RCM INTERNATIONAL GROWTH EQUITY FUND A, 485BPOS, 1997-05-01

RCM INTERNATIONAL GROWTH EQUITY FUND A
485BPOS, 1997-05-01

Previous: JANUS INVESTMENT FUND, 497, 1997-05-01

Next: CG VARIABLE ANNUITY ACCOUNT I GROUP TAX DEFERRED VARIABLE AN, 497J, 1997-05-01

<PAGE>

As filed with the Securities and Exchange Commission on May 1, 1997

1933 Act File No. 2-63825
1940 Act File No. 811-2913

- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 26

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 26

- --------------------------------------------------------------------------------
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center
San Francisco, California 94111
(415) 954-5400
- --------------------------------------------------------------------------------

John E. Pelletier, Vice President & Secretary
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center
San Francisco, California 94111
(415) 954-5400

(Name and Address of Agent for Service)

<TABLE>
<S> <C>
Timothy B. Parker, Deputy General Counsel Copies to:
RCM Capital Management, L.L.C. Michael Glazer
Four Embarcadero Center Paul, Hastings, Janofsky & Walker LLP
San Francisco, California 94111 555 South Flower Street
Los Angeles, California 90071
</TABLE>

The Registrant has filed a declaration pursuant to
Rule 24f-2 registering an indefinite number of shares
under the Securities Act of 1933. On February 28, 1997
the Registrant filed its 24f-2 Notice for its fiscal year December 31, 1996.
- --------------------------------------------------------------------------------

It is proposed that this filing will become effective:

[X] Immediately upon filing pursuant to paragraph (b)
[ ] On _________________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _________________ pursuant to paragraph (a)(1) of
rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _________________ pursuant to paragraph (a)(2) of
rule 485

<PAGE>

RCM CAPITAL FUNDS, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION

ITEM NUMBER OF PART A OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION

<S> <C>
1. Cover Page Cover Page

2. Synopsis Synopsis; Summary of Fees and Expenses

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Investment Objective and Policies; Stock Index Futures Transactions; Description
of Capital Stock

5. Management of the Fund The Investment Manager

5A. Management's Description of Fund *
Performance

6. Capital Stock and Other Securities Dividends, Distributions and Tax Status; Description of Capital Stock

7. Purchase of Securities Being Offered How to Purchase Shares

8. Redemption or Repurchase Redemption of Shares

9. Pending Legal Proceedings *
</TABLE>

- --------------------
*Not applicable

<PAGE>

RCM CAPITAL FUNDS, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF PART A AND B OF FORM N-1A AND THE
COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
(CONTINUED)

ITEM NUMBER OF PART B OF FORM N-1A CAPTIONS IN COMBINED
PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION
<S> <C>
10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Description of Capital Stock

13. Investment Objectives and Policies Investment Objective and Policies; Stock Index Futures Transactions; Investment
Restrictions

14. Management of the Fund Directors and Officers

15. Control Persons and Principal Description of Capital Stock
Holders of Securities

16. Investment Advisory and Other Services The Investment Manager

17. Brokerage Allocation and Other Execution of Portfolio Transactions
Practices

18. Capital Stock and Other Securities Redemption of Shares; Description of Capital Stock

19. Purchase, Redemption and Pricing of How to Purchase Shares; Net Asset Value;
Securities Being Offered Redemption of Shares

20. Tax Status Dividends, Distributions and Tax Status

21. Underwriters *

22. Calculation of Performance Data Investment Results

23. Financial Statements Financial Highlights;
Financial Statements
</TABLE>

- --------------------
*Not applicable
<PAGE>

---------------------

COMBINED PROSPECTUS AND STATEMENT OF ADDITIONAL
INFORMATION
---------------------
RCM CAPITAL FUNDS, INC.
Four Embarcadero Center
San Francisco, California 94111
(415) 954-5400
---------------------
RCM CAPITAL FUNDS, INC. (the "Company") is an open-end management investment
company. The Company presently consists of three series, RCM Growth Equity Fund
(the "Growth Equity Fund"), RCM Small Cap Fund (the "Small Cap Fund"), and RCM
International Growth Equity Fund A (the "International Growth Equity Fund"). The
Growth Equity Fund, Small Cap Fund and International Growth Equity Fund are
referred to herein from time-to-time individually as a "Fund" and collectively
as the "Funds."

Shares of the Funds 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 FUNDS SOLELY TO
INSTITUTIONS AND INDIVIDUALS ("CLIENTS") WHO HAVE ENTERED INTO AN INVESTMENT
MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY AGREEMENT WITH THE FUNDS' 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 FUNDS HELD BY SUCH CLIENTS,
SUBJECT ONLY TO GENERAL AUTHORIZATIONS AND GUIDELINES OF THOSE CLIENTS. (See
INVESTMENT BY EMPLOYEE BENEFIT PLANS.)

RCM GROWTH EQUITY FUND is a diversified, no-load series of the Company. Its
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. "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 capializations ranging from approximately $100 million to
$7.5 billion.

RCM SMALL CAP FUND is a diversified, no-load series of the Company. Its
investment objective is to seek appreciation of capital by investing, during
normal market conditions, at least 80% of its investments in equity and equity-
related securities of small-sized concerns (common stocks, or securities
convertible into common stocks). "Small-sized concerns" is defined as encom-
passing companies whose common stock or equity securities convertible into
common stock have a total market capitalization, at the time of acquisition, of
up to $750 million. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity and equity-related securities of such
concerns. The Fund will sell securities whenever, as of the end of a calendar
quarter, the issuer's market capitalization exceeds $1.5 billion.

RCM INTERNATIONAL GROWTH EQUITY FUND A is a non-diversified, no-load series of
the Company. Its investment objective is to seek appreciation of capital,
primarily through investment in a portfolio of foreign equity and equity-related
securities. The Fund will also employ certain currency management techniques to
hedge against currency exchange rate fluctuations, and may from time-to-time use
such techniques to enhance return.

This Combined Prospectus and Statement of Additional Information sets forth
concisely the information about the Funds that prospective investors should know
before investing. Investors should read this document and retain it for future
use. There can be no assurance a Fund will meet its investment objective.

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 or any Fund. 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 May 1, 1997
---------------------

<PAGE>
---------------------
TABLE OF CONTENTS
---------------------
PAGE
Synopsis................................................................... 1
Summary of Fees and Expenses............................................... 3
Financial Highlights....................................................... 5
Investment Results......................................................... 8
Investment Objective and Policies.......................................... 9
Investment and Risk Considerations......................................... 20
Investment Restrictions.................................................... 25
Directors and Officers..................................................... 31
The Investment Manager..................................................... 34
Execution of Portfolio Transactions........................................ 37
Investment by Employee Benefit Plans....................................... 40
How to Purchase Shares..................................................... 42
Net Asset Value............................................................ 43
Redemption of Shares....................................................... 44
Dividends, Distributions and Tax Status.................................... 46
Description of Capital Stock............................................... 49
Shareholder Reports........................................................ 52
Counsel.................................................................... 53
Independent Accountants.................................................... 53
Safekeeping of Securities, Distributor, and Transfer and Redemption Agent.. 53
Additional Information..................................................... 54
Financial Statements....................................................... 55
APPENDIX A: Information Regarding Certain Foreign Countries............... 56
APPENDIX B: Certain Portfolio Management Techniques....................... 58

<PAGE>
---------------------
SYNOPSIS
---------------------

The following summary is qualified in its entirety by the detailed information
contained elsewhere in this Prospectus and Statement of Additional Information
(hereinafter this "Prospectus") and in the financial statements (including the
notes thereto) appearing in the Annual Report to Shareholders for each of the
Growth Equity Fund, the Small Cap Fund and the International Growth Equity Fund
for the year ended December 31, 1996, each of which are incorporated by
reference herein.

The Company is an open-end management investment company which is registered
with the Securities and Exchange Commission (the "SEC") under the Investment
Company Act of 1940 (the "1940 Act"). The Company presently consists of two
diversified series, the Growth Equity Fund and the Small Cap Fund, and one non-
diversified series, the International Growth Equity Fund. THE COMPANY CURRENTLY
OFFERS SHARES OF THE FUNDS SOLELY TO INSTITUTIONS AND INDIVIDUALS ("CLIENTS")
WHO HAVE ENTERED INTO AN INVESTMENT MANAGEMENT AGREEMENT OR INVESTMENT ADVISORY
AGREEMENT WITH THE FUNDS' 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 FUNDS HELD BY SUCH CLIENTS SUBJECT ONLY TO GENERAL AUTHORIZATIONS
AND GUIDELINES OF THOSE CLIENTS. (See INVESTMENT BY EMPLOYEE BENEFIT PLANS.)

RCM GROWTH EQUITY FUND. The Growth Equity 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 pri-
marily 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 S&P 400. As of the date hereof, the S&P 400 includes
companies with market capitalizations ranging from approximately $107 million to
$7.5 billion. The Fund is not restricted in its purchases to securities that
constitute a portion of the S&P 400.

RCM SMALL CAP FUND. The Small Cap Fund's investment objective is to seek
appreciation of capital by investing, during normal market conditions, at least
80% of its investments in equity and equity-related securities of small-sized
concerns (common stocks, or securities convertible into common stocks). Such
investments will be chosen with regard to their potential for capital
appreciation. Current income from the Fund's investment portfolio will be
considered only as a part of total investment return and will not be emphasized.
"Small-sized concerns" is defined as encompassing companies whose common stock
or equity securities convertible into common stock have a total market
capitalization, at the time of acquisition, of up to $750 million. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity and equity-related securities of such concerns. The Fund will sell
securities whenever, as of the end of a calendar quarter, the issuer's market
capitalization exceeds $1.5 billion.

The Fund will accept subscriptions only when its net assets, at cost, are below
$750 million. When the value of its net assets reaches $750 million, the Fund
will be closed to new investments until such time as the Fund's net assets, at
cost, are reduced by redemption to a level below $750 million. This restriction
on new investments shall not apply to reinvestments of dividends and capital
gains distributions.

<PAGE>

Investments in small-sized concerns may involve greater risks than investments
in larger or more established firms. These firms may have limited or
unprofitable operating histories, limited financial resources and inexperienced
management, and they may face competition from larger or more established firms
that have greater resources. Their securities are frequently traded in the over-
the-counter market or on regional exchanges where low trading volumes may result
in erratic or abrupt price movements. (See INVESTMENT AND RISK CONSIDERATIONS.)

RCM INTERNATIONAL GROWTH EQUITY FUND A. The International Growth Equity Fund's
investment objective is to seek appreciation of capital, primarily through
investment in a portfolio of foreign equity and equity-related securities.
During normal market conditions, the Fund will invest at least 65% of its total
assets in foreign equity and equity-related securities, and will invest in
securities of issuers located in at least ten different countries. Investments
in securities of issuers organized or headquartered in Japan, the United Kingdom
and Germany may in each country aggregate up to 65% of the Fund's total assets.
The Fund's investments will be chosen primarily with regard to their potential
for capital appreciation. Current income of securities in which the Fund has
invested or may consider investing will be considered only as part of total
return and will not be emphasized. "Foreign equity and equity related
securities" are defined as (i) equity and equity-related securities of companies
that are organized or headquartered, or whose operations principally are
conducted, outside of the United States, (ii) equity and equity-related
securities that are principally traded outside the United States, regardless of
where the issuer of such securities is organized or headquartered or where its
operations principally are conducted, and (iii) securities of other investment
companies investing exclusively in such equity and equity-related securities.

The Fund may employ certain currency management techniques to hedge against
currency exchange rate fluctuations. These techniques may include hedging up to
100% of the Fund's total assets. The Investment Manager may also from time-to-
time use such techniques to enhance the Fund's return.

The Fund will be non-diversified within the meaning of the 1940 Act, and may be
more susceptible to risks associated with a single economic, political or
regulatory occurrence than diversified funds. When the Fund sells portfolio
securities, it may realize a gain or a loss. In addition, investments in foreign
equity and equity-related securities involve significant risks, some of which
are not typically associated with investments in securities of domestic issuers.
The use of currency management techniques also involves significant risks and,
when employed to enhance return, is considered speculative. (See INVESTMENT AND
RISK CONSIDERATIONS.)

------------------------------------

The value of each Fund's shares will fluctuate because of the fluctuations in
the value of securities in the Fund's portfolio. An investment in any of the
Funds is not insured against loss of principal. The Funds are designed for that
portion of a portfolio that can be appropriately invested in securities with
greater risk but also greater potential for appreciation. There can be no
assurance that a Fund will meet its investment objective.

Shares of each of the Funds are purchased without a sales charge. The minimum
initial investment in the Growth Equity Fund and the Small Cap Fund is $10,000,
and $50,000 for the International Growth Equity Fund. The minimum subsequent
investment in each of the Funds is $1,000. RCM Capital Trust Company, a wholly
owned subsidiary of the Investment Manager, acts as transfer and redemption
agent for each Fund's shares. (See HOW TO PURCHASE SHARES and REDEMPTION OF
SHARES.)

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. As of March 31, 1997, the

- --------------------------------------------------------------------------------
Page 2
<PAGE>

Investment Manager had assets under management of approximately $26 billion. The
Investment Manager to each of the Funds is a wholly owned subsidiary of Dresdner
Bank AG.

Shareholder inquiries may be directed to the distributor, Funds Distributor,
Inc., at 60 State Street, Suite 1300, Boston, Massachusetts 02109.

---------------------
SUMMARY OF FEES AND EXPENSES
---------------------

<TABLE>
<CAPTION> International
Growth Growth
Equity Small Cap Equity
Fund Fund Fund
------ --------- -------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
All Sales Loads, and Redemption and Exchange Fees None None None

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)

Management Fees 0.75% 1.00% 0.75%
Other Expenses (Custodian) 0.01% 0.01% 0.25%(1)
------ ------ ---------
Total Fund Operating Expenses 0.76% 1.01% 1.00%(1)

HYPOTHETICAL EXAMPLE OF
EFFECT OF EXPENSES
- ------------------------------

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.
One Year $8 $10 $10
Three Years $24 $32 $32
Five Years $42 $56 $55
Ten Years $94 $124 $122
</TABLE>

- ---------------------------

(1) The Investment Manager has voluntarily undertaken (which undertaking it
may terminate at any time in its sole discretion), to pay the International
Growth Equity Fund on a monthly basis the amount, if any, by which certain
of its ordinary operating expenses exceed the annual rate of 1% of its aver-
age daily net assets. Without such expense reduction, total operating ex-
penses for the year ended December 31, 1996 would have been 1.25% of the
Fund's average daily net assets.

- --------------------------------------------------------------------------------
Page 3
<PAGE>

THIS EXAMPLE HAS BEEN PREPARED IN ACCORDANCE WITH APPLICABLE REGULATIONS OF THE
SEC, BASED ON THE EXPENSES OF THE FUNDS FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996, 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 Funds that an investor may bear
directly or indirectly. For more information concerning fees and expenses of the
Funds, 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 each 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 investment is actually $10,000 for the
Growth Equity Fund and the Small Cap Fund, and $50,000 for the International
Growth Equity Fund. (See HOW TO PURCHASE SHARES.)

The Funds are each responsible for the payment of certain of their operating
expenses, including brokerage and commission expenses; taxes levied on the
Funds; interest charges on borrowings (if any); charges and expenses of their
custodian; and payment of investment management fees due to the Investment Man
ager. The International Growth Equity Fund is responsible for all of its other
ordinary operating expenses (e.g., legal and audit fees, and SEC and "Blue Sky"
registration expenses), including its proportionate share of the compensation of
the Company's directors; the Investment Manager is responsible for those
expenses on behalf of the Growth Equity Fund and the Small Cap Fund. (See THE
INVESTMENT MANAGER.) Each Fund's expenses are charged against its assets. The
Company's general expenses are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.

Each client of the Investment Manager who is also a shareholders of any of the
Funds will pay, through the Fund or Funds in which it is a shareholder, a fee to
the Investment Manager on the portion of its assets invested in shares of the
Funds. However, any such clients will not pay additional fees to the Investment
Manager on the portions of their assets invested in any of the Funds. A client's
assets not invested in shares of any of the Funds 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 any of the Funds generally will pay an aggregate fee which is higher
than that paid by other clients not invested in any Fund. (See INVESTMENT
MANAGER and INVESTMENT BY EMPLOYEE BENEFIT PLANS.)

- --------------------------------------------------------------------------------
Page 4

<PAGE>

FINANCIAL HIGHLIGHTS
RCM GROWTH EQUITY FUND

The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their opinion appearing in the Fund's
1996 Annual Report to Shareholders (which has been incorporated herin by
reference). This 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, San Francisco, California 94111.

Selected data for each share of capital stock outstanding for the ten fiscal
years ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1996*(a) 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: (b)
Net asset value, beginning of period $ 9.13 $ 7.89 $10.42 $10.97 $11.54 $ 8.49 $ 9.12 $ 8.00 $ 7.09 $ 8.30
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income (loss) (0.01) 0.02 0.03 0.04 0.07 0.09 0.15 0.16 0.11 0.07
Net realized and unrealized gain (loss) on
investments 1.59 2.66 0.01 1.08 0.71 3.93 (0.53) 1.98 1.36 0.82
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value
resulting from investment operations 1.58 2.68 0.04 1.12 0.78 4.02 (0.38) 2.14 1.47 0.89
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions:
Net investment income (0.00) (0.02) (0.03) (0.04) (0.07) (0.09) (0.17) (0.16) (0.12) (0.16)
Net realized gain on investments (4.31) (1.42) (2.54) (1.63) (1.28) (0.88) (0.08) (0.86) (0.44) (1.94)
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (4.31) (1.44) (2.57) (1.67) (1.35) (0.97) (0.25) (1.02) (0.56) (2.10)
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

NET ASSET VALUE, END OF PERIOD $ 6.40 $ 9.13 $ 7.89 $10.42 $10.97 $11.54 $ 8.49 $ 9.12 $ 8.00 $ 7.09
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

TOTAL RETURN (c) 19.07% 34.53% 0.76% 10.72% 7.03% 48.23% (4.12%) 26.87% 20.86% 10.97%
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share (d) $ 0.0571 -- -- -- -- -- -- -- -- --
----------
----------

Net assets, end of period (in millions) $ 896 $1,325 $1,365 $2,049 $2,122 $2,138 $1,300 $1,284 $ 964 $ 553
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

Ratio of expenses to average net assets 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.8% 0.7% 0.7% 0.8%
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

Ratio of net investment income to average
net assets -0.1% 0.2% 0.2% 0.3% 0.6% 0.9% 1.8% 1.8% 1.8% 0.9%
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------

Portfolio turnover 115.9% 96.5% 111.1% 67.0% 56.8% 62.7% 50.0% 70.8% 64.7% 79.9%
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- --------------------

* Calculated using the average share method.

(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see THE INVESTMENT MANAGER).

(b) Stock split 25:1 at the close of business on June 17, 1996. All prior
period per share amounts were restated to reflect the stock split.

(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.

- -------------------------------------------------------------------------------
Page 5
<PAGE>

FINANCIAL HIGHLIGHTS
RCM SMALL CAP FUND

The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their opinion appearing in the Fund's
1996 Annual Report to Shareholders (which has been incorporated herin 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, San Francisco, California 94111.

Selected data for each share of capital stock outstanding for the five fiscal
years ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996*(a) 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: (b)
Net asset value, beginning of period $ 11.35 $ 9.42 $ 10.41 $ 10.15 $ 8.33
---------- -------- -------- -------- --------
Net investment income (loss) (0.08) (0.04) (0.04) (0.00) 0.03
Net realized and unrealized gain (loss) on
investments 3.82 3.21 (0.20) 0.91 1.82
---------- -------- -------- -------- --------
Net increase (decrease) in net asset value
resulting from investment operations 3.74 3.17 (0.24) 0.91 1.85
---------- -------- -------- -------- --------
Distributions:
Net investment income (0.00) (0.00) (0.00) (0.00) (0.03)
Net realized gain on investments (3.32) (1.24) (0.75) (0.65) (0.00)
---------- -------- -------- -------- --------
Total distributions (3.32) (1.24) (0.75) (0.65) (0.03)
---------- -------- -------- -------- --------

NET ASSET VALUE, END OF PERIOD $ 11.77 $ 11.35 $ 9.42 $ 10.41 $ 10.15
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------

TOTAL RETURN (c) 34.39% 34.08% (2.16%) 9.20% 22.14%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------

RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share (d) $ 0.0538 -- -- -- --
----------
----------

Net assets, end of period (in 000's) $568,601 $409,567 $415,647 $660,049 $457,994
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------

Ratio of expenses to average net assets 1.0% 1.0% 1.1% 0.9% 0.7%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------

Ratio of net investment income (loss) to
average net assets (0.6%) (0.2%) (0.3%) 0.0% 0.4%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------

Portfolio turnover 117.0% 83.9% 117.7% 80.0% 72.0%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
- --------------------

* Calculated using the average share method.

(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see THE INVESTMENT MANAGER).

(b) Stock split 12:1 at the close of business on June 17, 1996. All prior
period per share amounts were restated to reflect the stock split.

- -------------------------------------------------------------------------------
Page 6
<PAGE>

FINANCIAL HIGHLIGHTS
RCM INTERNATIONAL GROWTH EQUITY FUND A

The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their opinion appearing in the Fund's
1996 Annual Report to Shareholders (which has been incorporated herin 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, San Francisco, California 94111.

Selected data for each share of capital stock outstanding for the three fiscal
years ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
December 28, 1994
(commencement
Year ended Year ended of operations) to
December 31, 1996*(a) December 31, 1995 December 31, 1994
---------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE: (b)
Net asset value, beginning of period $ 11.56 $ 10.00 $ 10.00
---------- ---------- ----------
Net investment income (loss) 0.04(c) 0.12(c) 0.00
Net realized and unrealized gain (loss) on
investments 2.16 1.68 (0.00)
---------- ---------- ----------
Net increase in net asset value
resulting from investment operations 2.20 1.80 0.00
---------- ---------- ----------
Distributions:
Net investment income (0.16) (0.11) (0.00)
Net realized gain on investments (0.88) (0.13) (0.00)
---------- ---------- ----------
Total distributions (1.04) (0.24) (0.00)
---------- ---------- ----------

NET ASSET VALUE, END OF PERIOD $ 12.72 $ 11.56 $ 10.00
---------- ---------- ----------
---------- ---------- ----------

TOTAL RETURN ** 19.31% 17.98% 0.01%
---------- ---------- ----------
---------- ---------- ----------

RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share (d) $ 0.0179 - -
----------
----------

Net assets, end of period (in 000's) $ 52,605 $ 34,347 $ 25,004
---------- ---------- ----------
---------- ---------- ----------

Ratio of expenses to average net assets 0.99%(c) 0.75%(c) 0.00%***
---------- ---------- ----------
---------- ---------- ----------

Ratio of net investment income to
average net assets 0.32%(c) 1.19%(c) 0.01%***
---------- ---------- ----------
---------- ---------- ----------

Portfolio turnover 119.1% 87.4% 0.00%***
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- --------------------

(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see THE INVESTMENT MANAGER).

(b) Stock split 10:1 at the close of business on June 17, 1996. All prior
period per share amounts were restated to reflect the stock split.

(c) Includes reimbursement by the Fund's Investment Manager of investment
management fees and other expenses equal to $0.03* and $0.03 per share
for the years ended December 31, 1996 and 1995, respectively. Without
such reimbursement, the ratio of expenses would have been 1.25% and
1.11%, respectively, and the ratio of net investment income to average
net assets would have been 0.06% and 0.83%, respectively.

* Calculated using the average share method.

** Total return measures the change in value of an investment over the
period indicated.

*** Not annualized; reflects four days of the Fund's operations.

- -------------------------------------------------------------------------------
Page 7

<PAGE>

---------------------
INVESTMENT RESULTS
---------------------

The Funds may, from time-to-time, include information on their investment
results and/or comparisons of their 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 hypo
thetical 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:
n
P(1+T) = ERV

The resulting percentage indicates the positive or negative investment results
that an investor would have experienced from reinvested dividends and capital
gain distributions and changes in share price during the period.

This formula reflects the following assumptions: (1) all share sales at net
asset value, without a sales load deduction from the $1,000 initial investment;
(2) reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) complete redemption at the
end of any period illustrated. Total return may be calculated for one year, five
years, ten years, and for other periods, and will typically be updated on a
quarterly basis. The average annual compound rate of return over various periods
may also be computed by utilizing ending values as determined above.

Average annual total returns of the Growth Equity Fund, for the one, five, and
ten year periods ended December 31, 1996 were 19.07%, 13.85%, and 16.55%,
respectively. Average total returns of the Small Cap Fund for the one and three
year periods ended December 31, 1996 were 34.39% and 20.80%, respectively.
Average annual total returns of the International Growth Equity Fund for the one
and two year periods ended December 31, 1996 were 19.31% and 18.65%,
respectively.

In addition, in order to represent each Fund's performance more completely or to
compare such performance to other measures of investment return more accurately,
a 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 such 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.

Each 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 a Fund may earn in any future period. These factors and
possible differences in calculation methods should be considered when comparing
a 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 each Fund's investment
objective and policies.

- --------------------------------------------------------------------------------
Page 8
<PAGE>
---------------------
INVESTMENT OBJECTIVE AND POLICIES
---------------------

The investment objective of each Fund is to seek capital appreciation by
investing in certain types of equity and equity-related securities. "Equity
and equity-related securities," includes 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.
Each Fund's investments in equity and equity-related securities will be
chosen primarily with regard to their potential for capital appreciation.
Current income from each Fund's investment portfolio will be considered only
as a part of total return and will not be emphasized.

GROWTH EQUITY FUND

The Growth Equity Fund is designed to provide investors with a vehicle for
investment primarily in a diversified group of equity and equity-related securi-
ties of small- to medium-sized concerns. The Fund seeks to achieve its
investment objective 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. The
Fund's 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 $100 million to $7.5 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.

SMALL CAP FUND

The Small Cap Fund is designed to provide investors with a vehicle for
investment primarily in a diversified group of equity and equity-related securi-
ties of small-sized concerns. The Fund seeks to achieve its investment objective
by investing, during normal conditions, at least 80% of its investments in
equity and equity-related securities of small-sized concerns (common stocks or
securities convertible into common stocks). "Small-sized concerns" is defined
under applicable law as encompassing companies whose equity securities have a
total market capitalization of up to $750 million at the time of acquisition.
The Fund's investment objective is fundamental and cannot be changed without
shareholder approval. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity and equity-related securities of such
concerns.

Under normal market conditions, the Fund will not purchase equity and equity-
related securities of companies whose equity securities have a total market
capitalization of greater than $1 billion at the time of acquisition. The market
capitalization of each issuer's equity securities will be evaluated on a
quarterly basis. The Fund will not be required to sell portfolio securities
solely on account of the fact that the market capitalization of the issuer's
equity securities has exceeded $1 billion, or be prevented from purchasing or be
required to sell other portfolio securities as a result of such change. However,
the Fund will sell portfolio securities whenever, as of the end of a calendar
quarter, the issuer's market capitalization exceeds $1.5 billion. There is no
minimum market capitalization for an issuer's equity securities to be considered
an appropriate investment for the Fund. Although the market capitalization of
portfolio securities at the time of purchase is used for compliance purposes,
the Fund anticipates that the average market capitalization of the portfolio at
market value will approximate $300 million to $400 million and that the average
market capitalization of the portfolio at market value will not exceed $500
million.

- --------------------------------------------------------------------------------
Page 9
<PAGE>

The Fund will accept subscriptions only when its net assets, at cost, are below
$750 million. When the value of its net assets, at cost, reaches $750 million,
the Fund will be closed to new investors until such time as the Fund's net
assets, at cost, are reduced by redemption, changes in market value or otherwise
to a level below $750 million. This restriction on new investments shall not
apply to reinvestments of dividends and capital gains distributions or to
additional investments by existing shareholders.

INTERNATIONAL GROWTH EQUITY FUND

The International Growth Equity Fund is designed to provide investors with a
vehicle for investment primarily in a non-diversified group to seek appreciation
of capital of foreign equity and equity-related securities. There is no
limitation on the market capitalization of the issuers in which the Fund will
invest. However, as of the date of this Prospectus, the Investment Manager
intends to invest primarily in equity securities of issuers with market
capitalizations in excess of $1 billion, and does not intend to invest more than
10% of its total assets in securities of issuers with market capitalizations
below $100 million.

The Fund expects to invest primarily in securities that are traded on recognized
foreign securities exchanges. However, the Fund also may invest in securities
that are traded only over-the-counter, either in the United States or in foreign
markets, when the Investment Manager believes that investment in such securities
meets the Fund's investment criteria. Subject to certain other restrictions
(see, e.g., INVESTMENT IN ILLIQUID SECURITIES), the Fund also may invest in
securities that are not publicly traded either in the United States or in
foreign markets.

The Fund expects to invest primarily in the common stock of high quality growth
companies. The Investment Manager will seek to identify industries and companies
throughout the world that are expected to have higher-than-average rates of
growth and securities with strong potential for capital appreciation relative to
their downside exposure. In most cases, these companies will have one or more of
the following characteristics: superior management; strong balance sheets;
differentiated or superior products or services; substantial capacity for growth
in revenue, through either an expanding market or through expanding market
share; strong commitment to research and development; or a steady stream of new
products and services. While the Fund will emphasize growth companies, the Fund
also expects to invest in emerging growth companies as well as cyclical and
semi-cyclical companies, if the Investment Manager believes that such companies
have above-average growth potential.

The Fund is also authorized, under normal market conditions, to invest a portion
of its assets in U.S. and foreign currency and currency management transactions
(see CURRENCY MANAGEMENT and OTHER INVESTMENT TRANSACTIONS). The Fund presently
expects to engage in foreign currency or currency management transactions only
to settle foreign securities transactions or to hedge currency exchange rate
fluctuations related to its foreign equity and equity-related investments. The
Fund presently does not expect to purchase U.S. or foreign debt securities
(other than cash equivalent instruments with a maturity of one year or less),
U.S. equity or equity-related securities, or illiquid securities, except on an
occasional basis when the Investment Manager believes that unusually attractive
investments are available. However, the Investment Manager reserves the right to
engage in any of the transactions described below when it believes that doing so
is in the best interests of the Fund. The Fund may also write put and call
options on stocks and stock indices.

____________________________________

The Funds are designed as investments for employee benefit plans and other tax-
exempt investors. ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO
INVEST IN EACH FUND, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE
FUNDS' INVESTMENT MANAGER WILL NOT CONSIDER THE TAX

- --------------------------------------------------------------------------------
Page 10
<PAGE>

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 FUNDS'
PORTFOLIOS. (See DIVIDENDS, DISTRIBUTIONS AND TAX STATUS.) The Funds may invest
in securities on either a long-term or short-term basis. There can be no
assurance that any Fund's investment objective will be achieved.

The Funds may invest in securities on either a long-term or short-term basis.
The Funds may invest with the expectation of short-term capital appreciation if
the Investment Manager believes that such action will benefit Fund's
shareholders. Each Fund may also 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 each Fund's portfolio without regard to the length of the holding
period for such securities, it is possible that a 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 any of the Funds for short-term profits, securities
in the Funds' portfolios 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, each
Fund's investment objective, and the need for funds for the redemption of each
Fund's shares.

PORTFOLIO TURNOVER. The Investment Manager anticipates that annual portfolio
turnover rate of the Growth Equity Fund and Small Cap Fund should not exceed
90%, and the annual portfolio turnover rate of the International Growth
Equity Fund should not exceed 100%, but the turnover rate will not be a
limiting factor when the Investment Manager deems portfolio changes
appropriate. A 90% or 100% portfolio turnover rate would occur if the value
of purchases or sales of portfolio securities (whichever is less) for a year
(excluding purchases of U. S. Treasury issues and securities within a
maturity of one year or less) were equal to 90% or 100%, respectively, of the
average monthly value of the securities held by the relevant Fund during such
year. A higher portfolio turnover rate would increase aggregate brokerage
commission expenses, which must be borne directly by each Fund and ultimately
by each Fund's shareholders. (See EXECUTION OF PORTFOLIO TRANSACTIONS.) The
annual portfolio turnover rates for each of the Funds, for the years ended
December 31, 1996, 1995 and 1994 were as follows: for the Growth Equity Fund,
115.9%, 96.5%, and 111.1%, respectively; for the Small Cap Fund, 117.0%,
83.9% and 117.7%, respectively; for the International Growth Equity Fund,
119.1%, 87.4% and 0.00%* , respectively.

INVESTMENT CRITERIA. In determining whether securities of particular issuers
are believed to have the potential for capital appreciation, the Investment
Manager will evaluate the fundamental value of each enterprise, as well as
its prospects for growth. Because current income is not the investment
objective of any of the Funds, each Fund will not restrict its investments in
equity securities to those issuers with a record of dividend payments. In
evaluating particular foreign investment opportunities, the Investment
Manager may consider, in addition to the factors described above, the
anticipated economic growth rate, the political outlook, the anticipated
inflation rate, the currency outlook, and the interest rate environment
for the country and the region in which a particular company is located.
When the Investment Manager believes it would be appropriate and useful, the
Investment Manager's personnel may visit company headquarters and plant
sites to assess a company's operations and to meet and evaluate its

- --------------------------

*No annualized; reflects four days of the International Growth Equity Fund's
operations.

- --------------------------------------------------------------------------------
Page 11
<PAGE>

key executives. The Investment Manager also will consider whether other risks
may be associated with particular securities. Other of the Investment Manager's
investment criteria are described in the introductory paragraphs of INVESTMENT
OBJECTIVE AND POLICIES above.

