.L.P., independent accountants, as stated in their
opinion appearing therein and are included in reliance upon such opinion given
upon the authority of said firm as experts in accounting and auditing.
------------------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER
AND REDEMPTION AGENT
---------------------------
State Street Bank and Trust Company, U.S. Mutual Funds Services Division, P.O.
Box 1713, Boston, Massachusetts 02105 serves as custodian of all securities and
funds owned by the Fund in accordance with the terms of a Custodial Agreement
between the Company and the Custodian. The Custodian also provides dividend
paying services to the Fund.
The Company acts as its own transfer and redemption agent for its common stock
and solicits orders from qualified investors to purchase shares of the Fund.
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<PAGE>
------------------------------
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 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, 1994, including the Report of Independent Accountants, dated
February 15, 1995, 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.
- --------------------------------------------------------------------------------
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<PAGE>
INVESTMENT MANAGER
RCM Capital Management
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION
AGENT
RCM Capital Funds, Inc.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
Combined Prospectus and
Statement of Additional Information
April 28, 1995
