<PAGE>
RULE 497(e)
1933 Act File No. 2-63825
------------------
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
------------------
RCM GROWTH EQUITY FUND
Offered by:
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
(415) 954-5400
THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION RELATES TO RCM
GROWTH EQUITY FUND, A SERIES OF RCM CAPITAL FUNDS, INC., SPECIALIZING IN EQUITY
AND EQUITY-RELATED SECURITIES OF SMALL- TO MEDIUM-SIZED CONCERNS
------------------
RCM GROWTH EQUITY FUND (THE "FUND") is a diversified no-load series of RCM
Capital Funds, Inc. (the "Company"), an open-end management investment
company. Shares of the Fund may be purchased and redeemed at their net asset
value without a sales or redemption charge. (See HOW TO PURCHASE SHARES and
REDEMPTION OF SHARES.) THE COMPANY CURRENTLY OFFERS SHARES OF THE FUND SOLELY
TO INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN
INVESTMENT MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE
FUND'S INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT, L.L.C. (THE "INVESTMENT
MANAGER"). THE COMPANY EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. THE
INVESTMENT MANAGER MAY FOR DISCRETIONARY ACCOUNT CLIENTS BE AUTHORIZED TO
DETERMINE THE AMOUNT AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES OF THE
FUND HELD BY SUCH CLIENTS, SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND
GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by
investing, during normal conditions, at least 80% of its investments, and at
least 65% of its total assets, in equity and equity-related securities of
small- to medium-sized concerns, primarily common stocks. (See INVESTMENT
OBJECTIVE AND POLICIES.) Such investments will be chosen primarily with
regard to their potential for capital appreciation. The Investment Manager
will not take into consideration the tax effect of long-term versus
short-term capital gains when making investment decisions. Current income of
securities in which the Fund has invested, or may invest, will be considered
only as part of total investment return and will not be emphasized. "Small-
to medium-sized concerns" is defined as encompassing companies whose equity
securities have a market capitalization not exceeding that of the largest
company included in the Standard & Poor's MidCap 400 Index. As of the date
hereof, the Standard & Poor's MidCap 400 Index includes companies with market
capitalizations ranging from approximately $143 million to $6.4 billion.
There can be no assurance the Fund will meet its investment objective.
This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Fund that prospective investors should
know before investing. Investors should read this document and retain it for
future use.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations other than those contained in this Combined Prospectus and
Statement of Additional Information in connection with the offer contained in
this Combined Prospectus and Statement of Additional Information, and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company. This Combined Prospectus and Statement
of Additional Information is not an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any jurisdiction or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
------------------
The Date of this Combined Prospectus and Statement of
Additional Information is July 22, 1996.
------------------
<PAGE>
------------------
TABLE OF CONTENTS
------------------
PAGE
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . . 6
Stock Index Futures Transactions . . . . . . . . . . . . . . . . . . . . . . 9
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Investment Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 20
Investment by Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 23
How to Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dividends, Distributions and Tax Status. . . . . . . . . . . . . . . . . . . 29
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Safekeeping of Securities, Distributor, and Transfer and Redemption Agent. . 35
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
<PAGE>
---------------------
SYNOPSIS
---------------------
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
in RCM Growth Equity Fund's Annual Report to Shareholders for the year ended
December 31, 1995, incorporated by reference herein, appearing elsewhere in this
Combined Prospectus and Statement of Additional Information (hereinafter this
"Prospectus").
RCM CAPITAL FUNDS, INC. (THE "COMPANY") is an open-end management
investment company. RCM Growth Equity Fund (the "Fund") is a diversified
no-load series of the Company. THE COMPANY CURRENTLY OFFERS SHARES OF THE
FUND SOLELY TO INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO
AN INVESTMENT MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE
FUND'S INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT, L.L.C. (THE "INVESTMENT
MANAGER"). THE COMPANY EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. THE
INVESTMENT MANAGER MAY FOR DISCRETIONARY ACCOUNT CLIENTS BE AUTHORIZED TO
DETERMINE THE AMOUNT AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES OF THE
FUND HELD BY SUCH CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND
GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY EMPLOYEE BENEFIT PLANS.)
The Fund's investment objective is to seek appreciation of capital by
investing, during normal conditions, at least 80% of its investments, and at
least 65% of its total assets in equity and equity-related securities of
small- to medium-sized concerns, primarily common stocks. (See INVESTMENT
OBJECTIVE AND POLICIES.) Such investments will be chosen primarily with regard
to their potential for capital appreciation. Current income of securities in
which the Fund has invested or may invest will be considered only as part of
total investment return and will not be emphasized. "Small- to medium-sized
concerns" is defined as encompassing companies whose equity securities have a
market capitalization not exceeding that of the largest company included in
the Standard & Poor's MidCap 400 Index (the "S&P 400"). As of the date
hereof, the S&P 400 includes companies with market capitalizations ranging
from approximately $143 million to $6.4 billion. The Fund is not restricted
in its purchases to securities that constitute a portion of the S&P 400.
There can be no assurance the Fund will meet its investment objective.
The value of the Fund's shares will fluctuate because of the fluctuations in
the value of the securities in the Fund's portfolio. When the Fund sells
portfolio securities, it may realize a gain or a loss. In addition,
investments in small- to medium-sized concerns may involve greater risks than
investments in larger or more established firms that have greater resources.
An investment in the Fund is not insured against loss of principal. (See
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.)
The Investment Manager is actively engaged in providing investment
supervisory services, as defined in the Investment Advisers Act of 1940, to
institutional and individual clients.
Shares of the Fund are purchased without a sales charge. The minimum initial
investment is $10,000 and the minimum subsequent investment is $1,000. RCM
Capital Trust Company acts as transfer and redemption agent for the Fund's
shares. (See HOW TO PURCHASE SHARES AND REDEMPTION OF SHARES.)
Shareholder inquiries may be directed to the Fund's distributor, Funds
Distributor, Inc., at 60 State Street, Suite 1300, Boston, Massachusetts
02109.
<PAGE>
----------------------
SUMMARY OF FEES AND EXPENSES
----------------------
SHAREHOLDER TRANSACTION EXPENSES
All Sales Loads, and Redemption and Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees 0.75%
Other Expenses (Custodian) 0.01%
-----
Total Fund Operating Expenses 0.76%
HYPOTHETICAL EXAMPLE OF
EFFECT OF EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------- ------ ------- ------- --------
You would pay the following total
expenses on a $1,000 investment,
assuming (1) a 5% annual return and
(2) redemption at the end of each
time period. $8 $24 $42 $94
THIS EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE REGULATIONS OF
THE SECURITIES AND EXCHANGE COMMISSION, (THE "SEC" OR THE "COMMISSION"),
BASED ON THE EXPENSES OF THE FUND FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995, AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE GREATER OR LESSER
THAN THOSE SHOWN. The purpose of the above table is to give you information
in order to understand various costs and expenses of the Fund that an
investor may bear directly or indirectly.
For more information concerning fees and expenses of the Fund, see FINANCIAL
HIGHLIGHTS, THE INVESTMENT MANAGER, EXECUTION OF PORTFOLIO TRANSACTIONS, and
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.
In accordance with applicable SEC regulations, this example assumes that: (1)
the percentage amounts listed under Annual Fund Operating Expenses remain the
same in each year of the one, three, five, and ten year periods; (2) the
amount of the Fund's assets remains constant at the level at the end of its
most recently completed fiscal year; and (3) all dividends and distributions
will be reinvested by the shareholder. This example also reflects recurring
fees charged to all investors. SEC regulations require that the example be
based on a $1,000 investment, although the minimum initial purchase of Fund
shares is actually $10,000. (See HOW TO PURCHASE SHARES.)
The Fund is responsible for the payment of certain of its operating
expenses, including brokerage and commission expenses; taxes levied on the
Fund; interest charges on borrowings (if any); charges and expenses of the
Fund's custodian; and payment of investment management fees due to the
Investment Manager. The Investment Manager is responsible for all of the
Fund's other ordinary operating expenses (e.g., legal and audit fees, and SEC
and "Blue Sky" registration expenses), including the compensation of
directors of the Company). (See THE INVESTMENT MANAGER.) Expenses
attributable to the Fund are charged against the assets of the Fund. General
expenses of the Company's three series, the Fund, RCM Small Cap Fund and RCM
International Growth Equity Fund A, are allocated among the three series in a
manner proportionate to the net assets of each series, on a transactional
basis or
- ------------------------------------------------------------------------------
Page 2
<PAGE>
on such other basis as the Board of Directors deems equitable.
Clients of the Investment Manager who are shareholders of the Fund will,
through the Fund, pay a fee to the Investment Manager on the portion of their
assets invested in shares of the Fund. However, such clients will not pay
additional fees to the Investment Manager on the portions of their assets
invested in the Fund. A Client's assets not invested in shares of the Fund
will be subject to fees in accordance with the Investment Management
Agreement or Investment Advisory Agreement between the Client and the
Investment Manager. Clients who invest in shares of the Fund will generally
pay an aggregate fee which is higher than that paid by other Clients not
invested in the Fund. (See INVESTMENT MANAGER AND INVESTMENT BY EMPLOYEE
BENEFIT PLANS.)
- ------------------------------------------------------------------------------
Page 3
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary information has been audited by Coopers &
Lybrand L.L.P., independent accountants, as stated in their opinion
apppearing in the Fund's 1995 Annual Report to Shareholders (which has been
incorporated herein by reference). This supplementary information should be
read in conjunction with the financial statements and related notes which are
included in the Annual Report to Shareholders. A copy of the Fund's Annual
Report to Shareholders is available upon request by calling the Fund at (415)
954-5400 or by writing the Fund at Four Embarcadero Center, Suite 3000, San
Francisco, California 94111. On July 14, 1996, RCM Capital Management,
L.L.C., the successor to the business and operations of RCM Capital
Management, a California Limited Partnership, became the Investment Manager.
(See THE INVESTMENT MANAGER.)
Selected data for each share of capital stock outstanding for the ten years
ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 197.31 $ 260.43 $ 274.14 $ 288.48 $ 212.27
-------- -------- -------- -------- --------
Net investment income 0.57 0.74 0.97 1.68 2.31
Net realized and unrealized gain (loss)
on investments 66.36 0.34 26.95 17.74 98.11
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value
resulting from investment operations 66.93 1.08 27.92 19.42 100.42
-------- -------- -------- -------- --------
Distributions:
Net investment income (0.56) (0.79) (1.00) (1.70) (2.29)
Net realized gain on investments (35.45) (63.41) (40.63) (32.06) (21.92)
-------- -------- -------- -------- --------
Total distributions (36.01) (64.20) (41.63) (33.76) (24.21)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $228.23 $ 197.31 $ 260.43 $ 274.14 $ 288.48
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
AVERAGE COMMISSION RATE PAID $0.05801
--------
--------
TOTAL RETURN (b) 34.53% 0.76% 10.72% 7.03% 48.23%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratios and supplemental data:
Net assets, end of year (in millions) $ 1,325 $ 1,365 $ 2,049 $ 2,122 $ 2,138
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of expenses to average net assets 0.8% 0.8% 0.8% 0.8% 0.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income to
average net assets 0.2% 0.2% 0.3% 0.6% 0.9%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Portfolio turnover rate 96.5% 111.1% 67.0% 56.8% 62.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Year Ended December 31,
---------------------------------------------------------------
1990 1989 1988 1987 1986 (a) 1985
-------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 228.09 $ 199.99 $ 177.22 $ 207.52 $ 211.83 $ 169.44
-------- -------- ------- -------- --------- --------
Net investment income 3.67 3.94 2.83 1.72 1.59 3.68
Net realized and unrealized gain (loss)
on investments (13.14) 49.62 33.89 20.52 17.83 52.64
-------- -------- ------- -------- --------- --------
Net increase (decrease) in net asset value
resulting from investment operations (9.47) 53.56 36.72 22.24 19.42 56.32
-------- -------- ------- -------- --------- --------
Distributions:
Net investment income (4.21) (3.96) (2.92) (4.06) (3.94) (3.68)
Net realized gain on investments (2.41) (21.48) (11.03) (48.48 (19.79) (10.25)
-------- -------- ------- -------- --------- --------
Total distributions (6.35) (25.46) (13.95) (52.54) (23.73) (13.93)
-------- -------- ------- -------- --------- --------
NET ASSET VALUE, END OF YEAR $ 212.27 $ 228.09 199.99 $ 177.22 $ 207.52 $ 211.83
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
AVERAGE COMMISSION RATE PAID
TOTAL RETURN (b) (4.12%) 26.87% 20.86% 10.97% 9.33% 32.06%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of year (in millions) $ 1,300 $ 1,284 $ 964 $ 553 $ 461 $ 289
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Ratio of expenses to average net assets 0.8% 0.7% 0.7% 0.8% 0.7% 0.7%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Ratio of net investment income to
average net assets 1.8% 1.8% 1.8% 0.9% 1.3% 2.1%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
Portfolio turnover rate 50.0% 70.8% 64.7% 79.9% 78.2% 80.0%
-------- -------- ------- -------- --------- --------
-------- -------- ------- -------- --------- --------
</TABLE>
- ----------------------------------
(a) On July 9, 1986, RCM Capital Management, a California Limited Partnership,
the successor to the business and operations of Rosenberg Capital Managment,
became the investment manager.
