<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
<TABLE>
<CAPTION>
% 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
<TABLE>
<CAPTION>
<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
<TABLE>
<CAPTION>
<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.
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 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
On June 14, 1996, all of the outstanding general and limited partnership
interests in the Fund's investment manager, RCM Capital Management, a
California Limited Partnership ("Old RCM"), were acquired by RCM Capital
Management, L.L.C. ("RCM"), a wholly owned subsidiary of Dresdner Bank AG, an
international banking organization headquartered in Frankfurt, Germany.
Because the transaction may have constituted an "assignment" of the Fund's
management agreement with Old RCM under the Investment Company Act of 1940,
and thus a termination of such management agreement, the Fund sought and
obtained prior approval of a new management agreement from the Company's
Board of Directors and from the Fund's stockholders at a special meeting of
stockholders of the Company held on May 28, 1996. The terms of the new
management agreement are substantially the same as those of the previous
management agreement.
RCM manages the Fund's investments and provides various administrative
services, subject to the authority of the Board of Directors. 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 1% (approximately 1% on an annual
basis) of the average net assets of the Fund during the preceding 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 at an annualized rate of 1.0% of the
Fund's average daily net assets. For the year ended December 31, 1996, the
Fund recorded investment management fees of $4,608,338.
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)
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:
<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.
3. The selection by the Board of Directors of Coopers & Lybrand L.L.P. as
independent public accountants for the fiscal year ending December 31, 1996
was approved: For: 5,367,761; Against: 0; Abstain: 74,182.
In addition, certain matters were presented to the stockholders of the RCM
Small Cap Fund (the "Fund") for approval or ratification. As of the Record
Date, there were 2,950,841 shares of the Fund outstanding and eligible to
vote. At the Special Meeting 2,306,393 shares were present in person or by
proxy, or 78.16% of the shares outstanding on the Record Date. The matters
voted upon by stockholders of the Fund and the resulting votes for each
matter are presented below:
1. The new Investment Management Agreement between the Company, on behalf of
the Fund, and RCM Capital Management, L.L.C. was approved: For: 2,249,677;
Against: 0; Abstain: 43,811.
2. Certain revisions to the investment objectives of the Fund were approved:
For: 1,904,118; Against: 345,624; Abstain: 43,745.
3. A revision to the fundamental investment policies of the Fund regarding
investment in warrants was approved: For: 1,903,958; Against: 345,746;
Abstain: 43,783.
Page 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