When business or financial conditions warrant, the Investment Manager
temporarily may take a defensive position and invest, without regard to a
Fund's other investment policies, up to 100% of the assets of the Growth Equity
Fund and the Small Cap Fund 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
U.S. Government, its agencies or instrumentalities having a maturity date no
later than five years from the date of acquisition. When such business or
financial conditions warrant the International Growth Equity Fund may hold all
or part of its assets in cash or cash-equivalent investments (as described
below), U.S. Government obligations, non-convertible preferred stocks, and non-
convertible corporate bonds with a remaining maturity of less than one year.
Other than as described below under INVESTMENT RESTRICTIONS, the Funds are not
restricted with regard to the types of cash-equivalent investments they 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 a 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.

INVESTMENT IN FOREIGN SECURITIES. Each Fund may invest in foreign securities,
including securities of issuers that are organized or headquartered in emerging
market countries, as described in further detail below. Under normal market
conditions, the Growth Equity Fund and the Small Cap Fund will invest in foreign
securities if investment therein, at the time of purchase, would not cause more
than 10% of the value of each Fund's total assets to be invested in foreign
securities. The International Growth Equity Fund will invest at least 65% of its
total assets in foreign equity and equity-related securities. For purposes of
each Fund's investment objective and policies, the term "foreign equity and
equity-related securities" is deemed to include (i) equity and equity-related
securities of companies that are organized or headquartered, or whose operations
principally are conducted, outside of the United States, (ii) equity and equity-
related securities that are principally traded outside of the United States,
regardless of where the issuer of such securities is organized or headquartered
or where its operations principally are conducted, and (iii) securities of other
investment companies investing exclusively in such equity and equity-related
securities.

In addition to direct investments in foreign companies, each Fund may invest in
securities of foreign companies in the form of sponsored and unsponsored
American Depository Receipts ("ADRs"). The International Growth Equity Fund may
also invest in European Depository Receipts ("EDRs"), Global Depository Receipts
("GDRs"), or other similar instruments representing securities of foreign
companies. ADRs are receipts for shares of foreign companies that typically are
issued by U.S. banks and entitle the holder to all dividends and capital gains
associated with the ordinary shares. These securities may not be denominated in
the same currency as the underlying securities that they represent. EDRs and
GDRs are receipts issued by non-U.S. financial institutions evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for trading in
U.S. securities markets, either on exchanges or over-the-counter; EDRs, in
bearer form, are designed for trading in European securities markets; and GDRs,
in registered or bearer form, are designed for trading on a global basis. Where
it is possible to invest either in an ADR, EDR, or GDR, or to invest directly in
the underlying security, the Investment Manager will

- --------------------------------------------------------------------------------
Page 12
<PAGE>

evaluate which investment opportunity is preferable, based on relative
trading volume, anticipated liquidity, differences in currency risk, and other
factors.

Depository receipts may have risks that are similar to those of foreign equity
securities. (See INVESTMENT AND RISK CONSIDERATIONS - DEPOSITORY RECEIPTS.)
Therefore, for purposes of each Fund's investment policies and restrictions,
depository receipts will be treated as foreign equity securities, based on the
country in which the underlying issuer is organized or headquartered. An
illiquid depository receipt will be treated as an illiquid security for purposes
of each Fund's restriction on the purchase of such securities, unless the
depository receipt is convertible by the Fund within seven days into cash.

In seeking to achieve its investment objective, the International Growth Equity
Fund will allocate its assets among securities of countries and in currency
denominations where opportunities for meeting its investment objective are
expected to be the most attractive. In addition, from time-to-time, the Fund may
strategically adjust its investments among issuers based in various countries
and among the various equity markets of the world in order to take advantage of
diverse global opportunities for capital appreciation, based on the Investment
Manager's evaluation of prevailing trends and developments, as well as on the
Investment Manager's assessment of the potential for capital appreciation (as
compared to the risks) of particular companies, industries, countries, and
regions.

Under normal market conditions, the International Growth Equity Fund will invest
its assets in securities of issuers organized or headquartered in at least ten
different foreign countries, and no more than 25% of the Fund's total assets may
be invested in securities of issuers that are organized or headquartered in any
one foreign country other than Japan, the United Kingdom and Germany.
Investments in securities (excluding foreign currencies) of issuers that are
organized or headquartered in Japan, the United Kingdom and Germany may in each
country aggregate up to 65% of the Fund's total assets. See APPENDIX A:
INFORMATION REGARDING CERTAIN FOREIGN COUNTRIES for further information
regarding Japan, the United Kingdom and Germany.

The International Growth Equity Fund expects to invest a substantial portion of
its assets in securities of companies that are organized or headquartered in
developed foreign countries. As of the date this Prospectus, the term "developed
foreign countries" is deemed for purposes of this Prospectus to include
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, The Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
At the discretion of the Investment Manager, the International Growth Equity
Fund may also invest in securities of companies that are organized or
headquartered in other developed foreign countries. The International Growth
Equity Fund may choose not to be invested in all developed foreign countries at
one time, and may choose not to invest in particular developed foreign countries
at any time, depending on the Investment Manager's view of the investment
opportunities available.

The International Growth Equity Fund may invest a maximum of 30% of its total
assets in securities (excluding foreign currencies) of companies that are
organized or headquartered in emerging market countries. However, the Fund will
not invest more than 10% of its total assets in securities (excluding foreign
currencies) of issuers that are organized or headquartered in any one emerging
market country. The term "emerging market countries" is deemed for purposes of
this Prospectus to include any country that is generally considered to be an
emerging or developing country by the World Bank, the International Finance
Corporation, or the United Nations or its authorities. As a general matter,
countries that are not considered to be developed foreign countries by the
Investment Manager will be deemed to be emerging market countries. (See
INVESTMENT IN DEVELOPED FOREIGN COUNTRIES above.)

- --------------------------------------------------------------------------------
Page 13
<PAGE>

As their economies grow and their markets grow and mature, some countries that
currently may be characterized by the Investment Manager as emerging market
countries may be deemed by the Investment Manager to be developed foreign
countries. In the event that the Investment Manager deems a particular country
to be a developed foreign country, any investment in securities issued by that
country's government or by an issuer located in that country would not be
subject to the International Growth Equity Fund's overall limitation on
investments in emerging market countries.

Securities of issuers organized or headquartered in emerging market countries
may, at times, offer excellent opportunities for capital appreciation. However,
prospective investors should be aware that the markets of emerging market
countries historically have been more volatile than the markets of the U.S. and
developed foreign countries, and thus that the risks of investing in securities
of issuers organized or headquartered in emerging market countries may be far
greater than the risks of investing in developed foreign markets. See INVESTMENT
AND RISK CONSIDERATIONS - EMERGING MARKET SECURITIES for a more detailed
discussion of the risk factors associated with investments in emerging market
securities. In addition, movements of emerging market currencies historically
have had little correlation with movements of developed foreign country
currencies. Prospective investors should consider these risk factors carefully
before investing in the International Growth Equity Fund. Some emerging market
countries have currencies whose value is closely linked to the U.S. dollar.
Emerging market countries also may issue debt denominated in U.S. dollars.

It is unlikely that the International Growth Equity Fund will be invested in
equity securities in all emerging market countries at any time. Moreover,
investing in some emerging markets currently may not be desirable or feasible,
due to lack of adequate custody arrangements for the Fund's assets, overly
burdensome repatriation or similar restrictions, the lack of organized and
liquid securities markets, unacceptable political risks, poor values of
investments in those markets relative to investments in other emerging markets,
in developed foreign markets, or in the United States, or for other reasons.

INVESTMENT IN OTHER INVESTMENT COMPANIES. No Fund may invest more than 5% of
its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of any other investment company. In
addition, the laws of some foreign countries may make it difficult or
impossible for the International Growth Equity Fund to invest directly
in issuers organized or headquartered in those countries, or may place
limitations on such investment. Therefore, the only practical means of
investment may be through investment in other investment companies that
in turn are authorized to invest in the securities of such issuers.
In such cases and in other appropriate circumstances, and subject
to the restrictions referred to above regarding investments in companies
organized or headquartered in foreign countries, the International Growth
Equity Fund may invest up to 10% of its total assets, calculated at the
time of purchase, in other investment companies. There is no limit on the
total investment by the Growth Equity Fund and the Small Cap Fund in
securities of other investment companies. To the extent that any of the Funds
invest in other investment companies, each Fund would bear its proportionate
share of any management or administration fees paid by investment
companies in which it invests, and would continue to pay its own management
fees and other expenses.

CURRENCY MANAGEMENT. Securities purchased by the Funds, particularly
the International Growth Equity Fund, may be denominated in foreign
currencies, or multinational currency units such as the European Currency
Unit (a "basket" comprised of specified amounts of currencies of certain
of the members of the European Community), as well as U.S. dollars.
Movements in the various securities markets may be offset by changes in
foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a
result, the Funds will incur costs in connection with conversions between
various currencies, and gains in a particular securities market may be
affected, either positively or negatively, by changes in exchange rates.

The International Growth Equity Fund may employ certain currency management
techniques to hedge against currency exchange rate fluctuations. Hedging
techniques may include hedging up to 100% of its

- --------------------------------------------------------------------------------
Page 14
<PAGE>

total assets. The Fund may also cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation
between the two currencies. In addition, the Fund may hold foreign
currency received in connection with investments in foreign securities
when, in the judgment of the Investment Manager, it would be beneficial
to convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rates.

From time-to-time, the International Growth Equity Fund may also employ currency
management techniques to enhance its total return, although it presently does
not intend to do so. The Fund may not employ more than 30% of its total assets,
calculated at the time of purchase, in currency management techniques for the
purpose of enhancing returns.

The management techniques that the International Growth Equity Fund may employ
consist of forward foreign currency exchange contracts, currency options,
futures contracts, options on futures contracts and currency swaps. A forward
currency exchange contract is an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract. Currency
options are rights to purchase or sell a specific currency at a future date at a
specified price. Currency swaps involve the exchange of rights to make or
receive payments in specified currencies. Futures contracts and futures options
are described below under STOCK INDEX FUTURES TRANSACTIONS. See APPENDIX B:
CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES for a more detailed description of these
currency management techniques.

For purposes of the International Growth Equity Fund's percentage limitations,
the term "securities" does not include foreign currencies, which means that the
International Growth Equity Fund could have more than 65% of its total assets
denominated in the currency of Japan, the United Kingdom or Germany and more
than 25% of its total assets denominated in the currency of any other developed
foreign country. In addition, more than 30% of its total assets could be
denominated in currencies of emerging market countries and more than 10% of its
total assets denominated in the currency of any one emerging market country.

The International Growth Equity Fund will incur costs in connection with
conversions between various currencies. In addition, the active currency
management techniques described in the preceding paragraphs involve risks
different than those that arise in connection with investments in dollar-
denominated securities of U.S. issuers. Furthermore, to the extent that such
techniques are used to enhance return, they are considered speculative. To the
extent that the Fund is fully invested in foreign securities while also
maintaining currency positions, it may be exposed to greater combined risk than
would otherwise be the case. The Fund's net currency positions may expose it to
risks independent of its securities positions. (See APPENDIX B: CURRENCY
MANAGEMENT TECHNIQUES.)

The International Growth Equity Fund's ability to engage in currency
transactions may be limited by the requirements of the Internal Revenue Code of
1986 for qualification as a regulated investment company and the Fund's
intention to continue to qualify as such. (See DIVIDENDS, DISTRIBUTIONS AND TAX
STATUS.) The Fund's ability and decisions to purchase or sell portfolio
securities also may be affected by the laws or regulations in particular
countries relating to convertibility and repatriation of assets. Because the
shares of the Fund are redeemable in U.S. dollars each day the Fund determines
its net asset value, the Fund must have the ability at all times to obtain U.S.
dollars to the extent necessary to meet redemptions. Under present conditions,
the Investment Manager does not believe that these considerations will have any
significant adverse effect on its portfolio strategy, although there can be no
assurances in this regard.

OTHER PORTFOLIO INVESTMENTS. As noted earlier, under normal market conditions,
the International Growth Equity Fund will invest at least 65% of its total
assets in foreign equity and equity-

- --------------------------------------------------------------------------------
Page 15
<PAGE>

related securities. However, the Fund may also invest up to 10% of its total
assets in equity and equity-related securities of U.S. issuers. In addition,
each Fund has the authority, under normal market conditions, to invest up to
20% of its total assets in U.S. Government obligations. U.S. Government
obligations include obligations issued or guaranteed as to principal and
interest by the U.S. Government and its agencies and instrumentalities, by
the right of the issuer to borrow from the U.S. Treasury, by the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality, or only by the credit of the agency or instrumentality.

The International Growth Equity Fund may invest in debt obligations of foreign
governments and their respective agencies, instrumentalities, and authorities,
debt obligations issued or guaranteed by international or supranational
entities, and debt obligations of foreign corporate issuers, if in the judgment
of the Investment Manager such investments are advisable and offer the potential
to enhance total return. As of the date of this Prospectus, the Investment
Manager does not intend to purchase U.S. or foreign debt securities (other than
cash-equivalent instruments with a maturity of one year or less or U.S. equity
securities on behalf of any of the Funds), except on an occasional basis when
the Investment Manager believes that unusually attractive investments are
available. The timing of purchase and sale transactions in debt obligations may
result in capital appreciation or depreciation because the value of debt
obligations varies inversely with prevailing interest rates.

The non-convertible debt obligations in which the International Growth Equity
Fund will invest will be rated, at the time of purchase, BBB or higher by
Standard & Poor's Corporation ("Standard & Poor's") or Baa or higher by Moody's
Investor Services, Inc. ("Moody's"), or, if unrated, determined by the
investment Manager to be of comparable investment quality. If the rating of an
investment grade security held by the Fund is downgraded, the Investment Manager
will determine whether it is in the best interests of the Fund to continue to
hold the security in its investment portfolio. Convertible debt obligations will
not be subject to rating requirements.

From time-to-time, the Investment Manager may determine that, in its judgment,
political and economic factors affect foreign markets to such an extent that
there are unusual risks in being substantially invested in such markets. In such
circumstances, based upon the Investment Manager's determination that market
conditions are not normal, each Fund retains the flexibility to assume a
temporary defensive posture in response to such market conditions. During times
when the Investment Manager believes a temporary defensive posture is warranted,
including times involving international, political, or economic uncertainty, the
Fund may hold part or all of its assets in cash or cash-equivalent investments
(as described below), U.S. Government obligations, non-convertible preferred
stocks, and non-convertible corporate bonds with a remaining maturity of less
than one year. In the case of a Fund being so invested, the Fund may not be
achieving its investment objective.

INVESTMENT IN ILLIQUID SECURITIES. The Growth Equity Fund and Small Cap Fund may
invest up to 5% of the value of their net assets, and the International Growth
Equity Fund may invest up to 10% of the value of its net assets, in securities
that are illiquid. (See INVESTMENT RESTRICTIONS.) However, each Fund presently
expects to purchase illiquid securities only on an occasional basis when the
Investment Manager believes that unusually attractive investments are available.

Securities may be considered illiquid if it is not reasonably expected to
receive approximately the amount at which the Fund values such securities within
seven days. The Board of Directors has delegated to the Investment Manager,
subject to certain guidelines, the authority to determine whether specific
securities, including restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act"), are liquid or illiquid.
The Investment Manager takes into account a number of factors in reaching
liquidity decisions, including, but not limited to: the listing of the security
on an exchange or

- --------------------------------------------------------------------------------
Page 16
<PAGE>

national market system; 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).

Each Fund's investments in illiquid securities may include securities that are
not registered for resale under the Securities Act of 1933 and therefore are
subject to restrictions on resale. When a Fund purchases unregistered
securities, the Fund may, in appropriate circumstances, obtain the right to
register such securities at the expense of the issuer. In such cases, there may
be a lapse of time between the Fund's decision to sell any such security and the
registration of the security permitting sale. During any such period, the price
of the security will be subject to market fluctuations.

The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments. If such securities are subject to purchase by institutional
buyers in accordance with Rule 144A under the Securities Act of 1933, the Board
of Directors may determine, in particular cases, that such securities are not
illiquid securities notwithstanding the legal or contractual restrictions on
their resale. Investing in Rule 144A securities could have the effect of
increasing a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.

CASH-EQUIVALENT INVESTMENTS. Other than as described below under
INVESTMENT RESTRICTIONS, the Funds are not restricted with regard to the
types of cash-equivalent investments they may make. When the Investment
Manager believes that such investments are an appropriate part of a
Fund's overall investment strategy, the Fund may hold or invest all (for
temporary defensive purposes) or a portion of its assets in any of the
following, denominated in U.S. dollars, or, in the case of the International
Growth Equity Fund, in foreign currencies or multinational currency units,
cash; short-term obligations of, or securities guaranteed by the U.S. or
foreign government or their agencies or instrumentalities; commercial paper
rated at least A-2 by Standard & Poor's or P-2 by Moody's; certificates of
deposit or other deposits of banks deemed creditworthy by the Investment
Manager pursuant to standards adopted by the Company's Board of
Directors; time deposits; bankers' acceptances; and repurchase agreements
related to any of the foregoing.

A certificate of deposit is a short-term obligation of a commercial bank. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions. A repurchase
agreement involves a transaction by which an investor (such as a Fund) purchases
a security and simultaneously obtains the commitment of the seller (a member
bank of the Federal Reserve System or a securities dealer deemed creditworthy by
the Investment Manager pursuant to standards adopted by the Company's Board of
Directors) to repurchase the security at an agreed-upon price on an agreed-upon
date within a number of days (usually not more than seven) from the date of
purchase.

FUTURES TRANSACTIONS. Each Fund may purchase and sell stock index futures
contracts and options on such futures contracts as a hedge against changes in
market conditions that may result in changes in the value of the Fund's
portfolio securities and not for speculation. The International Growth Equity
Fund may also purchase and sell currency futures contracts and futures options,
to hedge against currency exchange rate fluctuations or to enhance returns.

A stock index (such as the S&P 500 Stock Price Index) assigns relative values to
the common stocks included in the index, and the index fluctuates with changes
in the market values of the common stocks so included. A futures contract on a
stock index or currency is an agreement between two parties to take or make
delivery of an amount of cash equal to the difference between the value of the
index or currency at the close of the last trading day of the contract and the
price at which the index or currency contract was

- --------------------------------------------------------------------------------
Page 17
<PAGE>

originally written. See APPENDIX B: CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES for
further information about futures and futures options.

OPTIONS TRANSACTIONS. The International Growth Equity Fund may purchase and sell
(write) listed covered put and call options on stocks and stock indexes as a
hedge against changes in market conditions that may result in changes in the
value of the Fund's portfolio securities. The aggregate premiums on put options
and call options purchased by the Fund may not in each case exceed 5% of the
market value of the net assets of the Fund as of the date of purchase. In
addition, the Fund will not purchase or sell options if, immediately thereafter,
more than 25% of the net assets of the International Growth Equity Fund would be
hedged.

A put gives the holder the right, in return for the premium paid, to require the
writer of the put to purchase from the holder a security at a specified price. A
call gives the holder the right, in return for the premium paid, to require the
writer of the call to sell a security to the holder at a specified price. An
option on a securities index gives the holder the right, in return for the
premium paid, to require the writer to pay cash equal to the difference between
the closing price of the index and the exercise rice of the option, times a
specified multiplier. Put and call options are traded on U.S. and foreign
exchanges. A put option is covered if the writer maintains cash or cash
equivalents equal to the exercise price in a segregated account. A call option
is covered if the writer owns the security underlying the call or has an
absolute and immediate right to acquire the security without additional cash
consideration upon conversion or exchange of other securities held by it. See
APPENDIX B: CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES for further information
about options.

WHEN-ISSUED, FIRM COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS. The
International Growth Equity Fund may purchase securities on a delayed delivery
or "when-issued" basis and may enter into firm commitment agreements
(transactions in which the payment obligation and interest rate are fixed at the
time of the transaction but the settlement is delayed). Delivery and payment for
these securities typically occur 15 to 45 days after the commitment to purchase,
but delivery and payment can be scheduled for shorter or longer periods, based
upon the agreement of the buyer and the seller. No interest accrues to the
purchaser during the period before delivery. The Fund normally will not enter
into these transactions for the purpose of leverage, but may sell the right to
receive delivery of the securities before the settlement date. The value of the
securities at settlement may be more or less than the agreed upon price.

To the extent required by applicable SEC guidelines, an amount of cash, cash
equivalents, or other liquid securities (as such guidelines may allow), in an
amount sufficient to meet its payment obligations with respect to any such
transactions will be deposited by a Fund in a segregated account with the Fund's
custodian, or other segregated accounts as regulations may allow, to
collateralize the position. To the extent that assets are segregated for this
purpose, the Fund's liquidity and the ability of the Investment Manager to
manage its portfolio may be adversely affected.

OTHER INVESTMENT POLICIES AND TECHNIQUES. From time-to-time, it may be
advantageous for a Fund to borrow money rather than sell portfolio positions to
raise the cash to meet redemption requests. Accordingly, each Fund may borrow
from banks or through reverse repurchase agreements or "roll" transactions, but
only in connection with meeting requests for redemption of the Fund's shares.
Each Fund also may borrow up to 5% of its total assets for temporary or
emergency purposes other than to meet redemptions. However, no Fund will borrow
money for leveraging purposes. The Funds may continue to purchase securities
while borrowings are outstanding, but will not do so when the Fund's borrowings
exceed 5% of its total assets. The 1940 Act permits a Fund to borrow only from
banks and only to the extent that the value of its total assets, less its
liabilities other than borrowings, is

- --------------------------------------------------------------------------------
Page 18
<PAGE>

equal to at least 300% of all borrowings (including the proposed borrowing), and
requires the Fund to take prompt action to reduce its borrowings if this limit
is exceeded. For this purpose, reverse repurchase and roll transactions are
considered to be borrowings.

A reverse repurchase agreement involves a transaction by which a borrower (such
as a Fund) sells a security to a purchaser (a member bank of the Federal Reserve
System or a recognized securities dealer) and simultaneously agrees to
repurchase the security at an agreed-upon price on an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. A "roll"
transaction is similar to a reverse repurchase agreement, except that the
security repurchased is substantially similar, but not identical, to the
security sold (such as securities issued by the same U.S. Government agency or
instrumentality, having the same original term to maturity and the same rate of
interest, but backed by a different pool of mortgage obligations than the
security sold by the Fund).

Each Fund is authorized to make loans of portfolio securities, for the purpose
of realizing additional income, to broker-dealers or other institutional
investors deemed creditworthy by the Company's Board of Directors. To the extent
required by applicable SEC guidelines, the borrower must maintain with the
Fund's custodian collateral consisting of cash, cash equivalents or other liquid
securities (as such guidelines may allow), equal to at least 100% of the value
of the borrowed securities, plus any accrued interest. Each Fund will receive
any interest paid on the loaned securities, and a fee and/or a portion of the
interest earned on the collateral.

In making purchases within the above policies (which may be changed without
shareholder consent), each 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. Each Fund may exchange securities, exercise conversions or
subscription rights, warrants or other rights to purchase common stock or other
equity securities and may hold, except to the extent limited by the 1940 Act any
such securities so acquired without regard to the Fund's investment policies and
restrictions.

Each Fund's investment objective is a fundamental policy that may not be changed
without a vote of its shareholders. Except as otherwise stated under INVESTMENT
RESTRICTIONS the Funds' investment policies are not fundamental and may be
changed without a vote of the shareholders. If there is a change in a Fund's
investment objective or policies, shareholders should consider whether a Fund
remains an appropriate investment in light of their then current financial
positions and needs.

- --------------------------------------------------------------------------------
Page 19
<PAGE>
---------------------
INVESTMENT AND RISK CONSIDERATIONS
---------------------

INVESTMENTS IN SMALLER COMPANIES. As noted above, each Fund may invest in
securities with small market capitalization. Investments in securities of
issuers with market capitalizations below $750 million involves greater
risk and the possibility of greater portfolio price volatility than
investing in larger capitalization companies. 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. For example, small-sized
concerns may have less certain growth prospects, and may be more sensitive to
changing economic conditions, than larger, more established firms. Moreover,
smaller capitalization companies often face competition from larger or
more established firms that have greater resources. In addition, the smaller
capitalization companies in which a Fund may invest may have limited or
unprofitable operating histories, limited product lines, limited financial
resources, and inexperienced management. Furthermore, securities of such
companies are often less liquid than securities of larger companies, and may
be subject to erratic or abrupt price movements. To dispose of these
securities, a Fund may have to sell them over an extended period of time
below the original purchase price. Investments by the Funds in smaller
capitalization companies may be regarded as speculative.

No Fund will invest more than 5% of its total assets, calculated at the
time of purchase, in securities issued by companies that (including
predecessors) have been in operation for less than three years. The securities
of such companies may have limited liquidity which can result in their prices
being lower than might otherwise be the case. In addition, investments in such
companies are more speculative and entail greater risk than do investments in
companies with established operating records.

INVESTMENTS IN FOREIGN SECURITIES GENERALLY. As noted above, each Fund may
invest in foreign securities and the International Growth Equity Fund invests
principally in such securities. Investments in foreign equity securities
may offer investment opportunities and potential benefits not
available from investments solely in securities of U.S. issuers. Such
benefits may include the opportunity to invest in foreign issuers that
appear, in the opinion of the Investment Manager, to offer better
opportunity for long-term capital appreciation than investments in
securities of U.S. issuers, the opportunity to invest in foreign
countries with economic policies or business cycles different from those
of the United States and the opportunity to reduce fluctuations in
portfolio value by taking advantage of foreign stock markets that do not
necessarily move in a manner parallel to U.S. stock markets.

At the same time, however, investing in foreign equity securities involves
significant risks, some of which are not typically associated with investing in
securities of U.S. issuers. For example, the value of investments in such
securities may fluctuate based on changes in the value or one or more foreign
currencies relative to the U.S. dollar, and a change in the exchange rate of one
or more foreign currencies could reduce the value of certain portfolio
securities. Currency exchange rates may fluctuate significantly over short
periods of time, and are generally determined by the forces of supply and demand
and other factors beyond a Fund's control. Changes in currency exchange rates
may, in some circumstances, have a greater effect on the market value of a
security than changes in the market price of the security. To the extent that a
substantial portion of a Fund's total assets is denominated or quoted in
the currency of a foreign country, the Fund will be more susceptible to the
risk of adverse economic and political developments within that country.
As discussed above, the International Growth Equity Fund may employ
certain investment techniques to hedge its foreign currency exposure;
however, such techniques also entail certain risks.

In addition, information about foreign issuers may be less readily available
than information about domestic issuers. Foreign issuers generally are not
subject to accounting, auditing, and financial reporting

- --------------------------------------------------------------------------------
Page 20
<PAGE>

standards or to other regulatory practices and requirements comparable to those
applicable to U.S. issuers. Furthermore, with respect to certain foreign
countries, the possibility exists of expropriation, nationalization, revaluation
of currencies, confiscatory taxation, and limitations on foreign investment and
the use or removal of funds or other assets of the Fund, including the
withholding of dividends and limitations on the repatriation of currencies. In
addition, a Fund may experience difficulties or delays in obtaining or enforcing
judgments. Foreign securities may be subject to foreign government taxes that
could reduce the yield on such securities.

Foreign equity securities may be traded on an exchange in the home country, an
exchange in another country, or over-the-counter in one or more countries. Most
foreign securities markets, including over-the-counter markets, have
substantially less volume than U.S. securities markets, and the securities of
many foreign issuers may be less liquid and more volatile than securities of
comparable U.S. issuers. In addition, there is generally less government
regulation of securities markets, securities exchanges, securities dealers, and
listed and unlisted companies in foreign countries than in the United States.

Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
and complete such transactions. Inability to dispose of a portfolio security
caused by settlement problems could result either in losses to the Fund due to
subsequent declines in the value of the portfolio security or, if the Fund has
entered into a contract to sell that security, could result in possible
liability of the Fund to the purchaser. Delays in settlement could adversely
affect the Fund's ability to implement its investment strategies and to achieve
its investment objective.

In addition, the costs associated with transactions in securities traded on
foreign markets or of foreign issuers, and the expense of maintaining custody of
such securities with foreign custodians, generally are higher than the costs
associated with transactions in U.S. securities on U.S. markets. Investments in
foreign securities may result in higher expenses due to the cost of converting
foreign currency to U.S. dollars, the payment of fixed brokerage commissions on
foreign exchanges, the expense of maintaining securities with foreign custodians
and the imposition of transfer taxes or transaction charges associated with
foreign exchanges.

Investment in debt obligations of supranational organizations involves
additional risks. Such organizations' debt obligations generally are not
guaranteed by their member governments, and payment depends on their financial
solvency and/or the willingness and ability of their member governments to
support their obligations. Continued support of a supranational organization by
its government members is subject to a variety of political, economic and other
factors, as well as the financial performance of the organization.

EMERGING MARKET SECURITIES. There are special risks associated with investments
in emerging market securities that are in addition to the usual risks of
investing in securities of issuers located in developed foreign markets around
the world, and investors are strongly advised to consider those risks carefully.
The securities markets of emerging market countries are substantially smaller,
less developed, less liquid, and more volatile than the securities markets of
the United States and developed foreign markets. As a result, the prices of
emerging market securities may increase or decrease much more rapidly and much
more dramatically than the prices of securities of issuers located in developed
foreign markets. Disclosure and regulatory standards in many respects are less
stringent than in the United States and developed foreign markets. There also
may be a lower level of monitoring and regulation of securities markets in
emerging market countries and the activities of investors in such markets, and
enforcement of existing regulations has been extremely limited.

- --------------------------------------------------------------------------------
Page 21
<PAGE>

Many emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain emerging market
countries. Economies in emerging markets generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values, and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries in which they
trade. In addition, custodial services and other costs relating to investment in
foreign markets may be more expensive in emerging markets than in many developed
foreign markets, which could reduce a Fund's investment return from such
securities.

In many cases, governments of emerging market countries continue to exercise a
significant degree of control over the economies of such countries, and
government actions relative to the economy, as well as economic developments
generally, also may have a major effect on an issuer's prospects. In addition,
certain of such countries have in the past failed to recognize private property
rights and have at times naturalized or expropriated the assets of private
companies. There is also a heightened possibility of confiscatory taxation,
imposition of withholding taxes on interest payments, or other similar
developments that could affect investments in those countries. As a result,
there can be no assurance that adverse political changes will not cause a Fund
to suffer a loss with respect to any of its holdings. In addition, political and
economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Unanticipated political or social developments may affect the value of a Fund's
investments in those countries.

DEPOSITORY RECEIPTS. As noted above, each Fund may invest in ADRs, and the
International Growth Equity Fund may invest in EDRs, GDRs and similar
instruments. In many respects, the risks associated with investing in depository
receipts are similar to the risks associated with investing in foreign equity
securities. An ADR will be treated as an illiquid security for the purposes of
each Funds restrictions on the purchase of such securities unless the ADR will
be convertible into cash.

The information available for ADRs sponsored by the issuers of the underlying
securities is subject to the accounting, auditing, and financial reporting
standards of the domestic market or exchange on which they are traded, which
standards are often more uniform and more exacting than those to which many non-
U.S. issuers may be subject. However, some ADRs are sponsored by persons other
than the issuers of the underlying securities. Issuers of the stock on which
such ADRs are based are not obligated to disclose material information in the
U.S. The information that is available concerning the issuers of the securities
underlying EDRs and GDRs may be less than the information that is available
about domestic issuers, and EDRs and GDRs may be traded in markets or on
exchanges that have lesser standards than those applicable to the markets for
ADRs. In addition, to the extent that a Fund purchases depository receipts,
there may be an increased possibility that the Fund would not become aware
of and be able to respond to corporate actions, such as stock splits
or rights offerings, involving the foreign issuer in a timely manner.

CONVERTIBLE SECURITIES AND WARRANTS. As noted above, each Fund may invest in
convertible securities and warrants. Investment in convertible securities
involves certain risks. The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying stock). If the conversion value
is low relative to the investment value, the price of the convertible security
will be governed principally by its yield, and thus may not decline in price to
the same extent as the underlying stock; to the extent the market price of the
underlying common stock approaches or exceeds the conversion

- --------------------------------------------------------------------------------
Page 22
<PAGE>

price, the price of the convertible security will be influenced increasingly by
its conversion value. A convertible security held by a Fund may be subject to
redemption at the option of the issuer at a price established in the instrument
governing the convertible security, in which event the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock, or sell it to a third party.

Investment in warrants also involves certain risks, including the possible lack
of a liquid market for resale, potential price fluctuations as a result of
speculation or other factors, and the failure of the price of the underlying
security to reach or have reasonable prospects of reaching the level at which
the warrant can prudently be exercised, in which event the warrant may expire
without being exercised, resulting in a loss of a Fund's entire investment in
the warrant. The Investment Manager anticipates that it will invest in warrants
on behalf of the Funds 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 any of the Funds. The Investment Manager will limit the Funds'
investments in warrants to 10% of each Fund's total assets, measured at the time
of purchase.

DEBT OBLIGATIONS. As noted above, each Fund may purchase non-convertible debt
obligations rated at the time of purchase BBB or higher by Standard & Poor's or
Baa or higher by Moody's, or if unrated determined by the Investment Manager to
be of comparable quality. Although securities rated BBB or Baa are considered to
be of "investment grade," and are considered to have adequate capacity to pay
interest and repay principal, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
principal than higher-rated securities.

Credit ratings evaluate the safety of principal and interest payments of
securities, not their market value. The rating of an issuer is also heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated.

OTHER PORTFOLIO MANAGEMENT TECHNIQUES. As indicated above, each Fund may engage
for hedging purposes in stock index option transactions, futures and futures
option transactions. The International Growth Equity Fund may also engage in
various other currency management transactions for hedging purposes and to
enhance returns. There can be no assurance as to the success of any such
operations. Although hedging strategies could minimize the risk of loss due to a
decline in the value of a hedged security or currency, they could also limit any
potential gain from an increase in the value of a Fund's security or currency.
Furthermore, currency transactions entered into for the purposes of enhancing
returns may not be successful, resulting in losses to the Fund. See APPENDIX B:
CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES for information regarding the risks of
these portfolio management techniques.