(b) Total return measures the change in value of an investment over the
period indicated.
- ------------------------------------------------------------------------------
Page 4
<PAGE>
----------------------
INVESTMENT RESULTS
----------------------
The Fund may, from time to time, include information on its investment
results and/or comparisons of its investment results to various unmanaged
indices or results of other mutual funds or groups of mutual funds in
advertisements or in reports furnished to present or prospective
shareholders. See ADDITIONAL INFORMATION for a brief description of these
comparisons. Investment results will include information calculated on a
total return basis in the manner set forth below.
Average total return ("T") will be calculated as follows: an initial
hypothetical investment of $1,000 ("P") is divided by the net asset value as
of the first day of the period in order to determine the initial number of
shares purchased. Subsequent dividends and capital gain distributions are
reinvested at net asset value on the reinvestment date determined by the
Board of Directors. The sum of the initial shares purchased and shares
acquired through reinvestment is multiplied by the net asset value per share
as of the end of the period ("n") to determine ending redeemable value
("ERV"). The ending value divided by the initial investment converted to a
percentage equals total return. The formula thus used, as required by the
SEC, is:
P(1+T)N = ERV
The resulting percentage indicates the positive or negative investment
results that an investor would have experienced from reinvested dividends and
capital gain distributions and changes in share price during the period.
This formula reflects the following assumptions: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial
investment; (2) reinvestment of dividends and distributions at net asset
value on the reinvestment date determined by the Board; and (3) complete
redemption at the end of any period illustrated. Total return may be
calculated for one year, five years, ten years, and for other periods, and
will typically be updated on a quarterly basis. The average annual compound
rate of return over various periods may also be computed by utilizing ending
values as determined above.
Average total returns for the one, five, and ten year periods ended December
31, 1995 are 34.53%, 18.95% and 15.56%, respectively.
In addition, in order to represent the Fund's performance more completely or
to compare such performance to other measures of investment return more
accurately, the Fund also may include in advertisements and shareholder
reports other total return performance data based on time-weighted,
monthly-linked total returns computed on the percentage change of the
month-end net asset value of the Fund after allowing for the effect of any
cash additions and withdrawals recorded during the month. Returns may be
quoted for the same or different periods as those for which average total
return is quoted.
The Fund's investment results will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio, and operating
expenses, so that any investment results reported should not be considered
representative of what an investment in the Fund may earn in any future
period. These factors and possible differences in calculation methods should
be considered when comparing the Fund's investment results with those
published for other investment companies, other investment vehicles and
unmanaged indices. Results also should be considered relative to the risks
associated with the Fund's investment objectives and policies.
- ------------------------------------------------------------------------------
Page 5
<PAGE>
----------------------
INVESTMENT OBJECTIVE AND POLICIES
----------------------
The Fund is designed to provide investors with a vehicle for investment
primarily in a diversified group of equity and equity-related securities of
small- to medium-sized concerns. The Fund's investment objective is to seek
appreciation of capital by investing, during normal conditions, at least 80%
of its investments, and at least 65% of its total assets, in equity and
equity-related securities of small- to medium-sized concerns, primarily
common stocks. "Equity and equity-related securities" in which the Fund has
the authority to invest include common stock, preferred stock, convertible
preferred stock, convertible debt obligations, warrants or other rights to
acquire stock, and options on stock and stock indices. For this purpose, cash
and cash-equivalents, and receivables and related items, are not considered
to be investments in equity and equity-related securities. Such
investments will be chosen primarily with regard to their potential for
capital appreciation. Current income from the Fund's investment portfolio
will be considered only as a part of total return and will not be emphasized.
This investment objective is fundamental and cannot be changed without
shareholder approval. "Small- to medium-sized concerns" is defined as
encompassing companies whose equity securities have a market capitalization
not exceeding that of the largest company included in the S&P 400. As of the
date hereof, the S&P 400 includes companies with market capitalizations
ranging from approximately $143 million to $6.4 billion. The Fund is not
restricted in its purchases to securities that are included in the S&P 400,
nor will the Fund be required to sell portfolio securities solely on account
of the fact that the market capitalization of the issuer's equity securities
has exceeded that of the largest company in the S&P 400. There obviously can
be no assurance that the Fund's investment objective will be achieved.
Critical factors that will be considered by the Investment Manager in the
selection of securities will include the economic and political outlook, the
values of individual securities relative to other securities investment
alternatives, trends in the determinants of corporate profits, and management
capability and practices. Generally speaking, disposal of a portfolio
security will be based upon such factors as (i) actual or potential
deterioration of the issuer's earning power which the Investment Manager
believes may adversely affect the price of its securities, (ii) increases in
the price level of the security or of securities generally which the
Investment Manager believes reflect expected earnings growth too far in
advance of realization, and (iii) changes in the relative investment
opportunities offered by other securities.
The Fund may invest in securities on either a long-term or short-term basis.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. The Fund
may invest with the expectation of short-term capital appreciation if the
Fund believes that such action will benefit its shareholders. The Fund also
may sell securities that have been held on a short-term basis if the Fund's
investment objective for such securities has been achieved or if other
circumstances make the sale of such securities advisable. This may result in
a taxable shareholder paying higher income taxes than would be the case with
investment companies emphasizing the realization of long-term capital gains.
Because the Investment Manager will purchase and sell some securities for the
Fund's portfolio without regard to the length of the holding period for such
securities, it is possible that the Fund's portfolio will have a higher
turnover rate than might be expected for investment companies that invest
substantially all of their funds for long-term capital appreciation or
generation of current income. Although the Investment Manager does not
generally intend to trade on behalf of the Fund for short-term profits,
securities in the Fund's portfolio will be sold whenever the Investment
Manager believes it is appropriate to do so, regardless of the length of time
that securities have been held. Turnover will be influenced by sound
investment practices, the Fund's investment objectives, and the need for
funds for the redemption of the Fund's shares.
- ------------------------------------------------------------------------------
Page 6
<PAGE>
The Investment Manager anticipates that annual turnover should not exceed
90%, but the turnover rate will not be a limiting factor when the Investment
Manager deems portfolio changes appropriate. A 90% portfolio turnover rate
would occur if the value of purchases OR sales of portfolio securities
(whichever is less) for a year (excluding purchases of U. S. Treasury issues
and securities within a maturity of one year or less) were equal to 90% of
the average monthly value of the securities held by the Fund during such
year. A higher portfolio turnover rate would increase aggregate brokerage
commission expenses, which must be borne directly by the Fund and ultimately
by the Fund's shareholders. (See EXECUTION OF PORTFOLIO TRANSACTIONS.) The
portfolio turnover for the years ended December 31, 1995, 1994 and 1993 was
96.5%, 111.1% and 67.0%, respectively.
Except when taking a defensive investment position (as described below), the
Investment Manager expects under normal circumstances to have at least 80% of
its investments invested in equity or equity-related securities of small- to
medium-sized concerns (as defined above). When business or financial
conditions warrant, the Investment Manager temporarily may take a defensive
position and invest without regard to the above policies up to 100% of the
Fund's assets in one or more of the following: (1) cash or cash equivalents
having a maturity date no more than one year from the date of acquisition; or
(2) obligations of, or securities guaranteed by, the United States
Government, its agencies or instrumentalities having a maturity date no later
than five years from the date of acquisition.
Other than as described below under INVESTMENT RESTRICTIONS, the Fund is not
restricted with regard to the types of cash-equivalent investments it may
make. Financial instruments of this nature include certificates of deposit,
bankers' acceptances, repurchase agreements, and other short-term debt
obligations. Certificates of deposit are short-term obligations of commercial
banks. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
Repurchase agreements involve transactions by which an investor (such as the
Fund) purchases a security and simultaneously obtains the commitment of the
seller (a member bank of the Federal Reserve System or a recognized
securities dealer) to repurchase the security at an agreed-upon price on an
agreed-upon date within a number of days (usually not more than seven) from
the date of purchase.
The Fund may invest in domestic listed and unlisted securities and in
securities of foreign issuers which are available in American Depository
Receipt ("ADR") form or are traded on any United States or foreign securities
exchange or over-the-counter. ADRs represent ownership of securities of
non-U. S. issuers deposited with a depository agent, typically a commercial
bank. The Fund may invest in ADRs sponsored by persons other than the
underlying issuers. Issuers of the stock of such unsponsored ADRs are not
obligated to disclose material information in the United States and,
accordingly, there may not be a correlation between such information and the
market value of such ADRs.
An ADR will be treated as an illiquid security for purposes of the Fund's
restriction on the purchase of such securities unless the ADR is convertible
by the Fund within seven days into cash. The Fund may invest in foreign
securities if investment therein, at the time of purchase, would not cause
more than 10% of the value of the Fund's total assets to be invested in
foreign securities. Investment in foreign securities may be riskier than
investment in domestic securities. In many cases, foreign securities markets
are not as developed or as efficient as those in the United States. As a
result, securities of foreign issuers often may be less liquid and more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities may be subject to risks from restrictions on monetary
repatriation; oppressive regulation; heavy or confiscatory taxation; less
governmental supervision of securities markets and issuers of securities;
lack of uniform settlement periods and trading practices; limited publicly
available corporate information; lower
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accounting, auditing, and financial reporting standards; less understandable
financial statements; less advantageous legal, operational, and financial
protections applicable to foreign subcustody arrangements; nationalization or
expropriation of assets; and political, economic, or social instability. In
addition, custodial expenses for non-U.S. securities often may be higher than
for U.S. securities. Fluctuations in the rates of exchange between U.S. and
foreign currencies may also affect the value of the Fund's investments.
The Fund may invest in warrants, or a combination of warrants and common
stocks. Investment in warrants involves certain risks, including the possible
lack of a liquid market for resale, potential price fluctuations as a result
of speculation or other factors, and the failure of the price of the
underlying security to reach or have reasonable prospects of reaching the
level at which the warrant can be prudently exercised, in which event the
warrant may expire without being exercised, resulting in a loss of the Fund's
entire investment in the warrant. The Investment Manager anticipates that it
will invest in warrants only when such warrants may be sold publicly in the
secondary market, although the Investment Manager would not be precluded from
acquiring warrants in a private placement if it believes, in light of all the
circumstances, that such acquisition presents an attractive investment
opportunity for the Fund. The Investment Manager will limit the Fund's
investments in warrants to 10% of the Fund's total assets, measured at the
time of purchase.
The Fund may invest up to 5% of the value of its net assets in securities
that are illiquid. Securities may be considered illiquid if the Fund cannot
reasonably expect to receive approximately the amount at which the Fund
values such securities within seven days. The Company's Board of Directors
has the authority to determine whether specific securities, including
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Board of Directors
monitors the liquidity of securities in the Fund's portfolio based on reports
furnished periodically by the Investment Manager. The Investment Manager
takes into account a number of factors in reaching liquidity decisions,
including, but not limited to: the frequency of trading in the security; the
number of dealers who publish quotes for the security; the number of dealers
who serve as market makers for the security; the apparent number of other
potential purchasers; and the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are
solicited, and the mechanics of transfer).
