-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OsmxwhoX6PfzfUZJg78uecxZvU8YPH9C9gptsr4c3Und9UCJnczslYqzTYaJzs+Z aw8/RR/+EbXL7W5g3KYfvA== 0000912057-97-029270.txt : 19970912 0000912057-97-029270.hdr.sgml : 19970911 ACCESSION NUMBER: 0000912057-97-029270 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970828 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM CAPITAL FUNDS INC /MD/ CENTRAL INDEX KEY: 0000310619 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 942564439 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02913 FILM NUMBER: 97671178 BUSINESS ADDRESS: STREET 1: FOUR EMBARCADERO CTR STREET 2: STE 2900 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4159545474 FORMER COMPANY: FORMER CONFORMED NAME: RCM CAPITAL FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: RCM GROWTH EQUITY FUND INC DATE OF NAME CHANGE: 19920126 N-30D 1 N-30D RCM CAPITAL FUNDS, INC. SEMI-ANNUAL REPORT JUNE 30, 1997 RCM GROWTH EQUITY FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The RCM Growth Equity Fund (the "Fund") registered excellent performance in the second quarter of 1997, rising 18.77% and outperforming its primary benchmark, the Russell Midcap Index, by 521 basis points. Over the first six months of the year, the value of an investment in the Fund appreciated 8.75%. Despite these results, however, the Fund finished behind the 12.63% return posted by its primary benchmark for the same period. Perhaps the most prominent characteristic of the stock market's action during the "summer correction" of 1996 and its subsequent advance through the first half 1997 has been the persistent leadership of very large capitalization issues. Investors who had participated in the blistering advance and subsequent collapse of mid and small cap stocks in the first half of 1996 have since been willing to accord a premium to liquidity and the perception of "visible growth" as embodied in the stocks of the biggest multinational corporations. The decline in small and midcap universes in the correction of 1996 was much more violent than that of the large cap market. The resumption of huge cash flows into the stock market from institutional and equity mutual fund investors after the correction coincided with a rise in the popularity of passive indexing tied to large cap universes, which has only exacerbated the pronounced performance divergence between capitalization tiers. Despite the lagging performance of midcap stock universes in the second half of 1996, there were reasons to be optimistic about a turn in relative performance of these stocks going into 1997. Seasonal factors for so-called "secondary cap" sectors of the market traditionally are favorable early in a new year. RCM Capital Management, L.L.C. ("RCM"), the Fund's investment manager was encouraged by evidence of improved relative strength in midcap stocks in the final month of 1996, and hopeful that seasonal strength in mutual fund cash flows would support a catch-up move versus very large capitalization equities in early 1997. Importantly, valuations of midcap universes had become attractive versus their own historical ranges and relative to large caps, especially in light of RCM's outlook for higher relative earnings growth in the midcap sector. Based on these considerations and RCM's commitment to a quality growth approach to investing, the Fund entered 1997 with overweighted positions in high-growth areas such as technology, business services and health care. While the Fund did maintain some exposure to the banking and financial services industry groups, these were underweighted areas relative to the primary benchmark, which has heavy weightings in these groups. (As a growth manager, RCM typically maintains only modest exposure to these interest rate-sensitive industries.) The relative move in the midcap sector did not materialize in the first quarter, however, and market leadership continued to narrow, concentrating in stocks of the very large cap multinationals. By late February, a more pronounced secondary cap decline was evident, particularly in technology stocks. Federal Reserve Chairman Greenspan's cautionary comments regarding "irrational exuberance" early in the first quarter did not slow seasonally strong mutual fund cash flows, but did seem to intensify investors' preference for large cap, liquid names. Midcaps -- especially higher growth and higher P/E multiple sectors -- underperformed when the market corrected in February and March on fears of rising interest rates, but the worst relative performance of the year occurred in April. By the end of April 1997, the spread between the 12-month S&P 500 return and Russell Midcap Index performance had opened to -14%. Due to the Fund's growth-stock orientation, Fund performance trailed the Russell Midcap Index benchmark by 821 basis points through the first four months of 1997. Large cap stocks reached a major bottom with the easing of rate fears in mid-April, and midcap stocks soon followed. Relative valuation and performance disparities set up a powerful midcap rally in May. The Fund was well positioned to benefit, as extremely compressed multiples of quality growth issues expanded and technology stocks re-emerged as market leaders. The Russell Midcap Index outperformed the S&P 500 by 124 basis points in May and posted strong absolute returns in June. The Fund outperformed the Russell Midcap Index benchmark by 557 basis points in the final two months of the first half of 1997. Individual stock selection in the aerospace industry made a positive contribution to relative performance in the first half. The Fund's holdings in this group were up an aggregate of 24% versus a gain of approximately 10% for the Russell Midcap Index stocks in this group. The Fund's major holdings in this industry were Sundstrand Corporation (+28% total return for the first half of 1997) and Wyman Gordon (+21%). Stock selection was also positive in the communications services industry group, where Fund holdings were up 16% on average versus essentially flat performance for the Russell Midcap Index stocks in this group. Major holdings in this industry included Nextel Communications (+45%), McLeod USA (+32%) and Worldcom (+23%). Stock picking in the technology services and banking industry groups also had a positive impact on relative performance during the first half. Negative stock selection was experienced in the electronics and new technology group. Relative performance was hurt in particular by declines in Network General (-51%), Ascend Communications (-37%) and Altron (-29%), causing the aggregate performance of the Fund's holdings in this industry to be down about 3% for the first half of 1997 versus the average gain of approximately 9% posted by the Russell Midcap Index stocks in the group. The Fund experienced smaller negative contributions to relative performance from stock selection in the retail trade sector and in business services. Industry strategies that were positive contributors to the Fund's relative performance in the first half included overweightings in the strong health care services group (9% weighting in the Fund versus 4% in the Russell Midcap Index). Relative performance of the Fund also benefited from a strategic underweighting in energy and in the lagging utilities industry group. (Due to RCM's growth-stock orientation, the Fund typically does not maintain exposure to utility stocks.) On the negative side, overweighting the poorly performing technology services industry group hurt the Fund's relative performance in the first six months of 1997. Technology services stocks in the Russell Midcap Index underperformed the overall benchmark by almost 12% for the period. This sector had traditionally been a "defensive" subsector within the technology universe, and RCM believed that these stocks would fare relatively better than other areas of technology in a group correction. However, technology service stocks came under severe pressure in the first quarter, as a bellwether large cap service stock (Electronic Data Systems) posted disappointing earnings, and questions arose surrounding the ability of services companies to contain costs. In fact, the Fund's technology services holdings generally had excellent fundamentals, and these holdings rebounded powerfully in the May rally and through the end of the first half. The Fund's underweighted positions in insurance and banking also had a modestly negative impact on relative performance for the period. Due to RCM's growth-stock orientation, it is typical for the Fund to have only modest relative exposure in these industries. The Fund's average cash position of about 4.5% during the first half of 1997 was at the low end of its "normal" range, but had a slight negative impact on relative performance due to the rising market environment. Going into the second half of 1997, the equity market environment appears to reflect an extremely favorable economic outlook: low inflation, continued healthy -- but not overheated -- GDP growth, and no immediate reason to anticipate an interest rate hike by the Federal Reserve. Stocks reached new highs early in the third quarter, surprising many observers who had not expected 1997 to repeat the exceptional returns of the previous two years. Heightened vigilance to potential changes in the environment is certainly warranted given current market levels, but RCM is encouraged by the improved relative performance of midcap stocks at the end of the first half of the year. Although it is not clear that a Page 2 sustained period of outperformance lies ahead, RCM continues to believe that relative valuations of midcap stocks are attractive, especially in light of RCM's outlook for higher relative growth in this sector. The Fund retains significant overweightings in growth industries such as technology, health care, and telecommunications, with a cash position at the lower end of a "normal" range. Page 3 RCM GROWTH EQUITY FUND PERFORMANCE SUMMARY - -------------------------------------------------------------------------------- RCM GROWTH RUSSELL MIDCAP INDEX Nov-79 $10,000 $10,000 Nov-79 $10,393 $10,740 Dec-79 $10,719 $11,158 Jan-80 $11,210 $11,777 Feb-80 $10,792 $11,516 Mar-80 $9,599 $9,996 Apr-80 $10,028 $10,641 May-80 $10,856 $11,467 Jun-80 $11,315 $12,024 Jul-80 $12,980 $13,034 Aug-80 $13,656 $13,375 Sep-80 $14,396 $13,821 Oct-80 $14,878 $13,966 Nov-80 $15,935 $15,074 Dec-80 $15,665 $14,784 Jan-81 $15,304 $14,439 Feb-81 $15,725 $14,694 Mar-81 $17,588 $15,843 Apr-81 $18,134 $15,918 May-81 $19,279 $16,306 Jun-81 $18,560 $16,008 Jul-81 $18,247 $15,809 Aug-81 $17,371 $14,908 Sep-81 $16,587 $13,951 Oct-81 $18,157 $14,914 Nov-81 $18,503 $15,518 Dec-81 $18,211 $15,139 Jan-82 $17,929 $14,583 Feb-82 $17,527 $13,964 Mar-82 $17,476 $13,825 Apr-82 $18,682 $14,486 May-82 $18,511 $13,970 Jun-82 $18,441 $13,595 Jul-82 $18,512 $13,274 Aug-82 $20,047 $14,871 Sep-82 $20,666 $15,293 Oct-82 $23,233 $17,338 Nov-82 $25,235 $18,395 Dec-82 $25,710 $18,660 Jan-83 $27,172 $19,319 Feb-83 $28,967 $19,987 Mar-83 $30,108 $20,691 Apr-83 $32,700 $21,984 May-83 $34,645 $22,903 Jun-83 $36,064 $23,737 Jul-83 $34,391 $22,991 Aug-83 $33,610 $22,846 Sep-83 $34,935 $23,486 Oct-83 $33,413 $22,575 Nov-83 $34,930 $23,541 Dec-83 $34,348 $23,105 Jan-84 $32,764 $22,449 Feb-84 $31,089 $21,235 Mar-84 $31,709 $21,587 Apr-84 $31,839 $21,350 May-84 $30,674 $20,146 Jun-84 $32,051 $20,774 Jul-84 $31,196 $20,166 Aug-84 $34,191 $22,684 Sep-84 $33,648 $22,791 Oct-84 $33,611 $22,880 Nov-84 $32,993 $22,784 Dec-84 $33,496 $23,435 Jan-85 $37,254 $25,659 2/29/1985 $38,042 $26,119 Mar-85 $37,399 $25,970 Apr-85 $36,747 $25,894 May-85 $39,165 $27,365 Jun-85 $39,965 $28,030 Jul-85 $40,928 $27,994 Aug-85 $40,385 $27,876 Sep-85 $38,429 $26,510 Oct-85 $40,118 $27,883 Nov-85 $42,578 $29,810 Dec-85 $44,235 $30,937 Jan-86 $45,046 $31,633 Feb-86 $48,307 $34,205 Mar-86 $49,783 $36,003 Apr-86 $50,541 $35,845 May-86 $52,554 $37,701 Jun-86 $51,571 $38,216 Jul-86 $47,374 $35,687 Aug-86 $49,140 $38,219 Sep-86 $45,601 $35,511 Oct-86 $48,335 $37,364 Nov-86 $48,946 $37,640 Dec-86 $48,361 $36,569 Jan-87 $54,951 $41,072 Feb-87 $59,189 $43,530 Mar-87 $60,968 $43,942 Apr-87 $60,390 $42,842 May-87 $62,092 $42,989 Jun-87 $64,592 $44,737 Jul-87 $67,740 $46,653 Aug-87 $70,486 $48,302 Sep-87 $68,483 $47,379 Oct-87 $49,455 $35,710 Nov-87 $47,006 $33,727 Dec-87 $53,665 $36,652 Jan-88 $53,930 $38,355 Feb-88 $58,780 $41,072 Mar-88 $60,415 $41,126 Apr-88 $61,386 $41,380 May-88 $60,234 $41,283 Jun-88 $64,720 $44,110 Jul-88 $63,335 $43,225 Aug-88 $61,789 $42,264 Sep-88 $64,192 $43,702 Oct-88 $63,486 $43,889 Nov-88 $62,127 $42,836 Dec-88 $64,859 $43,910 Jan-89 $68,192 $46,537 Feb-89 $67,612 $46,427 Mar-89 $68,994 $47,190 Apr-89 $73,125 $49,465 May-89 $77,254 $51,695 Jun-89 $74,440 $51,503 Jul-89 $79,915 $55,093 Aug-89 $83,387 $56,935 Sep-89 $83,428 $56,413 Oct-89 $79,787 $53,752 Nov-89 $80,873 $54,489 Dec-89 $82,292 $55,446 Jan-90 $75,120 $50,999 Feb-90 $77,825 $52,033 Mar-90 $80,029 $53,300 Apr-90 $78,163 $51,011 May-90 $86,194 $55,632 Jun-90 $87,034 $55,271 Jul-90 $84,425 $53,628 Aug-90 $75,868 $47,860 Sep-90 $71,033 $44,312 Oct-90 $69,568 $42,913 Nov-90 $75,112 $47,046 Dec-90 $78,902 $49,072 Jan-91 $85,003 $52,398 Feb-91 $92,631 $56,764 Mar-91 $97,028 $59,119 Apr-91 $96,459 $59,474 May-91 $101,948 $62,298 Jun-91 $96,909 $59,427 Jul-91 $102,335 $62,340 Aug-91 $105,602 $64,204 Sep-91 $105,329 $63,830 Oct-91 $108,557 $65,138 Nov-91 $104,724 $62,445 Dec-91 $116,960 $69,442 Jan-92 $119,326 $70,748 Feb-92 $120,948 $72,373 Mar-92 $115,847 $70,524 Apr-92 $113,545 $71,075 May-92 $114,312 $71,534 Jun-92 $108,991 $70,374 Jul-92 $112,618 $73,316 Aug-92 $110,272 $71,628 Sep-92 $113,146 $73,113 Oct-92 $117,301 $74,902 Nov-92 $122,190 $78,677 Dec-92 $125,186 $80,789 Jan-93 $125,594 $82,405 Feb-93 $121,886 $82,496 Mar-93 $124,822 $85,179 Apr-93 $121,150 $82,922 May-93 $126,171 $85,555 Jun-93 $126,630 $86,522 Jul-93 $125,543 $86,939 Aug-93 $131,747 $90,806 Sep-93 $134,398 $91,153 Oct-93 $135,795 $91,229 Nov-93 $131,931 $89,113 Dec-93 $138,604 $92,341 Jan-94 $143,687 $94,889 Feb-94 $142,568 $93,598 Mar-94 $134,622 $89,611 Apr-94 $135,889 $90,226 May-94 $134,603 $90,349 Jun-94 $130,975 $87,673 Jul-94 $132,730 $90,682 Aug-94 $141,423 $94,981 Sep-94 $140,120 $92,660 Oct-94 $142,420 $93,369 Nov-94 $137,052 $89,250 Dec-94 $139,650 $90,409 Jan-95 $140,145 $92,266 Feb-95 $146,023 $97,042 Mar-95 $151,805 $99,819 Apr-95 $152,385 $101,324 May-95 $155,053 $104,654 Jun-95 $162,810 $108,171 Jul-95 $174,821 $113,423 Aug-95 $177,454 $115,160 Sep-95 $183,158 $117,762 Oct-95 $179,789 $115,128 Nov-95 $185,416 $120,853 Dec-95 $187,880 $121,558 Jan-96 $190,835 $124,137 Feb-96 $200,326 $127,052 Mar-96 $203,882 $128,890 Apr-96 $212,394 $132,542 May-96 $215,917 $134,544 Jun-96 $206,821 $132,526 Jul-96 $188,917 $124,324 Aug-96 $198,795 $130,243 Sep-96 $211,760 $136,676 Oct-96 $211,966 $137,772 Nov-96 $222,461 $146,165 Dec-96 $223,710 $144,673 Jan-97 $229,653 $150,085 Feb-97 $218,817 $149,858 Mar-97 $204,835 $143,388 Apr-97 $209,029 $147,059 May-97 $236,993 $157,788 Jun-97 $243,285 $162,951 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The chart above shows the performance of the RCM Growth Equity Fund since the Fund's inception versus the Russell Midcap Index.(a) The chart represents a cumulative return of 2,332.84%(b) for the Fund. The average annual total return from the Fund's inception was 19.80%.(b)(c) The chart assumes a hypothetical $10,000 initial investment in the Fund and reflects all Fund expenses. AVERAGE ANNUAL TOTAL RETURNS(b) JUNE 30, 1997 - --------------------------------------- 1 5 10 LIFE OF YEAR YEAR YEAR FUND(c) - --------------------------------------- 17.63% 17.42% 14.18% 19.80% - --------------------------------------- The data above represent past performance of the Fund and may not be indicative of future performance. 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. - ------------- (a) 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. (b) Returns assume reinvestment of all dividends and capital gains distributions at net asset value. (c) The Fund began operations on November 6, 1979. Page 4 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- CONSUMER DURABLES SECTOR 3.38% AUTOMOTIVE RELATED 3.14% 180,000 Johnson Controls Inc. $ 7,391,250 275,000 Lear Corp. * 12,203,125 229,000 Tower Automotive Inc. * 9,847,000 -------------- 29,441,375 -------------- OTHER CONSUMER DURABLES 0.24% 24,000 Harman International Industries Inc. 1,011,000 38,200 Sola International Inc. 1,279,700 -------------- 2,290,700 -------------- CONSUMER NON-DURABLES SECTOR 9.78% BEVERAGE/TOBACCO 0.30% 80,000 Coca Cola Enterprises Inc. 1,840,000 19,500 Robert Mondavi Corp. * 921,375 -------------- 2,761,375 -------------- HOUSEHOLD/RELATED NON-DURABLES 0.36% 42,000 Nu Skin Asia Pacific Inc. * 1,113,000 15,000 Revlon Inc. Class A * 777,188 52,000 Scotts Co. * 1,508,000 -------------- 3,398,188 -------------- LEISURE TIME PRODUCTS/SERVICES 6.03% 42,000 CKE Restaurants Inc. 1,328,250 376,500 Doubletree Corp. * 15,483,563 101,000 Four Seasons Hotels Inc. 2,992,125 455,000 Hasbro Inc. 12,910,625 1,030,900 Host Marriott Corp. * 18,362,906 80,800 Interstate Hotels Co. * 2,378,550 132,000 Planet Hollywood International Inc. * 3,036,000 -------------- 56,492,019 -------------- RETAIL TRADE 3.09% 77,000 American Stores Co. * 3,801,875 61,800 Bed Bath & Beyond Inc. * 1,877,175 34,000 Circuit City Stores Inc. 1,209,125 218,125 Consolidated Stores Corp. * 7,579,844 50,000 Global DirectMail Corp. * 1,303,125 49,000 Hannaford Bros. Co. 1,742,563 42,900 PETsMART Inc. * 493,350 The accompanying notes are an integral part of the financial statements. Page 5 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- RETAIL TRADE (CONTINUED) 33,000 Samsonite Corp. * $ 1,456,125 464,000 Viking Office Products Inc. * 8,816,000 12,000 Walgreen Co. 643,500 ------------- 28,922,682 ------------- CYCLICAL/CAPITAL GOODS SECTOR 14.76% AEROSPACE/DEFENSE 4.21% 75,000 Rohr Industries Inc. * 1,645,313 583,000 Sundstrand Corp. 32,538,688 197,500 Wyman-Gordon Co. * 5,332,500 ------------ 39,516,501 ------------ BUILDING/CONSTRUCTION 0.33% 145,000 Apogee Enterprises Inc. 3,117,500 CHEMICALS/TEXTILES 1.86% 100,000 Avery Dennison Corp. 4,012,500 92,500 Bemis Co. Inc. 4,000,625 95,000 BetzDearborn Inc. 6,270,000 105,000 Morton International Inc. 3,169,688 ------------ 17,452,813 ------------ ELECTRICAL EQUIPMENT 2.65% 197,000 Honeywell Inc. 14,947,375 85,000 Hubbell Inc. Class B 3,740,000 62,500 Raychem Corp. 4,648,438 25,000 Rockwell International Corp. 1,475,000 ------------ 24,810,813 ------------ INDUSTRIAL EQUIPMENT 1.57% 71,500 Danaher Corp. 3,633,094 80,000 Illinois Tool Works Inc. 3,995,000 65,000 Omniquip International Inc. * 1,503,125 80,000 Tyco International Ltd. 5,565,000 ------------ 14,696,219 ------------ RAW/BASIC MATERIALS 0.52% 150,000 Commercial Metals Co. 4,837,500 The accompanying notes are an integral part of the financial statements. Page 6 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- TRANSPORTATION SERVICES 3.62% 225,000 Air Express International Corp. $ 8,943,750 238,500 Expeditors International of Washington Inc. 6,767,438 165,000 Heartland Express Inc. * 3,877,500 100,000 Knight Transportation Inc. * 2,537,500 315,000 Swift Transportation Co. Inc. * 9,292,500 130,000 Werner Enterprises Inc. 2,518,750 ------------ 33,937,438 ------------ ENERGY SECTOR 2.24% OIL AND RELATED SERVICES 2.24% 8,000 BJ Services Co. * 429,000 209,300 Camco International Inc. 11,459,175 135,000 Forcenergy Gas Exploration Inc. * 4,100,625 278,100 Houston Exploration Co. * 4,327,931 15,000 Noble Affiliates Inc. 580,313 5,400 Veritas DGC Inc. * 122,850 ------------ 21,019,894 ------------ HEALTH CARE SECTOR 17.25% DRUGS AND HOSPITAL SUPPLIES 6.19% 25,300 Algos Pharmaceutical Corp. * 461,725 46,000 Amgen Inc. 2,673,750 29,300 Anesta Corp. * 556,700 170,000 Biomet Inc. 3,166,250 410,500 Centocor Inc. * 12,751,156 89,100 CIMA Labs Inc. * 367,538 37,414 Guidant Corp. 3,180,190 14,600 Synthelabo 1,902,422 22,200 MedImmune Inc. * 410,700 28,100 Medtronic Inc. 2,276,100 94,700 Penederm Inc. * 1,278,450 102,600 Physio-Control International Corp. * 1,539,000 43,200 Respironics Inc. * 912,600 42,000 SangStat Medical Corp. * 971,250 98,400 Sepracor Inc. * 2,539,950 320,300 Sofamor/Danek Group Inc. * 14,653,725 354,000 VISX Inc. * 8,407,500 ------------ 58,049,006 ------------ HEALTH CARE SERVICES 11.06% 156,400 AmeriSource Health Corp. * 7,800,450 195,500 Bergen Brunswig Corp. 5,449,563 75,000 CRA Managed Care Inc. * 3,914,063 49,000 Cardinal Health Inc. 2,805,250 The accompanying notes are an integral part of the financial statements. Page 7 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- HEALTH CARE SERVICES (CONTINUED) 69,000 Columbia/HCA Healthcare Corp. $ 2,712,563 142,000 Genesis Health Ventures Inc. * 4,792,500 135,200 HBO & Co. 9,311,900 328,000 Maxicare Health Plans Inc. * 7,339,000 112,000 Medaphis Corp. * 1,127,000 40,000 OccuSystems Inc. * 1,160,000 116,500 Oxford Health Plans Inc. * 8,358,875 327,000 PhyCor Inc. * 11,261,063 9,200 Quintiles Transnational Corp. * 640,550 358,000 Renal Treatment Centers Inc. * 9,621,250 225,000 RoTech Medical Corp. * 4,514,063 46,000 Service Corp International 1,512,250 113,000 Stewart Enterprises Inc. Class A 4,746,000 94,500 Sun Healthcare Group * 1,966,781 52,500 Sunquest Information Systems Inc. * 787,500 282,700 Tenet Healthcare Corp. * 8,357,319 48,000 Universal Health Services Inc. Class B * 1,848,000 87,000 Vencor Inc. * 3,675,750 ------------ 103,701,690 ------------ INTEREST-SENSITIVE SECTOR 8.16% BANKING 5.28% 75,500 BB&T Corp. 3,397,500 30,000 Bank of New York Inc. 1,305,000 301,800 Community First Bankshares Inc. 11,581,575 53,750 Compass Bancshares Inc. 1,807,344 51,000 First American Corp. of Tennessee 1,957,125 70,700 First Security Corp. 1,930,994 60,600 Firstar Corp. 1,848,300 286,400 North Fork Bancorporation Inc. 6,121,800 37,300 Popular Inc. 1,505,988 120,200 WestAmerica Bancorporation 9,135,200 237,000 Zions Bancorp 8,917,125 ------------ 49,507,951 ------------ GENERAL FINANCE 2.29% 76,400 AMRESCO Inc. * 1,642,600 17,500 Bank United Corp. Class A 665,000 61,400 Bay View Capital Corp. 1,611,750 40,122 Charter One Financial Inc. 2,161,573 529,200 Glendale Federal Bank FSB (California) * 13,825,350 32,450 TCF Financial Corp. 1,602,219 ------------ 21,508,492 ------------ The accompanying notes are an integral part of the financial statements. Page 8 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- INSURANCE 0.59% 32,350 Executive Risk Inc. $ 1,682,200 30,300 PMI Group Inc. 1,889,963 19,800 Transatlantic Holdings Inc. 1,965,150 -------------- 5,537,313 -------------- SERVICES/MEDIA SECTOR 12.53% BUSINESS SERVICES 6.06% 111,000 ABR Information Services Inc. * 3,219,000 130,000 AccuStaff Inc. * 3,079,375 33,000 Caribiner International Inc. * 1,076,625 226,000 Danka Business Systems PLC (Sponsored ADR) 9,237,750 70,000 G & K Services Inc. Class A 2,607,500 88,600 JLK Direct Distribution Inc. Class A * 2,270,375 30,000 Manpower Inc. 1,335,000 412,300 Olsten Corp. 8,014,081 282,300 The Registry Inc. * 12,985,800 110,000 TeleTech Holdings Inc. * 2,887,500 119,000 United Waste Systems Inc. * 4,879,000 173,100 Wallace Computer Services Inc. 5,203,819 -------------- 56,795,825 -------------- COMMUNICATIONS SERVICES 5.06% 68,000 Brooks Fiber Properties Inc. * 2,295,000 55,511 Cable & Wireless Communications PLC (ADR) * 1,491,858 162,000 McLeod Inc. * 5,467,500 390,000 Nextel Communications Inc. * 7,385,625 65,000 Orbital Sciences Corp. * 1,031,875 15,000 Pacific Gateway Exchange Inc. * 423,750 145,000 Precision Response Corp. * 2,392,500 24,000 Qwest Communications International Inc. * 654,000 40,300 Saville Systems PLC (Sponsored ADR) * 2,095,600 297,000 SITEL Corp. * 6,125,625 74,100 Smartalk Teleservices Inc. * 1,148,550 267,000 Tel-Save Holdings Inc. * 4,071,750 403,000 WorldCom Inc. 12,896,000 -------------- 47,479,633 -------------- MEDIA 1.41% 74,000 CKS Group Inc. * 2,497,500 247,700 Central European Media Entertainment Ltd. Class A * 6,440,200 7,000 Clear Channel Communications Inc. * 430,500 85,000 Comcast UK Cable Partners Ltd. * 1,020,000 The accompanying notes are an integral part of the financial statements. Page 9 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- MEDIA (CONTINUED) 40,000 Gartner Group Inc. Class A * $ 1,437,500 11,000 Outdoor Systems Inc. * 420,750 28,500 Sylvan Learning Systems Inc. * 969,000 ------------- 13,215,450 ------------- TECHNOLOGY SECTOR 28.35% COMPUTERS/OFFICE EQUIPMENT 1.62% 300,000 Black Box Corp. * 12,075,000 80,250 E M C Corp. * 3,129,750 ------------- 15,204,750 ------------- ELECTRONICS/NEW TECHNOLOGY 16.31% 65,100 ASE Test Limited * 2,750,475 59,200 ASM Lithography Holdings N.V. * 3,463,200 225,000 Altron Inc. * 3,375,000 662,137 Analog Devices Inc. * 17,588,014 38,450 Applied Materials Inc. 2,722,741 217,112 Ascend Communications Inc. * 8,548,785 6,000 Cisco Systems Inc. * 402,750 404,200 Computer Products Inc. * 10,105,000 45,400 Cymer Inc. * 2,213,250 395,000 Cypress Semiconductor Corp. * 5,727,500 17,000 Ericsson LM Telephone Co. (Sponsored ADR) 669,375 49,000 KLA Instruments Corp. * 2,388,750 181,000 LSI Logic Corp. * 5,792,000 22,400 Linear Technology Corp. 1,159,200 144,000 Maxim Integrated Products Inc. * 8,190,000 238,100 Microchip Technology Inc. * 7,083,475 242,000 Molex Inc. Class A 8,439,750 30,000 Network Equipment Technologies Inc. * 540,000 679,400 Network General Corp. * 10,106,075 160,500 Newbridge Networks Corp. * 6,981,750 109,450 Nokia Corp. (Sponsored ADR A) 8,071,938 258,435 Octel Communications Corp. * 6,057,070 14,350 QUALCOMM Inc. * 730,056 115,000 Sanmina Corp. * 7,302,500 18,000 Thermo Electron Corp. * 612,000 191,900 Uniphase Corp. * 11,178,175 219,500 Xilink Inc.* 10,769,219 ------------- 152,968,048 ------------- TECHNOLOGY SERVICES 10.42% 50,500 America Online Inc. * 2,809,063 186,000 American Management Systems Inc. * 4,975,500 The accompanying notes are an integral part of the financial statements. Page 10 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- TECHNOLOGY SERVICES (CONTINUED) 15,000 Aspen Technologies Inc. * $ 564,375 208,600 BISYS Group Inc. * 8,709,050 73,150 Business Objects S.A. (Sponsored ADR) * 713,213 41,200 CBT Group PLC (Sponsored ADR) * 2,600,750 143,900 CUC International Inc. * 3,714,419 73,400 Ceridian Corp. * 3,101,150 28,300 Computer Associates International Inc. 1,575,956 43,100 Computer Sciences Corp. * 3,108,588 62,250 Electronics Arts Inc. * 2,093,156 208,600 McAfee Associates Inc. * 13,167,875 33,250 National Data Corp. 1,440,141 193,300 PeopleSoft Inc. * 10,196,575 15,000 Renaissance Solutions Inc. * 555,000 455,825 Sterling Commerce Inc. * 14,985,247 87,000 Vantive Corp. * 2,457,750 247,050 VERITAS Software Co. * 12,414,263 210,000 Wind River Systems Inc. * 8,032,500 12,740 Yahoo Inc. * 449,073 ------------- 97,663,644 ------------- TOTAL EQUITY INVESTMENTS 96.45% 904,326,819 (COST $741,476,210) ------------- SHORT-TERM INVESTMENTS MONEY MARKET FUNDS 3.56% 1,204,982 SSgA U.S. Government Money Market Fund 1,204,982 32,163,250 SSgA Money Market Fund 32,163,250 ------------- 33,368,232 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $33,368,232) 3.56% 33,368,232 ------------- TOTAL INVESTMENTS (COST $774,844,442)** 937,695,051 OTHER ASSETS LESS LIABILITIES -0.01% (54,063) ------------- NET ASSETS 100.00% $ 937,640,988 ------------- ------------- * Non-income producing security. The accompanying notes are an integral part of the financial statements. Page 11 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) _____________________ TAX INFORMATION: ** For Federal income tax purposes, cost is $780,288,664 and unrealized appreciation (depreciation) of equity securities is as follows: Unrealized appreciation $ 173,402,858 Unrealized depreciation (15,996,471) ------------- Net unrealized appreciation $ 157,406,387 ------------- ------------- The accompanying notes are an integral part of the financial statements. Page 12 This page intentionally left blank Page 13 RCM SMALL CAP FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The RCM Small Cap Fund (the "Fund") registered excellent performance in the second quarter of 1997, rising 21.24% and outperforming its primary benchmark, the Russell 2000 Index, by 503 basis points. Over the first six months of the year, the value of an investment in the Fund appreciated 7.65%. Despite these results, however, the Fund finished behind the 10.20% return posted by its primary benchmark for the same period. Perhaps the most prominent characteristic of the stock market's action during the "summer correction" of 1996 and its subsequent advance through the first half 1997 has been the persistent leadership of very large capitalization issues. Investors who had participated in the blistering advance and subsequent collapse of small cap stocks in the first half of 1996 have since been willing to accord a premium to liquidity and the perception of "visible growth" as embodied in the stocks of the biggest multinational corporations. The decline in small cap universes in the correction of 1996 was much more violent than that of the large cap market. The resumption of huge cash flows into the stock market from institutional and equity mutual fund investors after the correction coincided with a rise in the popularity of passive indexing tied to large cap universes, which has only exacerbated the pronounced performance divergence between capitalization tiers. Despite the lagging performance of small cap stock universes in the second half of 1996, there were reasons to be optimistic about a turn in relative performance for quality small cap stocks going into 1997. Seasonal factors for so-called "secondary cap" sectors of the market traditionally are favorable early in a new year, as smaller capitalization stocks typically register their strongest monthly relative performance in the January/February period. RCM Capital Management, L.L.C. ("RCM"), the Fund's investment manager, was encouraged by evidence of improved relative strength in small cap stocks in the final month of 1996, and hopeful that seasonal strength in mutual fund cash flows would support a catch-up move versus large capitalization equities in early 1997. Importantly, valuations of small cap universes had become attractive versus their own historical ranges and relative to large caps, especially given RCM's outlook for higher relative earnings growth in the small cap sector. Based on these considerations and RCM's commitment to a quality growth approach to investing, the Fund entered 1997 with overweighted positions in high-growth areas such as technology, business services and health care. While the Fund did maintain some exposure to the banking and financial services industry groups, these were underweighted areas relative to the primary benchmark, which has heavy weightings in these groups. (As a growth manager, RCM typically maintains only modest exposure to these interest-rate-sensitive industries.) The relative move in the small cap sector did not materialize in the first quarter, however, and market leadership continued to narrow, concentrating in stocks of the very large cap multinationals. The much-anticipated small cap "January Effect" failed to occur for the third consecutive year, and by late February a more pronounced secondary cap decline was evident, particularly in technology stocks. Federal Reserve Chairman Greenspan's cautionary comments regarding "irrational exuberance" early in the first quarter did not slow seasonally strong mutual fund cash flows, but did seem to intensify investors' preference for large cap, liquid names. Small caps -- especially higher growth and higher P/E multiple sectors -- underperformed when the market corrected in March on fears of rising interest rates, but the worst relative performance of the year occurred in April. By the end of April 1997, the spread between the 12-month S&P 500 return and Russell 2000 Index performance had reached its highest level ever, at -25%. Due to the Fund's growth-stock orientation, Fund performance trailed the Russell 2000 Index by 852 basis points through the first four months of 1997. Page 14 Large cap stocks made a major bottom with the easing of interest rate fears in mid-April, but it took a few weeks before small caps joined the move. Relative valuation and performance disparities set up an explosive small cap rally in May. The Fund was well positioned to benefit, as extremely compressed multiples of quality growth issues expanded and technology stocks re-emerged as market leaders. The Russell 2000 Index outperformed the S&P 500 by 506 basis points for the month of May alone, and essentially matched the performance of the S&P 500 in June. The Fund outperformed the Russell 2000 Index by 845 basis points in the final two months of the first half of 1997. Despite the severity of the correction in small cap technology in March, individual stock selection in computers and office equipment made a positive contribution to the Fund's relative performance in the first half. The Fund's holdings in this group were up an aggregate of 23% versus a gain of approximately 3% for the Russell 2000 Index stocks in this group. The Fund's major holding in this industry was Micros Systems, which registered a total return of +37% in the first half of 1997. Stock selection in the leisure time products and services group also added to relative performance, owing largely to the Fund's meaningful positions in lodging stocks such as Four