OTHER CONSIDERATIONS. As noted above (see INVESTMENT OBJECTIVE AND
POLICIES - INVESTMENT IN ILLIQUID SECURITIES), each Fund may acquire illiquid
securities. Such securities involve potential delays on resale as well as
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a Fund might not be able to
dispose of such securities promptly or at reasonable prices.

The Growth Equity Fund and the Small Cap Fund may invest up to 5%, and the
International Growth Equity Fund may invest up to 10%, of the value of their
total assets in securities that are illiquid. Securities may be considered
illiquid if a 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 delegated to the Investment Manager the authority to determine
whether specific securities, including restricted

- --------------------------------------------------------------------------------
Page 23
<PAGE>

securities eligible for resale pursuant to Rule 144A under the 1933 Act, are
liquid or illiquid. The Board of Directors monitors the liquidity of securities
in the Funds' portfolios 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 Funds' investments in illiquid securities may include securities that are
not registered for resale under the 1933 Act, 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 or
otherwise under the 1933 Act. Investing in Rule 144A and similar securities
could have the effect of increasing a Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
such securities. When the Funds purchase unregistered securities, the Funds 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 a 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.

A number of transactions in which the Funds may engage are subject to the risks
of default by the other party to the transaction. If the seller of securities
pursuant to a repurchase agreement defaults and the value of the collateral
securing the repurchase agreement declines, a Fund may incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, realization
upon the collateral by a Fund may be delayed or limited. Roll transactions
entered into by the International Growth Equity Fund involve the risk that
the market value of the securities sold by the Fund may decline below the
price at which the Fund is committed to purchase similar securities.
Additionally, in the event the buyer of securities under a roll transaction
files for bankruptcy or becomes insolvent, the Fund's use of the proceeds of
the transaction may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities. Similarly, when the International Growth
Equity Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the
trade; failure of the other party to do so may result in the Fund's incurring
a loss or missing an opportunity to obtain a price believed to be
advantageous. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of a possible delay in receiving
additional collateral or in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially.

Borrowing also involves special risk considerations. Interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on the borrowed funds (or on the
assets that were retained rather than sold to meet the needs for which funds
were borrowed). Under adverse market conditions, the International Growth Equity
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales. To the extent the borrowing is in the form of reverse repurchase
agreements, the Fund is subject to risks that are similar to those of repurchase
agreements. The Fund will be non-diversified within the meaning of the 1940 Act.
As a non-diversified fund, the Fund may invest a greater percentage of its
assets in the securities of any single issuer than diversified funds, and may be
more susceptible to risks associated with a single economic, political or
regulatory occurrence than diversified funds. However, in order to meet the
requirements of the Internal Revenue Code of 1986 for qualification as a
regulated investment company, the Fund must diversify its holdings so that, at
the end of each quarter of its taxable year, (i) at least 50% of the market
value of its assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with

- --------------------------------------------------------------------------------
Page 24
<PAGE>

such other securities of any one issuer limited for purposes of this calculation
to an amount not greater than 5% of the value of the Fund's total assets, and
(ii) not more than 25% of the Fund's total assets may be invested in the
securities of any one issuer (other than the U.S. Government or other regulated
investment companies).

In making purchases within the above policies (which may be changed without
shareholder consent), the Funds and the Investment Manager will be subject to
all of the restrictions referred to under INVESTMENT RESTRICTIONS. If a percent
age 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. A Fund may exchange securities, exercise conversions or
subscription rights, warrants or other rights to purchase common stock or other
equity securities and may hold, except to the extent limited by the 1940 Act,
any such securities so acquired without regard to the Fund's investment policies
and restrictions. The Growth Equity Fund and the Small Cap Fund will not
knowingly exercise rights or otherwise acquire securities when to do so would
jeopardize its status under the 1940 Act as a "diversified" investment company.

---------------------
INVESTMENT RESTRICTIONS
---------------------

Each 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 a Fund's outstanding voting securities. The "vote of a majority of the
outstanding voting securities" of a 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. The restrictions for each of the Funds are as follows:

The Growth Equity 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;

- --------------------------------------------------------------------------------
Page 25
<PAGE>

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
maturities in excess of seven days if immediately after and as a result of
such transaction the value of the Fund's holdings of such repurchase
agreements exceeds 10% of the value of the Fund's total assets. 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

- --------------------------------------------------------------------------------
Page 26
<PAGE>

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 pur-
chase securities of an issuer which invests or deals in commodities or com-
modity 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 Small Cap Fund may not:

4. Acquire more than 10% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer;

5. Invest in companies for the purpose of exercising control or management;

7. Invest in interests in oil, gas, or other mineral exploration or development
programs;

8. Issue senior securities, except that the Fund may borrow amounts, up to 5%
of the total assets taken at cost or at market value, whichever is lower,
and only from banks as a temporary measure for extraordinary or emergency
purposes. For this purpose, futures and other transactions covered by
segregated accounts are not considered to be senior securities. The Fund may
engage in activities

- --------------------------------------------------------------------------------
Page 27
<PAGE>

listed in Investment Restriction 10, but will not mortgage, pledge,
hypothecate or in any other manner transfer as security for an indebtedness
any of its assets;

9. Purchase securities on margin, but it may obtain such short-term credit from
banks as may be necessary for the clearance of purchases and sales of
securities;

10. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, and (ii) the purchase of bank
obligations such as certificates of deposit, bankers' acceptances and other
short-term debt obligations. Notwithstanding the foregoing, the Fund may:
(i) enter into repurchase agreements with respect to commercial paper,
certificates of deposit and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and (ii) loan portfolio
securities to brokers, dealers and other financial institutions where such
loan is callable by the Fund at any time on reasonable notice and is fully
secured by collateral in the form of cash or cash equivalents. The Fund will
not enter into repurchase agreements with maturities in excess of seven days
if immediately after and as a result of such transaction the value of the
Fund's holdings of such repurchase agreements and other illiquid securities
exceeds 5% of the value of the Fund's total assets. The Fund will not lend
portfolio securities which, when valued at the time of loan, have a value in
excess of 10% of the Fund's net assets;

11. Make short sales of securities;

12. Act as an underwriter of securities issued by other persons, or invest more
than 5% of the value of its net assets in securities that are illiquid;

13. Invest more than 5% of the value of its net assets in the securities of any
issuer which shall have a record of less than three years of continuous
operation (including the operation of any predecessor);

14. Purchase the securities of any other investment company or investment trust,
except by purchase in the open market where, to the best information of the
Company, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase and such purchase
does not result in such securities exceeding 5% of the value of the Fund's
total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;

15. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs or average prices among them,
is not deemed to result in a securities trading account);

16. Purchase from or sell portfolio securities to its officers, directors, or
other "interested persons" (as defined in the 1940 Act) of the Company,
other than otherwise unaffiliated broker-dealers;

17. Purchase or retain the securities of an issuer if, to the Company's
knowledge, one or more of the directors, officers, partners or employees of
the Company or the Investment Manager individually own beneficially more
than 1/2 of 1% of the securities of such issuer and together own
beneficially more than 5% of such securities;

18. Purchase or sell stock index futures or purchase related options if,
immediately thereafter, more than 30% of the value of its net assets would
be hedged, or the sum of the amount of "margin" deposits on

- --------------------------------------------------------------------------------
Page 28
<PAGE>

the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total assets; or

19. Purchase commodities or commodity contracts, except that the Fund may pur-
chase securities of an issuer which invests or deals in commodities or com-
modity 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 International Growth Equity Fund may not:

1. Invest more than 25% of the value of its total assets in the securities of
companies primarily engaged in any one industry (other than the United
States of America, its agencies and instrumentalities);

2. Acquire more than 10% of the outstanding voting securities, or 10% of all of
the securities, of any one issuer;

3. Invest in companies for the purpose of exercising control or management;

4. Borrow money, except from banks to meet redemption requests or for temporary
or emergency purposes; provided that borrowings for temporary or emergency
purposes other than to meet redemption requests shall not exceed 5% of its
total assets; and provided further that total borrowings shall be made only
to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of all
borrowings (including the proposed borrowing). For this purpose, reverse
repurchase agreements and roll transactions covered by segregated accounts
are considered to be borrowings. The Fund will not mortgage, pledge,
hypothecate, or in any other manner transfer as security for an indebtedness
any of its assets. This investment restriction shall not prohibit the Fund
from purchasing or selling futures contracts, futures options, forward
foreign currency exchange positions, and currency options;

5. Issue senior securities as defined in the 1940 Act, except that the Fund may
borrow money as permitted by restriction 4 above. For this purpose, reverse
repurchase, roll and other transactions covered by segregated accounts are
not considered to be senior securities;

6. Purchase securities on margin, but it may obtain such short-term credit from
banks as may be necessary for the clearance of purchases and sales of
securities;

7. Make loans of its funds or assets to any other person, which shall not be
considered as including: (i) the purchase of a portion of an issue of
publicly distributed debt securities, (ii) the purchase of bank obligations
such as certificates of deposit, bankers' acceptances and other short-term
debt obligations, (iii) entering into repurchase agreements with respect to
commercial paper, certificates of deposit and obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iv) the loan of portfolio securities to brokers, dealers and other
financial institutions where such loan is callable by the Fund at any time
on reasonable notice and is fully secured by collateral in the form of cash
or cash equivalents. The Fund will not enter into repurchase agreements with
maturities in excess of seven days if immediately after and as a result of
such transaction the value of the Fund's holdings of such repurchase
agreements exceeds 10% of the value of the Fund's total assets;

- --------------------------------------------------------------------------------
Page 29
<PAGE>

8. Act as an underwriter of securities issued by other persons, except insofar
as it may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities, or invest more than 10% of the value of its
net assets in securities that are illiquid;

9. Purchase the securities of any other investment company or investment trust,
except by purchase in the open market where, to the best information of the
Company, no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase and such purchase
does not result in such securities exceeding 10% of the value of the Fund's
total assets, or except when such purchase is part of a merger,
consolidation, acquisition of assets, or other reorganization approved by
the Fund's stockholders;

10. Purchase portfolio securities from or sell portfolio securities to its
officers, directors, or other "interested persons" (as defined in the 1940
Act) of the Company, other than otherwise unaffiliated broker-dealers;

11. Purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of "margin" deposits on the Fund's
existing futures positions and premiums paid for related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets;

12. Purchase commodities or commodity contracts, except that the Fund may
purchase securities of an issuer which invests or deals in commodities or
commodity contracts, and except that the Fund may enter into futures and
options contracts in accordance with the applicable rules of the Commodities
Futures Trading Commission. The Fund has no current intention of entering
into commodities contracts except for stock index and currency futures and
futures options; or

13. Purchase or sell real estate; provided that the Fund may invest in readily
marketable securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.

The International Growth Equity Fund has also adopted certain investment
restrictions that are not fundamental policies and that may be changed by the
Board of Directors without approval of the Fund's outstanding voting securities.
These restrictions provide that the Fund may not:

1. Invest in interests in oil, gas, or other mineral exploration or development
programs;

2. Make short sales of securities or maintain short positions, except that the
Fund may maintain short positions in connection with its use of options,
futures contracts, options on futures contracts, forward foreign currency
exchange transactions, and currency options;

3. Invest more than 5% of its total assets in the securities of any issuer
which has a record of less than three years of continuous operation
(including the operation of any predecessor);

4. Participate on a joint or a joint-and-several basis in any trading account
in securities (the aggregation of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Investment Manager to save brokerage costs, or to average prices among
them, is not deemed to result in a securities trading account).

- --------------------------------------------------------------------------------
Page 30
<PAGE>

Each Fund is also subject to other restrictions under the 1940 Act; however, the
registration of the Company under the 1940 Act does not involve any supervision
by any federal or other agency of the Company's management or investment
practices or policies, other than incident to occasional or periodic compliance
examinations conducted by the SEC staff.

--------------------
DIRECTORS AND OFFICERS
--------------------

The directors and officers of the Company and their principal occupations and
certain other affiliations during the past five years are given below. Unless
otherwise specified, the address of each of the directors is Four Embarcadero
Center, 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 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, 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

- --------------------------------------------------------------------------------
Page 31
<PAGE>

Zurich Reinsurance Centre, Inc., a large reinsurance underwriter, since 1994.
Mr. Parker served on the Board of the Directors of the University National
Bank & Trust Company from 1986 to 1995. He also serves as a director of RCM
Equity.

KENNETH E. SCOTT*, Director. Mr. Scott is the Ralph M. Parsons Professor of Law
and Business at Stanford Law School, with which he has been associated 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 Executive Vice President and Director of Client Services and Treasury
Administration of Funds Distributor, Inc., ("FDI"), the ultimate parent of which
is Boston Institutional Group, Inc. 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"),
Harris Trust and Savings Bank ("Harris") 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. 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; a Vice President and
Assistant Secretary of RCS; and an officer of certain investment companies
advised or administrated by Dreyfus, Waterhouse, Harris and Morgan Guaranty.

ELIZABETH A. KEELEY, Vice President and Assistant Secretary. Ms. Keeley is Vice
President and Senior Counsel of FDI, with which she has been associated since
September 1994. From September 1995 to present, she has been Counsel to Premier
Mutual Fund Services, Inc. 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. Keeley 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, Harris and Morgan Guaranty. Her address is 600 Park
Avenue, 45th Floor, New York, New York 10166.

GARY S. MACDONALD, Vice President and Assistant Treasurer. Mr. MacDonald is Vice
President and Senior Client Services Manager of FDI, ("FDI") with which he has
been associated since November 1996. From September 1992 to November 1996, he
was Vice President of BayBanks Investment Management/BayBanks Financial
Services; and from April 1989 to September 1992 he was an analyst at Wellington
Management Company. He is also Vice President and Assistant Treasurer of RCM
Equity.

KAREN JACOPPO-WOOD, Assistant Secretary. Ms. Jacoppo-Wood is an Assistant Vice
President and Paralegal Manager 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 Waterhouse, Harris and Morgan Guaranty.

- ----------------------------------
* Member, Audit Committee of the Company.

- --------------------------------------------------------------------------------
Page 32
<PAGE>

MARY A. NELSON, Assistant Treasurer. Ms. Nelson is Vice President and 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, Inc. She is also an Assistant
Treasurer of RCM Equity and an officer of certain investment companies advised
or administrated by Waterhouse, Harris and Morgan Guaranty.

It is presently anticipated that regular meetings of the Company's Board of
Directors will be held on a quarterly basis. The Company's Audit Committee,
whose present members are Messrs. Parker and Scott, meet 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 $9,000 per year plus $1,500 for each Board meeting attended, $500 for
each Audit Committee meeting attended and is reimbursed for his or her
travel and other expenses incurred in connection with attending Board
meetings. The Investment Manager bears two-thirds of this expense on
behalf of the Growth Equity Fund and the Small Cap Fund, and the
International Growth Equity Fund pays the remainder.

The following table sets forth the aggregate compensation paid by the Company
for the fiscal year ending December 31, 1996, to the Directors and the aggregate
compensation paid to the Directors for service on the Company's Board and that
of all other funds in the "Company Complex" as defined in Schedule 14A under the
Securities Exchange Act of 1934):

<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimate Annual from Company and
Compensation as Part of Benefits Upon Company Complex
Name from Company Company Expenses Retirement Paid to Director (1)
---------------------- ------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
DeWitt F. Bowman (2) $18,000 None N/A $33,000
Pamela A. Farr (2) $18,000 None N/A $27,000
Thomas S. Foley (2) $15,000 None N/A $23,000
Frank P. Greene (2) $18,000 None N/A $32,000
George G.C. Parker (2) $18,000 None N/A $27,000
Kenneth E. Scott $33,000 None N/A $33,000
</TABLE>

- ------------------------
(1) There are seven funds in the Company Complex, including the Funds.
(2) Has served as a Director since June 14, 1996.

As of December 31, 1996, no Director or officer of the Company was a beneficial
owner of any shares of the outstanding Common Stock of any series of the
Company.

The Investment Manager uses a system of multiple portfolio managers to manage
each Fund's assets. Under this system, the portfolio of each 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 Funds' 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 each Fund's overall investment objective, guidelines, and
restrictions, the portfolio manager for each portfolio determines how that
portfolio will be invested. The primary portfolio managers for each of the Funds
are the following individuals:

JOHN A. KRIEWALL. Mr. Kriewall is a primary portfolio manager of the Growth Fund
and the Small Cap Fund. He has managed one or more of the Growth Equity Fund's
portfolios since 1987 and has been one of the primary portfolio managers of the
Small Cap Fund since its inception. He is a member of the Investment Manager's
Portfolio Management Team and a Principal of the Investment Manager, with which
he has been associated since 1973.

G. NICHOLAS FARWELL. Mr. Farwell is a primary portfolio manager of the Growth
Fund and the Small Cap Fund. He has managed one or more of the Growth Equity
Fund's portfolios since 1984 and has been one of the primary portfolio managers
of the Small Cap Fund since its inception. He is a member of the Investment
Manager's Portfolio Management Team and a Principal of the Investment Manager,
with which he has been associated since 1980.

GARY B. SOKOL. Mr. Sokol is a primary portfolio manager of the Small Cap Fund
and managed one or more of the Fund's portfolios since its inception. He has
research and management responsibilities for small cap and mid cap securities
and is a Principal of the Investment Manager, with which he has been associated
since 1988.

WILLIAM S. STACK. Mr. Stack has been the primary portfolio manager of the
International Growth Equity Fund since its inception. He is a Principal of the
Investment Manager and is a member of its Board of

- --------------------------------------------------------------------------------
Page 33
<PAGE>

Managers. Mr. Stack has more than 24 years of experience managing both domestic
and international equities. He has been associated with the Investment Manager
since 1994.

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 of the Growth Equity Fund and the Small Cap Fund is
the responsibility of the Investment Manager's Steering Committee. The Steering
Committee is chaired by William L. Price, Chairman and 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 two of the Funds' portfolios). The
Investment Manager's International Steering Committee provides oversight of the
investment management of the International Growth Equity Fund. The members of
the International Steering Committee are John D. Leland, Jr. (a principal of the
Investment Manager), William L. Price and William S. Stack.

The RCM Capital Management Profit Sharing Plan (the "Plan"), is a plan limited
to principals and employees of the Investment Manager. On March 31, 1997, the
Plan, which is exempt from federal income taxation under Section 501 of the
Internal Revenue Code of 1986, was the owner of 388,792.924 shares of the Growth
Equity Fund's capital stock, constituting less than 1% of total shares
outstanding at that date; 506,060.315 shares of the Small Cap Fund's capital
stock, constituting less than 1% of the total shares outstanding at that date;
and 372,958.720 shares of the International Growth Equity Fund's capital stock,
constituting 7.4% of the total shares outstanding at that date. No director or
officer of the Company was a beneficial owner of any shares of any Fund's
outstanding capital stock as of March 31, 1997.

--------------------
THE INVESTMENT MANAGER
--------------------
The Company's Board of Directors has overall responsibility for the operation of
the Funds. 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 Funds. The Company, on behalf of
each Fund, has retained as the Funds' Investment Manager RCM Capital Management,
L.L.C., a Delaware limited liability company, with principal offices at Four
Embarcadero Center, San Francisco, California 94111. The Investment Manager is
actively engaged in providing investment supervisory services to institutional
and individual clients, and is registered under the Investment Advisers Act of
1940. The Investment Manager was established in April 1996, as the successor to
the business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.

The Investment Manager is a wholly owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization 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 1,600 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

- --------------------------------------------------------------------------------
Page 34
<PAGE>

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), Gerhard Eberstadt, Hans-Deiter Bauernfeind,
George N. Fugelsang, 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. The Investment Manager
believes that it may perform the services contemplated by the investment
management agreement between it and each Fund without violating these 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 the Investment Manager
from continuing to perform investment management services for the Company.

Pursuant to an agreement among RCM Limited, L.P. ("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 Investment Manager's 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-six of the limited partners of RCM Limited are also principals of the
Investment Manager, and the shareholders of RCM General. As of the date of this
Prospectus, the following persons are limited partners of RCM Limited and
shareholders of RCM General: 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, Gary B. Sokol,
Andrew C. Whitelaw, and Jeffrey J. Wiggins.

The Investment Manager provides each Fund with investment supervisory services
pursuant to an Investment Management Agreement, Power of Attorney and Service
Agreement (the "Management Agreements") each dated June 14, 1996. The Investment
Manager manages each Fund's investments, provides various administrative
services, and supervises each Fund's daily business affairs, subject to the
authority of the Board of Directors. The Investment Manager is also the
investment manager for RCM Global Technology Fund, RCM Global Small Cap Fund,
RCM Large Cap Growth Fund and RCM Global Health Care Fund, each a series of RCM
Equity Funds, Inc., an open-end management investment company; RCM Strategic
Global Government Fund, Inc. and the Emerging Germany Fund, closed-end
management investment companies; and is sub-adviser to Bergstrom Capital
Corporation, a closed-end management investment company.

The Management Agreements were approved by each Fund's shareholders at a special
meeting on May 28, 1996, and were approved by the unanimous vote of the Board of
Directors of the Company on May 20, 1996. The Management Agreements will
continue in effect until June 14, 1998. They 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, 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 each Fund and the vote of a majority of the directors.

- --------------------------------------------------------------------------------
Page 35
<PAGE>

Each Fund, pursuant to its respective Management Agreement, has 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, each Fund, (c) interest charges on borrowings,
(d) charges and expenses of the Fund's custodian, and (e) payment of all in
vestment advisory fees (including fees payable to the Investment Manager under
the Management Agreements). Each Fund is also responsible for expenses of an
extraordinary nature subject to good faith determination of the Company's Board
of Directors. Each Fund's expenses are charged against its assets. General
expenses of the company 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 Agreements of the Growth Equity
Fund and the Small Cap Fund, responsible for all of the other ordinary operating
expenses of those Funds (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.) The International Growth Equity Fund has
assumed responsibility for such operating expenses under its Management
Agreement. The Investment Manager is also responsible for all of its own
expenses in providing services to the Funds.

For the services rendered by the Investment Manager under the Management
Agreements, each Fund pays management fees at an annualized rate of its average
daily net assets. These fees are computed daily and paid monthly. The Growth
Equity Fund pays investment management fees monthly at an annualized rate of
0.75% of the Fund's average daily net assets. For the years ended December 31,
1996, 1995, and 1994, the Fund incurred investment management fees aggregating
$8,121,322, $11,038,366, and $14,116,196, respectively. The Small Cap Fund pays
investment management fees monthly at an annualized rate of 1.0% of the Fund's
average daily net assets. For the years ended December 31, 1996, 1995, and 1994,
the Fund incurred investment management fees aggregating $4,608,338, $4,385,825,
and $6,060,756, respectively. The International Growth Equity Fund pays
investment management fees monthly at an annualized rate of 0.75% of its average
daily net assets. For the years ended December 31, 1996, 1995, the Fund incurred
investment management fees aggregating $313,342 and $41,875, respectively. These
fees are higher than the fees paid by most other registered investment
companies.

CLIENTS OF THE INVESTMENT MANAGER WHO ARE SHAREHOLDERS OF ANY OF THE FUNDS WILL
PAY A FEE AT THIS RATE ONLY ON THE PORTION OF THEIR ASSETS INVESTED IN SHARES OF
A FUND. HOWEVER, SUCH CLIENTS WILL NOT PAY ADDITIONAL FEES TO THE INVESTMENT
MANAGER ON THE PORTIONS OF THEIR ASSETS INVESTED IN SUCH FUND. ASSETS NOT
INVESTED IN SHARES OF THE FUNDS WILL BE SUBJECT TO FEES IN ACCORDANCE WITH ANY
INVESTMENT MANAGEMENT AGREEMENT OR THE INVESTMENT ADVISORY AGREEMENT BETWEEN THE
CLIENT AND THE INVESTMENT MANAGER. CLIENTS WHO INVEST IN SHARES OF THE FUNDS
WILL GENERALLY PAY AN AGGREGATE FEE WHICH IS HIGHER THAN THAT PAID BY OTHER
CLIENTS NOT INVESTED IN THE FUNDS.

The Investment Manager has voluntarily undertaken (which undertaking it may
terminate at any time, on at least 30 days advance notice, in its sole
discretion) to limit each Fund's expenses as follows: on the first business day
of February, the Investment Manager will pay the Growth Equity Fund, the Small
Cap Fund and the International Growth Equity Fund the amount, if any, by which
ordinary operating expenses of the Company attributable to each Fund for the
preceding fiscal year (except interest, taxes and extraordinary expenses) exceed
1%, 1.25%, and 1%, respectively, of the average daily net assets of each Fund
for that year. However, in paying the monthly investment management fee to the
Investment Manager, the Funds will reduce the amount of such fee by the amount,
if any, by which each Fund's ordinary operating expenses for the previous month
(except interest, taxes and extraordinary expenses) exceeded on an annualized
basis the above-referenced percentage of each Fund's average daily net assets,
determined

- --------------------------------------------------------------------------------
Page 36
<PAGE>

monthly; provided, however, that each 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 such 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, 1986 through December 31, 1996, no payment was
due under these provisions from either the Funds or the Investment Manager.

The Management Agreements are terminable without penalty on 60 days' written
notice by a vote of the majority of a Fund's outstanding voting securities, by a
vote of the majority of the Company's Board of Directors, or by the Investment
Manager on 60 days' written notice and will automatically terminate in the event
of their assignment.

--------------------
EXECUTION OF PORTFOLIO TRANSACTIONS
--------------------

The Investment Manager, subject to the overall supervision of the Company's
Board of Directors, makes each 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
execution, the order is placed with that broker or dealer. This may or may not
be a broker or dealer that has provided investment information and research
services to the Investment Manager. Such investment information and research
services may include, among other things, a wide variety of written reports or
other data on the individual companies and industries; data and reports on
general market or economic conditions; information concerning pertinent federal
and state legislative and regulatory developments and other developments that
could affect the value of actual or potential investments; 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

- --------------------------------------------------------------------------------
Page 37
<PAGE>

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
a 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 Funds) and it is recognized that a Fund may be
charged a commission paid to a broker or dealer who supplied research services
not utilized by such Fund. However, the Investment Manager expects that the
Funds will benefit overall by such practice because they are receiving the
benefit of research services and the execution of such transactions not
otherwise available to them 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 Funds. However, to date the Funds have not marketed any of their
shares through brokers and the Investment Manager has thus not utilized the
above authority. The Investment Manager has not made and will not make any
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 1996, all brokerage commissions paid by the Funds were paid to such
brokers.

Each 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. Each 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, 1996, 1995, and 1994, the Growth Equity
Fund paid in brokerage commissions $2,740,069, $3,568,510, and $8,994,515,
respectively, and the Fund's portfolio turnover rates during such periods were
115.9%, 96.5%, and 111.1%, respectively.

For the fiscal years ended December 31, 1996, 1995, and 1994, the Small Cap Fund
paid in brokerage commissions $843,368, $754,813, and $4,228,279, respectively,
and the Fund's portfolio turnover rates during such periods were 117.0%, 83.9%,
and 117.7%, respectively.

For the fiscal years ended December 31, 1996 and 1995, the International Growth
Equity Fund paid in brokerage commissions $333,597 and $207,486, respectively,
and the Fund's portfolio turnover rates during such periods were 119.1% and
87.4%, respectively.

- --------------------------------------------------------------------------------
Page 38
<PAGE>

As noted above, the Investment Manager is a wholly owned subsidiary of Dresdner.
Dresdner Kleinwort Benson North America, LLC ("DKNA") is also a wholly owned
subsidiary of Dresdner. DKNA and other Dresdner subsidiaries may be registered
as broker-dealers with the SEC (collectively, the "Dresdner Affiliates"). The
Investment Manager believes that it is in the best interests of the Funds 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 a Fund, and the Investment Manager
will not enter into any transaction on behalf of a 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 Funds.

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 Funds. 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 a Fund, and the
Investment Manager is not obligated to aggregate orders into larger
transactions. These orders generally will be averaged as to price. When such
aggregated transactions occur, the objective will be to allocate the executions
in a manner which is deemed fair and equitable to each of the accounts involved
over time. In making such allocation decisions, the Investment Manager will use
its business judgment and will consider, among other things, any or all of the
following: each client's investment objectives, guidelines, and restrictions,
the size of each client's order, the amount of investment funds available in
each client's account, the amount already committed by each client to that or
similar investments, and the structure of each client's portfolio. Although the
Investment Manager will use its best efforts to be fair and equitable to all
clients, including the Funds, 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 a Fund.

- --------------------------------------------------------------------------------
Page 39
<PAGE>

--------------------
INVESTMENT BY EMPLOYEE BENEFIT PLANS
--------------------

All shareholders of each Fund are (and are expected in the future to be)
organizations and individuals to whom the Funds' 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 a 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 com-
pany'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 any of the Funds 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 such 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 a Fund.

Although only the shares of a 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 any of the Funds
will be purchased by employee benefit plans that have appointed or may appoint
the Investment Manager as "investment manager" (within the meaning of ERISA
Section 3(38)) of some or all of their assets. The Department of the Treasury
and the Department of Labor have promulgated a "Prohibited Transaction Class
Exemption" (Prohibited Transaction Exemption 77-4, 42 Fed. Reg. 18732 (April 8,
1977)) exempting from the prohibited transaction restrictions of ERISA the
purchase and sale by an employee benefit plan of shares of a registered, open-
end investment company when a fiduciary with respect to the plan (e.g., an
investment manager) is also the investment adviser for the investment company,
provided certain conditions are met. It is the intention of each 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 Funds do not charge a sales
commission in connection with the sale of their 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:

- --------------------------------------------------------------------------------
Page 40
<PAGE>

(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 Funds
do 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 Agreements 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 Funds.)

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.

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 Funds and the Investment Manager intend to conform with the
above provisions in connection with investments in any of the Funds by employee
benefit plans managed by the Investment Manager. The Funds and the Investment
Manager solicit approval of specified purchase programs as described in Para
graph 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.

- --------------------------------------------------------------------------------
Page 41
<PAGE>

--------------------
HOW TO PURCHASE SHARES
--------------------

EACH 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 FUNDS' INVESTMENT MANAGER, RCM CAPITAL MANAGEMENT, L.L.C. THE
FUNDS EXPECT TO CONTINUE THIS POLICY IN THE FUTURE. IN THIS CAPACITY, THE INVEST
MENT 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 each 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 minimum initial investment in the Growth Equity Fund and the Small
Cap Fund is $10,000, and $50,000 for the International Growth Equity Fund. There
is a $1,000 minimum for subsequent investments other than through each 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 of any of
the Funds from RCM Capital Trust Company (the "Transfer Agent"), or through the
Funds' 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 be also obtained from
the Investment Manager or the Company. The Company, on behalf of any of the
Funds, does not have dealer agreements.

Orders for shares received by the Company prior to the close of the New York
Stock Exchange composite tape on each day the New York Stock Exchange is open
for trading, will be priced at the net asset value (see NET ASSET VALUE)
computed as of the close of the New York Stock Exchange composite tape on that
day. The Company reserves the right to reject any order at its sole discretion.
Orders received after the close of the New York Stock Exchange composite tape,
or on any day on which the New York Stock Exchange is not open for trading, will
be priced at the close of the New York Stock Exchange composite tape on the next
succeeding date on which the New York Stock Exchange is open for trading. Net
asset value normally is not calculated for any day on which an order for shares
is not received or on which shares are not surrendered for redemption.

Upon receipt of the subscription form in good order, the Company will open a
shareholder account in accordance with the investor's registration instructions.
A confirmation statement reflecting the current transaction along with a summary
of the status of the account as of the transaction date will be forwarded to the
investor.

- --------------------------------------------------------------------------------
Page 42
<PAGE>

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
RCM Small Cap Fund
Account I002
RCM International Growth Equity Fund A
Account I005

For overnight delivery, the address is:

1776 Heritage Drive
North Quincy, Massachusetts 02171

Investors may also wire funds in payment of orders to the above address. Wired
funds should include the following: shareholder's registration name and account
number with the Company and the name of the Fund.

The Company will issue share certificates of the Funds 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 a 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 a Fund's shares
offered by this Prospectus. Any such securities (a) will be valued at the close
of the New York Stock Exchange composite tape on the day of acceptance of the
subscription in accordance with the method of valuing the Fund's portfolio
described under NET ASSET VALUE; (b) will have a tax basis to the Fund equal to
such value; (c) must not be "restricted securities"; and (d) must be permitted
to be purchased in accordance with the Fund's investment objective and policies
set forth in this Prospectus and must be securities that the Fund would be
willing to purchase at that time. Prospective investors 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 a
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 each 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 Funds' shares will be calculated as of the close of regular trading on the
New York Stock Exchange, currently 4:00 p.m., New York time (unless weather,
equipment failure or other factors contribute to an earlier

- --------------------------------------------------------------------------------
Page 43
<PAGE>

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 Funds 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 Funds may use a pricing service approved by the Company's 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 Company 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 each Fund tendered
to it, as described below, at a redemption price equal to the net asset value
per share as next computed following the receipt of all necessary redemption
documents. There is no redemption charge.

- --------------------------------------------------------------------------------
Page 44
<PAGE>

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 share
holder; 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 a
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 believes that
economic conditions exist which would make such a practice detrimental to the
best interests of a 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 a 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, broker
age costs would be incurred by the investor in converting the securities to
cash.

Because the net asset value of each Fund's shares will fluctuate as a result of
changes in the market value of securities owned, the amount a shareholder
receives upon redemption may be more or less than the amount paid for the
shares.

- --------------------------------------------------------------------------------
Page 45
<PAGE>

--------------------
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
--------------------

It is the intention of each 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 a 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 a 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 Funds 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 a Fund pays the dividend no
later than January 31 of the following year.