The Fund's investments in illiquid securities may include securities that are
not registered for resale under the Securities Act of 1933, as amended, and
therefore are subject to restrictions on resale. In some cases, such
securities may be eligible for resale to qualified institutional buyers under
Rule 144A under the Securities Act of 1933. Investing in Rule 144A securities
could have the effect of increasing Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. When the Fund purchases unregistered securities, the Fund
may, in appropriate circumstances, obtain the right to registration of such
securities at the expense of the issuer. In such cases, there may be a lapse
of time between the Fund's decision to sell any such security and the
registration of the security permitting sale. During any such period, the
price of the security will be subject to market fluctuations.
In making purchases within the above policies (which may be changed without
shareholder consent), the Fund and the Investment Manager will be subject to
all of the restrictions referred to under INVESTMENT RESTRICTIONS. If a
percentage restriction on an investment or utilization of assets set forth
under INVESTMENT RESTRICTIONS is adhered to at the time the investment is
made, a later change in percentage resulting from changing value or a similar
type of event will not be considered a violation of the Fund's investment
policies or restrictions. The Fund may exchange securities, exercise
conversions or subscription rights, warrants or other rights to purchase
common stock or other equity securities and may hold, except to the extent
limited by the Investment Company Act of 1940 ("1940 Act"), any such
securities so acquired without regard to the Fund's investment policies and
restrictions. The Fund will not knowingly exercise rights or otherwise
acquire securities when to do so would jeopardize the Fund's status under the
1940 Act as a "diversified" investment company.
Investments in small-sized concerns may involve greater risks than
investments in larger companies. For this reason, the Fund is not intended as
a complete investment vehicle. The Fund is designed for that portion of a
portfolio that can appropriately be invested in securities with greater risk
but also greater potential for appreciation. The securities of small-sized
concerns, as a class, have shown market behavior which has had periods of
more favorable results, and periods of less favorable results, relative to
securities of larger companies as a class. In addition, small-sized concerns
in which the Fund will invest may be unseasoned; that is, these companies may
have limited or unprofitable operating histories, limited financial resources
and inexperienced management. Small-sized concerns often face competition
from larger or more established firms that have greater resources.
Smaller-sized concerns may not have as great an ability to raise additional
capital, may have a less diversified product line (making them susceptible to
market pressure), and may have a smaller public market for their shares as
compared to larger companies. Securities of small and unseasoned companies
are often less liquid than securities of larger companies and are frequently
traded in the over-the-counter market or on regional exchanges where low
trading volumes may result in erratic or abrupt price movements. To dispose
of these securities, the Fund may have to sell them over an extended period
of time or below the original purchase price. Investments by the Fund in
these small or unseasoned companies may be regarded as speculative. The Fund
has investment restrictions that limit the amount of its assets that can be
invested in companies that have a record of less than three years of
continuous operations and prohibit investment of more than 5% of the value of
its net assets in securities that are illiquid. (See INVESTMENT RESTRICTIONS.)
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---------------------
STOCK INDEX FUTURES TRANSACTIONS
---------------------
The Fund may purchase and sell stock index futures as a hedge against changes
in market conditions that may result in changes in the value of the Fund's
portfolio securities, in accordance with the strategies more specifically
described below. The Fund will engage in transactions in stock index futures
contracts or related options consistent with the Fund's objectives and not
for speculation. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included. A futures contract on an index (such
as the S&P 500) is an agreement between two parties (buyer and seller) to
take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written. In the case
of futures contracts traded on U.S. exchanges, the exchange itself or an
affiliated clearing corporation assumes the opposite side of each transaction
(i.e., as buyer or seller). A futures contract may be satisfied or closed out
by payment of the change in the cash value of the index. No physical delivery
of the underlying stocks in the index is made.
STOCK INDEX FUTURES CHARACTERISTICS. Stock index futures contracts can be
purchased or sold with respect to various broad-based and other stock
indices. Differences in the indices may result in differences in correlation
of the futures with movements in the value of the securities being hedged.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the Fund's Custodian (in
the name of the futures commission merchant (the "FCM")) an amount of cash or
U.S. Treasury bills which is referred to as an "initial margin" payment. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have been
satisfied. Futures contracts customarily are purchased and sold on initial
margins that may range upwards from less than 5% of the value of the futures
contract being traded. Subsequent payments, called variation margin, to and
from the FCM, will be made on a daily basis as the price of the underlying
stock index fluctuates, making the long and short positions in the futures
contract more or less valuable. This process is known as "marking to the
market." For example, when the Fund has purchased a stock index futures
contract and the price of the underlying stock index has risen, that position
will have increased in value and the Fund will receive from the FCM a
variation margin payment equal to that increased value. Conversely, when the
Fund has purchased a stock index futures contract and the price of the
underlying stock index has declined, the position would be less valuable and
the Fund would be required to make a variation margin payment to the FCM. At
any time prior to expiration of the futures contract, the Fund may elect to
close the position by taking an identical opposite position which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund, and the Fund realizes a loss or a
gain. (See RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS
below.)
CHARACTERISTICS OF OPTIONS ON STOCK INDEX FUTURES. The Fund may also purchase
call options and put options on stock index futures contracts ("futures
options"). A futures option gives the holder the right, in return for the
premium paid, to assume a long position (in the case of a call) or short
position (in the case of a put) in a futures con-
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tract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. A futures option may be
closed out (before exercise or expiration) by an offsetting purchase or sale
of a futures option of the same series. (See RISKS OF TRANSACTIONS IN STOCK
INDEX FUTURES AND FUTURES OPTIONS below.)
PURCHASE OF STOCK INDEX FUTURES. When the Investment Manager anticipates a
significant stock market or stock market sector advance, the purchase of a
stock index futures contract affords a hedge against not participating in
such advance at a time when the Fund is not fully invested in equity
securities. Such purchase of a futures contract would serve as a temporary
substitute for the purchase of individual stocks which may later be purchased
(with attendant costs) in an orderly fashion. As such purchases of individual
stocks are made, an approximately equivalent amount of stock index futures
would be terminated by offsetting sales.
SALE OF STOCK INDEX FUTURES. The Fund may sell stock index futures contracts
in anticipation of or during a general stock market or market sector decline
that may adversely affect the market values of the Fund's portfolio of equity
securities. To the extent that the Fund's portfolio of equity securities
changes in value in correlation with a given stock index, the sale of futures
contracts on that index would reduce the risk to the portfolio of a market
decline and, by so doing, provides an alternative to the liquidation of
securities positions in the portfolio with resultant transaction costs.
PURCHASE OF PUT OPTIONS ON STOCK INDEX FUTURES CONTRACTS. The purchase of put
options on stock index futures contracts is analogous to the purchase of puts
on individual stocks, where an absolute level of protection from price
fluctuation is sought below which no additional economic loss would be
incurred by the Fund. Put options may be purchased to hedge a portfolio of
stocks or a position in the futures contract upon which the put option is
based against a possible decline in market value.
PURCHASE OF CALL OPTIONS ON STOCK INDEX FUTURES. The purchase of a call
option on stock index futures represents a means of obtaining temporary
exposure to market appreciation with risk limited to the premium paid for the
call option. It is analogous to the purchase of a call option on an
individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
future upon which it is based, or to the price of the underlying stock index
itself, it may be less risky, because losses are limited to the premium paid
for the call option, when compared to the ownership of the stock index
futures or the underlying stocks. Like the purchase of a stock index future,
the Fund would purchase a call option on a stock index future to hedge
against a market advance when the Fund is not fully invested.
LIMITATIONS ON PURCHASE AND SALE OF STOCK INDEX FUTURES AND OPTIONS ON STOCK
INDEX FUTURES. The Fund will not engage in transactions in stock index
futures contracts or related options for speculation, but only as a hedge
against changes in the value of securities held in the Fund's portfolio, or
securities which the Investment Manager intends to purchase for the
portfolio, resulting from actual or anticipated changes in general market
conditions. Such transactions will only be effected when, in the view of the
Investment Manager, they are economically appropriate to the reduction of
risks inherent in the ongoing management of the Fund's investment portfolio.
The Fund may not purchase or sell stock index futures or purchase related
options if, immediately thereafter, more than 30% of the value of its net
assets would be hedged. In addition, the Fund may not purchase or sell stock
index futures or purchase related options if, immediately thereafter, the sum
of the amount of margin deposits on the Fund's existing futures positions and
premiums paid for related options would exceed 5% of the market value of the
Fund's total assets. In Fund
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transactions involving stock index futures contracts, to the extent required
by applicable SEC guidelines, an amount of cash, cash equivalents, or other
liquid securities (as such guidelines may allow) equal to the market value of
the futures contracts will be deposited by the Fund in a segregated account
with the Fund's Custodian, or in other segregated accounts as regulations may
allow, to collateralize the position and thereby to insure that the use of
such futures is unleveraged. Such segregated accounts will be marked to
market daily.
RISKS OF TRANSACTIONS IN STOCK INDEX FUTURES AND FUTURES OPTIONS. There are
several risks in connection with the use of stock index futures in the Fund
as a hedging device. One risk arises because the correlation between
movements in the price of the stock index future and movements in the price
of the securities which are the subject of the hedge is not always perfect.
The price of the stock index future may move more than, or less than, the
price of the securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would
be in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage
will be partially offset by the future. If the price of the future moves more
than the price of the stock, the Fund will experience either a loss or a gain
on the future which will not be completely offset by movements in the price
of the securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of securities being hedged
and movements in the price of the stock index futures, the Fund may buy or
sell stock index futures contracts in a greater dollar amount than the dollar
amount of securities being hedged, if the historical volatility of the price
of such securities has been greater than the historical volatility of the
index. Conversely, the Fund may buy or sell fewer stock index futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the stock index. It is also
possible that, when the Fund has sold futures to hedge its portfolio against
decline in the market, the market may advance and the value of the securities
held in the Fund's portfolio may decline. If this occurs, the Fund will lose
money on the future and also experience a decline in value in its portfolio
securities. The potential loss incurred by the Fund in such transactions is
unlimited.
When futures are purchased to hedge against a possible increase in the price
of stock before the Fund is able to invest its cash (or cash equivalents) in
stock in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in stock at that time
because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or
no correlation at all, between movements in the stock index futures and the
portion of the portfolio being hedged, the price of stock index futures may
not correlate perfectly with movement in the stock index due to certain
market distortions. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions. This practice could distort the normal
relationship between the index and futures markets. Second, from the point of
view of speculators, the deposit requirements in the futures market may be
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market also may cause
temporary price distortions. Due to the possibility of price distortion in
the futures market and because of the imperfect correlation between movements
in the stock index and movements in the price of stock index futures, a
correct forecast of general market trends by the Investment Manager still may
not result in a successful hedging transaction over a very short time frame.
Compared to the use of stock index futures, the purchase of options on stock
index futures in-
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volves less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). However, there may
be circumstances when the use of an option on a stock index future would
result in a loss to the Fund when the use of a stock index future would not,
such as when there is no movement in the level of the index. In addition,
daily changes in the value of the option due to changes in the value of the
underlying futures contract, are reflected in the net asset value of the Fund.
The Fund will only enter into futures contracts or purchase futures options
that are standardized and traded on a U.S. exchange or board of trade, or
similar entity, or quoted on an automated quotation system. However, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular futures contract or futures option or at any
particular time. In such event, it may not be possible to close a futures
position, and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price
of the securities will, in fact, correlate with the movements in the futures
contract and thus provide an offset to losses on a futures contract.