Seasons Hotels (+26% total return in the first half of 1997) and CapStar Hotel Co. (+61%). The Fund also experienced positive contributions from stock picking in the banking, industrial equipment, and automotive-related industry groups during the first half. Negative stock selection was experienced in the electronics and new technology group. Relative performance was hurt in particular by declines in Network General (-51%), Altron (-29%) and Actel (-28%), causing the aggregate performance of the Fund's holdings to fall short of the average gain of approximately 7% posted by the Russell 2000 Index stocks in this industry for the first half of 1997. The Fund also experienced a negative contribution to relative performance from stock selection in the retail trade sector. Industry strategies that were positive contributors to the Fund's relative performance in the first half included overweightings in the strong business services sector (12% weighting in the Fund versus 5% in the Russell 2000 Index) and in the electronics and new technology group (14% versus 7% in the benchmark). Relative performance of the Fund also benefited from a strategic underweighting in the lagging utilities industry group. (Due to RCM's growth-stock orientation, the Fund typically does not maintain exposure to utility stocks.) On the negative side, overweighting the poorly performing technology services industry group hurt the Fund's relative performance in the first six months of 1997. Technology services stocks in the Russell 2000 Index underperformed the overall benchmark by about 13% for the period. This sector had traditionally been a "defensive" subsector within the technology universe, and RCM believed that these stocks would fare relatively better than other areas of technology in a group correction. However, technology service stocks came under severe pressure in the first quarter, as a bellwether large cap service stock (Electronic Data Systems) posted disappointing earnings and questions arose surrounding the ability of services companies to contain costs. In fact, the Fund's technology service holdings generally had excellent fundamentals, and these holdings rebounded powerfully in the May rally and through the end of the first half. The Fund's underweighted positions in insurance and banking also had a modestly negative impact on relative performance for the period. Due to RCM's growth-stock orientation, it is typical for the Fund to have only modest relative exposure in these industries. The Fund's average cash position of about 3% during the first half of 1997 was at the low end of its "normal" range, and cash had negligible impact on relative performance despite the rising market environment. Page 15 Going into the second half of 1997, the equity market environment appears to reflect an extremely favorable economic outlook: low inflation, continued healthy -- but not overheated -- GDP growth, and no immediate reason to anticipate an interest rate hike by the Federal Reserve. Stocks reached new highs early in the third quarter, surprising many observers who had not expected 1997 to repeat the exceptional returns of the previous two years. Heightened vigilance to potential changes in the environment is certainly warranted given current market levels, but RCM is encouraged by the improved relative performance of secondary capitalization stocks at the end of the first half of the year. Although it is not clear that a sustained period of outperformance lies ahead, RCM continues to believe that relative valuations of small cap stocks are attractive, especially in light of RCM's outlook for higher relative growth in this sector. The Fund retains significant overweightings in growth industries such as technology, health care, and telecommunications, with a cash position at the lower end of a "normal" range. Page 16 [RCM SMALL CAP FUND PERFORMANCE SUMMARY - -------------------------------------------------------------------------------- RCM RUSSELL SMALL 2000 CAP FUND INDEX --------- --------- Dec-91 $10,000 $10,000 Jan-92 $10,786 $10,811 Feb-92 $11,118 $11,127 Mar-92 $10,850 $10,751 Apr-92 $10,613 $10,373 May-92 $10,703 $10,511 Jun-92 $10,165 $10,017 Jul-92 $10,530 $10,366 Aug-92 $10,336 $10,072 Sep-92 $10,603 $10,304 Oct-92 $11,002 $10,630 Nov-92 $11,807 $11,444 Dec-92 $12,214 $11,842 Jan-93 $12,212 $12,242 Feb-93 $11,792 $11,960 Mar-93 $12,082 $12,348 Apr-93 $11,636 $12,008 May-93 $12,102 $12,539 Jun-93 $12,134 $12,617 Jul-93 $12,126 $12,791 Aug-93 $12,580 $13,344 Sep-93 $13,037 $13,720 Oct-93 $13,186 $14,074 Nov-93 $12,728 $13,615 Dec-93 $13,337 $14,080 Jan-94 $13,592 $14,522 Jan-94 $13,431 $14,469 Jan-94 $12,712 $13,707 Jan-94 $12,637 $13,788 Jan-94 $12,411 $13,633 Jan-94 $11,990 $13,173 Jan-94 $12,173 $13,390 Jan-94 $13,095 $14,136 Jan-94 $13,073 $14,088 Jan-94 $13,240 $14,031 Jan-94 $12,765 $13,464 Jan-94 $13,049 $13,824 Jan-95 $12,958 $13,649 Jan-95 $13,392 $14,217 Jan-95 $13,900 $14,461 Jan-95 $14,064 $14,782 Jan-95 $14,030 $15,037 Jun-95 $14,728 $15,817 Jun-95 $15,706 $16,728 Jun-95 $16,245 $17,074 Jun-95 $16,900 $17,380 Jun-95 $16,330 $16,602 Jun-95 $16,882 $17,300 Jun-95 $17,496 $17,756 Jan-96 $17,973 $17,737 Jan-96 $18,914 $18,290 Jan-96 $19,374 $18,662 Jan-96 $20,684 $19,660 Jan-96 $21,660 $20,435 Jun-96 $20,993 $19,596 Jul-96 $18,958 $17,884 Aug-96 $20,592 $18,923 Sep-96 $22,457 $19,662 Oct-96 $22,226 $19,359 Nov-96 $22,488 $20,157 Dec-96 $23,514 $20,685 Jan-97 $23,754 $21,098 Feb-97 $22,335 $20,587 Mar-97 $20,877 $19,615 Apr-97 $20,357 $19,670 May-97 $23,953 $21,858 Jun-97 $25,312 $22,795 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The chart above shows the performance of the RCM Small Cap Fund since the Fund's inception versus the Russell 2000 Index.(a) The chart represents a cumulative return of 153.12%(b) for the Fund. The average annual total return from the Fund's inception was 18.39%.(b)(c) The chart assumes a hypothetical $10,000 initial investment in the Fund and reflects all Fund expenses. AVERAGE ANNUAL TOTAL RETURNS(b) JUNE 30, 1997 - ----------------------------- LIFE OF 1 YEAR 5 YEAR FUND(c) - ----------------------------- 20.58% 20.02% 18.39% - ----------------------------- The data above represent past performance of the Fund and may not be indicative of future performance. 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. - ---------------------- (a) 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. (b) Returns assume reinvestment of all dividends and capital gains distributions at net asset value. (c) The Fund began operations on January 4, 1992. Page 17 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- CONSUMER DURABLES SECTOR 3.21% AUTOMOTIVE RELATED 2.92% 143,900 Dura Automotive Systems Inc. * $ 4,029,200 186,000 Keystone Automotive Industries Inc. * 3,162,000 221,700 Tower Automotive Inc. * 9,533,100 ------------- 16,724,300 ------------- CONSUMER DURABLES 0.29% 50,000 Sola International Inc. * 1,675,000 CONSUMER NON-DURABLES SECTOR 8.88% FOOD/FOOD PROCESSING 0.48% 66,400 Suiza Foods Corp. * 2,722,400 HOUSEHOLD/RELATED NON-DURABLES 1.88% 257,000 Carson Inc. * (a) 2,762,750 276,000 Scotts Co. * 8,004,000 ------------- 10,766,750 ------------- LEISURE TIME PRODUCTS/SERVICES 3.44% 451,500 CapStar Hotel Co. * 14,448,000 29,000 Four Seasons Hotels Inc. 859,125 148,000 Interstate Hotels Co. * 4,356,750 ------------- 19,663,875 ------------- RETAIL TRADE 3.08% 113,200 Cole National Corp. * 4,980,800 17,700 Linens 'n' Things Inc. * 524,363 264,000 Regis Corp. 6,237,000 133,000 Samsonite Corp. * 5,868,625 ------------- 17,610,788 ------------- The accompanying notes are an integral part of the financial statements. Page 18 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- CYCLICAL/CAPITAL GOODS SECTOR 14.35% AEROSPACE/DEFENSE 3.22% 260,800 Doncasters PLC * $ 6,031,000 460,000 Wyman-Gordon Co. * 12,420,000 ------------- 18,451,000 ------------- BUILDING/CONSTRUCTION 1.81% 40,000 Apogee Enterprises Inc. 860,000 145,300 Comfort Systems USA Inc. * 2,270,313 204,000 NCI Building Systems Inc. * 6,604,500 25,000 Service Experts Inc. * 612,500 ------------- 10,347,313 ------------- ELECTRICAL EQUIPMENT 0.54% 108,500 Littelfuse Inc. * 3,065,125 INDUSTRIAL EQUIPMENT 1.52% 75,000 Furon Co. 2,353,125 273,300 Omniquip International Inc. * 6,320,063 ------------- 8,673,188 ------------- TRANSPORTATION SERVICES 7.26% 196,000 Air Express International Corp. 7,791,000 354,000 Covenant Transport Inc. Class A * 5,796,750 225,000 Expeditors International of Washington Inc. 6,384,375 145,000 Heartland Express Inc. * 3,407,500 105,200 Hub Group Inc. * 3,169,150 354,200 Kitty Hawk Inc. * 5,313,000 32,500 Knight Transportation Inc. * 824,688 157,000 Mark VII Inc. * 5,024,000 75,000 Swift Transportation Co. Inc. * 2,212,500 86,000 Werner Enterprises Inc. 1,666,250 ------------- 41,589,213 ------------- The accompanying notes are an integral part of the financial statements. Page 19 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- ENERGY SECTOR 2.95% ENERGY 2.95% 15,000 Camco International Inc. $ 821,250 133,100 Forcenergy Gas Exploration Inc. * 4,042,913 8,500 Hanover Compressor Co. * 165,750 467,500 Houston Exploration Co. * 7,275,469 201,600 Veritas DGC Inc. * 4,586,400 ------------- 16,891,782 ------------- HEALTH CARE SECTOR 17.14% DRUGS AND HOSPITAL SUPPLIES 7.90% 106,000 Algos Pharmaceutical Corp. * 1,934,500 59,100 Anesta Corp. * 1,122,900 142,500 Bone Care International Inc. * 1,852,500 14,000 Cardiac Pathways Corp. * 126,000 365,000 CIMA Laboratories Inc. * 1,505,625 79,000 Closure Medical Corp. * 1,520,750 54,000 COR Therapeutics Inc. * 573,750 56,000 Creative BioMolecules Inc. * 395,500 206,000 Endosonics Corp. * 2,240,250 49,000 GelTex Pharmaceuticals Inc. * 986,125 29,000 Inhale Therapeutic Systems * 717,750 47,000 Ligand Pharmaceuticals Inc. Class B * 605,125 210,000 LUNAR Corp. * 4,567,500 33,000 MedImmune Inc. * 610,500 52,000 NPS Pharmaceuticals Inc. * 500,500 137,800 NaPro BioTherapeutics Inc. * 999,050 47,500 NeXstar Pharmaceuticals Inc. * 676,875 10,000 PathoGensis Corp. * 291,250 90,000 Penederm Inc. * (b) 1,215,000 7,000 Protein Design Laboratories Inc. * 199,500 219,000 SangStat Medical Corp. * 5,064,375 124,700 Sepracor Inc. * 3,218,819 121,300 Sofamor/Danek Group Inc. * 5,549,475 8,000 Vertex Pharmaceuticals Inc. * 306,000 356,200 VISX Inc. * 8,459,750 ------------- 45,239,369 ------------- The accompanying notes are an integral part of the financial statements. Page 20 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- HEALTH CARE SERVICES 9.24% 234,400 Advanced Health Corp. * $ 4,307,100 261,200 American Retirement Corp. * 4,636,300 43,000 Arbor Health Care Co. * 1,333,000 54,000 CRA Managed Care Inc. * 2,818,125 217,500 Curative Technologies Inc. * 6,253,125 90,700 Harborside Healthcare Corp. * 1,292,475 235,000 Home Health Corp. of America Inc. * 2,232,500 386,300 Maxicare Health Plans Inc. * 8,643,463 75,000 OccuSystems Inc. * 2,175,000 230,000 Raytel Medical Corporation * 2,645,000 195,600 Renal Treatment Centers Inc. * 5,256,750 55,600 Renal Care Group Inc. * 2,317,825 180,000 RoTech Medical Corp. * 3,611,250 233,200 Sun Healthcare Group * 4,853,475 30,000 Transition Systems Inc. * 