ALTHOUGH TAXABLE INDIVIDUALS AND INSTITUTIONS ARE PERMITTED TO INVEST IN THE
FUNDS, PROSPECTIVE TAXABLE INVESTORS NEED TO BE AWARE THAT THE FUNDS' 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 each Fund as a
"regulated investment company" under Subchapter M of the Code. Each 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, a 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, a 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

- --------------------------------------------------------------------------------
Page 46
<PAGE>

(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the fund's assets is represented by cash, cash
items, U.S. Government securities and other securities, limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.

In any fiscal year in which a 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 each 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 distribu-
tion" 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 a 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. Each 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 a Fund whether paid in additional shares of the Fund or in cash. To
the extent that dividends received by a 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 shares of the Fund 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 a Fund under federal, state and local tax laws.

Clients who purchase shares of a 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's 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

- --------------------------------------------------------------------------------
Page 47
<PAGE>

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 a Fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate, whichever is less). Withholding will not
apply if a dividend paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business, in which case the reporting and
withholding requirements applicable to U.S. citizens or domestic corporations
will apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident alien
individual, such distributions ordinarily will be subject to U.S. income tax at
a rate of 30% if the individual is physically present in the U.S. for more than
182 days during the taxable year.

Futures contracts and related options entered into by each 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 each 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 a Fund. In addition, losses realized by a 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 a Fund are not
entirely clear.

Transactions in futures contracts and related options may increase the amount of
short-term capital gain realized by a Fund which is taxed as ordinary income
when distributed to shareholders. Each Fund may make one or more of the
elections available under the Code which are applicable to straddle positions.
If a 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 Funds will be able to engage in transactions involving
stock index futures contracts and related options.

Under the Code, gains or losses attributable to fluctuations and exchange rates
which occur between the time a 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 a Fund's investment company taxable income to be
distributed to shareholders as ordinary income.

- --------------------------------------------------------------------------------
Page 48
<PAGE>

The Funds may be required to pay withholding and other taxes imposed by foreign
countries which would reduce the Fund's investment income, generally at rates
from 10% to 40%. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. To the extent that a 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 U.S. income taxes.

Each shareholder of each Fund 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 U.S. federal income
tax laws and regulations applicable to dividends and distributions by the Funds.
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 the Growth
Equity Fund, 100,000,000 shares have been designated as shares of the Small Cap
Fund, and 100,000,000 shares have been designated as shares of the International
Growth Equity Fund. 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 each 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
each Fund. Certificates are not issued unless requested and are never issued for
fractional shares. Fractional shares are liquidated when an account is closed.
As of March 31, 1997, there were 136,356,807.591 shares of the Growth Equity
Fund outstanding, 46,368,944.813 shares of the Small Cap Fund outstanding, and
5,041,539.285 shares of the International Growth Equity Fund outstanding; on
that date the following were known to each Fund to own of record more than 5% of
a Fund's capital stock:

- --------------------------------------------------------------------------------
Page 49
<PAGE>

Name and % of Shares
Address of Shares Outstanding as of
Beneficial Owner Held March 31, 1997
- ----------------------- -------- -----------------

GROWTH EQUITY FUND

Ernst & Young U.S. Master Trust 17,800,304.757 13.05%
c/o Chase Manhattan Bank N.A.
770 Broadway, 10th Floor
New York, New York 10003

American Stores Retirement Portfolio 16,252,033.720 11.92%
c/o Fidelity Management Trust Co.
82 Devonshire Street
Boston, Massachusetts 02109

Chevron Corporation Annuity Trust 12,917,068.033 9.47%
c/o Bankers Trust Company
BT Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211

Boeing Company Employee Retirement Plan 11,142,254.257 8.17%
c/o The Chase Manhattan Bank N.A.
3 Metrotech Center
Brooklyn, New York 11245

Tektronix M/R/T/ 8,085,620.064 5.93%
c/o The Northern Trust Company
P.O. Box 3577
Terminal Annex
Los Angeles, California 90051

White Consolidated Industries, Inc. 7,455,510.406 5.47%
c/o Mellon Bank
One Mellon Bank Center, Room 1335
Pittsburgh, Pennsylvania 15258

J. Paul Getty Trust 7,242,170.130 5.31%
c/o The Northern Trust Company
P.O. Box 3577
Terminal Annex
Los Angeles, California 90051

- --------------------------------------------------------------------------------
Page 50
<PAGE>

Name and % of Shares
Address of Shares Outstanding as of
Beneficial Owner Held March 31, 1997
- ----------------------- -------- -----------------

SMALL CAP FUND

American Stores Retirement Portfolio 9,233,184.488 19.91%
c/o Fidelity Management Trust Co.
82 Devonshire Street
Boston, Massachusetts 02109

The J. Paul Getty Trust 4,071,931.482 8.78%
c/o The Northern Trust Company
P.O. Box 3577
Terminal Annex
Los Angeles, California 90051

Employees Retirement Plan 3,658,869.539 7.89%
c/o The Chase Manhattan Bank, N.A
Florida Progress Corporation
3 Metro Tech Center
Brooklyn, New York 11245

Denver Public Schools Employees' 3,224,036.114 6.95%
Pension and Benefit Assoc.
c/o The Northern Trust Company
Trust Operations
50 South La Salle Street
C-IN
Chicago, Illinois 60675

Chevron Corporation Annuity Trust 2,716,526.561 5.86%
c/o Bankers Trust Company
BT Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211

INTERNATIONAL GROWTH EQUITY FUND

The Pension Plan for Salaried 2,766,951.082 54.88%
Employees of Travelers Insurance
Company and Its Affiliates
388 Greenwich Street
New York, New York 10013

General Mills Inc. 759,592.126 15.07%
c/o State Street Bank & Trust Company
P.O. Box 1992
Boston, Massachusetts 02105-1992

- --------------------------------------------------------------------------------
Page 51
<PAGE>

Name and % of Shares
Address of Shares Outstanding as of
Beneficial Owner Held March 31, 1997
- ----------------------- -------- -----------------

RCM Capital Management Profit Sharing Plan 372,958.720 7.40%
4 Embarcadero Center
Suite 3000
San Francisco, California 94111

Except as described above, the Funds have no information regarding the
beneficial owners of such shares. All beneficial owners of the Funds 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 each 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 each Fund and in "control" of the Fund on account of such beneficial
ownership. Nevertheless, each shareholder of each 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 a Fund.

Shares of the Funds 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 share
holders 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.

--------------------
SHAREHOLDER REPORTS
--------------------

The fiscal year of the Funds ends on December 31 of each year. The Funds will
issue to their shareholders semi-annual and annual reports; each annual report
will contain a schedule of each 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.

- --------------------------------------------------------------------------------
Page 52
<PAGE>

--------------------
COUNSEL
--------------------

The validity of the shares offered by this Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker LLP 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 each Fund, assist in the preparation of
each 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 each Fund incorporated by reference herein have been
audited by Coopers & Lybrand L.L.P., independent accountants, as stated in their
opinion appearing therein and are included in reliance upon such opinion given
upon the authority of said firm as experts in accounting and auditing.

--------------------
SAFEKEEPING OF SECURITIES, DISTRIBUTOR, AND TRANSFER AND REDEMPTION AGENT
--------------------

State Street Bank and Trust Company (the "Custodian"), U.S. Mutual Funds
Services Division, P.O. Box 1713, Boston, Massachusetts 02105 serves as
custodian of all securities and funds owned by each 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 Funds.

Funds Distributor, Inc. (the "Distributor"), 60 State Street, Suite 1300,
Boston, Massachusetts 02109, serves as distributor to the Funds. 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 Funds, 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 Funds' Management Agreements 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 under the Securities Act
of 1933.

- --------------------------------------------------------------------------------
Page 53
<PAGE>

Pursuant to an Agreement among the Investment Manager, the Company, RCM Equity
Funds, Inc. and the Distributor, the Distributor has agreed to provide
regulatory, compliance and related technical services to the Funds; to provide
services with regard to advertising, marketing and promotional activities; and
to provide officers to the Company. The Investment Manager is required to
reimburse the Company for any fees and expenses of the Distributor pursuant to
the Agreement.

RCM Capital Trust Company (the "Transfer Agent"), Four Embarcadero Center, Suite
2800, San Francisco, California 94111 serves as transfer and redemption agent
for each Fund's capital 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 Growth Equity 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 S&P 400 Index, which is a widely recognized index composed of the middle
capitalization sector of the U.S. equities market.

3. The S&P 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.

7. The NASDAQ Over-the-Counter Composite Index, which is a value-weighted index
composed of 4,500 stocks traded over-the-counter.

- --------------------------------------------------------------------------------
Page 54
<PAGE>

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.

The Small Cap Fund may from time-to-time compare its investment results with the
following:

1. The Russell 2000 Index which is the 2,000 smallest stocks in the
Russell 3000 Index.

2. The S&P 500 Index, which is a widely recognized index composed of the
capitalization-weighted average of the price of 500 of the largest publicly
traded stocks in the United States.

3. The Value Line Composite Index, which consists of approximately 1,700 common
equity securities.

4. The NASDAQ Over-the-Counter Composite Index, which is a value-weighted index
composed of 4,500 stocks traded over the counter.

5. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc., which ranks mutual funds by overall performance, investment
objectives, and assets.

The International Growth Equity Fund may from time-to-time compare its
investment results with the following:

1. The Morgan Stanley Capital International EAFE Market Capitalization-Weighted
Index, which is a widely recognized unmanaged index based on securities
listed on exchanges in European, Australian and Far Eastern markets, and
various blends of such Indices.

2. The Morgan Stanley Capital International All Country World Free Ex-U.S.
Index, which is a widely recognized unmanaged index based on securities
listed on exchanges in European, Australian and Far Eastern markets, and
various blends of such Indices.

3. The S&P 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. Data and mutual fund rankings published or prepared by Lipper Analytical
Services, Inc. and Morningstar, which rank mutual funds by overall
performance, investment objectives, and assets.

--------------------
FINANCIAL STATEMENTS
--------------------

Incorporated by reference herein are the financial statements of the Growth
Equity Fund, the Small Cap Fund and the International Growth Equity Fund,
contained in each Fund's Annual Report to Shareholders for the year ended
December 31, 1996, including the Report of Independent Accountants, dated
February 20, 1997, the Statement of Investments in Securities and Net Assets,
the Statement of Assets and Liabilities, the Statement of Operations, the
Statements of Changes in Net Assets, and the related Notes to Financial
Statements. A copy of each Fund's Annual Report to Shareholders is available,
upon request, by calling the Company at (415) 954-5400, or by writing the
Company at Four Embarcadero Center, San Francisco, California 94111.

- --------------------------------------------------------------------------------
Page 55

<PAGE>

---------------------
APPENDIX A: INFORMATION REGARDING CERTAIN FOREIGN COUNTRIES
---------------------

As indicated earlier, investments in securities of issuers that are organized or
headquartered in Japan, the United Kingdom and Germany may in each case
aggregate up to 65% of the International Growth Equity Fund's total assets. In
addition, the Fund may be exposed in amounts greater than 25% of its total
assets, as adjusted to reflect currency transactions and securities positions,
to the currencies of each of such countries as well as the U.S. dollar. Because
the Fund may invest more than 25% of its total assets in each of such countries
or currencies, the following summaries are included to provide a brief general
discussion of the economic and certain other conditions of each of these
countries. The information in these summaries has been derived from sources that
the Fund believes to be reliable, but has not been independently verified. In
some cases the data are seasonally adjusted. Currency exchange rate is a period
average except for market capitalization data, which is based on year-end
exchange rates.

Although these countries have developed economies, even developed countries are
subject to periods of economic or political instability. For example, efforts by
the member countries of the European Community to eliminate internal barriers to
the free movement of goods, persons, services and capital have encountered
opposition arising from the conflicting economic, political and cultural
interests and traditions of the member countries and their citizens. The
reunification of the former German Democratic Republic (East Germany) with the
Federal Republic of Germany (West Germany) and other political and social events
in Europe have caused considerable economic and social dislocations. Such events
can materially affect securities markets and have also disrupted the
relationship of such currencies with each other and with the U.S. dollar.
Similarly, events in the Japanese economy as well as social developments may
affect Japanese securities and currency markets, as well as the relationship of
the Japanese yen to the U.S. dollar. Future political, economic and social
developments can be expected to produce continuing effects on securities and
currency markets.

---------------------
GERMANY
---------------------

The currency is the Deutschemark (December 31, 1996: GDM 1.54 = $1 U.S.). Gross
Domestic Product was DM 3,500 billion ($2,273 billion) in 1996. The current
account balance in 1996 was a deficit of DM 29 billion ($19 billion), which was
0.54% of the GDP. The annual rate of inflation in 1996 was 1.4%. The average
rate of inflation for the three years ended 1996 was 1.7%.

At the end of 1996 and 1995, market capitalization (in ECU millions) for the
main market in domestic equities was 482,000 and 361,872, respectively, an
increase of 33%. The German Stock Index, DAX, which comprises 30 selected German
blue chip stocks, was 2,106.5, 2,253.9 and 2,888.7 at year-end 1994, 1995, and
1996, respectively.

- --------------------------------------------------------------------------------
Page 56
<PAGE>

---------------------
JAPAN
---------------------

The currency is the Yen (December 31, 1996: Y116.40 = $1 U.S.). Gross Domestic
Product was Y535 trillion ($4,596 billion) in 1996. The current account balance
in 1996 was a surplus of Y65.5 trillion ($562 billion), which was 12.0% of the
GDP. The annual rate of inflation in 1996 was 0.10%. The average rate of
inflation for the three years ended 1996 was 0.50%. Japan is a highly
industrialized nation with a population in excess of 120 million people.

At the end of 1996 and 1995, total market value of shares listed on the Tokyo
stock exchange was $1,680 billion and $3,464 billion, respectively, which was an
increase of 106%. The Nikkei stock average, which is calculated on a formula
similar to that used for the Dow Jones average in the United States, was 19,723,
19,868 and 19,361 at year-end 1994, 1995, and 1996, respectively.

---------------------
UNITED KINGDOM
---------------------

The currency is the Pound Sterling (December 31, 1996: L0.583 = $1 U.S.). Gross
Domestic Product was L671 billion ($391 billion) in 1996. There was no current
account balance in 1996. The annual rate of inflation in 1996 was 2.45%. The
average rate of inflation for the three years ended 1996 was 2.48%.

At the end of 1996 and 1995, market capitalization (in ECU millions) for the
main market in domestic equities was 1,080 and 1,645, respectively, which was a
decrease of 35%. The FT Industrial Ordinary Share Index, based on the shares of
30 companies chosen to be representative of British industry and commerce, was
3,065.50, 3,689.30, and $4,118.5 at year-end 1994, 1995, and 1996, respectively.

- --------------------------------------------------------------------------------
Page 57

<PAGE>

---------------------
APPENDIX B: CERTAIN PORTFOLIO MANAGEMENT TECHNIQUES
---------------------

As indicated above, each Fund may engage in certain stock options and stock
index option transactions, and futures and futures option transactions. The
International Growth Equity Fund may also engage in various other currency
management transactions. The following material provides further information
regarding these transactions and the associated risks.

---------------------
FUTURES TRANSACTIONS
---------------------

Each Fund may purchase and sell stock index futures contracts and futures
options as a hedge against changes in market conditions that may result in
changes in the value of the Fund's portfolio securities, in accordance with the
strategies more specifically described below. Each Fund will engage in
transactions in stock index futures contracts or futures options consistent with
that Fund's investment objective. A stock index (such as the Standard & Poor's
500 Stock Price Index) assigns relative values to the common stocks included in
the index, and the index fluctuates with changes in the market values of the
common stocks so included. The International Growth Equity Fund may also
purchase and sell currency futures contracts and futures options, in accordance
with the strategies more specifically described below, to hedge against currency
exchange rate fluctuations or to enhance returns.

FUTURES CHARACTERISTICS. A futures contract is an agreement between two parties
(buyer and seller) to take or make delivery of an amount of cash equal to the
difference between the value of the index or currency at the close of the last
trading day of the contract and the price at which the index or currency
contract was originally written. In the case of futures contracts traded on U.S.
exchanges, the exchange itself or an affiliated clearing corporation assumes the
opposite side of each transaction (i.e., as buyer or seller). A futures contract
may be satisfied or closed out by payment of the change in the cash value of the
index or currency. No physical delivery of the underlying stocks in the index or
currency is made.

Unlike when a 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, a Fund
will be required to deposit with the Fund's custodian (in the name of the
futures commission merchant or "FCM") an amount of cash or U.S. Treasury bills
which is referred to as an "initial margin" payment. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the Fund to finance the transactions. Rather, the initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts customarily are
purchased and sold with initial margins that may range upwards from less than 5%
of the value of the futures contract being traded. Subsequent payments, called
variation margin, to and from the FCM, will be made on a daily basis as the
price of the underlying stock index or currency varies, making the long and
short positions in the futures contract more or less valuable. This process is
known as "marking-to-market." For example, when a 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 a
Fund has

- --------------------------------------------------------------------------------
Page 58
<PAGE>

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, a Fund may elect to close the position by
taking an identical opposite position which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or a gain.

CHARACTERISTICS OF FUTURES OPTIONS. Each Fund may also purchase call options and
put options on stock index futures contracts ("futures options"). A futures
option gives the holder the right, in return for the premium paid, to assume a
long position (in the case of a call) or short position (in the case of a put)
in a futures contract at a specified exercise price prior to the expiration of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. A futures option may be
closed out (before exercise or expiration) by an offsetting purchase or sale of
a futures option of the same series.

PURCHASE OF FUTURES. When the Investment Manager anticipates a significant stock
market or stock market sector advance, the purchase of a stock index futures
contract affords a hedge against not participating in such advance at a time
when a Fund is not fully invested in equity securities. Such purchase of a
futures contract would serve as a temporary substitute for the purchase of
individual stocks which may later be purchased (with attendant costs) in an
orderly fashion. As such purchases of individual stocks are made, an
approximately equivalent amount of stock index futures would be terminated by
offsetting sales. Similarly, the International Growth Equity Fund may purchase a
currency futures contract when it anticipates the subsequent purchase of
particular securities and has the necessary cash, but expects the currency
exchange rates then available in the applicable market to be less favorable than
rates that are currently available, or to attempt to enhance return when it
anticipates that future currency exchange rates will be more favorable than
current rates.

SALE OF FUTURES. Each 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 a Fund's portfolio of equity securities changes
in value in correlation with a given stock index, the sale of futures contracts
on that index would reduce the risk to the portfolio of a market decline and, by
so doing, would provide an alternative to the liquidation of securities
positions in the portfolio with resultant transaction costs. Similarly, the
International Growth Equity Fund may sell a currency futures contract to hedge
against an anticipated decline in foreign currency rates that would adversely
affect the dollar value of the Fund's portfolio securities denominated in such
currency, or may sell a currency futures contract in one currency to hedge
against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern or correlation between
the two currencies.

PURCHASE OF PUT OPTIONS ON FUTURES. The purchase of put options on stock index
futures contracts is analogous to the purchase of puts on individual stocks,
where an absolute level of protection from price fluctuation is sought below
which no additional economic loss would be incurred by the Fund. Put options may
be purchased to hedge a portfolio of stocks or a position in the futures
contract upon which the put option is based against a possible decline in market
value. The purchase of a put option on a currency futures contract can be used
to hedge against unfavorable movements in currency exchange rates, or to attempt
to enhance returns in contemplation of movements in such rates.

PURCHASE OF CALL OPTIONS ON FUTURES. The purchase of a call option on stock
index futures contracts represents a means of obtaining temporary exposure to
market appreciation with risk

- --------------------------------------------------------------------------------
Page 59
<PAGE>

limited to the premium paid for the call option. It is analogous to the purchase
of a call option on an individual stock, which can be used as a substitute for a
position in the stock itself. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or to the price of the
underlying stock index itself, it may be less risky, because losses are limited
to the premium paid for the call option, when compared to the ownership of the
stock index futures contract or the underlying stock. Like the purchase of a
stock index futures contract, a Fund would purchase a call option on a stock
index futures contract to hedge against a market advance when the Fund is not
fully invested. Similarly, the purchase of a call option on a currency futures
contract represents a means of obtaining temporary exposure to favorable
currency exchange rate movements with risk limited to the premium paid for the
call option.

LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND FUTURES OPTIONS. The Funds will
not engage in transactions in stock index futures contracts or futures options
for speculation, but only as a hedge against changes in the value of securities
held in each 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 a Fund's
investment portfolio. However, as described earlier, the Fund may engage in
transactions in currency futures contracts or futures options to enhance returns
as well as to hedge against unfavorable currency movements.

The Funds may not purchase or sell futures contracts or purchase futures options
if, immediately thereafter, more than 30% of the value of a Fund's net assets
would be hedged. In addition, the Funds may not purchase or sell futures or
purchase futures options if, immediately thereafter, the sum of the amount of
margin deposits on a Fund's existing futures positions and premiums paid for
futures options would exceed 5% of the market value of the Fund's total assets.
In each Fund transaction involving 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.

TAX TREATMENT. The extent to which each Fund may engage in futures and futures
option transactions may be limited by the requirements of the Internal Revenue
Code of 1986 for qualification as a regulated investment company and the Fund's
intention to continue to qualify as such. Certain of these transactions may be
"Section 1256 contracts." Gains or losses on Section 1256 contracts generally
are treated as 60% long-term and 40% short-term ("60/40") capital gains or
losses. Also, any Section 1256 contracts that are held by each Fund at the end
of a taxable year (and, generally, for purposes of the 4% excise tax, on October
31 of each year) are "marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is generally treated as a 60/40 gain or loss. The potential loss incurred by a
Fund in such transactions is unlimited.

REGULATORY MATTERS. Each Fund has filed a claim of exemption from registration
as a commodity pool with the Commodity Futures Trading Commission (the "CFTC").
The Funds intend to conduct their 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.

INVESTMENT AND RISK CONSIDERATIONS. There are several risks in connection with
the use of futures in the Funds. One risk arises because the correlation between
movements in the price of the future and movements in the price of the
securities or currencies or currencies which are the subject of the hedge

- --------------------------------------------------------------------------------
Page 60
<PAGE>

is not always perfect. The price of the future may move more than, or less than,
the price of the securities or currencies being hedged. If the price of the
future moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the securities
or currencies being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
securities or currencies being hedged has moved in a favorable direction, this
advantage will be partially offset by movement in the value of the future. If
the price of the future moves more than the price of the securities or
currencies, a Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities or
currencies which are the subject of the hedge.

To compensate for the imperfect correlation of movements in the price of
securities or currencies being hedged and movements in the price of the futures,
each Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities or currencies being hedged, if the historical
volatility of the price of such securities or currencies has been greater than
the historical volatility of the securities or currencies. Conversely, each Fund
may buy or sell fewer futures contracts if the historical volatility of the
price of the securities or currencies being hedged is less than the historical
volatility of the securities or currencies. It is also possible that, when a
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 a 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 a Fund in such transactions is unlimited.

Because of the low margins required, futures trading involves a high degree of
leverage. As a result, a relatively small investment in a futures contract may
result in immediate and substantial loss or gain to a Fund. A purchase or sale
of a futures contract may result in losses in excess of the initial margin for
the futures contract, and such losses are potentially unlimited. However, a Fund
would have sustained comparable losses if, instead of the futures contract, it
had invested in the underlying financial instrument and sold the instrument
after the decline.

When futures are purchased to hedge against a possible increase in the price of
stock before a Fund is able to invest its cash (or cash equivalents) in stock in
an orderly fashion, it is possible that the market may decline instead; if the
Fund then concludes not to invest in stock at that time because of concern as to
possible further market decline or for other reasons, the Fund will realize a
loss on the futures contract that is not offset by a reduction in the price of
securities purchased.

In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures and the securities or
currencies which are the subject of the hedge, the price of futures contracts
may not correlate perfectly with movement in the stock index or currency due to
certain market distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions. This practice could distort the normal
relationship between the index or currency and futures markets. Second, from the
point of view of speculators, the deposit requirements in the futures market may
be less onerous than margin requirements in the securities or currency market.
Therefore, increased participation by speculators in the futures market also may
cause temporary price distortions. Due to the possibility of price distortion in
the futures market and because of the imperfect correlation between movements in
the stock index or currency and movements in the price of stock index or
currency futures, a correct forecast of general market or currency trends by the
Investment Manager still may not result in a successful hedging transaction over
a very short time frame.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. Once the daily limit has
been reach, no more trades may be made on that day at a price

- --------------------------------------------------------------------------------
Page 61
<PAGE>

beyond the limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions.

Compared to the use of futures contracts, the purchase of options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to a Fund when the use of a futures contract would not, such as
when there is no movement in the level of an index. In addition, daily changes
in the value of the option due to changes in the value of the underlying futures
contract are reflected in the net asset value of a Fund.

The Funds will only enter into futures contracts or purchase futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. However,
there is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular futures contract or futures option or at any
particular time. In such event, it may not be possible to close a futures
position, and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities or
currencies, an increase in the price of the securities or currencies, if any,
may partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities or
currency will, in fact, correlate with the movements in the futures contract and
thus provide an offset to losses on a futures contract.

Successful use of futures by the Funds for hedging purposes or to enhance
returns is subject to the Investment Manager's ability to predict correctly
movements in the direction of the securities and currency markets. For example,
if a 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 a Fund had insufficient cash, it
might have to sell securities to meet daily variation margin requirements. Such
sales of securities might be, but would not necessarily be, at increased prices
which would reflect the rising market. As a result, the Fund might have to sell
securities at a time when it might be disadvantageous to do so. Similarly, if a
Fund purchased currency futures contracts with the intention of profiting from a
favorable change in currency exchange rates, and the change was unfavorable, the
Fund would incur a loss, and might have to sell securities to meet daily
variation margin requirements at a time when it might be disadvantageous to do
so. The Investment Manager has been actively engaged in the provision of
investment supervisory services for institutional and individual accounts since
1970, but the skills required for the successful use of futures and options on
futures are different from those needed to select portfolio securities, and the
Investment Manager has limited prior experience in the use of futures or options
techniques in the management of assets under its supervision.

- --------------------------------------------------------------------------------
Page 62
<PAGE>

---------------------
OPTIONS ON SECURITIES AND SECURITIES INDICES
---------------------

The International Growth Equity Fund may purchase covered "put" and "call"
options with respect to securities which are otherwise eligible for purchase by
the Fund and with respect to various stock indices subject to certain
restrictions. The Fund will engage in trading of such derivative securities
exclusively for hedging purposes.

PURCHASE PUT AND CALL OPTIONS. If the International Growth Equity Fund purchases
a put option, the Fund acquires the right to sell the underlying security at a
specified price at any time during the term of the option (for "American-style"
options) or on the option expiration date (for "European-style" options).
Purchasing put options may be used as a portfolio investment strategy when the
Investment Manager perceives significant short-term risk but substantial long-
term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If the Fund is
holding a stock which it feels has strong fundamentals, but for some reason may
be weak in the near term, the Fund may purchase a put option on such security,
thereby giving itself the right to sell such security at a certain strike price
throughout the term of the option. Consequently, the Fund will exercise the put
only if the price of such security falls below the strike price of the put. The
difference between the put's strike price and the market price of the underlying
security on the date the Fund exercises the put, less transaction costs, will be
the amount by which the Fund will be able to hedge against a decline in the
underlying security. If during the period of the option the market price for the
underlying security remains at or above the put's strike price, the put will
expire worthless, representing a loss of the price the Fund paid for the put,
plus transaction costs. If the price of the underlying security increases, the
profit the Fund realizes on the sale of the security will be reduced by the
premium paid for the put option less any amount for which the put may be sold.

If the International Growth Equity Fund purchases a call option, it acquires the
right to purchase the underlying security at a specified price at any time
during the term of the option. The purchase of a call option is a type of
insurance policy to hedge against losses that could occur if the Fund intends to
purchase the underlying security and the security thereafter increases in price.
The Fund will exercise a call option only if the price of the underlying
security is above the strike price at the time of exercise. If during the option
period the market price for the underlying security remains at or below the
strike price of the call option, the option will expire worthless, representing
a loss of the price paid for the option, plus transaction costs. If the price of
the underlying security thereafter falls, the price the Fund pays for the
security will in effect be increased by the premium paid for the call option
less any amount for which such option may be sold.

Prior to exercise or expiration, an option may be sold by the Fund when it has
remaining value through a "closing sale transaction," which is accomplished by
selling an option of the same series as the option previously purchased.

STOCK INDEX OPTIONS. The International Growth Equity Fund may also purchase put
and call options with respect to the S&P 500 Stock Price Index and other stock
indices. Such options may be purchased as a hedge against changes resulting from
market conditions in the values of securities which are held in the Fund's
portfolio or which it intends to purchase or sell, or when they are economically
appropriate for the reduction of risks inherent in the ongoing management of the
Fund.

The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options generally. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss on the purchase
or

- --------------------------------------------------------------------------------
Page 63
<PAGE>

sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on a stock
index would be subject to the Investment Manager's ability to predict correctly
movements in the direction of the stock market generally. This requires
different skills and techniques than predicting changes in the prices of
individual stocks.

Index prices may be distorted if trading of certain stocks included in the index
is interrupted. Trading of index options also may be interrupted in certain
circumstances, such as if trading were halted in a substantial number of stocks
included in the index. If this were to occur, the Fund would not be able to
close out options which it had purchased, and if restrictions on exercise were
imposed, the Fund might be unable to exercise an option it holds, which could
result in substantial losses to the Fund. It is the policy of the Fund to
purchase put or call options only with respect to an index which the Investment
Manager believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.

DEALER OPTIONS. The International Growth Equity Fund may engage in transactions
involving dealer options as well as exchange-traded options. Options not traded
on an exchange generally lack the liquidity of an exchange traded option, and
may be subject to the Fund's restriction on investment in illiquid securities.
In addition, dealer options may involve the risk that the securities dealers
participating in such transactions will fail to meet their obligations under the
terms of the option.

RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events. The extent to which
the International Growth Equity Fund may enter into options transactions may be
limited by the Internal Revenue Code requirements for qualification of an
Investor as a regulated investment company.

In addition, when trading options on foreign exchanges, many of the protections
afforded to participants in United States option exchanges will not be
available. For example, there may be no daily price fluctuation limits in such
exchanges or markets, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the purchaser of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost.

- --------------------------------------------------------------------------------
Page 64
<PAGE>

Potential losses to the writer of an option are not limited to the loss of the
option premium received by the writer, and thus may be greater than the losses
incurred in connection with the purchasing of an option. supervision.

---------------------
CURRENCY MANAGEMENT TECHNIQUES
---------------------

Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to
fluctuate as well. Currency exchange rates generally are determined by
the forces of supply and demand in the foreign exchange markets and the
relative merits of investments in different countries, actual or
anticipated changes in interest rates and other complex factors, as seen from
an international perspective. Currency exchange rates also can be
affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or
political developments in the United States or abroad. The market in forward
foreign currency exchange contracts, currency swaps and other privately
negotiated currency instruments offers less protection against defaults by
the other party to such instruments than is available for currency
instruments traded on an exchange. To the extent that a substantial portion
of a Fund's total assets, adjusted to reflect the Fund's net position after
giving effect to currency transactions, is denominated or quoted in the
currencies of foreign countries, the Fund will be more susceptible to
the risk of adverse economic and political developments within those
countries.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The International Growth Equity
Fund may purchase or sell forward foreign currency exchange contracts for
hedging purposes or to seek to increase total return when the Investment Manager
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to increase total return, forward foreign currency exchange
contracts are considered speculative. In addition, the Fund may enter into
forward foreign currency exchange contracts in order to protect against
anticipated changes in future foreign currency exchange rates. The Fund may
engage in cross-hedging by using forward contracts in a currency different from
that in which the hedged security is denominated or quoted if the Investment
Manager determines that the there is a pattern of correlation between the two
currencies.

The International Growth Equity Fund may enter into contracts to purchase
foreign currencies to protect against an anticipated rise in the U.S. dollar
price of securities it intends to purchase. The Fund may enter into contracts to
sell foreign currencies to protect against the decline in value of its foreign
currency denominated or quoted portfolio securities, or a decline in the value
of anticipated dividends from such securities, due to a decline in the value of
foreign currencies against the U.S. dollar. Contracts to sell foreign currency
could limit any potential gain which might be realized by the Fund if the value
of the hedged currency increased.

If the International Growth Equity Fund enters into a forward foreign currency
exchange contract to sell foreign currency to increase total return or to buy
foreign currency for any purpose, the Fund will place cash, cash equivalents or
other liquid securities (as such guidelines may allow), in a segregated account
with the Fund's custodian or other segregated accounts as regulations may allow,
in an amount equal to the

- --------------------------------------------------------------------------------
Page 65
<PAGE>

value of the Fund's total assets committed to the consummation of the forward
contract. If the value of the securities placed in the segregated account
declines, additional cash, cash equivalents or liquid securities will be placed
in the account so that the value of the account will equal the amount of the
Fund's commitment with respect to the contract.

Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive the Fund of unrealized profits, transaction costs or the
benefits of a currency hedge or force the Fund to cover its purchase or sale
commitments, if any, at the current market price. The Fund will not enter into
such transactions unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty is considered to be investment grade
by the Investment Manager.

OPTIONS ON FOREIGN CURRENCIES. The International Growth Equity Fund may purchase
and sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases in
the U.S. dollar cost of foreign securities to be acquired. The Fund may use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to hedge against changes in exchange rates for a different
currency, if there is a pattern of correlation between the two currencies. As
with other kinds of option transactions, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received. The Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to the Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition, the Fund may
purchase call or put options on currency to seek to increase total return when
the Investment Manager anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to increase total return, options on
currencies are considered speculative. Options on foreign currencies to be
written or purchased by the Fund will be traded on U.S. and foreign exchanges.