Successful use of stock index futures by the Fund is also subject to the
Investment Manager's ability to predict correctly movements in the direction
of the market. For example, if the Fund hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and
stock prices increased instead, the Fund would lose part or all of the
benefit of the increased value of its stocks which it hedged because it would
have offsetting losses in its futures positions. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell
securities to meet daily variation margin requirements. Such sales of
securities might be, but would not necessarily be, at increased prices which
would reflect the rising market. As a result, the Fund might have to sell
securities at a time when it might be disadvantageous to do so. The
Investment Manager has been actively engaged in the provision of investment
supervisory services for institutional and individual accounts since 1970,
but the skills required for the successful use of stock index futures and
options on stock index futures are different from those needed to select
portfolio securities, and the Investment Manager has limited prior experience
in the use of futures or options techniques in the management of assets under
its supervision.
TAX TREATMENT. The extent to which the Fund may engage in stock index futures
and related option transactions may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
continue to qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.)
REGULATORY MATTERS. The Fund has filed a claim of exemption from registration
as a commodity pool with the Commodity Futures Trading Commission (the
"CFTC"). The Fund intends to conduct its futures trading activity in a manner
consistent with that exemption. The Investment Manager is registered with the
CFTC as both a Commodity Pool Operator and as a Commodity Trading Advisor.
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---------------------
INVESTMENT RESTRICTIONS
---------------------
The Fund has adopted certain investment restrictions that are fundamental
policies and that may not be changed without approval by the vote of a
majority of the Fund's outstanding voting securities. The "vote of a majority
of the outstanding voting securities" of the Fund, as defined in Section
2(a)(42) of the 1940 Act, means the vote (i) of 67% or more of the voting
securities of the Fund present at any meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (ii) of more than 50% of the outstanding voting
securities of the Fund, whichever is less. These restrictions provide that
the Fund may not:
1. Invest in securities of any one issuer (other than the United States
of America, its agencies and instrumentalities), if immediately after
and as a result of such investment the value of the holdings of the
Fund in the securities of such issuer exceeds 5% of the value of the
Fund's total assets;
2. Invest more than 25% of the value of its total assets in the
securities of companies primarily engaged in any one industry (other
than the United States of America, its agencies and instrumentalities);
3. Invest in foreign securities if immediately after and as a result of
such investment the value of the holdings of the Fund in foreign
securities exceeds 10% of the value of the Fund's total assets;
4. Acquire more than l0% of the outstanding voting securities, or 10% of all
of the securities, of any one issuer;
5. Invest in companies for the purpose of exercising control or management;
6. Purchase or sell real estate; provided that the Fund may invest in
readily marketable securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
7. Invest in interests in oil, gas, or other mineral exploration or
development programs;
8. Borrow amounts in excess of 5% of the total assets taken at cost or
at market value, whichever is lower, and only from banks as a
temporary measure for extraordinary or emergency purposes. The Fund
will not mortgage, pledge, hypothecate or in any other manner transfer
as security for an indebtedness any of its assets;
9. Issue senior securities as defined in the 1940 Act, except that the Fund
may borrow money as permitted by restriction 8 above. For this purpose,
futures and other transactions covered by segregated accounts are not
considered to be senior securities.
10. 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;
11. Make loans of its funds or assets to any other person, which shall
not be considered as including: (i) the purchase of a portion of an
issue of publicly distributed debt securities, (ii) the purchase of
bank obligations such as certificates of deposit, bankers'
acceptances and other short-term debt obligations, (iii) entering into
repurchase agreements with respect to commercial paper, certificates
of deposit and obligations issued or guaranteed by the U. S.
Government, its agencies or instrumentalities, and (iv) the loan of
portfolio securities to brokers, dealers and other financial
institutions where such loan is callable by the Fund at any time on
reasonable notice and is fully secured by collateral in the form of
cash or cash equivalents. The Fund will not enter into repurchase
agreements with
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<PAGE>
maturities in excess of 7 days if immediately after and as a result
of such transaction the value of the Fund's holdings of such
repurchase agreements exceeds 10% of the value of the Fund's total
assets. The Fund will not lend portfolio securities which, when valued
at the time of loan, have a value in excess of 10% of the Fund's
total assets;
12. Make short sales of securities;
13. 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;
14. Invest more than 5% of the value of its net assets in the securities of any
issuer which shall have a record of less than three years of continuous
operation (including the operation of any predecessor);
15. 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;
16. 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);
17. 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;
18. 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;
19. 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
20. 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 directors and officers of the Company and certain other affiliations
during the past five years are given below. Unless otherwise specified, the
address of each of the directors is Four Embarcadero Center, Suite 3000, San
Francisco, California 94111, and the address of each officer is 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
DEWITT F. BOWMAN, Director. Mr. Bowman is a Principal of Pension Investment
Consulting, with which he has been associated since February 1994. From
February 1989 to January 1994 he was Chief Investment Officer for California
Public Employees Retirement System, a public pension fund. He serves as a
director of RREEF America REIT, Inc., a trustee of Brandes International Fund
and a trustee of the Pacific Gas and Electric Nuclear Decommissioning Trust.
He also serves as a director of RCM Equity Funds, Inc. ("RCM Equity").
PAMELA A. FARR, Director. Ms. Farr is an independent management consultant.
From 1991 to 1994, she was President of Banyan Homes, Inc., a real estate
development and construction firm; and for eight years she was a management
consultant for McKinsey & Company, where she served a variety of Fortune 500
companies in all aspects of strategic management and organizational
structure. She also serves as a director of RCM Equity.
THOMAS S. FOLEY, Director. Mr. Foley has been a partner in the law firm of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. since January 1995. Prior to that
he served as the 49th Speaker of the House of Representatives and was the
representative of the 15th Congressional District of the State of Washington
from 1965 to 1994. Mr. Foley serves on the Board of Directors of the H.J.
Heinz Company, on the Global Advisory Board of Coopers & Lybrand L.L.P. and
on the Board of Overseers of Whitman College. He also serves as a director
of RCM Equity.
FRANK P. GREENE, Director. Mr. Greene is a partner and portfolio manager of
Wood Island Associates, Inc., a registered investment adviser, with which he
has been associated since August 1991. From November 1987 to August 1991 he
was a Senior Vice President and Portfolio Manager of Siebel Capital
Management, Inc., a registered investment adviser. He also serves as a
director of RCM Equity.
GEORGE G.C. PARKER, Director. Mr. Parker is Associate Dean for Academic
Affairs and Director of the MBA Program at the Graduate School of Business at
Stanford University, with which he has been associated since 1973. Mr. Parker
has served on the Board of Directors of the California Casualty Group of
Insurance Companies since 1977; BB&K Holdings, Inc., a holding company for
financial services companies, since 1980; H. Warshow & Sons, Inc., a
manufacturer of specialty textiles, since 1982; and Zurich Reinsurance
Centre, Inc., a large reinsurance underwriter, since 1994. Mr. Parker served
on the Board of Directors of the University National Bank & Trust Company
from 1986 to 1995. He also serves as a director of RCM Equity.
- ---------------------
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<PAGE>
KENNETH E. SCOTT,* Director. Mr. Scott is the Ralph M. Parsons Professor of
Law and Business at Stanford Law School, where he has been since 1967. He is
also a director of certain registered investment companies managed by Benham
Capital Management.
RICHARD W. INGRAM, President, Treasurer and Chief Financial Officer. Mr.
Ingram is Senior Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc. ("FDI"). From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company. He is also President, Treasurer and Chief Financial Officer of RCM
Equity; President, Chief Financial Officer and Assistant Treasurer of RCM
Strategic Global Government Fund, Inc. ("RCS"); and an officer of certain
investment companies advised or administrated by the Dreyfus Corporation
("Dreyfus"), Waterhouse Asset Management ("Waterhouse") and Morgan Guaranty
Trust Company of New York ("Morgan Guaranty").
JOHN E. PELLETIER, Vice President and Secretary. Mr. Pelletier is Senior Vice
President and General Counsel of FDI and an officer of certain investment
companies advised or administered by the Dreyfus Corporation. From February
1992 to April 1994, he served as Counsel for The Boston Company Advisors,
Inc. From August 1990 to February 1992, Mr. Pelletier was employed as an
Associate at Ropes & Gray. He is also a Vice President and Secretary of RCM
Equity; Vice President and Assistant Secretary of RCS; and an officer of
certain investment companies advised or administrated by Dreyfus, Waterhouse
and Morgan Guaranty.
ELIZABETH A. BACHMAN, Vice President and Assistant Secretary. Ms. Bachman is
Assistant Vice President and Counsel of FDI with which she has been
associated since September 1995. From since September 1995 to present she is
Counsel to Premier Mutual Fund Services, Inc. and an officer of certain
investment companies advised or administered by the Dreyfus Corporation.
Prior to September 1995, she was enrolled at Fordham University School of Law
and received her J.D. in May 1995. Prior to September 1992, Ms. Bachman was
an Assistant at the National Association for Public Interest Law. She is also
Vice President and Assistant Secretary of RCM Equity and RCS and an officer
of certain investment companies advised or administrated by Dreyfus,
Waterhouse and Morgan Guaranty. Her address is 600 Park Avenue, Sixth Floor,
New York, New York 10166.
KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is a Senior
Paralegal for FDI with which she has been associated since January 1996. From
June 1994 to January 1996 she was a Manager of SEC Registration for Scudder,
Stevens & Clark, Inc. From 1988 to May 1994, she was Senior Paralegal at The
Boston Company Advisors, Inc. She is also an Assistant Secretary of RCM
Equity and an officer of certain investment companies advised or
administrated by Morgan Guaranty.
MARY A. NELSON, Assistant Treasurer. Ms. Nelson is the Manager of Treasury,
Services and Administration for FDI with which she has been associated since
1994. From 1989 to 1994 she was an Assistant Vice President and Client
Manager for The Boston Company. She is also Assistant Treasurer of of RCM
Equity.
- ---------------------
* Member, Audit Committee of the Company.
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Page 16
<PAGE>
The Company's Audit Committee, whose sole present member is Mr. Scott,
meets with the Company's independent accountants to exchange views and
information and to assist the full Board in fulfilling its responsibilities
relating to corporate accounting and reporting practices. Each Director
receives a fee of $6,000 per year plus $1,000 for each Board meeting
attended, and is reimbursed for his or her travel and other expenses incurred
in connection with attending Board meetings. The Investment Manager bears
this expense. For the fiscal year ended December 31, 1995, Mr. Scott received
aggregate compensation of $33,000 for his services as a director of the
Company. The Directors receive no pension or retirement benefits from the
Company. Ms. Farr and Messrs. Bowman, Foley, Greene and Parker are directors
of RCM Equity Funds, Inc., a registered investment company that is advised by
the Investment Manager. The Directors are not directors of any other
registered investment company that is advised by the Investment Manager or
any of its affiliates, or any other fund that holds itself out to investors
as related to the Company.
The Investment Manager uses a system of multiple portfolio managers to manage
the Fund's assets. Under this system, the portfolio of the Fund is divided
into smaller segments ("portfolios"). Each portfolio is assigned to an
individual portfolio manager who is employed as a research and portfolio
management professional by the Investment Manager. Some of the Fund's
portfolios may be limited to particular industry groups, and a particular
portfolio manager may be responsible for more than one portfolio. Subject to
the objectives for that portfolio and to the Fund's overall investment
objectives, guidelines, and restrictions, the portfolio manager for each
portfolio determines how that portfolio will be invested. The primary
portfolio managers for the Fund are the following individuals:
JOHN A. KRIEWALL. Mr. Kriewall has managed one or more of the Fund's
portfolios since 1987. He is a member of the Investment Managers' Portfolio
Management Team and a principal of the Investment Manager. Mr. Kriewall is
also one of the primary portfolio managers of the RCM Small Cap Fund. He has
been associated with the Investment Manager since 1973.
G. NICHOLAS FARWELL. Mr. Farwell has managed one or more of the Fund's
portfolios since 1984. He is a member of the Investment Manager's Portfolio
Management Team and a principal of the Investment Manager. Mr. Farwell is
also one of the primary portfolio managers of the RCM Small Cap Fund. He has
been associated with the Investment Manager since 1980.
The establishment of objectives for each portfolio, the distribution and
redistribution of assets among portfolios, and the oversight of the
investment management of each portfolio is the responsibility of the
Investment Manager's Steering Committee. The Steering Committee is chaired by
William L. Price, Chief Investment Officer of the Investment Manager; the
other members of the Steering Committee are John A. Kriewall, G. Nicholas
Farwell and Jeffrey J. Wiggins (a principal of the Investment Manager and a
manager of one of the Fund's portfolios).
