<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:
<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 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.
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 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
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
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)
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
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
- -------------------------------------------------------------------------------
<PAGE>
NOTES
- -------------------------------------------------------------------------------