CURRENCY SWAPS. The International Growth Equity Fund may enter into currency
swaps for both hedging and to seek to increase total return. Currency swaps
involve the exchange of rights to make or receive payments in specified
currencies. Since currency swaps are individually negotiated, the Fund expects
to achieve an acceptable degree of correlation between its portfolio investments
and its currency swap positions entered into for hedging purposes. Currency
swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The Fund will maintain in a segregated account with the Fund's custodian cash
and liquid, high grade debt securities equal to the net amount, if any, of the
excess of the Fund's obligations over its entitlements with respect to swap
transactions. To the extent that the net amount of swap is held in a segregated
account consisting of cash or liquid, high grade debt securities, the Fund and
the Investment Manager believe that swaps do not constitute senior securities
under the 1940 Act and accordingly, will not treat them as being subject to the
Fund's borrowing restriction.

The use of currency swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Manager is incorrect in its
forecasts of market values and currency exchange rates, the investment
performance of the International Growth Equity Fund would be less favorable than
it would have been if this investment technique were not used.

- --------------------------------------------------------------------------------
Page 66

<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 LLP
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

May 1, 1997

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) FINANCIAL STATEMENTS

Statement of Investments in Securities and Net Assets, Statement of Assets
and Liabilities, Statement of Operations and Statements of Changes in Net
Assets for RCM Capital Funds, Inc., with regard to RCM Growth Equity Fund,
RCM Small Cap Fund and RCM International Growth Equity Fund A, as of
December 31, 1996 (previously filed with the Annual Reports to Shareholders
February 27, 1997, and incorporated in Part B by reference and filed
herewith as Exhibit 20 pursuant to Rule 303 of Regulation S-T)

(b) EXHIBITS

1. (a) Restated Articles of Incorporation of Registrant, as amended
(previously filed with Post-Effective Amendment No. 20, April 28,
1995, and incorporated herein by reference)

(b) Form of Articles of Amendment to Restated Articles of
Incorporation of Registrant (previously filed with Post-Effective
Amendment No. 25, June 7, 1996, and incorporated herein by
reference)

(c) Form of Articles Supplementary to Restated Articles of
Incorporation of Registrant (previously filed with Post-Effective
Amendment No. 25, June 7, 1996, and incorporated herein by
reference)

2. (a) By-Laws of Registrant, as amended (previously filed with Post-
Effective Amendment No. 18, April 28, 1994, and incorporated
herein by reference)

(b) Form of Amendments to By-Laws of Registrant (previously filed
with Post-Effective Amendment No. 25, June 7, 1996, and
incorporated herein by reference)

3. None.

4. (a) Proof of specimen of certificate for the capital stock ($0.0001
par value) of Registrant, on behalf of RCM Growth Equity Fund
(previously filed with Post-Effective Amendment No. 25, June 7,
1996, and incorporated herein by reference)

(b) Proof of specimen of certificate of capital stock ($0.0001 par
value) of Registrant, on behalf of RCM Small Cap Fund (previously
filed with Post-Effective Amendment No. 25, June 7, 1996, and
incorporated herein by reference)

C-1
<PAGE>

(c) Proof of specimen of certificate of capital stock ($0.0001 par
value) of Registrant, on behalf of RCM International Growth
Equity Fund A (previously filed with Post-Effective Amendment
No. 25, June 7, 1996, and incorporated herein by reference)

(d) Relevant Portions of Registrant's Restated Articles of
Incorporation defining the rights of the holders of the
securities being registered (previously filed with Post-Effective
Amendment No. 20, April 28, 1995, and incorporated herein by
reference)

5. (a) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Growth
Equity Fund, and RCM Capital Management, L.L.C. (previously filed
with Post-Effective Amendment No. 25, June 7, 1996, and
incorporated herein by reference)

(b) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM Small Cap
Fund, and RCM Capital Management, L.L.C. (previously filed with
Post-Effective Amendment No. 25, June 7, 1996, and incorporated
herein by reference)

(c) Form of Investment Management Agreement, Power of Attorney and
Service Agreement between Registrant, on behalf of RCM
International Growth Equity Fund A, and RCM Capital Management,
L.L.C. (previously filed with Post-Effective Amendment No. 25,
June 7, 1996, and incorporated herein by reference)

6. (a) Form of Agreement by and among RCM Capital Management, a
California Limited Partnership, RCM Equity Funds, Inc., the
Registrant and Funds Distributor, Inc. ("FDI") (previously filed
with Post-Effective Amendment No. 25, June 7, 1996, and
incorporated herein by reference)

(b) Form of Distribution Agreement between the Registrant and FDI
(previously filed with Post-Effective Amendment No. 25, June 7,
1996, and incorporated herein by reference)

(c) Form of Fee Letter Agreement by and among Registrant, RCM Equity
Funds, Inc., RCM Capital Management, a California Limited
Partnership and FDI (previously filed with Post-Effective
Amendment No. 25, June 7, 1996, and incorporated herein by
reference)

(d) Form of Selling Agreement (previously filed with Post-Effective
Amendment No. 25, June 7, 1996, and incorporated herein by
reference)

7. None

C-2
<PAGE>

8. (a) Custodian Contract and remuneration schedule between Registrant,
State Street Bank and Trust Company (previously filed with Post-
Effective Amendment No. 18, April 28, 1994, and incorporated
herein by reference)

(b) Amendment to Custodian Contract between Registrant, and State
Street Bank and Trust Company (previously filed with Post-
Effective Amendment No. 18, April 28, 1994, and incorporated
herein by reference)

9. (a) Form of Transfer Agency Agreement between Registrant, RCM Capital
Trust Company and RCM Capital Management, L.L.C. (previously
filed with Post-Effective Amendment No. 25, June 7, 1996, and
incorporated herein by reference)

(b) Form of Agreement between RCM Capital Management, L.L.C. and
Registrant related to the use by Registrant of the name "RCM"
(previously filed with Post-Effective Amendment No. 25, June 7,
1996, and incorporated herein by reference)

10. (a) Opinion of Morrison & Foerster as to legality of securities being
registered (previously filed with Pre-Effective Amendment No. 1,
May 9, 1979, and incorporated herein by reference)

(b) Letter of Paul, Hastings, Janofsky & Walker LLP

11. Consent of Coopers & Lybrand L.L.P.

12. None

13. None

14. None

15. None

16. None

17. Financial Data Schedule

18. None

19. Powers of Attorney for DeWitt F. Bowman, Pamela A. Farr, Thomas S.
Foley, Frank P. Greene, George G.C. Parker and Kenneth E. Scott

20. Financial Statements referred to in Item 24(a), filed pursuant to
Rule 303 of Regulation S-T

C-3
<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

RCM Global Technology Fund, RCM Global Small Cap Fund, RCM Large Cap
Growth Fund and RCM Global Health Care Fund are each series of RCM Equity Funds,
Inc., an open-end management investment company ("Equity Funds"), for which
RCM Capital Management, L.L.C. acts as investment manager. RCM Strategic Global
Government Fund, Inc. is a closed-end management investment company ("RCS"),
for which RCM Captial Management, L.L.C. acts as investment manager. Certain
officers and/or directors of Equity Funds and RCS are also officers and/or
directors of Registrant. Accordingly, Equity Funds and RCS may be deemed to be
under common control with Registrant.

Funds Distributor, Inc. ("FDI") acts as distributor of shares of each
series of Registrant. Certain officers or employees of FDI also serve as
officers of Registrant, Equity Funds and RCS. Accordingly, FDI may be deemed to
be under common control with Registrant.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of March 31, 1997

TITLE OF CLASS NUMBER OF RECORD-HOLDERS

RCM Growth Equity Fund 70
Capital Stock
($0.0001 par value)

RCM Small Cap Fund 55
Capital Stock
($0.0001 par value)

RCM International 21
Growth Equity Fund A
Capital Stock
($0.0001 par value)

ITEM 27. INDEMNIFICATION.

Section 2-418 of the General Corporation Law of Maryland empowers a
corporation to indemnify directors and officers of the corporation under various
circumstances as provided in such statute. A director or officer who has been
successful on the merits or otherwise, in the defense of any proceeding, must be
indemnified against reasonable expenses incurred by such person in connection
with the proceeding. Reasonable expenses may be paid or reimbursed by the
corporation in advance of the final disposition of the proceeding, after a
determination that the facts then known to those making the determination would
not preclude indemnification under the statute, and following receipt by the
corporation of a written affirmation by the person that his or her standard of
conduct necessary for indemnification has been met and upon delivery of a
written undertaking by or on behalf of the person to repay the amount advanced
if it is ultimately determined that the standard of conduct has not been met.

C-4
<PAGE>

Article XI of the By-Laws of Registrant contain indemnification
provisions conforming to the above statute and to the provisions of Section 17
of the Investment Company Act of 1940, as amended.

Effective September 30, 1988, Registrant and the directors and
officers of Registrant obtained coverage under an Errors and Omissions insurance
policy. The terms and conditions of policy coverage conform generally to the
standard coverage available throughout the investment company industry. The
coverage also applies to Registrant's investment manager and its members and
employees.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the provisions of Maryland law and
Registrant's Articles of Incorporation and By-Laws, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Registrant's investment manager, RCM Capital Management, L.L.C., is a
Delaware limited liability company, whose two members are Dresdner Bank AG
("Dresdner") and Dresdner Kleinwort Benson North America, Inc. ("Dresdner
Kleinwort Benson"). Dresdner is an international banking organization, whose
principal executive offices are located at Gallunsanlage 7, 60041 Frankfurt am
Main, Frankfurt, Germany. Dresdner Kleinwort Benson is a wholly owned subsidiary
of Dresdner whose principal executive offices are located at 75 Wall Street,
New York, New York 10005.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) Funds Distributor, Inc. ("FDI"), whose principal offices are
located at 60 State Street, Suite 1300, Boston Massachusetts
02109, is the principal underwriter of Registrant. FDI is an
indirect, wholly owned subsidiary of Boston Institutional Group,
Inc., a holding company, all of whose outstanding shares are
owned by key employees. FDI is a broker-dealer registered under
the Securities Exchange Act of 1934, as amended, and is a member
of the National Association of Securities Dealers. FDI also
serves as principal underwriter of the following investment
companies:

C-5
<PAGE>

BJB Investment Funds
The Brinson Funds
Burridge Funds
Fremont Mutual Funds, Inc.
HT Insight Funds, Inc. d/b/a Harris Insight Funds
Harris Insight Funds Trust
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
The JPM Series Trust II
LKCM Fund
Monetta Fund, Inc.
Monetta Fund Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Equity Funds, Inc.
St. Clair Money Market Fund, Inc.
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
WEBS Index Fund, Inc.

FDI does not act as a depositor or investment adviser of any
investment company.

(b) The directors and executive officers of FDI are set forth below:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FUNDS DISTRIBUTOR, INC. REGISTRANT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Marie E. Connolly Director, President and Chief None
Executive Officer

Richard W. Ingram Executive Vice President President, Treasurer and Chief
Financial Officer

Donald R. Roberson Executive Vice President None

John E. Pelletier Senior Vice President, General Vice President and Secretary
Counsel, Secretary and Clerk

Michael S. Petrucelli Senior Vice President None

Joseph F. Tower III Director, Senior Vice President, None
Treasurer and Chief Financial
Officer
</TABLE>

C-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Paula R. David Senior Vice President None

Bernard A. Whalen Senior Vice President None

David A. Wrubel Senior Vice President None

William J. Nutt Director None
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

Accounts, books and other records required by Rules 31a-1 and 31a-2
under the Investment Company Act of 1940, as amended, are maintained and held in
the offices of Registrant's investment manager, RCM Capital Management, L.L.C.,
Four Embarcadero Center, San Francisco, California 94111; Registrant's
distributor, Funds Distributor, Inc., 60 State Street, Suite 1300, Boston
Massachusetts 02109; and/or Registrant's transfer agent , RCM Capital Trust
Company, Four Embarcadero Center, Suite 2800, San Francisco, California 94111.

Records covering portfolio transactions are also maintained and kept
by Registrant's custodian, State Street Bank and Trust Company, U.S. Mutual
Funds Services Division, P.O. Box 1713, Boston, Massachusetts 02105.

ITEM 31. MANAGEMENT SERVICES.

None.

ITEM 32. UNDERTAKINGS.

Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.

C-7

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, RCM Capital Funds, Inc. certifies that it meets
all of the requirements for effectiveness of this Post-Effective Amendment
No. 26 to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 26
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts,
on May 1, 1997.

RCM CAPITAL FUNDS, INC.

By: /s/ Richard W. Ingram
------------------------------------
President

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 26 to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.

SIGNATURE TITLE DATE

(1) Principal Executive Officer President May 1, 1997

/s/ Richard W. Ingram
------------------------------
Richard W. Ingram

(2) Chief Financial and Accounting Officer Treasurer May 1, 1997

/s/ Richard W. Ingram
------------------------------
Richard W. Ingram

<PAGE>

SIGNATURE TITLE DATE

(4) Directors

/s/ DeWitt F. Bowman* May 1, 1997
------------------------------
DeWitt F. Bowman

/s/ Pamela A. Farr* May 1, 1997
------------------------------
Pamela A. Farr

/s/ Thomas S. Foley * May 1, 1997
------------------------------
Thomas S. Foley

/s/ Frank P. Greene * May 1, 1997
------------------------------
Frank P. Greene

/s/ George G.C. Parker * May 1, 1997
------------------------------
George G.C. Parker

/s/ Kenneth E. Scott * May 1, 1997
------------------------------
Kenneth E. Scott

By: /s/ Richard W. Ingram May 1, 1997
------------------------------
Richard W. Ingram
as Attorney-in-Fact

- -----------------------------------
* By Richard W. Ingram, pursuant to Power of Attorney filed herewith.

<PAGE>

EXHIBIT INDEX

NUMBER DESCRIPTION

10 (b) Letter of Paul, Hastings, Janofsky & Walker LLP

11 Consent of Coopers & Lybrand L.L.P.

17 Financial Data Schedule

19 Powers of Attorney for DeWitt F. Bowman, Pamela A. Farr,
Thomas S. Foley, Frank P. Greene, George G.C. Parker and
Kenneth E. Scott

20 Financial Statements referred to in Item 24(a), filed
pursuant to Rule 303 of Regulation S-T

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> RCM GROWTH EQUITY FUND
<MULTIPLIER> 1
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 749000591
<INVESTMENTS-AT-VALUE> 895277484
<RECEIVABLES> 11475074
<ASSETS-OTHER> 252023
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 907004581
<PAYABLE-FOR-SECURITIES> 9440436
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1243995
<TOTAL-LIABILITIES> 10684431
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 735809126
<SHARES-COMMON-STOCK> 139975548
<SHARES-COMMON-PRIOR> 145170618
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14233814
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 146277210
<NET-ASSETS> 896320150
<DIVIDEND-INCOME> 6163761
<INTEREST-INCOME> 878979
<OTHER-INCOME> 0
<EXPENSES-NET> (8233545)
<NET-INVESTMENT-INCOME> (1190805)
<REALIZED-GAINS-CURRENT> 303698527
<APPREC-INCREASE-CURRENT> (119166349)
<NET-CHANGE-FROM-OPS> 183341373
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 355168907
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5272649
<NUMBER-OF-SHARES-REDEEMED> (67435650)
<SHARES-REINVESTED> 56967931
<NET-CHANGE-IN-ASSETS> (428970336)
<ACCUMULATED-NII-PRIOR> 49873
<ACCUMULATED-GAINS-PRIOR> 66845126
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (8121322)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (8233545)
<AVERAGE-NET-ASSETS> 981177389
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (4.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.40
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> RCM INTERNATIONAL GROWTH EQUITY FUND A
<MULTIPLIER> 1
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 45098971
<INVESTMENTS-AT-VALUE> 52451609
<RECEIVABLES> 2118266
<ASSETS-OTHER> 652669
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55222544
<PAYABLE-FOR-SECURITIES> 2452641
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164954
<TOTAL-LIABILITIES> 2617595
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45056079
<SHARES-COMMON-STOCK> 4136905
<SHARES-COMMON-PRIOR> 2971773
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (154461)
<ACCUMULATED-NET-GAINS> 181899
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7521432
<NET-ASSETS> 52604949
<DIVIDEND-INCOME> 522354
<INTEREST-INCOME> 21476
<OTHER-INCOME> 0
<EXPENSES-NET> (412644)
<NET-INVESTMENT-INCOME> 131186
<REALIZED-GAINS-CURRENT> 3309861
<APPREC-INCREASE-CURRENT> 3732232
<NET-CHANGE-FROM-OPS> 7173279
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (558945)
<DISTRIBUTIONS-OF-GAINS> (3074200)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 958208
<NUMBER-OF-SHARES-REDEEMED> (86083)
<SHARES-REINVESTED> 293007
<NET-CHANGE-IN-ASSETS> 18258141
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 276914
<OVERDISTRIB-NII-PRIOR> (64136)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (313342)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (518387)
<AVERAGE-NET-ASSETS> 41551315
<PER-SHARE-NAV-BEGIN> 11.56
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> (0.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.72
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> RCM SMALL CAP FUND
<MULTIPLIER> 1
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 452494012
<INVESTMENTS-AT-VALUE> 566536449
<RECEIVABLES> 6713319
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 573249768
<PAYABLE-FOR-SECURITIES> 3543022
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1105630
<TOTAL-LIABILITIES> 4648652
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 453130375
<SHARES-COMMON-STOCK> 48318408
<SHARES-COMMON-PRIOR> 36081628
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1428304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114042437
<NET-ASSETS> 568601116
<DIVIDEND-INCOME> 1497519
<INTEREST-INCOME> 486503
<OTHER-INCOME> 0
<EXPENSES-NET> (4661109)
<NET-INVESTMENT-INCOME> (2677087)
<REALIZED-GAINS-CURRENT> 107844093
<APPREC-INCREASE-CURRENT> 29605875
<NET-CHANGE-FROM-OPS> 134772881
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (123397033)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10624664
<NUMBER-OF-SHARES-REDEEMED> (9267406)
<SHARES-REINVESTED> 10879522
<NET-CHANGE-IN-ASSETS> 159034447
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19658331
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (4608338)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (4661109)
<AVERAGE-NET-ASSETS> 464177882
<PER-SHARE-NAV-BEGIN> 11.35
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 3.82
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (3.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.77
<EXPENSE-RATIO> 1.0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

Paul, Hastings, Janofsky & Walker
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
(213) 683-6207

May 1, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: RCM Capital Funds, Inc.
Post-Effective Amendment No. 26
to form N-1A Registration Statement
File Nos. 2-63825, 811-2913

Ladies and Gentlemen:

As counsel to RCM Capital Funds, Inc. (the "Fund"), we have reviewed the
Combined Prospectus and Statement of Additional Information of the Fund included
in Post-Effective Amendment No. 26 (the "Amendment") to the Fund's Registration
Statement on Form N-1A under the Securities Act of 1933 (the "1933 Act") and the
Investment Company act of 1940. This will confirm, pursuant to Rule 485(b)(4)
under the 1933 Act, that the Amendment does not contain disclosures that would
render it ineligible to become effective pursuant to Rule 485(b) under the 1933
Act.
Very truly yours,

/s/ Michael Glazer

Michael Glazer
for PAUL, HASTINGS, JANOFSKY & WALKER

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of RCM Capital Funds, Inc., including:

RCM Growth Equity Fund
RCM Small Cap Fund
RCM International Growth Equity Fund A (the "Funds")

We consent to the incorporation by reference in the Post Effective Amendment to
the Registration Statement of RCM Capital Funds, Inc., on Form N-1A of our
reports dated February 20, 1997 on our audits of the financial statements and
financial highlights of the above referenced funds which reports are included in
the Annual Report to shareholders for the year ended December 31, 1996.

We also consent to the reference to our Firm under the caption "Financial
Highlights" and "Independent Accountants".

/s/ Coopers & Lybrand L.L.P

COOPERS & LYBRAND L.L.P

Boston, Massachusetts
April 28, 1997

<PAGE>

RCM CAPITAL FUNDS, INC.
POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes Richard W. Ingram,
John E. Pelletier, Elizabeth A. Bachman and Mary A. Nelson, or any of them
attorney-in-fact, with full power and authority, in his or her discretion, to
execute, deliver, on his or her behalf individually, and in the capacity stated
below, any registration statement or amendment to a registration statement
(including post-effective amendments) and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission and any other regulatory
agency.

The Power of Attorney granted hereby is effective immediately and will continue
until it is revoked. By accepting or acting under the appointment, the agent
assumes the fiduciary and other legal repsonsiblities of an agent.

IN WITNESS WHEREOF, this Power of Attorney is executed on June 14, 1996.

/s/ De Witt F. Bowman /s/ Frank P. Greene
- ----------------------- ----------------------
DeWitt F. Bowman Frank P. Greene
Director Director

/s/ Pamela A. Farr /s/ George G.C. Parker
- ----------------------- ----------------------
Pamela A. Farr George G.C. Parker
Director Director

/s/ Thomas S. Foley /s/ Kenneth E. Scott
- ----------------------- ----------------------
Thomas S. Foley Kenneth E. Scott
Director Director

<PAGE>

RCM GROWTH EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE

The value of an investment in the RCM Growth Equity Fund (the "Fund")
appreciated by 19.07% over the 12 months ended December 31, 1996. The Fund
finished the year 7 basis points ahead of its primary benchmark, the Russell
Midcap Index, which registered a total return of 19.00% for the same period.
These results were achieved in the context of a market environment which
strongly favored large capitalization equities over medium and small
capitalization equities, especially after the June/July correction. 1996 was
a year in which the major mid cap benchmarks significantly underperformed
large cap indices such as the Dow Jones Industrial Average and the S&P 500
Composite Index, which returned 28.91% and 22.96%, respectively.

After posting outstanding returns in 1995, U.S. stocks and bonds rallied
strongly again in the first half of 1996. Consensus expectations going into the
year called for a slowing economic environment including low inflation and
continued declines in interest rates. By early in the second quarter, however,
signs of economic re-acceleration appeared, and inflation fears began to
surface. Despite the shifting macroeconomic outlook, equity mutual fund cash
flows reached record levels in the first half of 1996, and the market for
initial public offerings (IPOs) exploded. Stocks of all capitalizations
participated in this first half advance, although mid cap issues got off to a
weak start in the month of January. The relative strength of the mid cap sector
bottomed in February, though, and the Russell Midcap Index outperformed the S&P
500 Index in the months of March, April and May. By June, however, the relative
strength of the mid cap sector versus large cap equities began to deteriorate
markedly. At midyear, the Russell Midcap Index lagged the S&P 500 by 109 basis
points. The Fund's performance, however, was ahead of its primary benchmark and
essentially matched the return on the S&P 500. Factors contributing to
outperformance in the first half of the year included the Fund's overweightings
in communications services and in leisure time products and services. Returns
were also aided by the growth stock focus of RCM Capital Management, L.L.C.
("RCM"), investment manager of the Fund. Growth investment styles significantly
outperformed value styles in the first six months of 1996.

U.S. stocks began to weaken in June and suffered a violent correction in the
month of July. A series of stronger-than-expected economic releases generated
fears that the Federal Reserve would be forced into a series of rate hikes to
keep growth and inflation in tow. As is typical, the mid and small cap sectors
of the market exhibited significantly more volatility on the downside during
this corrective phase, especially given their appreciation through May. Equity
mutual fund cash contributions evaporated and the IPO market "window" slammed
shut. The broader market began to recover in the late summer as rate fears
eased again and investors began to embrace a "Goldilocks" economic scenario
(slow-to-moderate growth with little or no inflation.) Mutual fund cash inflows
resumed, albeit not at the record levels of the first half. The Dow Jones
Industrial Average and the S&P 500 Index posted exceptional gains from late
summer through the end of the year. But while mid cap universes recorded
respectable absolute returns - and did better than small cap stocks - they
severely underperformed large cap indices, as investors appeared willing to
accord a premium to liquidity after the summer correction.

The Fund's outperformance relative to the Russell Midcap Index in 1996 was
attributable to stock selection, which was positive in several industries.
Electronics and new technology was a highly volatile sector during 1996, but
individual issue selection in this area was a strong contributor to relative
performance versus the Fund's primary benchmark. The Fund's holdings in this
group were up an aggregate of 20% versus a gain of approximately 10% for the
Russell Midcap Index stocks in this group. The Fund's major holdings in this
group included Sanmina Corp. (+118% total return for the year), Network General
(+81%) and 3COM Corporation (+57%). The Fund's

<PAGE>

holdings in the business services sector gained 26% on average, compared to an
average return of 6% for the benchmark stocks in this group. Significant
positive contributions came from issues such as G&K Services, United Waste
Systems and Robert Half International. Technology services stocks held by the
Fund were up approximately 15%, compared to an average gain of only about 4% for
the technology services stocks in the Russell Midcap Index. CBT Group, Sterling
Commerce, American Management Systems and Veritas Software were among the Fund's
strongest performers in this industry segment. On the negative side, stock
selection in the health care services area hurt relative performance. In
general, mid and small cap health care services stocks were weak performers in
1996, as investors' concerns about pricing and reimbursement issues caused HMO,
home health care and nursing home stocks to come under pressure. The Fund's
holdings in this industry segment were down an average of 9%, compared to a gain
of about 6% for the stocks in the benchmark health care services group. RCM's
stocks in the insurance group also registered a modest negative impact from
adverse stock selection.

Overall, the Fund's strategy on industry weightings was not a favorable element
in performance relative to the Russell Midcap Index in 1996. Nevertheless,
industry strategies that were positive contributors included an overweighting in
the strong aerospace sector (3.5% versus 1.5% in the Russell Midcap Index).
Several lagging industry groups were underweighted by the Fund in 1996, thereby
adding to relative performance. These included raw and basic materials, retail
trade and utilities (the latter is not typically an industry in which the Fund
would have significant investment). Unfortunately, several key growth
industries in which RCM traditionally maintains high relative weightings were
severely punished during the mid summer correction and in the market's pull-back
in the October time frame. Overweightings in technology services, health care
services, drugs and hospital supplies and business services resulted in negative
contributions from industry strategy (although, as noted above, individual issue
selection was significantly positive in technology services and business
services). The Fund's weightings in health care services were reduced
significantly in the first half of the year. Technology holdings were also
reduced to less significant overweightings before the summer correction, then
raised again going into the fall time frame. The Fund's underweighting in the
interest sensitive and financial industry groups (6.5% versus 18%, excluding
utilities, in the Russell Midcap Index) was also a negative factor in relative
performance from an industry strategy perspective. Due to the growth stock
orientation of RCM, it is typical for the Fund to be underweighted in the
interest sensitive area versus the large weighting in these groups in the
Russell Midcap Index. Although the Fund's average cash position of about 4% for
the year was at the low end of its "normal" range, cash was a negative
contributor to relative performance given the rising market environment.

Like 1995, the past year was an exceptional one in terms of absolute returns for
investors in U.S. stocks across all capitalization ranges, even though mid cap
universes did not match the returns of the Dow Jones Industrial Average or the
S&P 500 Index. While RCM is not bearish going into 1997, historical precedent
and RCM's valuations argue strongly against placing a high probability on
similar gains for the overall market for 1997. Nevertheless, RCM believes that
a slow-to-moderate growth macroeconomic environment is likely to favor the
growth style of investing. Furthermore, RCM believes that the conspicuous
outperformance of large capitalization equities in the second half of 1996
(exacerbated by the surging popularity of indexing) has resulted in attractive
relative valuations in mid and small capitalization stocks early in 1997,
especially given the higher relative earnings growth rates of medium and
small-sized companies.

Page 2

<PAGE>

RCM GROWTH EQUITY FUND
PERFORMANCE SUMMARY

- -------------------------------------------------------------------------------

[GRAPHIC]

RCM Growth Equity Fund Russell Midcap Index
11/6/79 10,000 10,000
11/30/79 10,393 10,740
12/31/79 10,719 11,158
1/31/80 11,210 11,777
2/28/80 10,792 11,516
3/31/80 9,599 9,996
4/30/80 10,028 10,641
5/31/80 10,856 11,467
6/30/80 11,315 12,024
7/31/80 12,980 13,034
8/31/80 13,656 13,375
9/30/80 14,396 13,821
10/31/80 14,878 13,966
11/30/80 15,935 15,074
12/31/80 15,665 14,784
1/31/81 15,304 14,439
2/28/81 15,725 14,694
3/31/81 17,588 15,843
4/30/81 18,134 15,918
5/31/81 19,279 16,306
6/30/81 18,560 16,008
7/31/81 18,247 15,809
8/31/81 17,371 14,908
9/30/81 16,587 13,951
10/31/81 18,157 14,914
11/30/81 18,503 15,518
12/31/81 18,211 15,139
1/31/82 17,929 14,583
2/28/82 17,527 13,964
3/31/82 17,476 13,825
4/30/82 18,682 14,486
5/31/82 18,511 13,970
6/30/82 18,441 13,595
7/31/82 18,512 13,274
8/31/82 20,047 14,871
9/30/82 20,666 15,293
10/31/82 23,233 17,338
11/30/82 25,235 18,395
12/31/82 25,710 18,660
1/31/83 27,172 19,319
2/28/83 28,967 19,987
3/31/83 30,108 20,691
4/30/83 32,700 21,984
5/31/83 34,645 22,903
6/30/83 36,064 23,737
7/31/83 34,391 22,991
8/31/83 33,610 22,846
9/30/83 34,935 23,486
10/31/83 33,413 22,575
11/30/83 34,930 23,541
12/31/83 34,348 23,105
1/31/84 32,764 22,449
2/29/84 31,089 21,235
3/31/84 31,709 21,587
4/30/84 31,839 21,350
5/31/84 30,674 20,146
6/30/84 32,051 20,774
7/31/84 31,196 20,166
8/31/84 34,191 22,684
9/30/84 33,648 22,791
10/31/84 33,611 22,880
11/30/84 32,993 22,784
12/31/84 33,496 23,435
1/31/85 37,254 25,659
2/29/1985 38,042 26,119
3/31/85 37,399 25,970
4/30/85 36,747 25,894
5/31/85 39,165 27,365
6/30/85 39,965 28,030
7/31/85 40,928 27,994
8/31/85 40,385 27,876
9/30/85 38,429 26,510
10/31/85 40,118 27,883
11/30/85 42,578 29,810
12/31/85 44,235 30,937
1/31/86 45,046 31,633
2/28/86 48,307 34,205
3/31/86 49,783 36,003
4/30/86 50,541 35,845
5/31/86 52,554 37,701
6/30/86 51,571 38,216
7/31/86 47,374 35,687
8/31/86 49,140 38,219
9/30/86 45,601 35,511
10/31/86 48,335 37,364
11/30/86 48,946 37,640
12/31/86 48,361 36,569
1/31/87 54,951 41,072
2/28/87 59,189 43,530
3/31/87 60,968 43,942
4/30/87 60,390 42,842
5/31/87 62,092 42,989
6/30/87 64,592 44,737
7/31/87 67,740 46,653
8/31/87 70,486 48,302
9/30/87 68,483 47,379
10/31/87 49,455 35,710
11/30/87 47,006 33,727
12/31/87 53,665 36,652
1/31/88 53,930 38,355
2/29/88 58,780 41,072
3/31/88 60,415 41,126
4/30/88 61,386 41,380
5/31/88 60,234 41,283
6/30/88 64,720 44,110
7/31/88 63,335 43,225
8/31/88 61,789 42,264
9/30/88 64,192 43,702
10/31/88 63,486 43,889
11/30/88 62,127 42,836
12/31/88 64,859 43,910
1/31/89 68,192 46,537
2/28/89 67,612 46,427
3/31/89 68,994 47,190
4/30/89 73,125 49,465
5/31/89 77,254 51,695
6/30/89 74,440 51,503
7/31/89 79,915 55,093
8/31/89 83,387 56,935
9/30/89 83,428 56,413
10/31/89 79,787 53,752
11/30/89 80,873 54,489
12/31/89 82,292 55,446
1/31/90 75,120 50,999
2/28/90 77,825 52,033
3/31/90 80,029 53,300
4/30/90 78,163 51,011
5/31/90 86,194 55,632
6/30/90 87,034 55,271
7/31/90 84,425 53,628
8/31/90 75,868 47,860
9/30/90 71,033 44,312
10/31/90 69,568 42,913
11/30/90 75,112 47,046
12/31/90 78,902 49,072
1/31/91 85,003 52,398
2/28/91 92,631 56,764
3/31/91 97,028 59,119
4/30/91 96,459 59,474
5/31/91 101,948 62,298
6/30/91 96,909 59,427
7/31/91 102,335 62,340
8/31/91 105,602 64,204
9/30/91 105,329 63,830
10/31/91 108,557 65,138
11/30/91 104,724 62,445
12/31/91 116,960 69,442
1/31/92 119,326 70,748
2/28/92 120,948 72,373
3/31/92 115,847 70,524
4/30/92 113,545 71,075
5/31/92 114,312 71,534
6/30/92 108,991 70,374
7/31/92 112,618 73,316
8/31/92 110,272 71,628
9/30/92 113,146 73,113
10/31/92 117,301 74,902
11/30/92 122,190 78,677
12/31/92 125,186 80,789
1/31/93 125,594 82,405
2/28/93 121,886 82,496
3/31/93 124,822 85,179
4/30/93 121,150 82,922
5/31/93 126,171 85,555
6/30/93 126,630 86,522
7/31/93 125,543 86,939
8/31/93 131,747 90,806
9/30/93 134,398 91,153
10/31/93 135,795 91,229
11/30/93 131,931 89,113
12/31/93 138,604 92,341
1/31/94 143,687 94,889
2/28/94 142,568 93,598
3/31/94 134,622 89,611
4/30/94 135,889 90,226
5/31/94 134,603 90,349
6/30/94 130,975 87,673
7/31/94 132,730 90,682
8/31/94 141,423 94,981
9/30/94 140,120 92,660
10/31/94 142,420 93,369
11/30/94 137,052 89,250
12/31/94 139,650 90,409
1/31/95 140,145 92,266
2/28/95 146,023 97,042
3/31/95 151,805 99,819
4/30/95 152,385 101,324
5/31/95 155,053 104,654
6/30/95 162,810 108,171
7/31/95 174,821 113,423
8/31/95 177,454 115,160
9/30/95 183,158 117,762
10/31/95 179,789 115,128
11/30/95 185,416 120,853
12/31/95 187,880 121,558
1/31/96 190,835 124,137
2/28/96 200,326 127,052
3/31/96 203,882 128,890
4/30/96 212,394 132,542
5/31/96 215,917 134,544
6/30/96 206,821 132,526
7/31/96 188,917 124,324
8/31/96 198,795 130,243
9/30/96 211,760 136,676
10/31/96 211,966 137,772
11/30/96 222,461 146,165
12/31/96 223,710 144,673

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

The chart above shows the performance of the RCM Growth Equity Fund since its
inception versus the Russell Midcap Index.# The chart represents a cumulative
return of 2,137.10%+ for the Fund. The average annual total return from the
Fund's inception was 19.85%*+. The chart assumes a hypothetical $10,000 initial
investment in the Fund and reflects all Fund expenses.