The RCM Capital Management Profit Sharing Plan (the "Plan"), is a plan
limited to [principals] and employees of the Investment Manager. The Plan,
which is exempt from federal income taxation under Section 501 of the
Internal Revenue Code of 1986, was the owner of 328,672.300 shares of the
Fund's Capital Stock on June 30, 1996, constituting less than 1% of total
shares outstanding at that date.
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Page 17
<PAGE>
No director or officer of the Company was a beneficial owner of
any shares the Fund's outstanding Common Stock as of June 30, 1996.
-------------------
THE INVESTMENT MANAGER
-------------------
The Company's Board of Directors has overall responsibility for the operation
of the Fund. Pursuant to such responsibility, the Board has approved various
contracts for various financial organizations to provide, among other things,
day to day management services required by the Fund. The Company, on behalf
of the Fund, has retained as the Fund's Investment Manager RCM Capital
Management, L.L.C. (the "Investment Manager"), a Delaware limited liability
company with principal offices at Four Embarcadero Center, Suite 3000, San
Francisco, California 94111. The Investment Manager is actively engaged in
providing investment supervisory services to institutional and individual
clients, and is registered under the Investment Advisers Act of 1940. The
Investment Manager was established in April, 1996, as the successor to the
business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
The Investment Manager is a wholly owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization with principal executive
offices located at Gallunsanlage 7, 60041 Frankfurt, Germany. With total
consolidated assets as of December 31, 1995 of DM 484 billion ($696 billion),
and approximately 1600 offices and 45,000 employees in over 60 countries
around the world, Dresdner is Germany's second largest bank. Dresdner
provides a full range of banking services, including traditional lending
activities, mortgages, securities, project finance and leasing, to private
customers and financial and institutional clients. In the United States,
Dresdner maintains branches in New York and Chicago and an agency in Los
Angeles. As of the date of this Prospectus, the nine members of the Board of
Managers of the Investment Manager are: William L. Price (Chairman),
Hans-Deiter Bauernfeind, Hansgeorg B. Hofmann, Erich H. Pohl, Michael J.
Apatoff, John D. Leland, Jr., Jeffrey S. Rudsten, William S. Stack, and
Kenneth B. Weeman, Jr.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring, organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks
generally from underwriting securities. However, banks and their affiliates
generally can act as adviser to an investment company and can purchase shares
of an investment company as agent for and upon the order of customers. RCM
believes that it may perform the services contemplated by the investment
management agreement without violating theses banking laws or regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations
of current requirements, could prevent RCM from continuing to perform
investment management services for the company.
Pursuant to an agreement among RCM Limited, the Investment Manager, and
Dresdner, RCM Limited manages, operates and makes all decisions regarding the
day-to-day business and affairs of the Investment Manager, subject to the
oversight of the Board of Managers. RCM Limited is a California limited
partnership consisting of 39 limited partners and one general partner, RCM
General Corporation, a California corporation ("RCM General"). Twenty-five of
the limited partners of RCM Limited are also principals of the Investment
Manager, and shareholders of RCM General. As of the date of this Prospectus,
the following persons are limited partners of RCM Limited and shareholders of
RCM General: William L. Price, Michael J. Apatoff, Eamonn F. Dolan, John D.
Leland, Jr., Jeffrey S. Rudsten, William S. Stack, Kenneth B. Weeman, Jr.,
Anthony Ain, Donna L. Avedisian, John L. Bernard, Huachen Chen, Jacqueline M.
Cormier, Ellen M. Courtien, G. Nicholas Farwell, Joanne L. Howard, Stephen
Kim, John A. Kriewall, Allan C. Martin, Andrew H. Massie, Jr., Melody L.
McDonald, Lee N. Price, Walter C. Price, Jr., Gary W. Schreyer, Andrew C.
Whitelaw and Jeffrey J. Wiggins.
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<PAGE>
The Investment Manager provides the Fund with investment supervisory
services pursuant to an Investment Management Agreement, Power of Attorney
and Service Agreement (the "Management Agreement") dated June 14, 1996. The
Investment Manager manages the Fund's investments, provides various
administrative services, and supervises the Fund's daily business affairs,
subject to the authority of the Board of Directors. The Investment Manager is
also the investment manager for RCM Small Cap Fund and RCM International
Growth Equity Fund A, the other series of the Company, RCM Global Technology
Fund, a series of RCM Equity Funds, Inc., an open-end management investment
company, RCM Strategic Global Government Fund, Inc., a closed-end management
investment company, and is sub-adviser to Bergstrom Capital Corporation,
a closed-end management investment company.
The Management Agreement was approved by the Fund's stockholders at a special
meeting on May 28, 1996, and was approved for renewal by the unanimous vote
of the Board of Directors of the Company on March 20, 1996. The Management
Agreement will continue in effect until June 14, 1998. It may be renewed from
year to year thereafter, provided that any such renewals have been
specifically approved at least annually by (i) a majority of the Board of
Directors of the Company, including a majority of the Directors who are not
parties to the Management Agreement or interested persons of any such person,
cast in person at a meeting called for the purpose of voting on such
approval, or (ii) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund and the vote of a majority of the
Directors who are not parties to the contract or interested persons of any
such party.
The Fund has, under the Management Agreement, assumed the obligation for
payment of the following ordinary operating expenses: (a) brokerage and
commission expenses, (b) federal, state, or local taxes incurred by, or
levied on, the Fund, (c) interest charges on borrowings, (d) charges and
expenses of the Fund's custodian, and (e) payment of all investment advisory
fees (including fees payable to the Investment Manager under the Management
Agreement). The Fund is also responsible for expenses of an extraordinary
nature subject to good faith determination of the Company's Board of
Directors. Expenses attributable to the Fund are charged against the assets
of the Fund. General expenses of the Company's three series, the Fund, RCM
Small Cap Fund and RCM International Growth Equity Fund A, are allocated
among the three series in a manner proportionate to the net assets of each
series, on a transactional basis, or on such other basis as the Board of
Directors deems equitable.
The Investment Manager is, under the Management Agreement, responsible for
all of the Company's other ordinary operating expenses (e.g., legal and audit
fees, and SEC and "Blue Sky" registration expenses, including the
compensation of the directors of the Company. (See DIRECTORS AND OFFICERS.)
For the services rendered by the Investment Manager under the Management
Agreement, the Fund pays management fees at the annualized rate of 0.75% of
the Fund's average daily net assets. These fees are computed daily and paid
monthly. This is higher than the fee paid by most other registered investment
companies. For the years ended December 31, 1995, 1994 and 1993, the Fund
- ------------------------------------------------------------------------------
Page 19
<PAGE>
incurred investment management fees aggregating $11,038,366, $14,116,196 and
$15,464,585, respectively.
CLIENTS OF THE INVESTMENT MANAGER WHO ARE SHAREHOLDERS OF THE FUND WILL PAY A
FEE AT THIS RATE ONLY ON THE PORTION OF THEIR ASSETS INVESTED IN SHARES OF
THE FUND. HOWEVER, SUCH CLIENTS WILL NOT PAY ADDITIONAL FEES TO THE
INVESTMENT MANAGER ON THE PORTIONS OF THEIR ASSETS INVESTED IN THE FUND.
ASSETS NOT INVESTED IN SHARES OF THE FUND WILL BE SUBJECT TO FEES IN
ACCORDANCE WITH THE INVESTMENT MANAGEMENT AGREEMENT OR THE INVESTMENT
ADVISORY AGREEMENT BETWEEN THE CLIENT AND THE INVESTMENT MANAGER. CLIENTS WHO
INVEST IN SHARES OF THE FUND WILL GENERALLY PAY AN AGGREGATE FEE WHICH IS
HIGHER THAN THAT PAID BY OTHER CLIENTS NOT INVESTED IN THE FUND.
On the first business day of February, the Investment Manager will pay the
Fund the amount, if any, by which ordinary operating expenses of the Company
attributable to the Fund for the preceding fiscal year (except interest,
taxes and extraordinary expenses) exceed 1% of the average daily net assets
of the Fund for that year. However, in paying the monthly 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 month (except interest, taxes and extraordinary
expenses) exceeded on an annualized basis 1% of the Fund's average daily net
assets, determined monthly; provided, however, that the Fund will pay to the
Investment Manager on the first day of June the amount, if any, by which any
such reductions exceeded the amount to which the Fund would be entitled in
the preceding February under the immediately preceding sentence if such a
reduction had not occurred. For the calendar years ended December 31, 1985
through December 31, 1995, no payment was due under these provisions from
either the Fund or the Investment Manager.
The Management Agreement is terminable without penalty on sixty days' written
notice by a vote of the majority of the Fund's outstanding voting securities,
by a vote of the majority of the Company's Board of Directors, or by the
Investment Manager on sixty days' written notice and will automatically
terminate in the event of its assignment.
-------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
-------------------
The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes the Fund's investment decisions and selects the
broker or dealer for each specific transaction using its best judgment to
choose the broker or dealer most capable of providing the services necessary
to obtain the best execution of that transaction. In seeking the best
execution of each transaction, the Investment Manager evaluates a wide range
of criteria including any or all of the following: the broker's commission
rate, promptness, reliability and quality of executions, trading expertise,
positioning and distribution capabilities, back-office efficiency, ability to
handle difficult trades, knowledge of other buyers and sellers,
confidentiality, capital strength and financial stability, and prior
performance in serving the Investment Manager and its clients and other
factors affecting the overall benefit to be received in the transaction. When
circumstances relating to a proposed transaction indicate that a particular
broker or dealer is in a position to obtain the best execu-
- ------------------------------------------------------------------------------
Page 20
<PAGE>
tion, the order is placed with that broker or dealer. This may or may not be
a broker or dealer that has provided investment information and research
services to the Investment Manager. Such investment information and research
services may include, among other things, a wide variety of written reports
or other data on the individual companies and industries; data and reports on
general market or economic conditions; information concerning pertinent
federal and state legislative and regulatory developments and other
developments that could affect the value of actual or potential investments;
companies in which the Investment Manager has invested or may consider
investing; attendance at meetings with corporate management personnel,
industry experts, economists, government personnel, and other financial
analysts; comparative issuer performance and evaluation and technical
measurement services; subscription to publications that provide
investment-related information; accounting and tax law interpretations;
availability of economic advice; quotation equipment and services; execution
measurement services; market-related and survey data concerning the products
and services of an issuer and its competitors or concerning a particular
industry that are used in reports prepared by the Investment Manager to
enhance its ability to analyze an issuer's financial condition and prospects;
and other services provided by recognized experts on investment matters of
particular interest to the Investment Manager. In addition, the foregoing
services may include the use of or be delivered by computer systems whose
hardware and/or software components may be provided to the Investment Manager
as part of the services. In any case in which information and other services
can be used for both research and non-research purposes, the Investment
Manager makes an appropriate allocation of those uses and pays directly for
that portion of the services to be used for non-research purposes.
Subject to the requirement of seeking best available price and execution, the
Investment Manager may, in circumstances in which two or more brokers are in
a position to offer comparable prices and execution, give preference to a
broker or dealer that has provided investment information to the Investment
Manager. In so doing, the Investment Manager may effect securities
transactions which cause the Fund to pay an amount of commission in excess of
the amount of commission another broker would have charged. In selecting such
broker or dealer, the Investment Manager will make a good faith determination
that the amount of commission is reasonable in relation to the value of the
brokerage services and research and investment information received, viewed
in terms of either the specific transaction or the Investment Manager's
overall responsibility to the accounts for which the Manager exercises
investment discretion. The Investment Manager continually evaluates all
commissions paid in order to ensure that the commission represents reasonable
compensation for the brokerage and research services provided by such
brokers. Such investment information as is received from brokers or dealers
may be used by the Investment Manager in servicing all of its clients
(including the Fund) and it is recognized that the Fund may be charged a
commission paid to a broker or dealer who supplied research services not
utilized by the Fund. However, the Investment Manager expects that the Fund
will benefit overall by such practice because it is receiving the benefit of
research services and the execution of such transactions not otherwise
available to it without the allocation of transactions based on the
recognition of such research services.