545,625 ------------- 52,921,013 ------------- INTEREST-SENSITIVE SECTOR 7.35% BANKING 5.19% 243,300 Community First Bankshares Inc. 9,336,638 120,000 Silicon Valley Bancshares * 5,430,000 170,000 Texas Regional Bancshares Inc. Class A 7,140,000 102,800 WestAmerica Bancorporation 7,812,800 ------------- 29,719,438 ------------- GENERAL FINANCE 1.75% 232,000 AMRESCO Inc. * 4,988,000 145,000 Glendale Federal Bank FSB (California) * 3,788,125 38,900 OCWEN Financial Corp. * 1,269,113 ------------- 10,045,238 ------------- INSURANCE 0.41% 49,100 CMAC Investment Corp. 2,344,525 The accompanying notes are an integral part of the financial statements. Page 21 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- SERVICES/MEDIA SECTOR 15.83% BUSINESS SERVICES 10.72% 172,500 ABR Information Services Inc. * $ 5,002,500 159,000 Caribiner International Inc. * 5,187,375 186,500 Data Processing Corp. * 4,359,438 283,300 F. Y. I. Inc. * 6,799,200 314,000 Healthcare Recoveries Inc. * 6,083,750 142,000 Iron Mountain Inc. * 4,260,000 203,000 JLK Direct Distribution Inc. Class A * 5,201,875 299,000 Personnel Group of America Inc. * 8,614,938 133,100 The Registry Inc. * 6,122,600 86,500 Romac International * 2,832,875 98,100 Source Services Corp. * 2,636,438 176,000 Wilmar Industries Inc. * 4,290,000 ------------- 61,390,989 ------------- COMMUNICATIONS SERVICES 2.78% 168,200 Channell Commercial Corp. * 2,270,700 200,000 Precision Response Corp. * 3,300,000 30,000 SITEL Corp. * 618,750 447,400 Smartalk Teleservices Inc. * 6,934,700 182,000 Tel-Save Holdings Inc. * 2,775,500 ------------- 15,899,650 ------------- MEDIA 2.33% 276,300 Central European Media Entertainment Ltd. Class A * 7,183,800 81,800 Regal Cinemas Inc. * 2,699,400 101,900 Sylvan Learning Systems Inc. * 3,464,600 ------------- 13,347,800 ------------- TECHNOLOGY SECTOR 27.74% COMPUTERS/OFFICE EQUIPMENT 5.28% 385,000 Black Box Corp. * 15,496,250 322,000 Micros Systems Inc. * 13,524,000 57,000 Radiant Systems Inc. * 1,189,875 ------------- 30,210,125 ------------- The accompanying notes are an integral part of the financial statements. Page 22 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------- ---------- ------------- ELECTRONICS/NEW TECHNOLOGY 12.81% 185,000 ADE Corp. * $ 5,503,750 81,100 ASE Test Limited * 3,426,475 538,300 Actel Corp. * 9,184,744 346,000 Altron Inc. * 5,190,000 847,000 Computer Products Inc. * 21,175,000 183,000 Continental Circuits Corp. * 2,539,125 45,000 Cymer Inc. * 2,193,750 195,000 Network Equipment Technologies Inc. * 3,510,000 417,000 Network General Corp. * 6,202,875 29,000 Octel Communications Corp. * 679,688 91,000 Sanmina Corp. * 5,778,500 136,000 Uniphase Corp. * 7,922,000 ------------- 73,305,907 ------------- TECHNOLOGY SERVICES 9.65% 125,800 American Management Systems Inc. * 3,365,150 127,000 Aspen Technologies Inc. * 4,778,375 141,000 BISYS Group Inc. * 5,886,750 8,000 CBT Group PLC (Sponsored ADR) * 505,000 220,000 Engineering Animation Inc. * 7,425,000 196,400 The Indus Group Inc. * 3,977,100 288,500 International Telecommunication Systems Inc. * 7,068,250 254,500 Renaissance Solutions Inc. * 9,416,500 231,100 Unison Software Inc. * 1,617,700 20,000 Vantive Corp. * 565,000 98,600 VERITAS Software Co. * 4,954,650 148,600 Wind River Systems Inc. * 5,683,943 ------------- 55,243,418 ------------- TOTAL EQUITY INVESTMENTS 97.45% 557,848,206 (COST $448,680,810) ------------- The accompanying notes are an integral part of the financial statements. Page 23 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- ---------- ------------- SHORT-TERM INVESTMENTS MONEY MARKET FUNDS 3.61% 146,765 SSgA U.S. Government Money Market Fund $ 146,765 20,490,371 SSgA Money Market Fund 20,490,371 ------------- 20,637,136 ------------- TOTAL SHORT-TERM INVESTMENTS 3.61% 20,637,136 (COST $20,637,136) ------------- TOTAL INVESTMENTS (COST $469,317,946) ** 101.06% 578,485,342 OTHER ASSETS LESS LIABILITIES -1.06% (6,057,864) ------------- NET ASSETS 100.00% $572,427,478 ------------- ------------- * Non-income producing security. (a) Affiliate at June 30, 1997. Affiliates, as defined by the Investment Company Act of 1940, are those companies in which a fund holds 5% or more of the outstanding voting securities. (b) Shares require prospectus on sale. - --------------------- TAX INFORMATION: ** For Federal income tax purposes, cost is $470,532,539 and unrealized appreciation (depreciation) of equity securities is as follows: Unrealized appreciation $122,136,365 Unrealized depreciation (14,183,562) ------------- Net unrealized appreciation $107,952,803 ------------- ------------- The accompanying notes are an integral part of the financial statements. Page 24 This page intentionally left blank Page 25 RCM INTERNATIONAL GROWTH EQUITY FUND A MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE In the first half of 1997, global equity markets enjoyed a significant rally, with the EAFE Index rising 11.36% as the German sector surged 17% (32% in local currency terms). Equity markets benefited from a relatively benign environment. During the second quarter, the U.S. dollar continued to edge higher against the German mark and other core European currencies, reflecting the convergence into a single currency bloc, while weakening slightly against the Japanese yen. Emerging markets in Latin America posted a 40% rise, while those in Southeast Asia (+6.5%) and in Eastern Europe (-3.5%) lagged behind. The RCM International Growth Equity Fund A (the "Fund") had a portfolio return of 17.22% for the six months ended June 30, 1997, which exceeded the EAFE Index by 586 basis points. For the 12-month period ended June 30, 1997, the Fund enjoyed a portfolio return of 23.58%--1,043 basis points above the EAFE Index. The Fund's other benchmark, the MSCI All Country World Free Ex-US Index (ACWI), returned 12.70% in the 6-month period and 14.14% in the last twelve months. RCM Capital Management, L.L.C. ("RCM"), the Fund's investment manager, firmly believes in its investment philosophy of seeking out the highest-growth companies in the world. This philosophy has remained the same since inception of the Fund and its implementation is expected to be enhanced by additional research resources located around the globe. RCM's philosophy of seeking out companies with world-class managements that--through either organic sales growth, restructuring, or demographic change--are able to increase earnings in a sustainable manner has led the Fund over the last six months to maintain an overweight in European and Latin American stocks. The Fund remained overweighted in Canada and underweighted in Southeast Asia and Eastern Europe. Improved earnings forecasts for both Japanese exporters and electronics firms prompted RCM to increase the Fund's weighting in Japanese equities during the last six months, contributing to performance during the second quarter when the Japanese equity market rose 23%. Europe continues to benefit from accommodative monetary policies as governments attempt to reduce fiscal spending ahead of Maastricht. The effect on corporate earnings from reduced fiscal spending has been more than offset by significant restructuring taking place in the corporate sector, as well as consolidation within industry groups. RCM expects economic growth to improve in the latter part of this year--however, growth is expected to be gradual enough to allow the regional central banks to maintain neutral positions. The Fund's portfolio is positioned to benefit from improved efficiencies in the financial and insurance sectors, improved business and consumer sentiment, and the technological demands of preparing for a single currency and the millennium. Japan seems to have finally embarked upon a plan to reform its financial system. While the ruling Liberal-Democratic Party (LDP) will not gain a full majority of the Diet (and thus ensure passage of reforms) until next year, investors are beginning to see a loosening of Japan's regulatory reins. The economic recovery brought forth in part by a weakening of the yen resulted in the segregation of two corporate sectors in Japan--the large exporters showing record profits and the smaller domestic-oriented manufacturers continuing to struggle. RCM believes that the central bank remains acutely aware of the fragility of the domestic recovery and is likely to maintain current monetary and foreign exchange policies for the foreseeable future. The Fund's portfolio is positioned to take advantage of anticipated improved productivity and higher sales generated by exporters, as well as by domestic companies involved in technology. Latin America rallied strongly in the first six months of 1997 as the difficult economic policies implemented over the last two years began to show positive results. Corporate profitability continues to surprise as managements adopt management systems from abroad and are able to improve productivity by tying wages to efficiency gains. The Fund's portfolio is focused on what RCM believes to be high-quality companies that should benefit from the cyclical expansion in the region and should be able to deliver sustainable earnings growth. Page 26 Southeast Asia, where the Fund has been underweighted for the last six months, underperformed the rest of the advancing global markets. The rapid growth rate of the last several years and expansion in productive capacity finally stretched the abilities of these markets to finance the growth from increased offshore borrowings. For much of the second quarter, investors waited for the region's currency regimes to give up on a fixed exchange-rate system and allow the free market to set the appropriate exchange levels. As these events have unfolded, RCM has sought out companies with high internal-cash generation that will allow them to grow without requiring additional capital. While RCM believes the current benign conditions will continue in place for the foreseeable future, it is worthwhile to point out certain triggers that could cause a shift in investors' perceptions of risk and reward: * A higher U.S. interest-rate environment that would lead to an upward bias in global rates, reduce global liquidity, and stymie flows into emerging markets. * A weaker U.S. dollar which could trigger capital flow reversal. Foreign flows of capital into U.S. markets, especially bonds, have helped to keep U.S. rates low. * Higher Japanese interest rates without any policy shift in the United States and/or Germany could trigger capital flow reversal and result in a weakening of the U.S. dollar. In the past, RCM has stated that the kind of global interest rate and inflation scenario as reflected in the current market environment favors RCM's growth-stock philosophy of investing. RCM's central forecast for the next six months maintains that global liquidity should continue to be ample and that cyclical recoveries in several major economies should favor an earnings growth-stock environment. RCM's enthusiasm is somewhat tempered by current valuations, which in some equity markets around the world have been taken to historical highs. Nevertheless, RCM believes these levels are justifiable as we live through the lowest interest-rate environment