AVERAGE ANNUAL TOTAL RETURNS+
DECEMBER 31, 1996

LIFE OF
1 YEAR 5 YEAR 10 YEAR FUND*
- ------ ------ ------- -------
19.07% 13.85% 16.55% 19.85%

The data above represents past performance of the Fund, and may not be
indicative of future results. The investment return and principal value of an
investment in the Fund will fluctuate, so that shares, when redeemed, may be
worth more or less than their original cost.

- -------------------------
# The Russell Midcap Index is composed of the smallest 800 companies in the
Russell 1000 Index. The Russell 1000 Index is made up of the 1,000 largest
companies in the Russell 3000 Index, which is composed of 3,000 large U.S.
companies by market capitalization and represents approximately 98% of the
U.S. equity market.
+ Returns assume reinvestment of all dividends and capital gains
distributions at net asset value.
* The Fund began operations on November 6, 1979.

Page 3

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of RCM Growth Equity Fund and
Board of Directors of RCM Capital Funds, Inc:

We have audited the accompanying statement of assets and liabilities of RCM
Growth Equity Fund (the "Fund"), including the statement of investments in
securities and net assets, as of December 31, 1996, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
Growth Equity Fund as of December 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
February 20, 1997

Page 4

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
---------- ---------------------------- -------------- --------------

CONSUMER DURABLES SECTOR 2.17%

AUTOMOTIVE RELATED 1.82%

362,000 Lear Corp. * $ 12,353,250
126,800 Tower Automotive Inc. * 3,962,500
-------------
16,315,750
-------------

OTHER CONSUMER DURABLES 0.35%

57,500 Bemis Co. Inc. 2,120,313
31,000 Newell Co. 976,500
------------
3,096,813
------------

CONSUMER NON-DURABLES SECTOR 9.89%

BEVERAGE AND TOBACCO 0.44%

33,500 Coca Cola Enterprises Inc. 1,624,750
26,000 Robert Mondavi Corp. * 949,000
28,000 Pan American Beverages Inc. Class A 1,312,500
------------
3,886,250
------------

GENERAL RETAIL 3.26%

31,000 CVS Corp. 1,282,625
18,000 Circuit City Stores Inc. 542,250
36,500 Consolidated Stores Corp. * 1,172,563
88,000 Global DirectMail Corp. * 3,839,000
64,000 Hannaford Bros. Co. 2,176,000
40,500 Nine West Group Inc. * 1,878,188
142,000 PETsMART Inc. * 3,106,250
70,000 Proffitt's Inc. * 2,581,250
153,800 Saks Holdings Inc. * 4,152,600
318,000 Viking Office Products Inc. * 8,486,625
------------
29,217,351
------------
HOUSEHOLD/RELATED NON-DURABLES 0.59%

59,500 Designer Holdings Ltd. * 959,438
54,000 Nu Skin Asia Pacific Inc. * 1,667,250
9,828 Salton/Maxim Housewares Inc. 68,796
35,700 Sola International Inc. 1,356,600

The accompanying notes are an integral part of the financial statements.

Page 5

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------- -------------- --------------

HOUSEHOLD/RELATED NON-DURABLES
(CONTINUED)

39,000 Unifi Inc. $ 1,252,875
-------------
5,304,959
-------------

LEISURE TIME PRODUCTS/SERVICES 5.60%

297,500 Doubletree Corp. * 13,387,500
18,000 Family Golf Centers Inc. * 542,250
195,000 Hasbro Inc. 7,580,625
1,050,900 Host Marriott Corp. * 16,814,400
125,000 Interstate Hotels Co. * 3,531,250
45,000 Marriott International Inc. 2,486,250
297,000 Planet Hollywood International Inc. * 5,865,750
-------------
50,208,025
-------------

CYCLICAL/CAPITAL GOODS SECTOR 12.95%

AEROSPACE/DEFENSE 3.57%

670,000 Sundstrand Corp. 28,475,000
160,000 Wyman-Gordon Co. * 3,560,000
-------------
32,035,000
-------------

BUILDING AND CONSTRUCTION 0.32%

40,000 Foster Wheeler Corp. 1,485,000
60,000 Jacobs Engineering Group Inc. * 1,417,500
-------------
2,902,500
-------------

CHEMICALS AND TEXTILES 0.52%

35,000 Cytec Industries Inc. * 1,421,875
40,000 Rohm & Haas Co. 3,265,000
-------------
4,686,875
-------------

ELECTRICAL EQUIPMENT 1.66%

66,000 Honeywell Inc. 4,339,500
62,500 Hubbell Inc. Class B 2,703,125
97,500 Raychem Corp. 7,812,188
-------------
14,854,813
-------------

The accompanying notes are an integral part of the financial statements.

Page 6

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------- -------------- --------------

INDUSTRIAL EQUIPMENT 2.48%

87,500 Duriron Co. Inc. $ 2,373,438
50,000 Illinois Tool Works Inc. 3,993,750
62,000 Johnson Controls Inc. 5,138,250
133,500 Tyco International Ltd. 7,058,813
65,000 York International Corp. 3,631,875
-------------
22,196,126
-------------

RAW AND BASIC MATERIALS 1.89%

331,000 Commercial Metals Co. 9,971,375
185,000 UCAR International Inc. * 6,960,625
-------------
16,932,000
-------------

TRANSPORTATION SERVICES 2.51%

444,000 Expeditors International of Washington Inc. 10,212,000
83,900 Heartland Express Inc. * 2,045,063
75,000 Southwest Airlines Co. 1,659,375
265,000 Swift Transportation Co. Inc. * 6,227,500
130,000 Werner Enterprises Inc. 2,356,250
-------------
22,500,188
-------------

ENERGY SECTOR 2.74%

OIL AND RELATED SERVICES 2.74%

172,000 BJ Services Co. * 8,772,000
102,000 Camco International Inc. 4,704,750
180,000 Forcenergy Gas Exploration Inc. * 6,525,000
225,000 Houston Exploration Co. * 3,937,500
12,500 Noble Affiliates Inc. 598,438
-------------
24,537,688
-------------

HEALTH CARE SECTOR 14.25%

DRUGS & HOSPITAL SERVICES 6.27%

29,400 Allergan Inc. 1,047,375
25,000 Amgen Inc. * 1,359,375
29,300 Anesta Corp. * 564,025
27,200 Autoimmune Inc. * 418,200
1,400 Boston Scientific Corp. * 84,000

The accompanying notes are an integral part of the financial statements.

Page 7

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------- -------------- --------------

DRUGS & HOSPITAL SERVICES
(CONTINUED)

345,100 Centocor Inc. * $ 12,337,325
109,100 CIMA Labs Inc. * 668,238
85,000 Dura Pharmaceuticals Inc. * 4,058,750
121,614 Guidant Corp. 6,931,998
63,000 Invacare Corp. 1,732,500
28,000 Mentor Corp. Minn. 826,000
65,600 Pharmacia & Upjohn Inc. 2,599,400
74,600 Physio-Control International Corp. * 1,678,500
128,000 Respironics Inc. * 2,224,000
31,000 SangStat Medical Corp. * 821,500
32,700 Sepracor Inc. * 543,638
266,100 Sofamor/Danek Group Inc. * 8,116,050
17,600 Synthelabo 1,902,978
37,000 Thermo Cardiosystems Inc. * 1,110,000
13,700 Thermolase Corp. * 215,775
315,000 VISX Inc. * 6,969,375
-------------
56,209,002
-------------

HEALTH CARE SERVICES 7.98%

78,300 American Medical Response Inc. * 2,544,750
73,800 AmeriSource Health Corp. * 3,560,850
27,000 Cardinal Health Inc. 1,572,750
255,000 Health Care & Retirement Corp. * 7,299,375
335,000 Maxicare Health Plans Inc. * 7,453,750
133,900 Medaphis Corp. * 1,498,006
130,000 Multicare Cos. Inc. * 2,632,500
38,200 Orthodontic Centers of America Inc. * 611,200
30,100 Oxford Health Plans Inc. * 1,762,731
16,300 Pacificare Health Systems Inc. Class A * 1,324,375
15,100 Pacificare Health Systems Inc. Class B * 1,287,275
185,500 PhyCor Inc. * 5,263,563
5,000 Quintiles Transnational Corp. * 331,250
417,800 Renal Treatment Centers Inc. * 10,653,900
250,000 RoTech Medical Corp. * 5,250,000
46,000 Service Corp International 1,288,000
52,500 Sunquest Information Systems Inc. * 748,125
24,500 Total Renal Care Holdings Inc. * 888,125
32,000 Universal Health Services Inc., Class B * 916,000
531,200 Vivra Inc. * 14,674,400
-------------
71,560,925
-------------

The accompanying notes are an integral part of the financial statements.

Page 8

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------- -------------- --------------

INTEREST SENSITIVE SECTOR 7.41%

BANKING 2.97%

39,800 BanPonce Corp. $ 1,343,250
256,800 Community First Bankshares Inc. 7,062,000
40,300 Compass Bancshares Inc. 1,601,925
27,000 First American Corp. of Tennessee 1,555,875
53,200 First Security Corp. 1,795,500
31,900 Firstar Corp. 1,674,750
48,200 North Fork Bancorporation Inc. 1,717,125
98,700 WestAmerica Bancorporation 5,699,925
40,000 Zions Bancorp 4,160,000
-------------
26,610,350
-------------

GENERAL FINANCE 3.33%

63,300 AMRESCO Inc. * 1,693,275
25,000 Bank United Corp. Class A 668,750
30,700 Bay View Capital Corp. 1,300,913
40,122 Charter One Financial Inc. 1,685,124
36,500 Credit Acceptance Corp. * 857,750
25,000 First Financial Corp. 612,500
37,800 First USA Inc. 1,308,825
349,900 Glendale Federal Bank FSB (California) * 8,135,175
2,000 Household International Inc. 184,500
212,500 The Money Store Inc. 5,870,313
54,700 Newcourt Credit Group Inc. 1,889,513
12,000 Charles Schwab Corp. 384,000
120,550 TCF Financial Corp. 5,243,925
-------------
29,834,563
-------------

INSURANCE 1.11%

32,350 Executive Risk Inc. 1,196,950
168,100 MMI Companies Inc. 5,421,225
30,300 PMI Group Inc. 1,677,863
20,800 Transatlantic Holdings Inc. 1,674,400
-------------
9,970,438
-------------

The accompanying notes are an integral part of the financial statements.

Page 9

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ---------------------------------- -------------- --------------

SERVICES/MEDIA SECTOR 16.82%

BUSINESS AND FOOD SERVICES 9.63%

8,000 ABR Information Services Inc. * $ 315,000
236,800 AccuStaff Inc. * 5,002,400
490,000 Avery Dennison Corp. 17,333,750
268,400 CUC International Inc. * 6,374,500
20,000 Caribiner International Inc. * 1,005,000
197,500 Danka Business Systems PLC Sponsored ADR 6,986,563
329,500 G & K Services Inc. Class A 12,438,625
30,000 Olsten Corp. 453,750
19,200 Precision Response Corp. * 674,400
22,300 The Registry Inc. * 1,028,588
155,000 Reynolds & Reynolds Co. Class A 4,030,000
63,000 Robert Half International Inc. * 2,165,625
18,000 SITEL Corp. * 254,250
15,000 Snyder Communications Inc. * 405,000
210,000 Tetra Tech Inc. * 4,147,500
135,000 USA Waste Services Inc. * 4,303,125
120,000 United Waste Systems Inc. * 4,125,000
80,000 Unitog Co. 2,180,000
380,500 Wallace Computer Services Inc. 13,127,250
-------------
86,350,326
-------------

COMMUNICATION SERVICES 5.06%

125,000 ICG Communications Inc. * 2,203,125
253,000 LCI International Inc. * 5,439,500
283,636 MFS Communications Inc. * 15,458,162
213,500 McLeod Inc. * 5,444,250
111,000 Nextel Communications Inc. * 1,449,938
108,500 Orbital Sciences Corp. * 1,871,625
18,000 Pacific Gateway Exchange Inc. * 657,000
78,400 Smartalk Teleservices Inc. * 1,332,800
258,200 Tel-Save Holdings Inc. * 7,487,800
38,000 Teleport Communications Group Inc. * 1,159,000
105,000 Vanguard Cellular Systems Inc. Class A * 1,653,750
132,000 Viatel Inc. * 1,188,000
-------------
45,344,950
-------------

MEDIA SERVICES 2.13%

68,000 Bell Cablemedia PLC * 1,054,000

The accompanying notes are an integral part of the financial statements.

Page 10

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ --------------------------------------------------- ---------- ------------
<S> <C> <C> <C>
MEDIA SERVICES
(CONTINUED)

287,400 Central European Media Entertainment Ltd. Class A * $ 9,124,950
120,000 Comcast UK Cable Partners Ltd. * 1,635,000
77,500 Gartner Group Inc. Class A * 3,017,656
50,000 Harcourt General Inc. 2,306,250
160,000 Metromedia International Group Inc. * 1,580,000
13,000 Regal Cinemas Inc. * 399,750
-----------
19,117,606
-----------

TECHNOLOGY SECTOR 30.71%

COMPUTERS AND OFFICE EQUIPMENT 2.51%

159,000 Black Box Corp. * 6,558,750
34,500 Compaq Computer Corp. * 2,561,625
15,000 Comverse Technology Inc. * 567,188
70,000 E M C Corp. * 2,318,750
56,050 Quantum Corp. * 1,604,431
81,400 Seagate Technology Inc. * 3,215,300
222,000 Sun Microsystems Inc. * 5,702,625
-----------
22,528,669
-----------

ELECTRONICS AND NEW TECHNOLOGY 18.06%

26,800 Altera Corp. * 1,948,025
249,600 Altron Inc. * 5,241,600
401,300 Analog Devices Inc. * 13,594,038
203,500 Ascend Communications Inc. * 12,642,438
205,600 Cabletron Systems Inc. * 6,836,200
5,000 Cisco Systems Inc. * 318,125
36,000 Ericsson LM Telephone Co. Sponsored ADR 1,086,750
49,000 Gemstar International Group Ltd. 857,500
320,150 LSI Logic Corp. * 8,564,013
8,000 Maxim Integrated Products Inc. * 346,000
208,000 Microchip Technology Inc. * 10,582,000
210,000 Molex Inc. Class A 7,481,250
25,000 Network Equipment Technologies Inc. * 412,500
51,100 Network Appliance Inc. * 2,599,713
660,000 Network General Corp. * 19,965,000
219,900 Newbridge Networks Corp. * 6,212,175
59,900 Nokia Corp.Sponsored ADR A 3,451,738
97,000 PairGain Technologies Inc. * 2,952,438

</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 11
<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ --------------------------------------------------- ---------- ------------
<S> <C> <C> <C>

ELECTRONICS AND NEW TECHNOLOGY
(CONTINUED)

56,000 Qualcomm Inc. * $ 2,233,000
13,300 SGS Thomson Microelectronics N.V. * 931,000
189,700 Sanmina Corp. * 10,718,050
101,000 Thermo Electron Corp. * 4,166,250
192,700 3Com Corp.* 14,139,363
100,350 U. S. Robotics Corp. * 7,225,200
164,800 Uniphase Corp. * 8,652,000
235,650 Xilink Inc. * 8,674,866
-----------
161,831,232
-----------

TECHNOLOGY SERVICES 10.14%

133,800 American Management Systems Inc. * 3,278,100
4,000 Aspen Technologies Inc. * 321,000
377,000 BISYS Group Inc. * 13,972,563
92,000 Business Objects S A Sponsored ADR * 1,242,000
45,500 CBT Group PLC Sponsored ADR * 2,468,375
124,300 Ceridian Corp. * 5,034,150
26,300 Computer Sciences Corp. * 2,159,888
19,000 Concord EFS Inc. * 536,750
21,000 Documentum Inc. * 708,750
57,300 Electronics Arts Inc. * 1,715,419
164,100 FileNet Corp. * 5,251,200
114,600 HBO & Co. 6,804,375
180,250 Informix Corp. * 3,672,594
52,000 Intuit Inc. * 1,638,000
23,000 Macromedia Inc * 414,000
8,000 McAfee Associates Inc. * 352,000
67,400 Medic Computer Systems Inc. * 2,717,063
37,000 National Data Corp. 1,609,500
399,000 PMT Services Inc. * 6,982,500
33,100 PeopleSoft Inc. * 1,586,731
90,200 Raptor Systems Inc. * 1,815,275
8,000 Rational Software Corp. * 316,500
604,000 Sterling Commerce Inc. * 21,291,000
42,500 Transaction Network Services Inc. * 488,750
29,000 Vantive Corp. * 906,250
34,600 VERITAS Software Co. * 1,721,350
39,300 Wind River Systems Inc. * 1,861,824
-----------
90,865,907
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 12

<PAGE>

RCM GROWTH EQUITY FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ------ --------------------------------------------------- ---------- ------------
<S> <C> <C> <C>

TOTAL EQUITY INVESTMENTS
(COST $722,621,413) 96.94% $ 868,898,306
-----------

SHORT-TERM INVESTMENTS

MONEY MARKET FUNDS 1.27%

96,713 SSgA U.S. Government Money Market Fund 96,713
11,309,015 SSgA Money Market Fund 11,309,015
-----------
11,405,728
-----------

PRINCIPAL COMMERCIAL PAPER 1.67%
---------
$ 15,000,000 General Electric Capital Corp.
5.31% maturing 01/13/1997 14,973,450
-----------

TOTAL SHORT-TERM INVESTMENTS
(COST $26,379,178) 2.94% 26,379,178
-----------

TOTAL INVESTMENTS (COST $749,000,591) ** 895,277,484

OTHER ASSETS LESS LIABILITIES 0.12% 1,042,666
-----------

NET ASSETS 100.00% $ 896,320,150
-----------
-----------

* Non-income producing security

- ----------------------
TAX INFORMATION:
** For Federal income tax purposes, cost is $754,444,813 and unrealized
appreciation (depreciation) of equity securities is as follows:

Unrealized appreciation $ 163,725,733
Unrealized depreciation (22,893,062)
-----------
Net unrealized appreciation $ 140,832,671
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 13
<PAGE>

RCM GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996

ASSETS:

Investments in securities, at value
(cost $749,00,591) (Note 1) $ 895,277,484

Cash 49,330

Foreign currency, at value (cost $202,649) 202,693

Receivable for securities sold 11,216,724

Dividends and dividend reclaims receivable 258,350
--------------
Total Assets 907,004,581
--------------
LIABILITIES:

Payable for securities purchased 9,440,436

Payable for Fund shares repurchased 664,754

Payable for investment management fees (Note 5) 556,688

Payable for custodian fees 22,553
--------------
Total Liabilities 10,684,431
--------------
NET ASSETS $ 896,320,150
--------------
--------------

NET ASSETS CONSIST OF:

Paid in capital (Note 3) 735,809,126

Accumulated net realized gain on investments
and foreign currency transactions 14,233,814

Net unrealized appreciation on foreign currency
transactions 317

Net unrealized appreciation on investments 146,276,893
--------------
NET ASSETS $ 896,320,150
--------------
--------------

NET ASSET VALUE PER SHARE

($896,320,150 divided by 139,975,548 shares outstanding) $ 6.40
--------------
--------------

The accompanying notes are an integral part of the financial statements.

Page 14

<PAGE>

RCM GROWTH EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

INVESTMENT INCOME:

Income:

Dividends (net of foreign withholding tax of $14,889) $ 6,163,761

Interest 878,979
--------------
Total income 7,042,740
--------------

Expenses:

Investment management fees (Note 5) 8,121,322

Custodian fees 111,423

Miscellaneous expenses 800
--------------
Total expenses 8,233,545
--------------
Net investment loss (1,190,805)
--------------

NET REALIZED AND UNREALIZED GAIN (LOSS): (NOTE 1)

Net realized gain on investments 303,746,862

Net realized loss on foreign currency transactions (48,335)
--------------
Net realized gain 303,698,527
--------------

Net change in unrealized appreciation on foreign
currency transactions 47,081

Net change in unrealized depreciation on investments (119,213,430)
--------------

Net unrealized depreciation (119,166,349)
--------------

Net realized and unrealized gain during the year 184,532,178
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 183,341,373
--------------
--------------

The accompanying notes are an integral part of the financial statements.

Page 15

<PAGE>

RCM GROWTH EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>

Year ended Year ended
December 31, 1996 December 31, 1996
----------------- -----------------
<S> <C> <C>

OPERATIONS:

Net investment income (loss) $ (1,190,805) $ 3,246,152

Net realized gain on investments and
foreign currency transactions 303,698,527 280,992,471

Net change in unrealized appreciation
(depreciation) on investments and foreign
currency transactions (119,166,349) 152,170,790
----------------- -----------------
Net increase in net assets resulting from
operations 183,341,373 436,409,413

DISTRIBUTIONS TO SHAREHOLDERS FROM: (NOTE 2)

Net investment income --- (3,221,602)

Net realized gain on investments (355,168,907) (203,938,943)

NET DECREASE FROM CAPITAL SHARE
TRANSACTIONS (NOTE 3) (257,142,802) (269,044,478)
----------------- -----------------

TOTAL DECREASE IN NET ASSETS (428,970,336) (39,795,610)

NET ASSETS:
Beginning of year 1,325,290,486 1,365,086,096
----------------- -----------------
End of year * $ 896,320,150 $ 1,325,290,486
----------------- -----------------
- ---------------------- ----------------- -----------------
* Includes undistributed net investment income of $ --- $ 49,873
----------------- -----------------
----------------- -----------------

</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 16

<PAGE>
RCM GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>

Selected data for each share of capital stock outstanding for the ten years ended December 31, 1996 are as follows:

Year Ended December 31,
----------------------------------------------------------------------------------
1996*(a) 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(b)
Net asset value, beginning of period $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 $ 8.49 $ 9.12
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) (0.01) 0.02 0.03 0.04 0.07 0.09 0.15
Net realized and unrealized gain (loss)
on investments 1.59 2.66 0.01 1.08 0.71 3.93 (0.53)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value
resulting from investment operations 1.58 2.68 0.04 1.12 0.78 4.02 (0.38)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Distributions:
Net investment income (0.00) (0.02) (0.03) (0.04) (0.07) (0.09) (0.17)
Net realized gain on investments (4.31) (1.42) (2.54) (1.63) (1.28) (0.88) (0.08)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions (4.31) (1.44) (2.57) (1.67) (1.35) (0.97) (0.25)
---------- ---------- ---------- ---------- ---------- ---------- ----------

NET ASSET VALUE, END OF PERIOD $ 6.40 $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 $ 8.49
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

TOTAL RETURN(c) 19.07% 34.53% 0.76% 10.72% 7.03% 48.23% (4.12%)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share(d) $ 0.0571 - - - - - -
----------
----------

Net assets, end of period (in millions) $ 896 $ 1,325 $ 1,365 $ 2,049 $ 2,122 $ 2,138 $ 1,300
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

Ratio of expenses to average net assets 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.8%
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

Ratio of net investment income to
average net assets -0.1% 0.2% 0.2% 0.3% 0.6% 0.9% 1.8%
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------

Portfolio turnover 115.9% 96.5% 111.1% 67.0% 56.8% 62.7% 50.0%
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1989 1988 1987
---------- ---------- ----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(b)
Net asset value, beginning of period $ 8.00 $ 7.09 $ 8.30
---------- ---------- ----------
Net investment income (loss) 0.16 0.11 0.07
Net realized and unrealized gain (loss)
on investments 1.98 1.36 0.82
---------- ---------- ----------
Net increase (decrease) in net asset value
resulting from investment operations 2.14 1.47 0.89
---------- ---------- ----------
Distributions:
Net investment income (0.16) (0.12) (0.16)
Net realized gain on investments (0.86) (0.44) (1.94)
---------- ---------- ----------
Total distributions (1.02) (0.56) (2.10)
---------- ---------- ----------

NET ASSET VALUE, END OF PERIOD $ 9.12 $ 8.00 $ 7.09
---------- ---------- ----------
---------- ---------- ----------

TOTAL RETURN(c) 26.87% 20.86% 10.97%
---------- ---------- ----------
---------- ---------- ----------

RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share(d) - - -

Net assets, end of period (in millions) $ 1,284 $ 964 $ 553
---------- ---------- ----------
---------- ---------- ----------

Ratio of expenses to average net assets 0.7% 0.7% 0.8%
---------- ---------- ----------
---------- ---------- ----------

Ratio of net investment income to
average net assets 1.8% 1.8% 0.9%
---------- ---------- ----------
---------- ---------- ----------

Portfolio turnover 70.8% 64.7% 79.9%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- -----------------------------
* Calculated using the average share method.

(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see Note 5).

(b) Stock split 25:1 at the close of business on June 17, 1996 (see Note 3).
All prior period per share amounts were restated to reflect the stock split.

(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period to
period and fund to fund depending on the mix of trades executed in various
markets where trading practices and commission rate structures may differ.

Page 17

<PAGE>

RCM GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

RCM Growth Equity Fund (the "Fund") is a diversified series of RCM Capital
Funds, Inc. (the "Company"). The Company is organized as a Maryland
corporation and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amount of assets and liabilities. Actual results may differ from
these estimates.

A. SECURITIES VALUATIONS:

Investment securities are stated at fair market value. Equity securities
traded on stock exchanges are valued at the last sale price on the exchange
or in the principal over-the-counter market in which such securities are
traded as of the close of business on the day the securities are being
valued. If there has been no sale on such day, then the security will be
valued at the closing bid price on such day. If no bid price is quoted on
such day, then the security will be valued by such method as the Board of
Directors of the Company in good faith deems appropriate to reflect its fair
market value. Readily marketable securities traded only in the
over-the-counter market that are not listed on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar foreign
reporting service will be valued at the mean bid price, or such other
comparable sources as the Board of Directors of the Company deems appropriate
to reflect their fair market value. Other portfolio securities held by the
Fund will be valued at current market value, if current market quotations are
readily available for such securities. To the extent that market quotations
are not readily available, such securities will be valued by whatever means
the Board of Directors of the Company in good faith deems appropriate to
reflect their fair market value.

Short-term investments with a maturity of 60 days or less are valued at
amortized cost, which approximates market value.

B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:

Security transactions are recorded as of the date of purchase or sale.
Realized gains and losses on security transactions are determined on the
identified cost basis for both financial statement and federal income tax
purposes. Interest income, foreign taxes and expenses are accrued daily.
Dividends are recorded on the ex-dividend date.

C. FOREIGN CURRENCY TRANSACTIONS:

The records of the Fund are maintained in U.S. dollars. Foreign currencies,
investments and other assets and liabilities are translated into U.S. dollars
at current exchange rates. Purchases and sales of foreign securities and
income and withholding taxes are translated on the respective dates of such
transactions. Net realized currency gains and losses include foreign
currency gains and losses between trade date and settlement date and foreign
currency transactions. The Fund does not isolate that portion of foreign
currency exchange fluctuation on investments from unrealized appreciation and
depreciation which arises from changes in market prices. Such fluctuations
are included with the net unrealized appreciation or depreciation on
investments.

Page 18
<PAGE>

RCM GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. FEDERAL INCOME TAXES:

It is the policy of the Fund to comply with the requirements for
qualification as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). It is also the
intention of the Fund to make distributions sufficient to avoid
imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal or excise taxes on
income and capital gains.

E. DISTRIBUTIONS:

Distributions to shareholders are recorded by the Fund on the
ex-dividend date. Income and capital gain distributions are determined
in accordance with Federal income tax regulations which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for losses as a result of wash
sales.

2. DISTRIBUTIONS

On December 17, 1996, a distribution of $4.31 per share, aggregating
$355,168,907, was paid from investment operations. This per share
amount consisted of $1.55 short-term capital gains and $2.76 long-term
capital gains. The dividend was recorded on December 17, 1996 to
shareholders of record on the same date.

3. CAPITAL SHARES

At December 31, 1996, there were 1,000,000,000 shares of the Company's
common stock authorized, at $0.0001 par value. Of this amount,
300,000,000 were classified as shares of the Fund; 100,000,000 were
classified as shares of RCM Small Cap Fund; 100,000,000 were
classified as shares of RCM International Growth Equity Fund A; and
500,000,000 shares remain unclassified. As of the close of business on
June 17, 1996, each outstanding share of capital stock of the Fund was
split into 25 shares of capital stock, resulting in 91,056,470
outstanding shares of capital stock of the Fund. Transactions in
capital shares for the Fund shown below were restated to reflect the
stock split:

CAPITAL SHARE TRANSACTIONS

Year ended December 31, 1996
----------------------------
Shares Amount
------------ -------------
Shares sold 5,272,649 $ 49,629,302
Shares issued in connection with reinvestment
of distributions 56,967,931 351,492,134
Shares repurchased (67,435,650) (658,264,238)
------------ -------------
Net decrease (5,195,070) $(257,142,802)
------------ -------------
------------ -------------

Page 19
<PAGE>

RCM GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

3. CAPITAL SHARES (CONTINUED)

Year ended December 31, 1996
----------------------------
Shares Amount
------------ -------------
Shares sold 9,295,000 $ 87,032,923
Shares issued in connection with reinvestment
of distributions 23,031,575 203,424,163
Shares repurchased (60,117,757) (559,501,564)
------------ -------------
Net decrease (27,791,182) $(269,044,478)
------------ -------------
------------ -------------

At December 31, 1996, seven shareholders held more than 5% of the outstanding
shares of the Fund individually and 57.6% in aggregate.

4. PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 1996, purchases and sales proceeds of
investment securities by the Fund, other than U.S. government obligations and
short-term securities, aggregated $1,095,771,941 and $1,696,778,562,
respectively. Purchases and sales/maturities of U.S. government obligations
by the Fund aggregated $9,989,792 and $10,000,000, respectively.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

On June 14, 1996, all of the outstanding general and limited partnership
interests in the Fund's investment manager, RCM Capital Management, a
California Limited Partnership ("Old RCM"), were acquired by RCM Capital
Management, L.L.C. ("RCM"), a wholly owned subsidiary of Dresdner Bank AG, an
international banking organization headquartered in Frankfurt, Germany.
Because the transaction may have constituted an "assignment" of the Fund's
management agreement with Old RCM under the Investment Company Act of 1940,
and thus a termination of such management agreement, the Fund sought and
obtained prior approval of a new management agreement from the Company's
Board of Directors and from the Fund's stockholders at a special meeting of
stockholders of the Company held on May 28, 1996. The terms of the new
management agreement are substantially the same as those of the previous
management agreement.

The RCM Capital Management Profit Sharing Plan, participation in which is
limited to employees of RCM, owned 416,698 shares of the Fund on December 31,
1996.

Page 20
<PAGE>

RCM CAPITAL FUNDS, INC.
STOCKHOLDER MEETING RESULTS
(UNAUDITED)

A Special Meeting of Stockholders of the RCM Capital Funds, Inc. (the
"Company") was held on Tuesday, May 28, 1996. The number of shares issued,
outstanding and eligible to vote as of April 18, 1996 (the "Record Date") was
7,110,217. Present were 5,477,386 shares in person or represented by proxy,
or 77% of the shares outstanding on the Record Date. The matters voted upon
by stockholders and the resulting votes for each matter are presented below:

1. Each person nominated as a director was elected as set forth below:

For Withhold
--------- --------
Kenneth E. Scott 5,109,781 332,162
DeWitt F. Bowman 5,245,037 196,905
Thomas S. Foley 4,910,846 531,097
Frank P. Greene 5,109,781 332,162
Pamela A. Farr 5,109,781 332,162
George G.C. Parker 5,109,781 332,162

2. An Amendment to the Articles of Incorporation of the Company to reduce the
par value of the shares of the Company was approved: For: 4,849,864;
Against: 517,895; Abstain 74,184.

3. The selection by the Board of Directors of Coopers & Lybrand L.L.P. as
independent public accountants for the fiscal year ending December 31, 1996
was approved: For: 5,367,761; Against: 0; Abstain: 74,182.

In addition, certain matters were presented to the stockholders of the RCM
Growth Equity Fund (the "Fund") for approval or ratification. As of the
Record Date, there were 3,852,312 shares of the Fund outstanding and eligible
to vote. At the Special Meeting 2,864,752 shares were present in person or by
proxy, or 74.36% of the shares outstanding on the Record Date. The matters
voted upon by stockholders of the Fund and the resulting votes for each
matter are presented below:

1. The new Investment Management Agreement between the Company, on behalf of
the Fund, and RCM Capital Management, L.L.C. was approved: For: 2,828,176;
Against: 0; Abstain: 30,389.