Subject to the requirement of seeking the best available prices and
execution, the Investment Manager may also place orders with brokerage firms
that have sold shares of the Fund. However, to date the Fund has not marketed
any of its shares through brokers and the Investment Manager has thus not
utilized the above authority. The Investment Manager has made and will make
no commitments to place orders with any particular broker or group of
brokers. It is anticipated that a substantial portion of all brokerage
commissions will be paid to brokers who supply investment information to the
Investment Manager. During 1995, all broker-
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Page 21
<PAGE>
age commissions paid by the Fund were paid to such brokers.
The Fund may in some instances invest in U.S. and/or foreign securities that
are not listed on a national securities exchange but are traded in the
over-the-counter market. The Fund may also purchase listed securities through
the third market or fourth market. When transactions are executed in the
over-the-counter market or the third or fourth market, the Investment Manager
will seek to deal with the primary market-makers for each security; however,
when necessary in order to obtain the best price and execution, it will
utilize the services of others. In all cases, the Investment Manager will
attempt to negotiate the best market price and execution.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid in
brokerage commissions $3,568,510, $8,994,515 and $6,298,854, respectively and
the Fund's portfolio turnover rates during such periods were 96.5%, 111.1%
and 67.0%, respectively.
As noted above, the Investment Manager is a wholly owned subsidiary of
Dresdner. Dresdner Kleinwort Benson North America, LLC ("DKNA") is a wholly
owned subsidiary of Dresdner. DKNA and other Dresdner subsidiaries may be
registered as broker-dealers with the SEC (collectively, "Dresdner
Affiliates"). The Investment Manager believes that it is in the best
interests of the Fund to execute brokerage transactions, when appropriate,
through the Dresdner Affiliates. Accordingly, the Investment Manager intends
to execute brokerage transactions through the Dresdner Affiliates, when
appropriate, and to the extent consistent with applicable laws and
regulations. In all such cases, the Dresdner Affiliates will act as agent
for the Fund, and the Investment Manager will not enter into any transaction
on behalf of the Fund in which a Dresdner Affiliate is acting as principal
for its own account. In connection with such agency transactions, the
Dresdner Affiliates will receive compensation in the form of 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 the Dresdner Affiliates are no higher than the
commissions paid by any other similar customer of those brokers who receives
brokerage and research services that are similar in scope and quality than
those received by the Fund.
The Investment Manager performs investment management and advisory services
for various clients, including pension, profit-sharing and other employee
benefit trusts, as well as individuals. In many cases, portfolio transactions
may be executed in an aggregated transaction as part of concurrent
authorizations to purchase or sell the same security for numerous accounts
served by the Investment Manager, some of which accounts may have investment
objectives similar to those of the Fund. The objective of aggregated
transactions is to obtain favorable execution and/or lower brokerage
commissions, although there is no certainty that such objective will be
achieved. Although executing portfolio transactions in an aggregated
transaction potentially could be either advantageous or disadvantageous to
any one or more particular accounts, aggregated transactions will be effected
only when the Investment Manager believes that to do so will be in the best
interest of the Fund, and the Investment Manager is not obligated to
aggregate orders into larger transactions. These orders generally will be
averaged as to price. When such aggregated transactions occur, the objective
will be to allocate the executions in a manner which is deemed fair and
equitable to each of the accounts involved over time. In making such
allocation decisions, the Investment Manager will use its business judgment
and will consider, among other things, any or all of the following: each
client's
- ------------------------------------------------------------------------------
Page 22
<PAGE>
investment objectives, guidelines, and restrictions, the size of
each client's order, the amount of investment funds available in each
client's account, the amount already committed by each client to that or
similar investments, and the structure of each client's portfolio. Although
the Investment Manager will use its best efforts to be fair and equitable to
all clients, including the Fund, there can be no assurance that any
investment will be proportionately allocated among clients according to any
particular or predetermined standard or criteria. The Investment Manager will
not include orders on behalf of any affiliated or related entity in any
aggregated transaction that includes orders placed on behalf of the Fund.
-------------------
INVESTMENT BY EMPLOYEE BENEFIT PLANS
-------------------
All shareholders of the Fund are (and are expected in the future to be)
organizations and individuals to whom the Fund's investment manager also
provides discretionary investment supervisory or investment advisory
services. For discretionary account clients that are employee benefit plans
subject to the Employee Retirement Income Security Act of 1974 ("ERISA")
investment in shares of the Fund requires a special form of approval
procedure by the plans' independent "fiduciaries," as described below.
ERISA provides that, when an employee benefit plan invests in any security
issued by an investment company registered under the 1940 Act (such as the
Company), the assets of such plan will be deemed to include that security,
but shall not, solely by reason of such investment, be deemed to include any
assets of the investment company. ERISA also provides that the investment by
an employee benefit plan in securities issued by an investment company
registered under the 1940 Act will not cause the investment company or the
investment company's advisor to be deemed a "fiduciary" or a "party in
interest" with respect to such employee benefit plan, as those terms are
defined in Title I of ERISA, or a "disqualified person" with respect to such
plan for purposes of the Internal Revenue Code of 1986.
The Investment Manager does not intend to cause the Fund to invest in the
securities of a company that is a sponsor of an employee benefit plan owning
shares of the Fund. However, should such an investment occur, either by
portfolio decisions of the Investment Manager or by the purchase of shares by
an employee benefit plan, the shares held by the Fund would not be considered
"employer securities" within the meaning of ERISA Section 407 (which limits
the amount of employer securities which may be held by certain employee
benefit plans) for an employee benefit plan owning shares of the Fund.
Although only the shares of the Fund and not its underlying investments will
be considered assets of an employee benefit plan purchasing the Fund's
shares, the ERISA Conference Report of the U. S. Congress indicates that, for
purposes of determining whether the investments of an employee benefit plan
meet the diversification requirements of ERISA Section 404, it is appropriate
to apply the diversification rule by examining the diversification of
investments by the Fund. The Department of Labor has indicated its
concurrence in this position in Advisory Opinion 75-93 (November 4, 1975).
The Investment Manager presently anticipates that shares of the Fund will be
purchased by employee benefit plans that have appointed or
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Page 23
<PAGE>
may appoint the Investment Manager as "investment manager" (within the
meaning of ERISA Section 3(38)) of some or all of their assets. The
Department of the Treasury and the Department of Labor have promulgated a
"Prohibited Transaction Class Exemption" (Prohibited Transaction Exemption
77-4, 42 Fed. Reg. 18732 (April 8, 1977)) exempting from the prohibited
transaction restrictions of ERISA the purchase and sale by an employee
benefit plan of shares of a registered, open-end investment company when a
fiduciary with respect to the plan (e.g., an investment manager) is also the
investment adviser for the investment company, provided certain conditions
are met. It is the intention of the Fund and the Investment Manager to take
all necessary steps to satisfy these conditions when the transaction so
requires. The applicable conditions are:
1. The employee benefit plan (the "plan") does not pay a sales commission in
connection with such purchase or sale. (The Fund does not charge a sales
commission in connection with the sale of its capital stock.)
2. The plan does not pay a redemption fee in connection with the sale by the
plan to the investment company of its shares unless:
(a) the redemption fee is paid to the investment company, and
(b) the fee is disclosed in the investment company prospectus
in effect both at the time of the purchase of such shares
and at the time of such sale. (The Fund does not charge a
redemption fee.)
3. The plan does not pay an investment management fee with respect to plan
assets invested in such shares for the entire period of the investment.
This does not preclude payment of fees by the investment company under
the terms of the Management Agreement adopted in accordance with Section
15 of the 1940 Act. (The Investment Manager does not charge a separate
management fee on plan assets invested in shares of the Fund.)
4. A second fiduciary with respect to the plan, who is independent
of and unrelated to the fiduciary/investment adviser or any affiliate
of the adviser, must receive a prospectus issued by the investment
company, and a full and detailed written disclosure of the investment
advisory and other fees charged to or paid by the plan and the
investment company, including the nature and extent of any
differential between the rates of such fees, the reasons why the
fiduciary/investment adviser may consider purchases of investment
company stock to be appropriate, and whether there are any limitations
on the fiduciary/investment adviser with respect to which plan assets
may be invested in shares of the investment company and, if so, the
nature of such limitations.
5. On the basis of the prospectus and the additional disclosure materials
described above, the second fiduciary approves the purchases and sales.
The approval may be limited solely to the investment advisory and other
fees paid by the investment company in relation to the fees paid by the
plan and need not relate to any other aspect of the investment. The
approval must be either:
(a) set forth in the plan document or investment management agreement,
or
(b) indicated in writing prior to each purchase or sale, or
(c) indicated in writing prior to the commencement or continuation of a
specified purchase or sale program in the shares of such investment
company.
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Page 24
<PAGE>
6. The second fiduciary or any successor thereto is notified in
writing of any change in any of the rates of fees referred to in
Paragraph 5 and approves in writing the continuation of the purchases
and sales and the continued holding of shares acquired prior to the
change. Such approval may be limited solely to the investment advisory
and other fees.
As noted above, the Fund and the Investment Manager intend to conform with
the above provisions in connection with investments in the Fund by employee
benefit plans managed by the Investment Manager. The Fund and Investment
Manager solicit approval of specified purchase programs as described in
Paragraph 5(c) above. Such a program will establish a purchase limitation
based either on a specific dollar amount or on a percentage of the total
assets of a plan which are committed to investment in equity and
equity-related securities supervised by the Investment Manager.
-------------------
HOW TO PURCHASE SHARES
-------------------
THE FUND CURRENTLY OFFERS ITS SHARES SOLELY TO INSTITUTIONS AND INDIVIDUALS
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR AN INVESTMENT
ADVISORY AGREEMENT WITH THE FUND'S INVESTMENT MANAGER, RCM CAPITAL
MANAGEMENT, L.L.C. THE FUND EXPECTS TO CONTINUE THIS POLICY IN THE FUTURE. IN
THIS CAPACITY, THE INVESTMENT MANAGER MAY BE AUTHORIZED TO DETERMINE THE
AMOUNT AND TIMING OF PURCHASES AND REDEMPTIONS OF SHARES HELD BY
DISCRETIONARY CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES
OF THE INVESTMENT MANAGER'S DISCRETIONARY CLIENTS. (See INVESTMENT BY
EMPLOYEE BENEFIT PLANS above.)
Shares of the Fund are offered on a continuous basis at the net asset value
per share (next determined after acceptance of orders), without any sales or
other charge. The initial investment must be at least $10,000, and there is a
$1,000 minimum for additional investments other than through the Fund's
automatic dividend reinvestment plan (see DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS). The Company reserves the right at any time to waive, increase, or
decrease the minimum requirements applicable to initial or subsequent
investments.
Eligible investors or their duly authorized agents may purchase shares
from RCM Capital Trust Company (the "Transfer Agent"), through the Fund's
distributor, by sending a signed, completed subscription form to the Transfer
Agent at Four Embarcadero Center, Suite 2800, San Francisco, California
94111. (telephone (415) 954-1700). Subscription forms can also be obtained
from the Investment Manager or the Company. The Company, on behalf of the
Fund, does not have dealer agreements.
Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on
that day. The Company reserves the right to reject any order at its sole
discretion. Orders received after the close of the New York Stock Exchange
composite tape, or on any day on which the New York Stock Exchange is not
open for trading, will be priced at the close of the New York Stock Exchange
composite tape on the next succeeding date on which the New York Stock
Exchange is open for trading. Net asset value normally is not calculated for
any day on which an order for shares is not received
- ------------------------------------------------------------------------------
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<PAGE>
or on which shares are not surrendered for redemption.