in several decades. Volatility has been increasing as these markets reach new highs--however, earnings growth due to expanding margins, as companies around the globe restructure and improve productivity, has to date warranted neither higher risk premiums nor lower market multiples. Investors continue to place premiums on companies that can show sustainable earnings growth. RCM remains focused on valuations relative to local markets and global peer groups in order to maintain a disciplined approach to international investing. RCM's expanding resources and research produced by Grassroots Research should enable RCM to generate new investment ideas. Page 27 RCM INTERNATIONAL GROWTH EQUITY FUND A PERFORMANCE SUMMARY - -------------------------------------------------------------------------------- PERFORMANCE FROM COMMENCEMENT OF OPERATIONS [GRAPH] Fund EAFE ACWI ----------------------------------- 12/28/94 50,000 50,000 50,000 47,772 48,090 48,146 47,881 47,965 47,881 3/31/95 50,264 50,972 50,586 52,453 52,904 52,559 52,815 52,285 52,328 6/30/95 54,230 51,381 51,605 57,845 54,590 54,537 57,095 52,520 52,644 9/30/95 58,320 53,560 53,544 57,440 52,140 52,115 57,605 53,605 53,340 12/31/95 58,995 55,770 55,446 60,630 56,010 56,206 61,355 56,215 56,206 3/31/96 63,240 57,420 57,251 65,480 59,105 58,986 66,315 58,030 58,101 6/30/96 66,766 58,370 58,398 64,611 56,677 56,459 65,541 56,813 56,792 9/30/96 67,021 58,336 58,200 66,510 57,753 57,618 69,318 60,063 59,843 12/31/96 70,391 59,306 59,148 71,775 57,242 58,060 72,383 58,192 59,123 3/31/97 72,051 58,419 58,998 73,269 58,740 59,494 78,028 62,576 63,171 6/30/97 82,510 66,043 66,658 PERFORMANCE FROM FIRST PUBLIC OFFERING 5/22/95 50,000 50,000 50,000 52,900 49,800 52,775 51,160 49,920 51,110 6/30/95 52,535 49,054 50,405 56,035 52,122 53,268 55,310 50,146 51,419 9/30/95 56,495 51,138 52,299 55,645 49,777 50,902 55,805 51,175 52,098 12/31/95 57,150 53,250 54,156 58,735 53,481 54,898 59,435 53,675 54,898 3/31/96 61,270 54,829 55,919 63,430 56,436 57,614 64,240 55,411 56,749 6/30/96 64,677 55,737 57,039 62,105 54,120 55,145 63,490 54,250 55,471 9/30/96 64,924 55,704 56,846 64,429 55,147 56,278 67,149 57,353 58,450 12/31/96 68,189 56,630 57,772 69,529 54,659 56,709 70,119 55,567 57,747 3/31/97 69,797 55,784 57,626 70,976 56,090 58,110 75,587 59,753 61,701 6/30/97 79,929 63,063 65,107 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)(a) and the Morgan Stanley Capital International All Country World Free Ex-US Index (MSCI-ACWI)(b). The charts represent cumulative returns of 65.02%(c) and 59.86%(c) for the Fund from December 28, 1994(d) to June 30, 1997 and from May 22, 1995(e) to June 30, 1997, respectively. The charts assume a hypothetical $50,000 initial investment in the Fund and reflect all Fund expenses. AVERAGE ANNUAL TOTAL RETURNS(c) JUNE 30,1997 LIFE OF FUND ANNUALIZED SINCE ----------------------------- 1 YEAR 12/28/94(d) 5/22/95(e) - --------------------------------------- 23.58% 22.11% 24.93% - --------------------------------------- The data above represent past performance of the Fund and may not be indicative of future performance. 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. - --------------------- (a) 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. (b) The MSCI-ACWI Index is a market capitalization-weighted index composed of companies representative of the market structure of 47 developed and emerging market countries excluding the United States. Stock selection excludes securities which are not purchasable by foreigners. The index is calculated on a total return basis, which includes reinvestment of gross dividends before deduction of withholding taxes. (c) Returns assume reinvestment of all dividends and capital gains distributions at net asset value. (d) The Fund commenced operations on December 28, 1994. (e) The Fund's shares were first offered to the public on May 22, 1995. Page 28 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED)
% OF SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE ------ ------- -------------------------------------- ---------- ------------ CONSUMER DURABLES SECTOR 5.34% AUTOMOTIVE RELATED 3.15% 14,000 SE Autoliv AB $ 547,750 2,475 DE Volkswagen AG 1,898,999 ------------- 2,446,749 ------------- CONSUMER DURABLES 2.19% 19,500 JP Sony Corp. 1,702,394 CONSUMER NON-DURABLES SECTOR 15.07% BEVERAGE/TOBACCO 2.95% 140,000 MX Fomento Economico Mexicano Series B 828,963 25,000 PA Pan American Beverages Inc. Class A 821,875 190,000 SE Swedish Match AB 638,872 ------------- 2,289,710 ------------- FOOD/FOOD PROCESSING 3.00% 220,000 ID PT Daya Guna Samudera 395,846 25,220 JP Hokuto Corp. 892,607 5,650 FR Lambert Dodard Chancereul S.A. 1,036,470 ------------- 2,324,923 ------------- HOUSEHOLD/RELATED NON-DURABLES 1.07% 55,000 CH Tag Heuer International S.A. (Sponsored ADR)* 828,438 LEISURE TIME PRODUCTS/SERVICES 3.11% 13,000 CA Four Seasons Hotels Inc. 385,125 30,000 JP NAMCO 1,158,787 6,000 FR Salomon S.A. 457,951 10,000 ES Sol Melia S.A. 411,369 ------------- 2,413,232 ------------- RETAIL TRADE 4.94% 7,800 DE Adidas AG 863,914 665,000 MX Cifra S.A. de CV Class B 1,237,285 13,500 JP Circle K Japan Co. * 776,282 85,000 GB Next PLC 959,136 ------------- 3,836,617 -------------
The accompanying notes are an integral part of the financial statements. Page 29 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED)
% OF SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE ------ ------- -------------------------------------- ---------- ------------ CYCLICAL/CAPITAL GOODS SECTOR 14.64% BUILDING/CONSTRUCTION 4.02% 100,000 HK China Resources Enterprises Ltd. * $ 490,495 197,000 MX Consorcio ARA S.A. * 692,204 12,214 NL Hunter Douglas N.V. 1,041,043 65,000 JP Mitsui Fudosan Co. Ltd. 897,492 ------------- 3,121,234 ------------- CHEMICALS/TEXTILES 3.32% 17,000 DE Bayer AG 653,841 17,300 DE Hoechst AG 734,479 18,000 CL Sociedad Quimica y Minera de Chile S.A. (Sponsored ADR) 1,190,250 ------------- 2,578,570 ------------- ELECTRICAL EQUIPMENT 1.40% 15,800 JP Hirose Electric Co. Ltd. 1,085,275 INDUSTRIAL EQUIPMENT 3.89% 11,700 DE Pfeiffer Vacuum Technology AG (Sponsored ADR) * 340,763 39,000 GB Powerscreen International PLC 426,444 82,000 AU Smith (Howard) * 774,017 720 CH Sulzer AG 617,347 720 CH Sulzer AG Rights expiring 7/9/97 * - 42,000 NO Tomra Systems A/S 860,562 ------------- 3,019,133 ------------- RAW/BASIC MATERIALS 1.59% 9,000 DE SGL Carbon AG 144A (a) 1,233,376 TRANSPORTATION SERVICES 0.42% 12,000 IE Ryanair Holdings PLC (Sponsored ADR) * 325,500 ENERGY SECTOR 2.29% ENERGY 2.29% 6,600 GB British Petroleum Co. PLC (ADR) 494,175 51,332 GB British Petroleum Co. PLC 638,176 114,000 IT ENI SpA 644,872 ------------- 1,777,223 -------------
The accompanying notes are an integral part of the financial statements. Page 30 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED)
% OF SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE ------ ------- -------------------------------------- ---------- ------------ HEALTH CARE SECTOR 13.39% DRUGS & HOSPITAL SUPPLIES 12.11% 15,000 CA Biochem Pharma Inc. * $ 333,750 4,800 HU Gedeon Richter Ltd. (GDR) 144A * (a) 441,600 32,487 GB Glaxo Wellcome PLC 671,797 18,500 GB Glaxo Wellcome PLC (Sponsored ADR) 773,531 16,000 CL Laboratorio Chile S.A. (ADR) 458,000 1,200 CH Novartis AG 1,921,185 118 CH Roche Holdings Ltd. 1,068,827 22,200 GB Smithkline Beecham PLC (ADR) 2,034,075 13,000 FR Synthelabo 1,693,937 ------------- 9,396,702 ------------- HEALTH CARE SERVICES 1.28% 17,800 JP Nichii Gakken Co. 995,543 INTEREST-SENSITIVE SECTOR 20.95% BANKING 10.78% 21,000 CL Banco Santander Chile (Sponsored ADR A) * 309,750 50,973 IE Bank of Ireland 559,912 26,600 DE Bayerische Hypotheken- und Wechsel-Bank AG 796,076 25,000 IT Banca Popolare di Bergamo * 369,527 13,000 ES Banco Bilbao Vizcaya S.A. 1,058,067 157,000 HK Dah Sing Financial Holdings Ltd. 869,376 23,500 DE Deutsche Bank AG 1,374,234 42,000 JP Fuji Bank Ltd. * 631,303 24,698 GB HSBC Holdings PLC 742,794 82,611 GB Lloyds TSB Group PLC 848,310 36,000 SE Sparbanken Sverige AB 800,788 ------------- 8,360,137 ------------- GENERAL FINANCE 3.76% 78,000 IT IMI Instituto Mobiliare Italiano SpA 701,381 27,000 CA Newcourt Credit Group Inc. 704,573 13,000 JP Nichiei Construction Company Ltd. 1,510,967 ------------- 2,916,921 ------------- INSURANCE 4.15% 3,500 DE Allianz AG 733,128 17,300 FR AXA-UAP 1,077,026 15,200 ES Mapfre Vida Seguros 987,013 150 DE Munchener Ruckversicherungs-Gesellschaft * 420,939 ------------- 3,218,106 -------------
The accompanying notes are an integral part of the financial statements. Page 31 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED)
% OF SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE ------ ------- -------------------------------------- ---------- ------------- UTILITIES 2.26% 6,500 PT Electricidade De Portugal SP * $ 234,000 11,000 CL Enersis S.A. (Sponsored ADR) * 391,188 1,765,600 BR Light Servicios de Electricidad S.A. 878,643 4,500 DE Veba AG 253,080 ------------- 1,756,911 ------------- SERVICES/MEDIA SECTOR 8.44% BUSINESS SERVICES 2.71% 2,200 CH Adecco S.A. 845,080 16,000 GB Danka Business Systems PLC (Sponsored ADR) 654,000 38,000 CA Philip Services Corp. * 603,250 ------------- 2,102,330 ------------- COMMUNICATIONS SERVICES 4.22% 8,071 FR Alcatel Alsthom Compagnie Generale d'Electricite 1,011,807 90,000 GB Cable & Wireless Communications PLC 823,829 6,037 GB Cable & Wireless Communications PLC (ADR) 162,240 11,000 CL Cia de Telecomunicaciones de Chile S.A. (Sponsored ADR) * 363,000 106,050 JP Nippon Denwa Shisetsu 911,939 ------------- 3,272,815 ------------- MEDIA 1.51% 125,000 GB General Cable PLC * 339,101 86,000 GB Reed International 830,153 ------------- 1,169,254 ------------- TECHNOLOGY SECTOR 18.56% COMPUTERS/OFFICE EQUIPMENT 1.70% 29,000 JP Canon Inc. 790,702 22,700 JP Canon Sales Co. Inc. 529,660 ------------- 1,320,362 ------------- ELECTRONICS/NEW TECHNOLOGY 12.31% 1,300 JP Advantest Corp. 99,974 30,030 SE Ericsson LM Telephone Co. 1,182,577 58,000 JP Fujitsu Ltd. * 805,907 71,000 JP NEC Corp. 992,746 32,000 CA Newbridge Networks Corp. * 1,392,000 15,000 FI Nokia Corp. A 1,120,180 9,000 CA Northern Telecom Ltd. 819,000 6,000 JP Rohm Co. Ltd. * 618,719
The accompanying notes are an integral part of the financial statements. Page 32 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED)
% OF SHARES COUNTRY EQUITY INVESTMENTS NET ASSETS MARKET VALUE ------ ------- -------------------------------------- ---------- ------------ ELECTRONICS/NEW TECHNOLOGY (CONTINUED) 5,820 KR Samsung Electronics Co. $ 646,885 5,820 KR Samsung Electronics Rights expiring 7/1/97 * - 4,500 FR SGS Thomson Microelectronics N.V. * 360,000 19,000 JP Shinko Electric Industries 695,709 17,000 JP Tokyo Electron Ltd. * 814,122 ------------- 9,547,819 ------------- TECHNOLOGY SERVICES 4.55% 4,120 FR AXIME * 487,725 16,000 GB Dr. Solomons Group PLC (Sponsored ADR) * 406,000 32,173 NL Getronics N.V. 1,041,058 23,000 SE Intentia International AB * 251,346 3,700 DE SAP AG 743,171 29,000 GB SEMA Group PLC 598,482 ------------- 3,527,782 ------------- TOTAL EQUITY INVESTMENTS (COST $60,711,405) 98.68% 76,567,056 ------------- SHORT-TERM INVESTMENTS MONEY MARKET FUNDS 1.31% 1,015,744 US SSgA U.S. Government Money Market Fund 1,015,744 TOTAL SHORT-TERM INVESTMENTS 1.31% (COST $1,015,744) 1,015,744 ------------- TOTAL INVESTMENTS (COST $61,727,149)** 99.99% 77,582,800 OTHER ASSETS LESS LIABILITIES 0.01% 7,687 ------------- NET ASSETS 100.00% $ 77,590,487 ------------- -------------