2. Certain revisions to the investment objectives of the Fund were approved:
For: 2,459,253; Against: 368,909; Abstain: 30,389.

3. A revision to the fundamental investment policies of the Fund regarding
investment in companies without a three-year operating history was
approved. For: 2,459,253; Against: 368,909; Abstain: 30,389.

4. A revision to the fundamental investment policies of the Fund regarding
investment in warrants was approved: For: 2,459,253; Against: 368,909;
Abstain: 30,389.

Page 21
<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

<PAGE>

NOTES
- -------------------------------------------------------------------------------

<PAGE>

NOTES
- -------------------------------------------------------------------------------
<PAGE>
[LOGO]

GROWTH EQUITY FUND

ANNUAL REPORT
DECEMBER 31, 1996

<PAGE>
[LOGO]

INTERNATIONAL GROWTH EQUITY FUND A

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
[LOGO]

GROWTH EQUITY FUND

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
[LOGO]

SMALL CAP FUND

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>

RCM SMALL CAP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE

The value of an investment in the RCM Small Cap Fund (the "Fund") appreciated
by 34.39% over the year ended December 31, 1996. The Fund posted excellent
returns on both an absolute and relative basis, finishing the year 1,790
basis points ahead of its primary benchmark, the Russell 2000 Index, which
registered a total return of 16.49% for the same period. These results were
achieved in the context of a market environment which turned decisively in
favor of larger capitalization stocks over small capitalization stocks after
the correction of the June/July period. The Fund's performance was
especially impressive given that the full year 1996 was one in which all
major small cap benchmarks significantly underperformed broader market
benchmarks, such as the S&P 500 Composite Index, which returned 22.96%.

After posting outstanding returns in 1995, U.S. stocks and bonds rallied
strongly again in the first half of 1996. Consensus expectations going into
the year called for a slowing economic environment including low inflation
and continued declines in interest rates. By early in the second quarter,
however, signs of economic re-acceleration appeared, and inflation fears
began to surface. Despite the shifting macroeconomic outlook, equity mutual
fund cash flows reached record levels in the first half of 1996, and the
market for initial public offerings (IPOs) exploded. Stocks of all
capitalizations participated in this first half advance, although small cap
issues got off to a very weak start in the month of January. The relative
strength of the small cap sector bottomed in February, though, and the
Russell 2000 Index outperformed the S&P 500 Index in the months of March,
April and May, finishing the first half of the year ahead of the broader
market. At midyear, the Fund was 962 basis points ahead of its primary
benchmark and 988 basis points ahead of the S&P 500 Index. Factors
contributing to outperformance in the first half included the Fund's
overweightings in the strong business services sector and in leisure time
products and services. Returns were also aided by the growth stock focus of
RCM Capital Management, L.L.C. ("RCM"), investment manager of the Fund.
Growth investment styles significantly outperformed value styles in the first
six months of 1996.

By June, however, the relative strength of the small cap sector versus large
cap equities began to deteriorate markedly. A series of
stronger-than-expected economic releases generated fears that the Federal
Reserve would be forced into a series of rate hikes to keep growth and
inflation in tow. U.S. stocks suffered a violent correction in the month of
July. As is typical, the small cap sector of the market exhibited
significantly more volatility on the downside during this corrective phase,
especially given their appreciation through May. Equity mutual fund cash
contributions evaporated and the IPO market "window" slammed shut. The
broader market began to recover in the late summer as rate fears eased again
and investors began to embrace a "Goldilocks" economic scenario
(slow-to-moderate growth with little or no inflation.) Mutual fund cash
inflows resumed, albeit not at the record levels of the first half. The Dow
Jones Industrial Average and the S&P 500 Index posted exceptional gains from
late summer through the end of the year. But while small capitalization
universes recorded respectable absolute returns, they severely
under-performed large cap indices, as investors appeared willing to accord a
premium to liquidity after the summer correction. Nevertheless, the Fund
gained 12.01% in the second half of 1996, outperforming its primary benchmark
by 646 basis points.

The Fund's outperformance to the Russell 2000 Index in 1996 was attributable
to stock selection, which was positive in several industries. Electronics
and new technology was a highly volatile sector during 1996, but individual
issue selection in this area was a strong contributor to relative performance
versus the Fund's primary benchmark. The Fund's holdings in this group were
up an aggregate of 37% versus a gain of approximately 2% for the Russell 2000
Index stocks in this group. The Fund's major holdings in this group included
Computer Products (+70%

<PAGE>

total return for the year), Sanmina Corp. (+118%) and Network General (+81%).
In general, small cap health care services stocks were weak performers in
1996, as investors' concerns about pricing and reimbursement issues caused
HMO, home health care and nursing home stocks to come under pressure.
Nevertheless, health care services stocks held by the Fund were up an average
of about 18% compared to an average DECLINE of approximately 4% for health
care services stocks in the Russell 2000 Index. Curative Health Services,
Orthodontic Centers of America and American Home Patient were among the
Fund's outstanding performers in this group. The Fund's holdings in the
business services sector gained 75% compared to an average return of 27% for
the benchmark stocks in this very strong group. Significant positive
contributions came from issues such as The Registry, Personnel Group of
America, Iron Mountain and Caribiner International. Meaningful contributions
from positive stock selection were also achieved in the technology services,
transportation services and drugs and hospital supplies groups. On the
negative side, stock selection in the household nondurables area hurt
relative performance. The Fund's holdings in this sector (including Guest
Supply, Carson Inc. and Armor All) were up an average of only 2% compared to
a gain of 16% for the stocks in the benchmark group. The computers and
office equipment sector also registered a modest negative impact from adverse
stock selection.

Overall, industry strategy had a modest negative impact on the Fund's
performance relative to the Russell 2000 Index in 1996. Nevertheless,
industry strategies that were positive contributors included a meaningful
overweighting in the strong business services sector (11% versus 5% in the
Russell 2000 Index) and a slight overweighting in the computers and office
equipment group. Media and utilities were lagging industry groups
underweighted by the Fund in 1996, thereby adding to performance. On the
negative side, the Fund's strategic overweighting in health care services
hurt relative performance. In fact, the miserable performance of small cap
health care stocks was a particularly notable characteristic of the market in
1996, as this sector in the Russell 2000 Index recorded negative returns on
an aggregate basis. Given RCM's growth stock focus, health care has
traditionally been an area of investment focus for the Fund. However,
weightings in this area were reduced significantly in the first half of the
year and, as noted above, individual stock selection for the PERIOD was quite
favorable for the Fund in health care services. The Fund's underweighting in
the interest sensitive and financial industry groups (6.5% versus 22%,
excluding utilities), in the Russell 2000 Index was also a negative factor in
relative performance from an industry strategy perspective. Due to the
growth stock orientation of RCM, it is typical for the Fund to be
underweighted in the interest sensitive area versus the large weighting in
these groups in the Russell 2000 Index. Although the Fund's average cash
position of about 4% for the year was at the low end of its "normal" range,
cash was a negative contributor to relative performance given the rising
market environment.

Like 1995, the past year was an exceptional one in terms of absolute returns
for investors in U.S. stocks across all capitalization ranges, even though
small cap universes did not match the returns of the Dow Jones Industrial
Average or the S&P 500 Index. While RCM is not bearish going into 1997,
historical precedent and RCM's valuations argue strongly against placing a
high probability on similar gains for the overall market for 1997.
Nevertheless, RCM believes that a slow-to-moderate growth macroeconomic
environment is likely to favor the growth style of investing. Furthermore,
RCM believes that the conspicuous outperformance of large capitalization
equities in the second half of 1996 (exacerbated by the surging popularity of
indexing) has resulted in particularly attractive relative valuations in
small capitalization stocks early in 1997, especially given the higher
relative earnings growth rates of small-sized companies.

Page 2
<PAGE>

RCM SMALL CAP FUND
PERFORMANCE SUMMARY

- -------------------------------------------------------------------------------

[GRAPH]

RCM Small Cap Fund Russell 2000 Index
------------------ ------------------
1/2/92 10,000 10,000
1/31/92 10,786 10,811
2/28/92 11,118 11,127
3/31/92 10,850 10,751
4/30/92 10,613 10,373
5/31/92 10,703 10,511
6/30/92 10,165 10,017
7/31/92 10,530 10,366
8/31/92 10,336 10,072
9/30/92 10,603 10,304
10/31/92 11,002 10,630
11/30/92 11,807 11,444
12/31/92 12,214 11,842
1/31/93 12,212 12,242
2/28/93 11,792 11,960
3/31/93 12,082 12,348
4/30/93 11,636 12,008
5/31/93 12,102 12,539
6/30/93 12,134 12,617
7/31/93 12,126 12,791
8/31/93 12,580 13,344
9/30/93 13,037 13,720
10/31/93 13,186 14,074
11/30/93 12,728 13,615
12/31/93 13,337 14,080
1/31/94 13,592 14,522
2/28/94 13,431 14,469
3/31/94 12,712 13,707
4/30/94 12,637 13,788
5/31/94 12,411 13,633
6/30/94 11,990 13,173
7/31/94 12,173 13,390
8/31/94 13,095 14,136
9/30/94 13,073 14,088
10/31/94 13,240 14,031
11/30/94 12,765 13,464
12/31/94 13,049 13,824
1/31/95 12,958 13,649
2/28/95 13,392 14,217
3/31/95 13,900 14,461
4/30/95 14,064 14,782
5/31/95 14,030 15,037
6/30/95 14,728 15,817
7/31/95 15,706 16,728
8/31/95 16,245 17,074
9/30/95 16,900 17,380
10/31/95 16,330 16,602
11/30/95 16,882 17,300
12/31/95 17,496 17,756
1/31/96 17,973 17,737
2/29/96 18,914 18,290
3/31/96 19,374 18,662
4/30/96 20,684 19,660
5/31/96 21,660 20,435
6/30/96 20,993 19,596
7/31/96 18,958 17,884
8/31/96 20,592 18,923
9/30/96 22,457 19,662
10/31/96 22,226 19,359
11/30/96 22,488 20,157
12/31/96 23,514 20,685

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

The chart above shows the performance of the RCM Small Cap Fund since its
inception versus the Russell 2000 Index.# The chart represents a cumulative
return of 135.14%+ for the Fund. The average annual total return from the
Fund's inception was 18.65%*+.The chart assumes a hypothetical $10,000
initial investment in the Fund and reflects all Fund expenses.

AVERAGE ANNUAL TOTAL RETURNS+
DECEMBER 31, 1996

- ------------------
LIFE OF
1 YEAR FUND*
- ------------------
34.39% 18.65%
- ------------------

The data above represents past performance of the Fund, and may not be
indicative of future results. The investment return and principal value of
an investment in the Fund will fluctuate, so that shares, when redeemed, may
be worth more or less than their original cost.

- ------------------------------
# The Russell 2000 Index is composed of the 2,000 smallest securities in the
Russell 3000 Index, which is composed of 3,000 large U.S. companies by
market capitalization and represents approximately 98% of the U.S. equity
market.
+ Returns assume reinvestment of all dividends and capital gains distributions
at net asset value.
* The Fund began operations on January 4, 1992.

Page 3
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of RCM Small Cap Fund and
Board of Directors of RCM Capital Funds, Inc:

We have audited the accompanying statement of assets and liabilities of RCM
Small Cap Fund (the "Fund"), including the statement of investments in
securities and net assets, as of December 31, 1996, and the related statement
of operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
Small Cap Fund as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
February 20, 1997

Page 4
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>

CONSUMER DURABLES SECTOR 2.23%

AUTOMOTIVE RELATED 2.23%

134,000 Dura Automotive Systems Inc. * $ 3,015,000
310,000 Tower Automotive Inc. * 9,687,000
-----------
12,702,500
----------

CONSUMER NON-DURABLES SECTOR 7.75%

BEVERAGE AND TOBACCO 0.27%

42,000 Robert Mondavi Corp. * 1,533,000

GENERAL RETAIL 1.00%

146,000 Loehmann's Inc. * 3,358,000
50,000 Proffitt's Inc. * 1,843,750
37,000 Vans Inc. * 462,500
-----------
5,664,250
-----------

HOUSEHOLD/RELATED NON-DURABLES 1.93%

267,600 Carson Inc. * (cost $4,010,225)+ 3,712,950
182,000 Designer Holdings Ltd. * 2,934,750
224,700 The North Face Inc. * 4,325,475
-----------
10,973,175
-----------
LEISURE TIME PRODUCTS/SERVICES 4.55%

485,000 CapStar Hotel Co. * 9,518,125
227,000 Doubletree Corp. * 10,215,000
25,0000 Family Golf Centers Inc. * 753,125
190,000 Interstate Hotels Co. * 5,367,500
-----------
25,853,750
-----------

CYCLICAL/CAPITAL GOODS SECTOR 11.54%

AEROSPACE/DEFENSE 1.18%

301,400 Wyman-Gordon Co. * 6,706,150

</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 5
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>

BUILDING AND CONSTRUCTION 0.94%

155,000 NCI Building Systems Inc. * $ 5,347,500

ELECTRICAL EQUIPMENT 0.10%

20,000 Watsco Inc. 577,500

INDUSTRIAL EQUIPMENT 0.41%

110,000 Furon Co. 2,337,500

RAW AND BASIC MATERIALS 0.87%

165,000 Commercial Metals Co. 4,970,625

TRANSPORTATION SERVICES 8.04%

417,000 Covenant Transport Inc. Class A * 5,994,375
508,000 Expeditors International of Washington Inc. 11,684,000
190,000 Heartland Express Inc. * 4,631,250
101,400 Hub Group Inc. * 2,712,450
247,900 Kitty Hawk Inc. * 2,479,000
175,000 Mark VII Inc. * 4,845,313
245,000 Railtex Inc. * 6,186,250
210,000 Swift Transportation Co. Inc. * 4,935,000
125,000 Werner Enterprises Inc. 2,265,625
-----------
45,733,263
-----------

ENERGY SECTOR 3.14%

OIL AND RELATED SERVICES 3.14%

105,000 Camco International Inc. 4,843,125
165,000 Forcenergy Gas Exploration Inc. * 5,981,250
401,000 Houston Exploration Co. * 7,017,500
-----------
17,841,875
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 6
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>

HEALTH CARE SECTOR 19.55%

DRUGS & HOSPITAL SERVICES 8.17%

50,000 Algos Pharmaceutical Corp. * $ 562,500
17,000 Alliance Pharmaceutical Corp. * 231,625
59,100 Anesta Corp. * 1,137,675
16,800 ArthroCare Corp. * 121,800
143,000 Bone Care International Inc. 1,036,750
26,000 Cardiac Pathways Corp. * 308,750
415,000 CIMA Labs Inc. * 2,541,875
119,000 Creative BioMolecules Inc. * 1,234,625
40,000 Eclipse Surgical Technologies Inc. * 350,000
370,000 Endosonics Corp. * 5,642,500
28,000 GelTex Pharmaceuticals Inc. * 679,000
12,500 IDEC Pharmaceuticals Corp. * 296,875
152,000 LUNAR Corp. * 5,320,000
33,000 MedImmune Inc. * 561,000
4,300 Mentor Corp. Minn. 126,850
142,000 NaPro BioTherapeutics Inc. * 1,508,750
47,500 NeXstar Pharmaceuticals Inc. * 712,500
10,000 PathoGensis Corp. * 217,500
67,100 Penederm Inc. * 830,363
300,000 Physio-Control International Corp. 6,750,000
7,000 Protein Design Laboratories Inc. * 255,500
44,000 SangStat Medical Corp. * 1,166,000
30,700 Sepracor Inc. * 510,388
230,500 Sofamor/Danek Group Inc. * 7,030,250
12,000 Vertex Pharmaceuticals Inc. * 483,000
42,000 Virus Research Institute Inc. * 231,000
299,000 VISX Inc. * 6,615,375
-----------
46,462,451
-----------

HEALTH CARE SERVICES 11.38%

245,000 Advanced Health Corp. * 3,062,500
130,000 American HomePatient Inc. * 3,542,500
125,000 American Medical Response Inc. * 4,062,500
85,000 Arbor Health Care Co. * 2,210,000
327,800 Curative Health Services Inc. * 9,075,963
70,000 Harborside Healthcare Corp. * 831,250
215,000 Home Health Corp. of America Inc. * 2,351,563
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 7
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>

HEALTH CARE SERVICES
(CONTINUED)

361,200 Maxicare Health Plans Inc. * $ 8,036,700
200,000 Multicare Cos. Inc. * 4,050,000
120,000 Orthodontic Centers of America Inc. * 1,920,000
218,000 Raytel Medical Corporation * 2,398,000
340,000 Renal Treatment Centers Inc. * 8,670,000
70,000 Renal Care Group Inc. * 2,213,750
205,000 RoTech Medical Corp. * 4,305,000
173,600 Summit Care Corp. * 2,842,700
6,600 Total Renal Care Holdings Inc. * 239,250
199,000 Transition Systems Inc. * 2,810,875
189,300 Veterinary Centers of America Inc. * 2,082,300
-----------
64,704,851
-----------

INTEREST SENSITIVE SECTOR 6.48%

BANKING 3.62%

204,300 Community First Bankshares Inc. 5,618,250
147,000 Silicon Valley Bancshares * 4,740,750
157,000 Texas Regional Bancshares Inc. Class A 5,338,000
65,000 ValliCorp Holdings Inc. 1,324,375
62,000 WestAmerica Bancorporation 3,580,500
-----------
20,601,875
-----------

GENERAL FINANCE 1.50%

193,000 AMRESCO Inc. * 5,162,750
145,000 Glendale Federal Bank FSB (California) * 3,371,250
-----------
8,534,000
----------

INSURANCE 1.36%

58,000 CMAC Investment Corp. 2,131,500
64,000 Executive Risk Inc. 2,368,000
100,000 MMI Companies Inc. 3,225,000
-----------
7,724,500
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 8
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>

SERVICES/MEDIA SECTOR 17.49%

BUSINESS AND FOOD SERVICES 12.12%

53,000 ABR Information Services Inc. * $ 2,086,875
214,200 AccuStaff Inc. * 4,524,975
136,000 Caribiner International Inc. * 6,834,000
174,700 F. Y. I. Inc. * 3,646,863
273,000 G & K Services Inc. Class A 10,305,750
128,000 Iron Mountain Inc. * 3,872,000
229,800 Personnel Group of America, Inc. * 5,543,925
240,000 Philip Environmental Inc. * 3,480,000
92,100 Precision Response Corp. * 3,235,013
154,900 The Registry Inc. * 7,144,763
120,200 Romac International * 2,644,400
25,000 Source Services Corp. * 453,125
341,000 Tetra Tech Inc. * 6,734,750
75,000 United Waste Systems Inc. * 2,578,125
82,700 Unitog Co. 2,253,575
129,000 Wilmar Industries Inc. * 3,579,750
-----------
68,917,889
-----------

COMMUNICATION SERVICES 3.66%

238,600 Channell Commercial Corp. * 2,952,675
62,000 CommNet Cellular Inc. * 1,728,250
95,000 ICG Communications Inc. * 1,674,375
70,300 Orbital Sciences Corp. * 1,212,675
360,000 Smartalk Teleservices Inc. * 6,120,000
177,700 Tel-Save Holdings Inc. * 5,153,300
220,000 Viatel Inc. * 1,980,000
-----------
20,821,275
-----------

MEDIA SERVICES 1.71%

291,800 Central European Media Entertainment Ltd. Class A * 9,264,650
45,000 Metromedia Int'l Group Inc. * 444,375
-----------
9,709,025
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 9
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------

TECHNOLOGY SECTOR 28.81%

COMPUTERS AND OFFICE EQUIPMENT 3.12%

174,000 Black Box Corp. * $ 7,177,500
92,000 Comverse Technology Inc. * 3,478,750
229,600 Micros Systems Inc. * 7,060,200
-----------
17,716,450
-----------

ELECTRONICS AND NEW TECHNOLOGY 13.54%

373,300 Actel Corp. * 8,865,875
340,000 Altron Inc. * 7,140,000
813,500 Computer Products Inc. * 15,863,250
230,000 Continental Circuits Corp. * 2,472,500
200,000 Elantec Semiconductor Inc. * 878,125
50,000 Kent Electronics Corp. * 1,287,500
363,000 Methode Electronics Inc. Class A 7,350,750
35,000 Network Equipment Technologies Inc. * 577,500
39,000 Network Appliance Inc. * 1,984,125
512,400 Network General Corp. * 15,500,100
165,000 Sanmina Corp. * 9,322,500
109,000 Uniphase Corp. * 5,722,500
-----------
76,964,725
-----------

TECHNOLOGY SERVICES 12.15%

133,500 American Management Systems Inc. * 3,270,750
35,500 Aspen Technologies Inc. * 2,848,875
290,000 BISYS Group Inc. * 10,748,125
63,000 CBT Group PLC Sponsored ADR * 3,417,750
145,000 Engineering Animation Inc. * 3,516,250
77,000 FileNet Corp. * 2,464,000
219,600 The Indus Group Inc. * 5,654,700
69,100 Integrated Systems Inc. * 1,796,600
60,000 International Telecommunication Systems Inc. * 1,455,000
435,000 PMT Services Inc. * 7,612,500
15,161 Platinum Software Corp. * 180,033
229,000 Raptor Systems Inc. * 4,608,625
198,000 Renaissance Solutions Inc. * 8,860,500
86,000 SPSS Inc. * 2,397,250

The accompanying notes are anintegral part of the financial statements.

Page 10
<PAGE>

RCM SMALL CAP FUND
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
% OF
SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- -------------- ------------------------------ ---------- ------------
<S> <C> <C> <C>
TECHNOLOGY SERVICES
(CONTINUED)
307,000 Unison Software Inc. * $ 8,212,250
40,700 VERITAS Software Co. * 2,024,825
-----------
69,068,033
-----------

TOTAL EQUITY INVESTMENTS
(COST $437,423,725) 96.99% 551,466,162
-----------

SHORT-TERM INVESTMENTS

MONEY MARKET FUNDS 1.77%

143,121 SSgA U.S. Government Money Market Fund 143,121
9,936,016 SSgA Money Market Fund 9,936,016
-----------
10,079,137
-----------

PRINCIPAL COMMERCIAL PAPER 0.88%
- ----------------

$ 5,000,000 General Electric Capital Corp.,
5.31% maturing 01/13/97 4,991,150
-----------

TOTAL SHORT-TERM INVESTMENTS
(COST $15,070,287) 2.65% 15,070,287
-----------

TOTAL INVESTMENTS (COST $452,494,012) ** 99.64% 566,536,449

OTHER ASSETS LESS LIABILITIES 0.36% 2,064,667
-----------

NET ASSETS 100.00% $568,601,116
------------
------------
</TABLE>

* Non-income producing security.
+ Affiliates at December 31, 1996, as defined by the Investment Company Act of
1940, those companies in which a fund holds 5% or more of the outstanding
voting securities.

- --------------
TAX INFORMATION:
** For Federal income tax purposes, cost is $453,708,605 and unrealized
appreciation (depreciation) of equity securities is as follows:

Unrealized appreciation $129,447,952
Unrealized depreciation (16,620,108)
-------------
Net unrealized appreciation $112,827,844
-------------
-------------

The accompanying notes are an integral part of the financial statements.

Page 11
<PAGE>
RCM SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996

<S> <C>

ASSETS:
Investments in securities, at value (cost $452,494,012)
(Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 566,536,449
Receivable for securities sold. . . . . . . . . . . . . . . . . 5,627,661
Receivable for Fund shares sold . . . . . . . . . . . . . . . . 1,000,000
Dividends receivable. . . . . . . . . . . . . . . . . . . . . . 85,658
-------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . 573,249,768
-------------
LIABILITIES:
Payable for Fund shares repurchased . . . . . . . . . . . . . . 3,543,022
Payable for securities purchased. . . . . . . . . . . . . . . . 618,379
Payable for investment management fees (Note 5) . . . . . . . . 460,702
Due to custodian. . . . . . . . . . . . . . . . . . . . . . . . 13,876
Payable for custodian fees. . . . . . . . . . . . . . . . . . . 12,673
-------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . 4,648,652
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 568,601,116
-------------
-------------
NET ASSETS CONSIST OF:
Paid in capital (Note 3). . . . . . . . . . . . . . . . . . . . $ 453,130,375
Accumulated net realized gain on investments. . . . . . . . . . 1,428,304
Net unrealized appreciation on investments. . . . . . . . . . . 114,042,437
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 568,601,116
-------------
-------------
NET ASSET VALUE PER SHARE
($568,601,116 DIVIDED BY 48,318,408 shares outstanding). . . . $ 11.77
-------------
-------------
</TABLE>

The accompanying notes are an integral part of the financial statements

Page 12

<PAGE>

RCM SMALL CAP FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<S> <C>

INVESTMENT INCOME:
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 1,497,519
Interest. . . . . . . . . . . . . . . . . . . . . . . . . 486,503
------------
Total income . . . . . . . . . . . . . . . . . . . . . 1,984,022
------------
Expenses:
Investment management fees (Note 5) . . . . . . . . . . . 4,608,338
Custodian fees. . . . . . . . . . . . . . . . . . . . . . 51,971
Miscellaneous expenses. . . . . . . . . . . . . . . . . . 800
------------
Total expenses . . . . . . . . . . . . . . . . . . . . 4,661,109
------------
Net investment loss . . . . . . . . . . . . . . . . (2,677,087)
------------

NET REALIZED AND UNREALIZED GAIN: (NOTE 1)
Net realized gain on investments. . . . . . . . . . . . . . 107,844,093

Net change in unrealized appreciation on investments. . . . 29,605,875
------------
Net realized and unrealized gain during the year. . . . 137,449,968
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . $134,772,881
------------
------------

</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 13
<PAGE>
RCM SMALL CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>

OPERATIONS:
Net investment loss. . . . . . . . . . . $ (2,677,087) $ (978,987)
Net realized gain on investments . . . . 107,844,093 63,212,427
Net change in unrealized appreciation
on investments . . . . . . . . . . . . 29,605,875 66,594,922
----------------- -----------------
Net increase in net assets resulting
from operations. . . . . . . . . . . . 134,772,881 128,828,362

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
(Note 2) . . . . . . . . . . . . . . . (123,397,033) (47,579,854)

NET INCREASE (DECREASE) FROM CAPITAL SHARE
TRANSACTIONS (NOTE 3). . . . . . . . . . 147,658,599 (87,329,307)
----------------- -----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS . 159,034,447 (6,080,799)

NET ASSETS:
Beginning of year. . . . . . . . . . . . 409,566,669 415,647,468
----------------- -----------------
End of year. . . . . . . . . . . . . . . $ 568,601,116 $ 409,566,669
----------------- -----------------
----------------- -----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

Page 14
<PAGE>

RCM SMALL CAP FUND
FINANCIAL HIGHLIGHTS

Selected data for each share of capital stock outstanding for the five years
ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996*(a) 1995 1994 1993 1992
------------------------------------------------------
<S> <C> <C> <C> <C> <C>

PER SHARE OPERATING PERFORMANCE: (b)
Net asset value, beginning of period . . . . $ 11.35 $ 9.42 $ 10.41 $ 10.15 $ 8.33
-------- -------- -------- -------- --------
Net investment income (loss) . . . . . . . . (0.08) (0.04) (0.04) (0.00) 0.03
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . 3.82 3.21 (0.20) 0.91 1.82
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value
resulting from investment operations . . . 3.74 3.17 (0.24) 0.91 1.85
-------- -------- -------- -------- --------
Distributions:
Net investment income. . . . . . . . . . . (0.00) (0.00) (0.00) (0.00) (0.03)
Net realized gain on investments . . . . . (3.32) (1.24) (0.75) (0.65) (0.00)
-------- -------- -------- -------- --------
Total distributions. . . . . . . . . . . (3.32) (1.24) (0.75) (0.65) (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD. . . . . . . . $ 11.77 $ 11.35 $ 9.42 $ 10.41 $ 10.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (c). . . . . . . . . . . . . . . 34.39% 34.08% (2.16%) 9.20% 22.14%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share (d). . $ 0.0538 - - - -
--------
--------

Net assets, end of period (in 000's). . . . . $568,601 $409,567 $415,647 $660,049 $457,994
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------

Ratio of expenses to average net assets . . . 1.0% 1.0% 1.1% 0.9% 0.7%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net investment income (loss) to
average net assets . . . . . . . . . . . . . (0.6%) (0.2%) (0.3%) 0.0% 0.4%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------

Portfolio turnover. . . . . . . . . . . . . . 117.0% 83.9% 117.7% 80.0% 72.0%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- --------------------
* Calculated using the average share method.
(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see Note 5)
(b) Stock split 12:1 at the close of business on June 17, 1996 (see Note 3).
All prior period per share amounts were restated to reflect the stock
split.
(c) Total return measures the change in value of an investment over the period
indicated.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.

Page 15
<PAGE>

RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

RCM Small Cap Fund (the "Fund") is a diversified series of RCM Capital Funds,
Inc. (the "Company"). The Company is organized as a Maryland corporation and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.

a. SECURITIES VALUATIONS:

Short-term investments with a maturity of 60 days or less are valued at
amortized cost, which approximates market value.

b. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:

c. FOREIGN CURRENCY TRANSACTIONS:

Page 16
<PAGE>

RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d. FEDERAL INCOME TAXES:

It is the policy of the Fund to comply with the requirements for
qualification as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"). It is also the intention of the Fund
to make distributions sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision has been made for Federal
or excise taxes on income and capital gains.

e. DISTRIBUTIONS:

Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for losses due to wash sales.

2. DISTRIBUTIONS

On December 17, 1996, a distribution of $3.32 per share, aggregating
$123,397,033, was paid from investment operations. This per share amount
consisted of $1.41 short-term capital gains and $1.91 long-term capital
gains. The dividend was recorded on December 17, 1996 to shareholders of
record on the same date.

3. CAPITAL SHARES

At December 31, 1996, there were 1,000,000,000 shares of the Company's common
stock authorized, at $0.0001 par value. Of this amount, 100,000,000 were
classified as shares of the Fund; 300,000,000 were classified as shares of
RCM Growth Equity Fund; 100,000,000 were classified as shares of RCM
International Growth Equity Fund A; and 500,000,000 shares remain
unclassified. As of the close of business on June 17, 1996, each outstanding
share of capital stock of the Fund was split into 12 shares of capital stock,
resulting in a total of 33,476,643 outstanding shares of capital stock of the
Fund. Transactions in capital shares for the Fund shown below were restated
to reflect the stock split:

CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>

Year ended December 31, 1996
----------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>

Shares sold. . . . . . . . . . . . . . 10,624,664 $ 145,473,916
Shares issued in connection with
reinvestment of distributions . . . . 10,879,522 121,959,444
Shares repurchased . . . . . . . . . . (9,267,406) (119,774,761)
--------------- ---------------
Net increase . . . . . . . . . . . . . 12,236,780 $ 147,658,599
--------------- ---------------
--------------- ---------------
</TABLE>

Page 17
<PAGE>

RCM SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

3. CAPITAL SHARES (CONTINUED)

<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>

Shares sold . . . . . . . . . . . . . 6,672,852 $ 75,194,368
Shares issued in connection with
reinvestment of distributions. . . . 4,215,828 46,437,296
Shares repurchased. . . . . . . . . . (18,943,232) (208,960,971)
--------------- ---------------
Net decrease. . . . . . . . . . . . . (8,054,552) $ (87,329,307)
--------------- ---------------
--------------- ---------------
</TABLE>

At December 31, 1996, six shareholders held more than 5% of the outstanding
shares of the Fund individually and 51.5% in aggregate.

4. PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 1996, purchases and sales proceeds of
investment securities by the Fund, other than U.S. government obligations and
short-term securities, aggregated $535,168,539 and $521,178,095,
respectively. Purchases and sales/maturities of U.S. government obligations
aggregated $19,967,958 and $20,000,000, respectively.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

The RCM Capital Management Profit Sharing Plan, participation in which is
limited to employees of RCM, owned 461,274 shares of the Fund on December 31,
1996.

Page 18
<PAGE>

RCM CAPITAL FUNDS, INC.
STOCKHOLDER MEETING RESULTS
(UNAUDITED)

1. Each person nominated as a director was elected as set forth below:

<TABLE>
<CAPTION>
For Withhold
----------- --------------
<S> <C> <C>

Kenneth E. Scott 5,109,781 332,162
DeWitt F. Bowman 5,245,037 196,905
Thomas S. Foley 4,910,846 531,097
Frank P. Greene 5,109,781 332,162
Pamela A. Farr 5,109,781 332,162
George G.C. Parker 5,109,781 332,162
</TABLE>

2. An Amendment to the Articles of Incorporation of the Company to reduce
the par value of the shares of the Company was approved: For: 4,849,864;
Against: 517,895; Abstain 74,184.

In addition, certain matters were presented to the stockholders of the RCM
Small Cap Fund (the "Fund") for approval or ratification. As of the Record
Date, there were 2,950,841 shares of the Fund outstanding and eligible to
vote. At the Special Meeting 2,306,393 shares were present in person or by
proxy, or 78.16% of the shares outstanding on the Record Date. The matters
voted upon by stockholders of the Fund and the resulting votes for each
matter are presented below:

1. The new Investment Management Agreement between the Company, on behalf of
the Fund, and RCM Capital Management, L.L.C. was approved: For: 2,249,677;
Against: 0; Abstain: 43,811.

2. Certain revisions to the investment objectives of the Fund were approved:
For: 1,904,118; Against: 345,624; Abstain: 43,745.

3. A revision to the fundamental investment policies of the Fund regarding
investment in warrants was approved: For: 1,903,958; Against: 345,746;
Abstain: 43,783.