Upon receipt of the subscription form in good order, the Company will open a
shareholder account in accordance with the investor's registration
instructions. A confirmation statement reflecting the current transaction
along with a summary of the status of the account as of the transaction date
will be forwarded to the investor. Payment for shares purchased should be
made by check or money order, payable to:
State Street Bank and Trust Company
U.S. Mutual Funds Services Division
P.O. Box 1713
Boston, Massachusetts 02105
Attn: RCM Growth Equity Fund
Account I001
For overnight delivery, the address is:
1776 Heritage Drive
North Quincy, Massachusetts 02171
Investors may also wire funds in payment of orders to the above address.
Wired funds should include the following: shareholder's registration name and
account number with the Company and the name of the Fund.
The Company will issue share certificates of the Fund only for full shares
and only upon the specific request of the shareholder. Confirmation
statements showing transactions in the shareholder account and a summary of
the status of the account serve as evidence of ownership of shares of the
Fund.
In its discretion, the Company may accept securities of equal value instead
of cash in payment of all or part of the subscription price for the Fund's
shares offered by this Prospectus. Any such securities (a) will be valued at
the close of the New York Stock Exchange composite tape on the day of
acceptance of the subscription in accordance with the method of valuing the
Fund's portfolio described under NET ASSET VALUE; (b) will have a tax basis
to the Fund equal to such value; (c) must not be "restricted securities"; and
(d) must be permitted to be purchased in accordance with the Fund's
investment objectives and policies set forth in this Prospectus and must be
securities that the Fund would be willing to purchase at that time.
Prospective shareholders considering this method of payment should contact
the Company in advance to discuss the securities in question and the
documentation necessary to complete the transaction. Share purchases with
securities will not be taxable transactions to shareholders of the Fund which
are exempt from Federal income taxation under Section 501(a) of the Code.
-------------------
NET ASSET VALUE
-------------------
The net asset value of each share of the Fund on which the subscription and
redemption prices are based is determined by the sum of the market value of
the securities and other assets owned by the Fund less its liabilities,
computed in accordance with the Articles of Incorporation and By-Laws of the
Company. The net asset value of a share is the quotient obtained by dividing
the net assets of the Fund (i.e., the value of the assets of the Fund less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares of the Fund outstanding. The
net asset value of the Fund's shares will be calculated as of the close of
regular trading on the New York Stock Exchange, currently
- ------------------------------------------------------------------------------
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<PAGE>
4:00 p.m., New York time, (unless weather, equipment failure or other factors
contribute to an earlier closing time) on the last day of each month that the
New York Stock Exchange is open for trading, and on any day that the New York
Stock Exchange is open for trading and on which there is a sale or redemption
of the Fund's shares.
For purposes of this computation, equity securities traded on stock exchanges
are valued at the last sale price on the exchange or in the principal
over-the-counter market in which such securities are traded as of the close
of business on the day the securities are being valued. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange determined by the Investment Manager to be the primary market
for the securities. If there has been no sale on such day, the security will
be valued at the closing bid price on such day. If no bid price is quoted on
such day, then the security will be valued by such method as a duly
constituted committee of the Board of Directors of the Company shall
determine in good faith to reflect its fair market value. Readily marketable
securities traded only in the over-the-counter market that are not listed on
NASDAQ or similar foreign reporting service will be valued at the mean BID
price, or such other comparable sources as the Board of Directors of the
Company in good faith deems appropriate to reflect their fair market value.
Other portfolio securities held by the Fund will be valued at current market
value, if current market quotations are readily available for such
securities. To the extent that market quotations are not readily available
such securities shall be valued by whatever means a duly constituted
committee of the Board of Directors of the Company in good faith deems
appropriate to reflect their fair market value.
Futures contracts and related options are valued at their last sale or
settlement price as of the close of the exchange on which they are traded or,
if no sales are reported, at the mean between the last reported bid and asked
prices. All other assets of the Fund will be valued in such manner as a duly
constituted committee of the Board of Directors of the Company in good faith
deems appropriate to reflect their fair market value.
The Fund may use a pricing service approved by its Board of Directors to
value long-term debt obligations. Prices provided by such a service represent
evaluations of the mean between current bid and asked market prices, may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics, indications of value from dealers, and other market
data. Such services may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of such services are
reviewed periodically by the officers of the Fund under the general
supervision of the Board of Directors. Short-term investments are amortized
to maturity based on their cost, adjusted for foreign exchange translation,
provided such valuations equal fair market value.
-------------------
REDEMPTION OF SHARES
-------------------
Subject only to the limitations described below, the Company's Articles of
Incorporation require that the Company redeem the shares of the Fund tendered
to it, as described below, at a redemption price equal to the net asset value
per share as next computed following the
- ------------------------------------------------------------------------------
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<PAGE>
receipt of all necessary redemption documents. There is no redemption charge.
Payment for shares redeemed will be made within seven days after receipt by
the Company of: (a) a written request for redemption, signed by each
registered owner or his duly authorized agent exactly as the shares are
registered, which clearly identifies the exact names in which the account is
registered, the account number and the number of shares or the dollar amount
to be redeemed; (b) stock certificates for any shares to be redeemed which
are held by the shareholder; and (c) the additional documents required for
redemptions by corporations, executors, administrators, trustees and
guardians. Redemptions will not become effective until all documents in the
form required have been received by the Company. A shareholder in doubt as to
what documents are required should contact the Company.
If the Company is requested to redeem shares for which it has not yet
received payment, the Transfer Agent will delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that
payment has been collected for the purchase of such shares. The delay may be
up to 15 days. Delays in the receipt of redemption proceeds may be avoided if
shares are purchased through the use of wire-transferred funds or other
methods which do not entail a clearing delay in the Fund receiving "good
funds" for its use.
Upon execution of the redemption order, a confirmation statement will be
forwarded to the shareholder indicating the number of shares sold and the
proceeds thereof. Proceeds of all redemptions will be paid by check or
federal funds wired no later than seven calendar days subsequent to execution
of the redemption order except as may be provided below.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the New York Stock Exchange is
closed (other than customary weekend or holiday closing) or during which the
SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable,
or as a result of which it is not reasonably practical for the Fund fairly to
determine the value of its net assets, or for such other periods as the SEC
may by order permit for the protection of shareholders of the Fund.
Payments will be made wholly in cash unless the Board of Directors believe
that economic conditions exist which would make such a practice detrimental
to the best interests of the Fund. Under such circumstances, payment of the
redemption price could be made either in cash or in portfolio securities
(selected in the discretion of the Board of Directors of the Company and
taken at their value used in determining the redemption price), or partly in
cash and partly in portfolio securities. Payment for shares redeemed also may
be made wholly or partly in the form of a pro rata portion of each of the
portfolio securities held by the Fund at the request of the redeeming
shareholder, if the Fund believes that honoring such request is in the best
interests of the Fund. If payment for shares redeemed were to be made wholly
or partly in portfolio securities, brokerage costs would be incurred by the
investor in converting the securities to cash.
Because the net asset value of the Fund's shares will fluctuate as a result
of changes in the market value of securities owned, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.
- ------------------------------------------------------------------------------
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<PAGE>
-------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
-------------------
It is the intention of the Fund to distribute to its shareholders all of each
fiscal year's net investment income and net realized capital gains, if any,
on the Fund's investment portfolio. The amount and time of any such
distribution must necessarily depend upon the realization by the Fund of
income and capital gains from investments.
Until the Board of Directors otherwise determines, each income dividend and
capital gains distribution, if any, declared by the Fund will be reinvested
in full and fractional shares based on the net asset value as determined on
the payment date for such distributions, unless the shareholder or its duly
authorized agent has elected to receive all such payments or the dividend or
distribution portions thereof in cash. Changes in the manner in which
dividend and distribution payments are made may be requested by the
shareholder or its duly authorized agent at any time through written notice
to the Company and will be effective as to any subsequent payment if such
notice is received by the Company prior to the record date used for
determining the shareholders entitled to such payment. Any dividend and
distribution election will remain in effect until the Company is notified by
the shareholder in writing to the contrary.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December by the Fund and
made payable to shareholders of record in such a month are treated as paid
and are thereby taxable as of December 31, provided that the Fund pays the
dividend no later than January 31 of the following year.
ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUND'S
INVESTMENT MANAGER WILL NOT CONSIDER THE TAX EFFECT OF CAPITAL GAIN OR LOSS
RECOGNITION OR ANY DIFFERENCE IN THE TREATMENT OF LONG- AND SHORT-TERM
CAPITAL GAINS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") WHEN MAKING INVESTMENT DECISIONS FOR THE FUND'S PORTFOLIO. This may
result in a taxable shareholder paying higher income taxes than would be the
case with investment companies emphasizing the realization of long-term
capital gains.
The Company has qualified and intends to continue to qualify the Fund as a
"regulated investment company" under Subchapter M of the Code. The Fund will
be treated as a separate fund for tax purposes and thus the provisions of the
Code applicable to regulated investment companies generally will be applied
to the Fund. In addition, net capital gains, net investment income, and
operating expenses will be determined separately for the Fund. By complying
with the applicable provisions of the Code, the Fund will not be subjected to
federal income taxes with respect to net investment income and net realized
capital gains distributed to its shareholders.
To qualify under Subchapter M, the Fund must (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities or
certain options, futures, forward contracts on foreign currencies; (b) derive
less than 30% of its gross income from the sale or other disposition of stock
or securities held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the market value
of the fund's assets is represented by cash, cash items, U.S. Government
securities and other securities, limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in the
- ------------------------------------------------------------------------------
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<PAGE>
securities of any one issuer (other than U.S. Government securities or the
securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses.
In any fiscal year in which the Fund so qualifies and distributes at least
90% of the sum of its investment company taxable income (consisting of net
investment income and the excess of net short-term capital gains over net
long-term capital losses) and its tax-exempt interest income (if any), it
will be taxed only on that portion, if any, of such investment company
taxable income and any net capital gain that it retains. The Fund expects to
so distribute all of such income and gains on an annual basis, and thus will
generally avoid any such taxation.
Even though the Fund qualifies as a "regulated investment company," it may be
subject to certain federal excise taxes unless the Fund meets certain
additional distribution requirements. Under the Code, a nondeductible excise
tax of 4% is imposed on the excess of a regulated investment company's
"required distribution" for the calendar year ending within the regulated
investment company's taxable year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the
one-year period ending on October 31 (as though the one year period ending on
October 31 were the regulated investment company's taxable year), and (iii)
the sum of any untaxed, undistributed net investment income and net capital
gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the Fund from its current year's ordinary income and capital
gain net income and (ii) any amount on which the Fund pays income tax for the
year. The Fund intends to meet these distribution requirements to avoid the
excise tax liability. Shareholders who are subject to federal or state income
or franchise taxes will be required to pay taxes on dividends and capital
gains distributions they receive from the Fund whether paid in additional
shares of the Fund or in cash. To the extent that dividends received by the
Fund would qualify for the 70% dividends received deduction available to
corporations, the Fund must designate in a written notice to shareholders the
amount of the Fund's dividends that would be eligible for this treatment. In
order to qualify for the dividends received deduction, a corporate
shareholder must hold the Fund shares paying the dividends upon which a
dividend received deduction is based for at least 46 days. Shareholders, such
as qualified employee benefit plans, who are exempt from federal and state
taxation generally would not have to pay income tax on dividend or capital
gain distributions. Prospective tax-exempt investors should consult their own
tax advisers with respect to the tax consequences of an investment in the
Fund under federal, state and local tax laws.
Clients who purchase shares of the Fund shortly before the record date of a
dividend or capital gain distribution will pay full price for the shares
("buying a dividend") and then receive some portion of the price back as a
taxable dividend or capital gain distribution.
Federal law requires the Company to withhold 31% of income from dividends,
capital gains distributions and/or redemptions (including exchanges) that
occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply. Amounts withheld are applied to
the shareholder's federal tax liability, and a refund may be obtained from
the Internal Revenue Service if withholding results in an overpayment of
taxes.
Under the Code, distributions of net investment income by the Fund to
a shareholder who, as to the U.S., is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S.
- ------------------------------------------------------------------------------
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<PAGE>
withholding tax (at a rate of 30% or lower treaty rate, whichever is less).
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business, in
which case the reporting and withholding requirements applicable to U.S.
citizens or domestic corporations will apply. Distributions of net long-term
capital gains are not subject to tax withholding, but in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during
the taxable year.