* Non-income producing security. (a) Security is purchased pursuant to Rule 144A of the Securities Act of 1933 and may be resold only to qualified institutional buyers. - ------------------------- TAX INFORMATION: ** For Federal income tax purposes, cost is $61,890,969 and unrealized appreciation (depreciation) of equity securities is as follows:
Unrealized appreciation $ 16,147,875 Unrealized depreciation (456,044) ------------- Net unrealized appreciation $ 15,691,831 ------------- -------------
The accompanying notes are an integral part of the financial statements. Page 33 RCM INTERNATIONAL GROWTH EQUITY FUND A INVESTMENTS IN SECURITIES AND NET ASSETS JUNE 30, 1997 (UNAUDITED) The Fund's investments in securities at June 30, 1997 categorized by country: % of Net Assets ----------------------------------- Country Short-Term Country Code Equities and Other Total ------- ------- -------- ---------- ----- Australia AU 1.0% 1.0% Brazil BR 1.1% 1.1% Canada CA 5.5% 5.5% Chile CL 3.5% 3.5% Finland FI 1.4% 1.4% France FR 7.9% 0.6% 8.5% Germany DE 13.0% 13.0% Hong Kong HK 1.7% 1.7% Hungary HU 0.6% 0.6% Indonesia ID 0.5% 0.5% 1.0% Ireland IE 1.1% 1.1% Italy IT 2.2% 2.2% Japan JP 20.5% 20.5% Korea KR 0.8% 0.8% Mexico MX 3.6% 3.6% Netherlands NL 2.7% 2.7% Norway NO 1.1% 1.1% Panama PA 1.1% 1.1% Portugal PT 0.3% 0.3% Spain ES 3.2% 3.2% Sweden SE 4.4% 4.4% Switzerland CH 6.8% 6.8% United Kingdom GB 14.7% 14.7% United States US 0.2% 0.2% ----- ---- ------ Total 98.7% 1.3% 100.0% ----- ---- ------ ----- ---- ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The accompanying notes are an integral part of the financial statements. Page 34 This page intentionally left blank Page 35
RCM CAPITAL FUNDS, INC. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) RCM International RCM Growth RCM Small Growth Equity Equity Fund Cap Fund Fund A -------------- -------------- -------------- ASSETS: Investments at cost $ 774,844,442 $ 469,317,946 $ 61,727,149 -------------- -------------- -------------- -------------- -------------- -------------- Foreign currency at cost $ 11,573 $ -- $ 831,050 -------------- -------------- -------------- -------------- -------------- -------------- Investments at value (Note 1) $ 937,695,051 $ 578,485,342 $ 77,582,800 Foreign currency at value (Note 1) 11,485 - 830,677 Cash 340,614 91,864 - Receivables: Investments sold 10,312,324 14,011,748 1,076,697 Fund shares sold 971,538 - - Dividends and dividend reclaims 282,729 1,979 176,845 Other - - 3,375 -------------- -------------- -------------- Total Assets 949,613,741 592,590,933 79,670,394 -------------- -------------- -------------- LIABILITIES: Payables: Investments purchased 7,547,415 18,324,759 1,931,205 Fund shares repurchased 3,827,815 1,371,236 - Investment management fees (Note 5) 574,342 454,357 43,464 Custodian fees 23,181 13,103 13,284 Professional fees - - 37,518 Directors' fees (Note 6) - - 28,000 Accounting fees - - 8,000 Printing expenses - - 6,730 Registration and filing fees - - 5,502 Miscellaneous expenses - - 6,204 -------------- -------------- -------------- Total Liabilities 11,972,753 20,163,455 2,079,907 -------------- -------------- -------------- NET ASSETS $ 937,640,988 $ 572,427,478 $ 77,590,487 -------------- -------------- -------------- -------------- -------------- -------------- NET ASSETS CONSIST OF: Paid-in capital (Note 3) $ 702,373,079 $ 416,499,557 $ 59,131,343 Accumulated net investment income (loss) (845,228) (1,946,798) 182,763 Accumulated net realized gain on investments and foreign currency transactions 73,265,753 48,707,323 2,403,671 Net unrealized appreciation (depreciation) on foreign currency transactions (3,225) - 17,059 Net unrealized appreciation on investments 162,850,609 109,167,396 15,855,651 -------------- -------------- -------------- NET ASSETS $ 937,640,988 $ 572,427,478 $ 77,590,487 -------------- -------------- -------------- -------------- -------------- -------------- SHARES OUTSTANDING 134,793,224 45,190,750 5,204,578 -------------- -------------- -------------- -------------- -------------- -------------- NET ASSET VALUE PER SHARE $ 6.96 $ 12.67 $ 14.91 -------------- -------------- -------------- -------------- -------------- --------------
The accompanying notes are an integral part of the financial statements. Page 36
RCM CAPITAL FUNDS, INC. STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) RCM International RCM Growth RCM Small Growth Equity Equity Fund Cap Fund Fund A -------------- -------------- -------------- INVESTMENT INCOME: Income: Dividends $ 2,327,240 $ 649,298 $ 719,791 Interest 156,205 28,712 27,283 Foreign tax withheld (18,867) (239) (91,207) -------------- -------------- --------------- Total income 2,464,578 677,771 655,867 -------------- -------------- --------------- Expenses: Investment management fees (Note 5) 3,258,889 2,595,251 238,982 Custodian fees 50,117 28,518 45,147 Directors' fees (Note 6) - - 28,000 Accounting fees - - 24,000 Professional fees - - 13,750 Miscellaneous expenses 800 800 7,000 -------------- -------------- --------------- Total expenses before reimbursements 3,309,806 2,624,569 356,879 Expenses reimbursed by investment manager (Note 5) - - (38,236) -------------- -------------- --------------- Total net expenses 3,309,806 2,624,569 318,643 -------------- -------------- --------------- Net investment income (loss) (845,228) (1,946,798) 337,224 -------------- -------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on investments 59,190,712 47,279,019 3,232,830 Net realized loss on foreign currency transactions (158,773) - (1,011,058) -------------- -------------- --------------- Net realized gain 59,031,939 47,279,019 2,221,772 -------------- -------------- --------------- Net change in unrealized depreciation on foreign currency transactions (3,542) - (151,735) Net change in unrealized appreciation (depreciation) on investments 16,573,716 (4,875,041) 8,503,013 -------------- -------------- --------------- Net unrealized appreciation (depreciation) 16,570,174 (4,875,041) 8,351,278 -------------- -------------- --------------- Net realized and unrealized gain during the period 75,602,113 42,403,978 10,573,050 -------------- -------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 74,756,885 $ 40,457,180 $ 10,910,274 -------------- -------------- --------------- -------------- -------------- ---------------
The accompanying notes are an integral part of the financial statements. Page 37
RCM CAPITAL FUNDS, INC. STATEMENTS OF CHANGES IN NET ASSETS RCM Growth Equity Fund RCM Small Cap Fund --------------------------------------- -------------------------------- Six months ended Six months ended June 30, 1997 Year ended June 30, 1997 Year ended (Unaudited) December 31, 1996 (Unaudited) December 31, 1996 ----------------- -------------------- ---------------- ---------------- OPERATIONS: Net investment income (loss) $ (845,228) $ (1,190,805) $ (1,946,798) $ (2,677,087) Net realized gain on investments and foreign currency transactions 59,031,939 303,698,527 47,279,019 107,844,093 Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions 16,570,174 (119,166,349) (4,875,041) 29,605,875 ---------------- ------------- ------------ -------------- Net increase in net assets resulting from operations 74,756,885 183,341,373 40,457,180 134,772,881 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income - - - - Net realized gain on investments - (355,168,907) - (123,397,033) NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS (Note 3) (33,436,047) (257,142,802) (36,630,818) 147,658,599 ---------------- ------------- ------------ -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 41,320,838 (428,970,336) 3,826,362 159,034,447 NET ASSETS: Beginning of period 896,320,150 1,325,290,486 568,601,116 409,566,669 ---------------- ------------- ------------ -------------- End of period* $ 937,640,988 $ 896,320,150 $ 572,427,478 $ 568,601,116 ---------------- ------------- ------------ -------------- ---------------- ------------- ------------ -------------- * Includes accumulated net investment income (loss) of: (845,228) - (1,946,798) - ---------------- ------------- ------------ -------------- ---------------- ------------- ------------ -------------- RCM International Growth Equity Fund A ---------------------------------------- Six months ended June 30, 1997 Year ended (Unaudited) December 31, 1996 ------------------ -------------------- OPERATIONS: Net investment income (loss) $ 337,224 $ 131,186 Net realized gain on investments and foreign currency transactions 2,221,772 3,309,861 Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions 8,351,278 3,732,232 ------------ ----------- Net increase in net assets resulting from operations 10,910,274 7,173,279 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income - (558,945) Net realized gain on investments - (3,074,200) NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS (Note 3) 14,075,264 14,718,007 ------------ ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 24,985,538 18,258,141 NET ASSETS: Beginning of period 52,604,949 34,346,808 ------------ ----------- End of period* $ 77,590,487 $ 52,604,949 ------------ ----------- ------------ ----------- * Includes accumulated net investment income (loss) of: 182,763 (154,461) ------------ ----------- ------------ ----------- The accompanying notes are an integral part of the financial statements. Page 38