Page 19
<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

<PAGE>
[LOGO]

INTERNATIONAL GROWTH EQUITY FUND A

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
[LOGO]

GROWTH EQUITY FUND

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
[LOGO]

SMALL CAP FUND

ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE

World stock markets showed positive returns in 1996 as the Morgan Stanley
EAFE index returned 6.35%. This figure was negatively impacted by the poor
performance in Japan which registered a negative 15.4% return. Without the
poor performance of the Japanese markets, the EAFE Index would have returned
21.4%, which is more in line with the S&P 500 Index return of 22.96% for the
same period.

The RCM International Growth Equity Fund A (the "Fund") had a portfolio
return of 19.31% for the 12 months ended December 31, 1996, which exceeded
the EAFE Index by 1,296 basis points. This performance, coupled with the
Fund exceeding the EAFE Index by 643 basis points in 1995, provided the Fund
with an exceptional two year rate of return. The Fund's secondary benchmark,
comprised of 90% Morgan Stanley GDP-weighted EAFE and 10% Emerging Markets,
returned 9.91% in 1995 and 7.90% in 1996.

The investment philosophy utilized by RCM Capital Management, L.L.C. ("RCM"),
the Fund's investment manager, to which the Fund's strong performance can be
attributed, has remained fairly consistent over the last two years and is
likely to remain the same for the foreseeable future. This philosophy has
led the Fund to maintain a substantial underweighting in Japanese equities
throughout 1996 as RCM is of the firm view that the Japanese government has
not yet dealt with significant problems in its banking system. The Fund also
had a zero weighting in Japanese banks, which have been underperformers for
some time. Importantly, the Fund has benefited from RCM's substantial
commitment to growth stocks worldwide, and its stock selection is the most
important element in the Fund's outperformance.

Growth stocks have done exceptionally well in 1995 and 1996 owing to positive
liquidity conditions in the industrialized countries despite sluggish
economic growth. Ample liquidity has put pressure on investors to find
returns wherever they can and an increasing premium has been paid for those
companies that can show above average earnings growth on a sustained basis.

The events that could produce a change in this environment would be a
deterioration in the outlook for inflation, either from an acceleration in
world economies or from a tightening supply of production or labor. Because
we are now in our sixth year of economic expansion, fears along these lines
are justifiable. However, while the U.S. economy is at the point where it
could generate higher rates of inflation, it does not show any signs of doing
so.

In Europe, the fiscal restraint required by the Maastricht agreement in
preparation for a common currency by 1999 is offsetting the positive monetary
stance taken by the Bundesbank and most other central banks. While RCM does
not believe that monetary policy can continue to be as aggressive as it has
been, it also does not believe that monetary restraint is imminent. Both
traditional growth stocks and those that are generating growth through
restructurings have performed well.

In Japan, an equally positive monetary stance is offset by fiscal restraint
as the budget deficits of that country disallow anything else, but the more
important restraint on economic growth comes from a severely crippled banking
system that has yet to be restructured. The government is making inroads in
improving its banking system, but efforts to date have not been adequate.
While liquidity conditions remain positive in Japan, the stock market has
been undermined by negative sentiment on the economy and a preference for
bonds or foreign assets. It is interesting to note that even with
<PAGE>

a negative market environment, Japanese stocks with strong earnings growth
continue to show positive rates of return.

In the rest of Asia, growth is still very high compared to the rest of the
world; however, there are signs that this rapid rate of growth is beginning
to put strains on these economies that are in turn likely to force moderation
in the rate of expansion in the coming years. There are substantial shortages
in skilled labor and there is increasing difficulty in the sheer magnitude of
additional infrastructure required to maintain GDP growth of 8% or 9%. Many
Asian companies do not produce the profitability required to generate the
funds needed for their volume growth, so there are increasing premiums being
paid for companies with high internal cash generation. RCM has emphasized
these kinds of companies in the Fund's portfolio.

In Latin America, there is a cyclical economic rebound taking place with a
wide range of stocks participating in these advancing markets. The value
added here has been an overweighting in the region and an emphasis on high
quality companies that can benefit from continued expansion in these
economies.

In summary, RCM believes its investment style of focusing on high-quality
growth stocks will continue to generate above-average returns. For 1997, it
is RCM's challenge to maintain valuation disciplines to ensure that the Fund
maintains a portfolio whose growth potential has not been fully discounted by
the market place. RCM's extensive research resources and Grassroots effort
have helped it continue to generate new ideas and it sees this as a distinct
advantage in the coming year.

Page 2
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
PERFORMANCE SUMMARY
- -------------------------------------------------------------------------------
[GRAPH]

PERFORMANCE FROM COMMENCEMENT OF OPERATIONS

FUND EAFE 90%/10%
12/28/94 50,000 50,000 50,000
47,772 48,090 48,330
47,881 47,965 48,172
3/31/95 50,264 50,972 50,182
52,453 52,904 52,443
52,815 52,285 52,282
6/30/95 54,230 51,381 51,789
57,845 54,590 54,975
57,095 52,520 52,795
9/30/95 58,320 53,560 53,350
57,440 52,140 51,770
57,605 53,605 52,680
12/31/95 58,995 55,770 54,955
60,630 56,010 55,990
61,355 56,215 56,065
3/31/96 63,240 57,420 56,795
65,480 59,105 58,635
66,315 58,030 57,850
6/30/96 66,766 58,370 58,318
64,611 56,677 56,429
65,541 56,813 56,563
9/30/96 67,021 58,336 58,030
66,510 57,753 57,321
69,318 60,063 59,641
12/31/96 70,391 59,306 59,303

PERFORMANCE FROM FIRST PUBLIC OFFERING

FUND EAFE 90%/10%
5/22/95 50,000 50,000 50,000
52,900 52,000 51,779
51,160 50,800 50,712
6/30/95 52,535 49,921 50,234
56,035 53,040 53,320
55,310 51,030 51,210
9/30/95 56,495 52,040 51,745
55,645 50,660 50,215
55,805 52,085 51,095
12/31/95 57,150 54,190 53,305
58,735 54,425 54,310
59,435 54,620 54,385
3/31/96 61,270 55,795 55,090
63,430 57,430 56,875
64,240 56,385 56,110
6/30/96 64,677 56,720 56,560
62,105 55,075 54,728
63,490 55,207 54,858
9/30/96 64,924 56,687 56,281
64,429 56,120 55,594
67,149 58,365 57,844
12/31/96 68,189 57,629 57,516

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

The charts above show the performance of the RCM International Growth Equity
Fund A versus the Morgan Stanley Capital International Europe, Australia, Far
East Index (MSCI-EAFE)+ and a custom index including 90% of MSCI-EAFE and 10%
Morgan Stanley Capital International Emerging Markets Free Index
(MSCI-EMF)++. The charts represent cumulative returns of 40.78%+ and 36.38%+
for the Fund from December 28, 1994* to December 31, 1996 and from May 22,
1995** to December 31, 1996, respectively. The charts assume a hypothetical
$50,000 minimum initial investment in the Fund and reflect all Fund expenses.

AVERAGE ANNUAL TOTAL RETURNS+
DECEMBER 31,1996

LIFE OF FUND
Annualized since
----------------------
1 YEAR 12/28/94* 5/22/95**
- ------ --------- ---------
19.31% 18.57% 21.29%

The data above represents past performance of the Fund, and may not be
indicative of future results. The investment return and principal value of
an investment in the Fund will fluctuate, so that shares, when redeemed, may
be worth more or less than their original cost.

- --------------
+ Returns assume reinvestment of all dividends and capital gains distributions
at net asset value.
* The Fund commenced operations on December 28, 1994.
** The Fund's shares were first offered to the public on May 22, 1995.
+ The MSCI-EAFE Index is an arithmetic, market value-weighted average of the
performance of over 900 securities listed on the stock exchanges of
countries in Europe, Australia, and the Far East. The index is calculated on
a total return basis, which includes reinvestment of gross dividends before
deduction of withholding taxes.
++ The MSCI-EMF Index includes only those countries open to non-local
investors. The index is currently calculated on a price-only basis without
dividends reinvested.

Page 3
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of RCM International Growth Equity Fund A and
Board of Directors of RCM Capital Funds, Inc:

We have audited the accompanying statement of assets and liabilities of RCM
International Growth Equity Fund A (the "Fund"), including the statement of
investments in securities and net assets, as of December 31, 1996, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of RCM
International Growth Equity Fund A as of December 31, 1996, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

Boston, Massachusetts
February 20, 1997

Page 4
<PAGE>

This page intentionally left blank

Page 5
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

<TABLE>
<CAPTION>
% OF
SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ------- ------------------------------------- ----------- --------------
<S> <C> <C> <C> <C>

CONSUMER DURABLES SECTOR 4.3%

AUTOMOTIVE RELATED 2.9%

12,000 SWDN Autoliv AB $ 526,107
2,325 GER Volkswagen AG 966,987
-----------
1,493,094
-----------
OTHER CONSUMER DURABLES 1.4%

29,000 JPN Matsushita Kotobuki Electronics 756,239

CONSUMER NON-DURABLES SECTOR 25.8%

BEVERAGE AND TOBACCO 6.8%

21,400 NETH Grolsch NV 830,466
149,000 INDO H. M. Sampoerna 794,835
20,500 MEX Pan American Beverages Inc. Class A 960,938
10,700 FR Seita 447,509
151,000 SWDN Swedish Match AB * 531,386
-----------
3,565,134
-----------
FOOD AND FOOD PROCESSING 5.0%

141,750 MEX Gruma S.A. de C.V. * 864,329
15,900 JPN Hokuto Corp. 698,826
5,850 FR Lambert Dodard Chancereul SA 1,047,441
-----------
2,610,596
-----------
GENERAL RETAIL 5.4%

23,000 JPN Credit Saison Co., Ltd. 514,377
68,100 UK Next PLC 663,850
33,400 BRZL Pao de Acucar 144A GDR + 594,649
7,000 JPN Ryohin Keikaku 519,817
25,000 CHLE Santa Isabel S A ADR 565,625
-----------
2,858,318
-----------
HOUSEHOLD/RELATED NON-DURABLES 4.6%

5,000 GER Adidas AG 432,155
25,000 MEX Kimberly Clark de Mexico, S.A. de C.V. 485,264
20,300 US Nu Skin Asia Pacific Inc. * 626,763
250 SWTZ SMH Swiss Corp. for Microelectronics 154,090
and Watchmaking Industrie
44,000 SWTZ Tag Heuer International SA * 709,500
-----------
2,407,772
-----------

The accompanying notes are an integral part of the financial statements.

Page 6
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ------- ------------------------------------- ----------- --------------

LEISURE TIME PRODUCTS/SERVICES 4.0%

25,000 JPN NAMCO $ 766,341
7,600 JPN Nintendo Corp. Ltd. 544,029
25,000 JPN Skylark Co. 382,091
5,000 FR Salomon S.A. 428,833
-----------
2,121,294
-----------
CYCLICAL/CAPITAL GOODS SECTOR 13.3%

BUILDING AND CONSTRUCTION 4.1%

1,815,000 PHIL Belle Corporation * 503,783
746,850 PHIL C & P Homes Inc. 383,364
82,000 HK Cheung Kong Holdings Ltd. 728,877
8,014 NETH Hunter Douglas N.V. 540,765
-----------
2,156,789
-----------
CHEMICALS AND TEXTILES 3.3%

23,000 GER Hoechst AG 1,086,626
12,000 CHLE Sociedad Quimica y Minera de Chile SA 649,500
-----------
1,736,126
-----------
ELECTRICAL EQUIPMENT 2.3%

26,000 JPN Alpine Electronics, Inc 415,335
8,100 JPN Hirose Electric Co., Ltd. 469,312
5,000 JPN Riso Kagaku 321,216
-----------
1,205,863
-----------
INDUSTRIAL EQUIPMENT 1.9%

32,500 UK Powerscreen International PLC 314,588
44,000 NOR Tomra Systems A/S 679,487
-----------
994,075
-----------
RAW AND BASIC MATERIALS 1.1%

4,600 GER SGL Carbon AG 144A + 579,932

TRANSPORTATION SERVICES 0.6%

37,156 UK BAA PLC 308,095

The accompanying notes are an integral part of the financial statements.

Page 7
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ------- ------------------------------------- ----------- --------------

ENERGY SECTOR 2.0%

OIL AND RELATED SERVICES 2.0%

50,394 UK British Petroleum Co., PLC $ 604,348
3,300 UK British Petroleum Co., PLC ADR 467,561
-----------
1,071,909
-----------
HEALTH CARE SECTOR 10.5%
DRUGS & HOSPITAL SERVICES 9.1%

12,000 CAN Biochem Pharma Inc. * 603,000
30,250 UK Glaxo Wellcome PLC 492,333
8,000 UK Glaxo Wellcome PLC Sponsored ADR 256,456
16,000 US Pharmacia & Upjohn Inc. 634,000
50 SWTZ Roche Holdings Ltd. 389,055
18,000 UK Smithkline Beecham PLC (ADR) 1,224,000
10,800 FR Synthelabo 1,167,736
-----------
4,766,580
-----------
HEALTH CARE SERVICES 1.4%

14,800 JPN Nichii Gakken Co. 738,658

INTEREST SENSITIVE SECTOR 9.6%

BANKING 5.9%

19,000 ITLY Banca Popolare Di Bergamo 313,118
9,000 SPN Banco Bilbao Vizcaya, S.A. 485,962
23,000 IRE Bank of Ireland 210,022
16,000 GER Bayerische Hypotheken-und Wechsel-Bank AG 484,014
96,800 HK Dah Sing Financial Holdings, Ltd. 392,982
23,098 UK HSBC Holdings PLC 494,243
34,208 UK Lloyds TSB Group PLC 252,589
28,000 SWDN Sparbanken Sverige AB 480,359
-----------
3,113,289
-----------
GENERAL FINANCE 2.4%

14,000 CAN Newcourt Credit Group Inc. * 483,605
10,700 JPN Nichiei Co., Ltd. 789,958
-----------
1,273,563
-----------
INSURANCE 0.9%

7,000 SPN Mapfre Vida Seguros 485,269

The accompanying notes are an integral part of the financial statements.

Page 8
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ------- ------------------------------------- ----------- --------------

UTILITIES 0.4%

3,800 GER Veba AG $ 219,782

SERVICES/MEDIA SECTOR 12.5%

BUSINESS AND FOOD SERVICES 4.1%

750 SWTZ Adecco SA 188,270
12,500 UK Danka Business Systems PLC Sponsored ADR 442,188
105,000 CAN Philip Environmental Inc. * 1,522,500
-----------
2,152,958
-----------
COMMUNICATION SERVICES 5.2%

114,000 UK Cable & Wireless PLC 953,092
3,000 NOR Nera AS 128,510
5,500 NOR Nera AS ADR 233,750
83,000 JPN Nippon Denwa Shisetsu 766,860
24,250 UK Orange PLC (ADR) * 388,000
2,000 CZK SPT Telecom S A * 248,998
-----------
2,719,210
-----------
MEDIA SERVICES 3.2%

30,000 UK Bell Cablemedia PLC * 465,000
163,000 UK General Cable PLC * 544,543
36,400 UK Reed International PLC 684,722
-----------
1,694,265
-----------
TECHNOLOGY SECTOR 14.7%

COMPUTERS AND OFFICE EQUIPMENT 0.8%

18,700 JPN Canon Sales Co., Inc. 416,596

ELECTRONICS AND NEW TECHNOLOGY 11.2%

11,000 JPN Advantest Corp. 515,759
32,230 SWDN Ericsson LM Telephone Co. 997,160
43,000 THAI Hana Microelectronics Public Co. * 221,321
58,000 JPN NEC Corp. * 701,148
15,000 CAN Newbridge Networks Corp. * 423,750
16,200 FIN Nokia Corp. A 939,600
5,820 KOR Samsung Electronics Co. * 354,125
7,100 FR SGS Thomson Microelectronics N.V.* 497,000
15,800 JPN Shinko Electric Industries 514,342

The accompanying notes are an integral part of the financial statements.

Page 9
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

% OF
SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE
- ---------- ------- ------------------------------------- ----------- --------------

ELECTRONICS AND NEW TECHNOLOGY
(CONTINUED)

10,800 JPN Sony Corp. $ 707,815
-----------
5,872,020
-----------
TECHNOLOGY SERVICES 2.7%

26,596 NETH Getronics N.V. 722,475
17,700 SWDN Intentia International AB * 264,725
24,000 UK SEMA Group PLC * 448,175
-----------
1,435,375
-----------
TOTAL EQUITY INVESTMENTS
(COST $41,400,163) 92.7% 48,752,801
-----------
SHORT-TERM INVESTMENTS

MONEY MARKET FUNDS 4.5%

2,400,000 SSgA Short-Term U.S. Government Money Market Fund 2,400,000

Principal COMMERCIAL PAPER 2.5%
- -----------

$1,300,000 Ford Motor Credit Company, 5.5% maturing 01/07/97 1,298,808
-----------

TOTAL SHORT-TERM INVESTMENTS 7.0%
(COST $3,698,808) 3,698,808
-----------
TOTAL INVESTMENTS (COST $45,098,971) ** 99.7% 52,451,609

OTHER ASSETS LESS LIABILITIES 0.3% 153,340
-----------
NET ASSETS 100.0% $52,604,949
-----------
-----------
</TABLE>
* Non-income producing security.
+ Security is registered pursuant to Rule 144A of the Securities Act of 1933
and may be deemed to be restricted for resale purposes.

- ----------------
TAX INFORMATION:
** For Federal income tax purposes, cost is $45,262,791 and unrealized
appreciation (depreciation) of equity securities is as follows:

Unrealized appreciation $8,143,592
Unrealized depreciation (954,774)
----------
Net unrealized appreciation 7,188,818
----------
----------

The accompanying notes are an integral part of the financial statements.

Page 10
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
INVESTMENTS IN SECURITIES AND NET ASSETS
DECEMBER 31, 1996

The Fund's investments in securities at December 31, 1996 categorized by
country:

% of Net Assets
----------------------------------------------
SHORT TERM
COUNTRY EQUITIES AND OTHER TOTAL
------- -------- ---------- -----
Brazil 1.1% 1.1%
Canada 5.8% 5.8%
Chile 2.3% 2.3%
Czech Republic 0.5% 0.5%
Finland 1.8% 1.8%
France 6.8% 6.8%
Germany 7.2% 7.2%
Hong Kong 2.1% 2.1%
Indonesia 1.5% 1.5%
Ireland 0.4% 0.4%
Italy 0.6% 0.6%
Japan 20.0% 20.0%
Korea 0.7% 0.7%
Mexico 4.4% 4.4%
Netherlands 4.0% 4.0%
Norway 2.0% 2.0%
Philippines 1.7% 1.7%
Spain 1.8% 1.8%
Sweden 5.3% 5.3%
Switzerland 2.7% 2.7%
Thailand 0.4% 0.4%
United Kingdom 17.2% 17.2%
United States 2.4% 7.3% 9.7%
-------- ---------- ------
Total 92.7% 7.3% 100.0%
-------- ---------- ------
-------- ---------- ------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING
DECEMBER 31, 1996

Face Value Date Contract Price Appreciation
---------- ---- -------------- ------------
Sale:
Japanese Yen 228,000,000 2/24/97 105.8200 $170,411
------------
Total open forward foreign currency contracts (Note 1) $170,411
------------
------------

The accompanying notes are an integral part of the financial statements.

Page 11
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996

ASSETS:
Investments in securities, at value (cost $45,098,971) (Note 1) $52,451,609
Foreign currency, at value (cost $566,335) 583,730
Cash 58,814
Receivable for Fund shares sold 1,900,000
Receivable for open forward foreign currency contract (Note 1) 170,411
Dividends, dividend reclaims and other receivables 47,855
Prepaid assets 10,125
-----------
Total Assets 55,222,544
-----------
LIABILITIES:
Payable for investments purchased 2,452,641
Payable for investment management fees (Note 6) 42,943
Payable for professional fees 50,822
Payable for Directors' fees (Note 7) 22,000
Payable for custodian fees 14,325
Payable for accounting fees 12,000
Payable for printing expenses 10,592
Payable for miscellaneous expenses 7,020
Payable for registration and filing fees 5,252
-----------
Total Liabilities 2,617,595
-----------
NET ASSETS $52,604,949
-----------
-----------
NET ASSETS CONSIST OF:
Paid in capital (Note 4) $45,056,079
Distributions in excess of net investment income (154,461)
Accumulated net realized gain on investments and foreign
currency transactions 181,899
Net unrealized appreciation on forward foreign currency contracts
and foreign currency transactions 168,794
Net unrealized appreciation on investments 7,352,638
-----------
NET ASSETS $52,604,949
-----------
-----------
NET ASSET VALUE PER SHARE
($52,604,949 DIVIDED BY 4,136,905 shares outstanding) $ 12.72
-----------
-----------

The accompanying notes are an integral part of the financial statements.

Page 12
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding tax of $64,821) $ 522,354
Interest 21,476
----------
Total income 543,830
----------

Expenses:
Investment management fees (Note 6) 313,342
Custodian fees 58,212
Accounting fees 48,000
Directors' fees (Note 7) 43,500
Audit fees 27,500
Insurance expenses 12,000
Printing expenses 12,000
Miscellaneous expenses 3,833
----------
Total expenses before reimbursements 518,387
Expenses reimbursed by investment manager (Note 6) (105,743)
----------
Total net expenses 412,644
----------
Net investment income 131,186
----------

NET REALIZED AND UNREALIZED GAIN: (NOTE1)
Net realized gain on investments 2,790,022
Net realized gain on forward foreign currency contracts
and foreign currency transactions 519,839
----------
Net realized gain 3,309,861
----------
Net change in unrealized appreciation on forward foreign
currency contracts and foreign currency transactions 12,511
Net change in unrealized appreciation on investments 3,719,721
----------
Net unrealized appreciation 3,732,232
----------

Net realized and unrealized gain during the year 7,042,093
----------

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,173,279
----------
----------

The accompanying notes are an integral part of the financial statements.

Page 13
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>

OPERATIONS:
Net investment income $ 131,186 $ 342,790
Net realized gain on investments, forward foreign
currency contracts and foreign currency
transactions 3,309,861 547,893
Net change in unrealized appreciation on
investments, forward foreign currency contracts
and foreign currency transactions 3,732,232 3,796,450
----------------- -----------------

Net increase in net assets resulting from operations 7,173,279 4,687,133

DISTRIBUTIONS TO SHAREHOLDERS FROM: (NOTE 2)
Net investment income (558,945) (320,285)
Net realized gain on investments (3,074,200) (369,783)

NET INCREASE FROM CAPITAL SHARES TRANSACTIONS (NOTE 4) 14,718,007 5,346,067
----------------- -----------------

TOTAL INCREASE IN NET ASSETS 18,258,141 9,343,132

NET ASSETS:
Beginning of year 34,346,808 25,003,676
----------------- -----------------
End of year * $52,604,949 $34,346,808
----------------- -----------------
----------------- -----------------

- --------------
* Includes distributions in excess of net investment
income of $ (154,461) $ (64,136)
----------------- -----------------
----------------- -----------------
</TABLE>

Page 14
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
FINANCIAL HIGHLIGHTS

Selected data for each share of capital stock outstanding are as follows:

PER SHARE OPERATING PERFORMANCE: (B)
Net asset value, beginning of period $ 11.56 $ 10.00 $ 10.00
-------- -------- --------
Net investment income 0.04 (c) 0.12 (c) 0.00
Net realized and unrealized gain (loss)
on investments 2.16 1.68 (0.00)
-------- -------- --------
Net increase in net asset value
resulting from investment operations 2.20 1.80 0.00
-------- -------- --------
Distributions:
Net investment income (0.16) (0.11) (0.00)
Net realized gain on investments (0.88) (0.13) (0.00)
-------- -------- --------
Total distributions (1.04) (0.24) (0.00)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.72 $ 11.56 $ 10.00
-------- -------- --------
-------- -------- --------

TOTAL RETURN ** 19.31% 17.98% 0.01%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:

Average commission rate paid per share (d) $ 0.0179 - -
--------
--------
Net assets, end of period (in 000's) $ 52,605 $ 34,347 $ 25,004
-------- -------- --------
-------- -------- --------
Ratio of expenses to average net assets 0.99% (c) 0.75% (c) 0.00% ***
-------- -------- --------
-------- -------- --------
Ratio of net investment income to
average net assets 0.32% (c) 1.19% (c) 0.01% ***
-------- -------- --------
-------- -------- --------

Portfolio turnover 119.1% 87.4% 0.00% ***
-------- -------- --------
-------- -------- --------
</TABLE>

- --------------------------
(a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment
manager (see Note 6).
(b) Stock split 10:1 at the close of business on June 17, 1996 (see Note 4). All
prior period per share amounts were restated to reflect the stock split.
(c) Includes reimbursement by the Fund's investment manager of investment
management fees and other expenses equal to $0.03* and $0.03 per share for
the years ended December 31, 1996 and 1995, respectively. Without such
reimbursement, the ratio of expenses would have been 1.25% and 1.11%,
respectively, and the ratio of net investment income to average net assets
would have been 0.06% and 0.83%, respectively.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures may
differ.
* Calculated using the average share method.
** Total return measures the change in value of an investment over the period
indicated.
*** Not annualized. Fund was in operation for four days, ratios are not
meaningful.

Page 15
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

RCM International Growth Equity Fund A (the "Fund") is a non-diversified
series of RCM Capital Funds, Inc. (the "Company"). The Company is organized
as a Maryland corporation and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.

a. SECURITIES VALUATIONS:

Investment securities are stated at fair market value. Equity securities
traded on stock exchanges are valued at the last sale price on the exchange
or in the principal over-the-counter market in which such securities are
traded as of the close of business on the day the securities are being
valued. If there has been no sale on such day, then the security will be
valued at the closing bid price on such day. If no bid price is quoted on
such day, then the security will be valued by such method as the Board of
Directors of the Company in good faith deems appropriate to reflect its fair
market value. Readily marketable securities traded only in the
over-the-counter market that are not listed on the National Association of
Securities Dealers, Inc. Automated Quotation System or similar foreign
reporting service will be valued at the mean bid price, or such other
comparable sources as the Board of Directors of the Company deems
appropriate to reflect their fair market value. Other portfolio securities
held by the Fund will be valued at current market value, if current market
quotations are readily available for such securities. To the extent that
market quotations are not readily available, such securities will be valued
by whatever means the Board of Directors of the Company in good faith deems
appropriate to reflect their fair market value.

Short-term investments with a maturity of 60 days or less are valued at
amortized cost, which approximates market value.

b. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:

c. FOREIGN CURRENCY TRANSACTIONS:

The records of the Fund are maintained in U.S. dollars. Foreign currencies,
investments and other assets and liabilities are translated into U.S.
dollars at current exchange rates. Purchases and sales of foreign
securities and income and withholding taxes are translated on the respective
dates of such transactions. Net realized currency gains and losses include
foreign currency gains and losses between trade date and settlement date and
foreign currency transactions. The Fund does not isolate that portion of
foreign currency exchange fluctuation on investments from unrealized
appreciation and depreciation which arises from changes in market prices.
Such fluctuations are included with the net unrealized appreciation or
depreciation on investments.

Page 16
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d. FORWARD FOREIGN CURRENCY CONTRACTS:

A forward foreign currency contract ("Forward") is an agreement between two
parties to buy and sell a currency at a set price on a future date. The Fund
may enter into Forwards in order to hedge foreign currency risk associated
with its portfolio securities or for other risk management or investment
purposes. The market value of the Forward fluctuates with changes in
currency exchange rates. The Forward is marked-to-market daily and the
change in market value is recorded by the Fund as an unrealized appreciation
or depreciation. When the Forward is closed, the Fund records a realized
gain or loss equal to the difference between the value at the time it was
opened and the value at the time it was closed. The portfolio could be
exposed to risk of loss if the counterparty is unable to meet the terms of
the contract or if the value of the currency changes unfavorably.

e. FEDERAL INCOME TAXES:

It is the policy of the Fund to comply with the requirements for
qualification as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended (the "Code"). It is also the intention of the Fund
to make distributions sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision has been made for Federal
or excise taxes on income and capital gains.

f. DISTRIBUTIONS:

Distributions to shareholders are recorded by the Fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with Federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for losses due to wash sales, passive foreign investment
companies and foreign currency transactions.

2. DISTRIBUTIONS

On December 17, 1996, a distribution of $1.04 per share, aggregating
$3,633,145, was paid from investment operations. This per share amount
consisted of $0.16 net investment income, $0.35 short-term capital gains and
$0.53 long-term capital gains. The dividend was recorded on December 17,
1996 to shareholders of record on the same date.

3. INVESTMENT IN FOREIGN SECURITY AND CURRENCY

Investing in foreign equity securities and currency transactions involves
significant risks, some of which are not typically associated with
investments of domestic origin. The Fund's investments in foreign and
emerging markets will subject the Fund to the risk of foreign currency
exchange rate fluctuations, perceived credit risk and adverse economic and
political developments.

Page 17
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

4. CAPITAL SHARES

At December 31, 1996, there were 1,000,000,000 shares of the Company's
common stock authorized, at $0.0001 par value. Of this amount, 100,000,000
were classified as shares of the Fund; 300,000,000 were classified as shares
of RCM Growth Equity Fund; 100,000,000 were classified as shares of RCM
Small Cap Fund; and 500,000,000 shares remain unclassified. As of the close
of business on June 17, 1996, each outstanding share of capital stock of the
Fund was split into 10 shares of capital stock, resulting in a total of
3,080,990 outstanding shares of the capital stock of the Fund. Transactions
in capital shares of the Fund shown below were restated to reflect the stock
split:

CAPITAL SHARE TRANSACTIONS

Year ended December 31, 1996
----------------------------
Shares Amount
------------ -----------
Shares sold 958,208 $12,239,598
Shares issued in connection with reinvestment
of distributions 293,007 3,621,573
Shares repurchased (86,083) (1,143,164)
------------ -----------
Net increase 1,165,132 $14,718,007
------------ -----------
------------ -----------

Year ended December 31, 1995
----------------------------
Shares Amount
------------ -----------
Shares sold 414,880 $ 4,700,579
Shares issued in connection with reinvestment
of distributions 60,800 690,068
Shares repurchased (3,910) (44,580)
------------ -----------
Net increase 471,770 $5,346,067
------------ -----------
------------ -----------

At December 31, 1996, two shareholders held more than 5% of the outstanding
shares of the Fund individually and 76% in aggregate.

5. PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 1996, purchases and sales proceeds of
investment securities by the Fund, other than U.S. government obligations
and short-term securities, aggregated $56,751,715 and $47,324,177,
respectively. There were no purchases or sales of U.S. government
obligations by the Fund during the year.

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Page 18
<PAGE>

RCM INTERNATIONAL GROWTH EQUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)

such management agreement, the Fund sought and obtained prior approval of a
new management agreement from the Company's Board of Directors and from the
Fund's stockholders at a special meeting of stockholders of the Company held
on May 28, 1996. The terms of the new management agreement are substantially
the same as those of the previous management agreement.

RCM manages the Fund's investments and provides various administrative
services, subject to the authority of the Board of Directors. For the period
from January 1, 1996 to June 30, 1996, the Fund paid investment management
fees quarterly to RCM at a rate of 1/4 of 0.75% (approximately 0.75% on an
annual basis) of the average net assets of the Fund during the current
quarter. As discussed above, the stockholders approved a new investment
management agreement between the Company, on behalf of the Fund, and RCM.
Pursuant to this new investment management agreement, beginning July 1,
1996, the Fund pays investment management fees monthly to RCM at an
annualized rate of 0.75% of the Fund's average daily net assets. For the
year ended December 31, 1996, the Fund recorded investment management fees
of $313,342. RCM has voluntarily agreed to pay the Fund on a quarterly basis
(from January 1, 1996 to June 30, 1996) and on a monthly basis (beginning
from July 1, 1996) the amount, if any, by which certain ordinary operating
expenses of the Fund exceed the annualized rate of 1% of the Fund's average
daily net assets. For the year ended December 31, 1996, RCM reimbursed Fund
operating expenses totaling $105,743.

The RCM Capital Management Profit Sharing Plan, participation in which is
limited to employees of RCM, owned 357,424 shares of the Fund on
December 31, 1996.

7. DIRECTORS' FEES

The Fund pays each of its Directors who is not an interested person of the
Fund $6,000 annually plus $1,000 for each meeting of the board or any
committee thereof attended by the Director.

Page 19
<PAGE>

RCM CAPITAL FUNDS, INC.
STOCKHOLDER MEETING RESULTS
(UNAUDITED)

1. Each person nominated as a director was elected as set forth below:

For Withhold
-------- --------
Kenneth E. Scott 5,109,781 332,162
DeWitt F. Bowman 5,245,037 196,905
Thomas S. Foley 4,910,846 531,097
Frank P. Greene 5,109,781 332,162
Pamela A. Farr 5,109,781 332,162
George G.C. Parker 5,109,781 332,162

2. An Amendment to the Articles of Incorporation of the Company to reduce the
par value of the shares of the Company was approved: For: 4,849,864;
Against: 517,895; Abstain 74,184.

In addition, certain matters were presented to the stockholders of the RCM
International Growth Equity Fund A (the "Fund") for approval or ratification.
As of the Record Date, there were 307,063 shares of the Fund outstanding and
eligible to vote. At the Special Meeting 306,241 shares were present in
person or by proxy, or 99.7% of the shares of outstanding on the Record Date.
The matter voted upon by stockholders of the Fund and the resulting votes for
the matter are presented below:

1. The new Investment Management Agreement between the Company, on behalf of
the Fund, and RCM Capital Management, L.L.C. was approved: For: 289,790;
Against: 0; Abstain: 101.

Page 20
<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

<PAGE>

NOTES
- -------------------------------------------------------------------------------
<PAGE>

NOTES
- -------------------------------------------------------------------------------