Futures contracts and related options entered into by the Fund may be
"Section 1256 contracts" under the Code. Any gains or losses on Section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses, although certain foreign currency gains and losses from such
transactions may be treated as ordinary income in character. Section 1256
contracts held by the Fund at the end of each taxable year (and for purposes
of the 4% nondeductible excise tax, on October 31 or such other dates as
prescribed under the Code) are "marked to market," with the result that
unrealized gains or losses are treated as though they were realized.
Generally, transactions in stock index futures contracts and related options
undertaken by the fund may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the character of gains or losses
realized by the Fund. In addition, losses realized by the Fund on positions
that are part of a straddle position may be deferred under the straddle
rules, rather than being taken into account for the taxable year in which
these losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of such
transactions to the Fund are not entirely clear.
Transactions in futures contracts and related options may increase the amount
of short-term capital gain realized by the Fund which is taxed as ordinary
income when distributed to shareholders. The Fund may make one or more of the
elections available under the Code which are applicable to straddle
positions. If the Fund makes any of the elections, the amount, character and
timing of the recognition of gains or losses from the affected straddle
positions will be determined under the rules that vary according to elections
made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions. Because the application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition
of gains or losses form the affected straddle positions, the amount which
must be distributed to shareholders, and which will be taxed to shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions. The qualification rules of Subchapter M may limit the extent to
which the Fund will be able to engage in transactions involving stock index
futures contracts and all related options.
Under the Code, gains or losses attributable to fluctuations and exchange
rates which occur between the time the Fund accrues interest or other
receivables, or accrues expenses or other liabilities, denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities, generally are treated as ordinary income or loss.
Similarly, on the disposition of certain futures contracts and related
options, gains or losses attributable to fluctuation in the value of foreign
currency between the dates of acquisition and disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the code as
"Section 988" gain or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to shareholders as
ordinary income.
The Fund may be required to pay withholding and other taxes imposed by
foreign countries which would reduce the Fund's investment income, generally
at rates from 10% to 40%. Tax conventions between certain countries and
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<PAGE>
the United States may reduce or eliminate such taxes. To the extent the Fund
does pay foreign withholding or other foreign taxes on certain of its
investments, investors will not be able to deduct their pro rata shares of
such taxes in computing their taxable income and will not be able to take
their share of such taxes as a credit against their United States income
taxes.
Each shareholder will receive following the end of each fiscal year of the
Company, full information on dividends, capital gains distributions and other
reportable amounts with respect to shares of the Fund for tax purposes,
including information such as the portion taxable as capital gains, and the
amount of dividends, if any, eligible for the federal dividends received
deduction for corporate taxpayers.
The foregoing is a general abbreviated summary of present United States
Federal income tax laws and regulations applicable to dividends and
distributions by the Fund. Investors are urged to consult their own tax
advisers for more detailed information and for information regarding any
foreign, state, and local tax laws and regulations applicable to dividends
and distributions received.
-------------------
DESCRIPTION OF CAPITAL STOCK
-------------------
The Company was incorporated in Maryland on March 16, 1979. The Company is
authorized to issue 1,000,000,000 shares of Capital Stock (par value $0.0001
per share) of which 300,000,000 shares have been designated as shares of RCM
Growth Equity Fund. 100,000,000 shares have been designated as shares of RCM
Small Cap Fund, and 100,000,000 shares have been designated as shares of RCM
International Growth Equity Fund A. The Company's Board of Directors may, in
the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios or funds. All shares
of the Company have equal voting rights and will be voted in the aggregate,
and not by series, except where voting by series is required by law or where
the matter involved affects only one series. There are no conversion or
preemptive rights in connection with any shares of the Company. All shares of
the Fund when duly issued will be fully paid and non-assessable. The rights
of the holders of shares of the Fund may not be modified except by vote of
the majority of the outstanding shares of the Fund. Certificates are not
issued unless requested and are never issued for fractional shares.
Fractional shares are liquidated when an account is closed. As of June 30,
1996, there were 89,997,291.238 shares of the Fund's shares outstanding; on
that date the following were known to the Fund to own of record more than 5%
of the Fund's capital stock:
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<PAGE>
NAME AND % OF SHARES
ADDRESS OF SHARES OUTSTANDING AS OF
BENEFICIAL OWNER HELD JUNE 30, 1996
- ------------------------- -------- --------------
Chase Manhattan Bank N.A. 10,479,759.575 11.65%
Ernst & Young U.S. Master Trust
770 Broadway, 10th Floor
New York, New York 10003
Fidelity Management Trust Co. 9,701,742.606 10.78%
American Stores Retirement Portfolio
82 Devonshire Street
Boston, Massachusetts 02109
Bankers Trust Company 7,604,800.550 8.45%
Chevron Corporation Annuity Trust
BT Services
648 Grassmere Park Road
Nashville, Tennessee 37211
Chase Manhattan Bank NA 6,559,895.875 7.29%
Boeing Company Employee Retirement Plan
3 Metrotech Center
Brooklyn, New York 11245
Mellon Bank 4,612,918.749 5.13%
White Consolidated Industries, Inc.
One Mellon Bank Center, Room 1335
Pittsburgh, Pennsylvania 15258
Except as described above, the Fund has no information regarding the
beneficial owners of such shares. All shareholders of the Fund are also
clients of the Investment Manager. (See INVESTMENT BY EMPLOYEE BENEFIT
PLANS.) As investment manager for discretionary account clients, the
Investment Manager may be authorized to determine the amount and timing of
purchases and redemptions of the Fund's shares held by such clients, subject
only to general restrictions and approvals of such clients. As a result, the
Investment Manager under law may also be deemed the beneficial owner of all
of the outstanding shares of the Fund and in "control" of the Fund on account
of such beneficial ownership. Nevertheless, each shareholder of the Fund that
is a client of the Investment Manager retains the general authority to
restrict or instruct the Investment Manager with respect to investments in
shares of the Fund.
Shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of all series of the Company's shares voting for the
election of directors can elect 100% of the directors if they wish to do so.
In such event, the holders of the remaining less that 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the Board of Directors.
The Company is not required to hold a meeting of shareholders in any year in
which the 1940 Act does not require a shareholder vote on a particular
matter, such as election of directors. The Company will hold a meeting of its
shareholders for the purpose of voting on the question of removal of one or
more directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, or to assist in communicating with
its shareholders as required by Section 16(c) of the 1940 Act.
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<PAGE>
------------------------
SHAREHOLDER REPORTS
------------------------
The fiscal year of the Fund ends on December 31 of each year. The Fund will
issue to its shareholders semi-annual and annual reports; each annual report
will contain a schedule of the Fund's portfolio securities, audited annual
financial statements and related footnotes, and information regarding
purchases and sales of securities during the period covered by the report as
well as information concerning the Fund's performance in accordance with
rules promulgated by the SEC. In addition, shareholders will receive
quarterly statements of the status of their accounts reflecting all
transactions having taken place within that quarter. The federal income tax
status of shareholders' distributions will also be reported to shareholders
after the end of each fiscal year.
------------------------
COUNSEL
------------------------
The validity of the shares offered by this Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker have acted and will
continue to act as counsel to the Investment Manager in various matters.
------------------------
INDEPENDENT ACCOUNTANTS
------------------------
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, have been appointed as independent auditors for the Company. Coopers &
Lybrand L.L.P. will conduct an annual audit of the Fund, assist in the
preparation of the Fund's federal and state income tax returns, and consult
with the Company as to matters of accounting, regulatory filings, and federal
and state income taxation.
The financial statements of the Fund incorporated by reference herein have
been audited by Coopers & Lybrand L.L.P., independent accountants, as stated
in their opinion appearing therein and are included in reliance upon such
opinion given upon the authority of said firm as experts in accounting and
auditing.
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<PAGE>
------------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER AND
REDEMPTION AGENT
------------------------
State Street Bank and Trust Company, U.S. Mutual Funds Services Division,
P.O. Box 1713, Boston, Massachusetts 02105 serves as Custodian of all
securities and funds owned by the Fund in accordance with the terms of a
Custodial Agreement between the Company and the Custodian. The Custodian also
provides dividend paying services to the Fund.
Funds Distributor, Inc., 60 State Street, Suite 1600, Boston, Massachusetts
02109 serves as distributor to the Fund. The Distributor has provided mutual
fund distribution services since 1976, and is a subsidiary of Boston
Institutional Group, Inc., which provides distribution and other related
services with respect to investment products.
Pursuant to a Distribution Agreement with the Company, the Distributor has
agreed to use its best efforts to effect sales of shares of the Fund, but is
not obligated to sell any specified number of shares. The Distribution
Agreement contains provisions with respect to renewal and termination similar
to those in the Fund's Management Agreement discussed above. Pursuant to the
Distribution Agreement, the Company has agreed to indemnify the Distributor
to the extent permitted by applicable law against certain liabilities of the
Securities Act of 1933.
Pursuant to an Agreement among the Manager, the Company, RCM Equity Funds,
Inc. and the Distributor, the Distributor has agreed to provide regulatory,
compliance and related technical services to the Fund; to provide services
with regard to advertising, marketing and promotional activities; and to
provide officers to the Company. The Manager is required to reimburse the
Company for any fees and expenses of the Distributor pursuant to the
Agreement.
RCM Capital Trust Company, Four Embarcadero Center, Suite 2800 San Francisco,
California 94111 serves as transfer and redemption agent for the
Fund's common stock. The Transfer Agent is a wholly owned subsidiary of the
Investment Manager.
------------------------
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 June 14, 1996, the Investment Manager has granted
the Company the right to use the "RCM" name and has reserved the right to
withdraw its consent to the use of such name by the Company at any time, or
to grant the use of such name to any other company. In addition, the Company
has granted the Investment Manager, under certain conditions, the use of any
other name it might assume in the future, with respect to any other
investment company sponsored by the Investment Manager.
The Fund may from time to time compare its investment results with the
following:
1. The unmanaged Russell Mid-Capitalization Index, which is composed of
all medium/small companies in the Russell 1000 Index.
2. The Standard & Poor's MidCap 400 Index, which is a widely recognized
index composed of the middle capitalization sector of the U.S. equities
market.
3. The Standard & Poor's 500 Index, which is a widely recognized index
composed of the capitalization-weighted average of the price of 500
of the largest publicly traded stocks in the United States.
4. The Dow Jones Industrial Average, which is a price-weighted average
comprised of the stocks of 30 blue-chip stocks, primarily
manufacturing companies, but also service companies.
5. The Russell 2000 Index, which is the 2,000 smallest stocks in the
Russell 3000 Index.
6. The Value Line Composite Index, which consists of approximately 1,700
common equity securities.
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7. The NASDAQ Over-the-Counter Composite Index, which is a value-weighted
index composed of 4,500 stocks traded over the counter.
8. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc., which ranks mutual funds by overall performance,
investment objectives, and assets.
------------------------
FINANCIAL STATEMENTS
------------------------
Incorporated by reference herein are the financial statements of RCM Growth
Equity Fund, contained in the Fund's Annual Report to Shareholders for the
year ended December 31, 1995, including the Report of Independent
Accountants, dated February 9, 1996, the Statement of Investment in
Securities and Net Assets, the Statement of Assets and Liabilities, the
Statement of Operations, the Statement of Changes in Net Assets, and the
related Notes to Financial Statements. A copy of the Fund's Annual Report to
Shareholders is available, upon request, by calling the Fund at (415)
954-5400, or by writing the Fund at Four Embarcadero Center, Suite 3000, San
Francisco, CA 94111.
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<PAGE>
INVESTMENT MANAGER
RCM Capital Management, L.L.C.
Four Embarcadero Center, Suite 3000
San Francisco, California 94111
TRANSFER AND REDEMPTION
AGENT
RCM Capital Trust Company
Four Embarcadero Center, Suite 2800
San Francisco, California 94111
DISTRIBUTOR
Funds Distributor, Inc.
60 State Street, Suite 1300
Boston, Massachusetts 02109
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Combined Prospectus and
Statement of Additional Information
July 22, 1996