RCM CAPITAL FUNDS, INC. RCM GROWTH EQUITY FUND FINANCIAL HIGHLIGHTS Selected data for each share of capital stock outstanding for the ten years ended December 31, 1996, and the six months ended June 30, 1997, are as follows: Six months ended Year Ended December 31, June 30, 1997 --------------------------------------------------------- (Unaudited) 1996*(a) 1995 1994 1993 1992 1991 ----------- ----- ----- ---- ---- ---- --------- PER SHARE OPERATING PERFORMANCE: (b) Net asset value, beginning of period $ 6.40 $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 $ 8.49 ------- ------- ------- -------- -------- -------- ------- Net investment income (loss) (0.01) (0.01) 0.02 0.03 0.04 0.07 0.09 Net realized and unrealized gain (loss) on investments 0.57 1.59 2.66 0.01 1.08 0.71 3.93 ------- ------- ------- -------- -------- -------- ------- Net increase (decrease) in net asset value resulting from investment 0.56 1.58 2.68 0.04 1.12 0.78 4.02 operations ------- ------- ------- -------- -------- -------- ------- Distributions: Net investment income (0.00) (0.00) (0.02) (0.03) (0.04) (0.07) (0.09) Net realized gain on investments (0.00) (4.31) (1.42) (2.54) (1.63) (1.28) (0.88) ------- ------- ------- -------- -------- -------- ------- Total distributions - (4.31) (1.44) (2.57) (1.67) (1.35) (0.97) ------- ------- ------- -------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $ 6.96 $ 6.40 $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- TOTAL RETURN (c) 8.75% 19.07% 34.53% 0.76% 10.72% 7.03% 48.23% ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share (d) $ 0.0570 $0.0571 - - - - - --------- ------- --------- ------- Net assets, end of period (in millions) $ 938 $ 896 $ 1,325 $ 1,365 $ 2,049 $ 2,122 $ 2,138 ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- Ratio of expenses to average net assets 0.8%(e) 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- Ratio of net investment income to average net assets (0.2%)(e) (0.1%) 0.2% 0.2% 0.3% 0.6% 0.9% ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- Portfolio turnover 66.1%(f) 115.9% 96.5% 111.1% 67.0% 56.8% 62.7% ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- -------- -------- -------- ------- 1990 1989 1988 1987 1986(b) 1985 -------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE: (b) Net asset value, beginning of period $ 9.12 $ 8.00 $ 7.09 $ 8.30 $ 8.47 $ 169.44 -------- ------- ------- ------- ------- ------- Net investment income (loss) 0.15 0.16 0.11 0.07 0.06 3.68 Net realized and unrealized gain (loss) on investments (0.53) 1.98 1.36 0.82 0.72 52.64 -------- ------- ------- ------- ------- ------- Net increase (decrease) in net asset value resulting from investment operations (0.38) 2.14 1.47 0.89 0.78 56.32 -------- ------- ------- ------- ------- ------- Distributions: Net investment income (0.17) (0.16) (0.12) (0.16) (0.16) (3.68) Net realized gain on investments (0.08) (0.86) (0.44) (1.94) (0.79) (10.25) -------- ------- ------- ------- ------- ------- Total distributions (0.25) (1.02) (0.56) (2.10) (0.95) (13.93) -------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 8.49 $ 9.12 $ 8.00 $ 7.09 $ 8.30 $ 211.83 -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- TOTAL RETURN (c) (4.12%) 26.87% 20.86% 10.97% 9.33% 32.06% -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share (d) - - - - - - Net assets, end of period (in millions) $ 1,300 $ 1,284 $ 964 $ 553 $ 461 $ 289 -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- Ratio of expenses to average net assets 0.8% 0.7% 0.7% 0.8% 0.7% 0.7% -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- Ratio of net investment income to average net assets 1.8% 1.8% 1.8% 0.9% 1.3% 2.1% -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- Portfolio turnover 50.0% 70.8% 64.7% 79.9% 78.2% 80.0% -------- ------- ------- ------- ------- ------- -------- ------- ------- ------- ------- ------- - -------------------------------- * Calculated using the average share method. (a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment manager. (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. (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. (e) Annualized. (f) Not annualized.
Page 39 RCM CAPITAL FUNDS, INC. RCM SMALL CAP FUND FINANCIAL HIGHLIGHTS Selected data for each share of capital stock outstanding are as follows:
Six months ended Year Ended December 31, June 30, 1997 ------------------------------------------------------ (Unaudited)* 1996*(a) 1995 1994 1993 1992 ---------------- -------- -------- -------- --------- -------- PER SHARE OPERATING PERFORMANCE: (b) Net asset value, beginning of period $ 11.77 $ 11.35 $ 9.42 $ 10.41 $ 10.15 $ 8.33 --------- --------- ------- ------- ------- ------- Net investment income (loss) (0.04) (0.08) (0.04) (0.04) (0.00) 0.03 Net realized and unrealized gain (loss) on investments 0.94 3.82 3.21 (0.20) 0.91 1.82 --------- --------- ------- ------- ------- ------- Net increase (decrease) in net asset value resulting from investment operations 0.90 3.74 3.17 (0.24) 0.91 1.85 --------- --------- ------- ------- ------- ------- Distributions: Net investment income (0.00) (0.00) (0.00) (0.00) (0.00) (0.03) Net realized gain on investments (0.00) (3.32) (1.24) (0.75) (0.65) (0.00) --------- --------- ------- ------- ------- ------- Total distributions (0.00) (3.32) (1.24) (0.75) (0.65) (0.03) --------- --------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 12.67 $ 11.77 $ 11.35 $ 9.42 $ 10.41 $ 10.15 --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- ------- TOTAL RETURN (c) 7.65% 34.39% 34.08% (2.16%) 9.20% 22.14% --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- ------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share (d) $ 0.0516 $ 0.0538 - - - - --------- --------- --------- --------- Net assets, end of period (in millions) $ 578 $ 569 $ 410 $ 416 $ 660 $ 458 --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- ------- Ratio of expenses to average net assets 1.0% (e) 1.0% 1.0% 1.1% 0.9% 0.7% --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- ------- Ratio of net investment income (loss) to average net assets (0.7%)(e) (0.6%) (0.2%) (0.3%) 0.0% 0.4% --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- ------- Portfolio turnover 53.6% (f) 117.0% 83.9% 117.7% 80.0% 72.0% --------- --------- ------- ------- ------- ------- --------- --------- ------- ------- ------- -------
- ------------------------ * Calculated using the average share method. (a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment manager. (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. (e) Annualized. (f) Not annualized. Page 40 RCM CAPITAL FUNDS, INC. RCM INTERNATIONAL GROWTH EQUITY FUND A FINANCIAL HIGHLIGHTS Selected data for each share of capital stock outstanding are as follows:
December 28, 1994 Six months ended (commencement June 30, 1997* Year ended Year ended of operations) to (Unaudited) December 31, 1996*(a) December 31, 1995 December 31, 1994 --------------- --------------------- ----------------- ----------------- PER SHARE OPERATING PERFORMANCE: (b) Net asset value, beginning of period $ 12.72 $ 11.56 $ 10.00 $ 10.00 --------- --------- --------- --------- Net investment income 0.07 (c) 0.04 (c) 0.12 (d) 0.00 Net realized and unrealized gain (loss) on investments 2.12 2.16 1.68 (0.00) --------- --------- --------- --------- Net increase in net asset value resulting from investment operations 2.19 2.20 1.80 0.00 --------- --------- --------- --------- Distributions: Net investment income (0.00) (0.16) (0.11) (0.00) Net realized gain on investments (0.00) (0.88) (0.13) (0.00) --------- --------- --------- --------- Total distributions (0.00) (1.04) (0.24) (0.00) --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 14.91 $ 12.72 $ 11.56 $ 10.00 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (d) 17.22% 19.31% 17.98% 0.01% --------- --------- --------- --------- --------- --------- --------- --------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share (e) $ 0.0196 $ 0.0179 - - ---------- --------- ---------- --------- Net assets, end of period (in millions) $ 78 $ 53 $ 34 $ 25 ---------- --------- --------- --------- ---------- --------- --------- --------- Ratio of expenses to average net assets 1.00% (c)(f) 0.99% (c) 0.75% (d) 0.00% (g) ---------- --------- --------- --------- ---------- --------- --------- --------- Ratio of net investment income to average net assets 1.05% (c)(f) 0.32% (c) 1.19% (d) 0.01% (g) ---------- --------- --------- --------- ---------- --------- --------- --------- Portfolio turnover 41.2% (h) 119.1% 87.4% 0.00% (g) ---------- --------- --------- -------- ---------- --------- --------- --------
* Calculated using the average share method. (a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment manager. (b) Stock split 10:1 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) Includes reimbursement by the Fund's investment manager of investment management fees and other expenses equal to $0.01, $0.03 and $0.03 per share (calculated using the average share method) for the six months ended June 30, 1997 and the years ended December 31, 1996 and 1995, respectively. Without such reimbursement, the ratio of expenses would have been 1.11%, 1.25% and 1.11%, respectively, and the ratio of net investment income to average net assets would have been 0.93%, 0.06% and 0.83%, respectively. (d) Total return measures the change in value of an investment over the period indicated. (e) 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. (f) Annualized. (g) Not annualized. Fund was in operation for four days. (h) Not annualized. Page 41 RCM CAPITAL FUNDS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES RCM Capital Funds, Inc. (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 Company consists of three series: RCM Growth Equity Fund ("Growth Fund") and RCM Small Cap Fund ("Small Cap Fund") are diversified, no-load series of the Company, and RCM International Growth Equity Fund A ("International Fund") is a non-diversified, no-load series of the Company. These three series are collectively referred to as the "Funds." The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the report 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 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 using 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 Funds 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 a duly constituted committee of 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 Funds do not isolate that portion of foreign currency exchange fluctuation on investments from unrealized appreciation and depreciation which arises Page 42 RCM CAPITAL FUNDS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) c. FOREIGN CURRENCY TRANSACTIONS: from changes in market prices. Such fluctuations are included with the net unrealized appreciation or depreciation on investments. 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 International 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 International Fund as an unrealized appreciation or depreciation. When the Forward is closed, the International Fund records a realized gain or loss equal to the difference between the value at the time the Forward was opened and the value at the time it was closed. The International Fund 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 Funds 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 Funds 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 Funds 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, foreign currency transactions and/or passive foreign investment companies. 2. 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 International Fund's investments in foreign and emerging markets will subject the International Fund to the risk of foreign currency exchange rate fluctuations, perceived credit risk and adverse economic and political developments. Page 43 RCM CAPITAL FUNDS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 3. CAPITAL SHARES At June 30, 1997, 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 Growth Fund; 100,000,000 were classified as shares of the Small Cap Fund; 100,000,000 were classified as shares of the International 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 Funds was split as follows: Stock Outstanding Split Shares --------- ----------- Growth Fund 25 to 1 91,056,470 Small Cap Fund 12 to 1 33,476,643 International Fund 10 to 1 3,080,990 Transactions in capital shares for the Funds shown below were restated to reflect the stock split:
CAPITAL SHARE TRANSACTIONS GROWTH FUND Six Months ended June 30, 1997 (Unaudited) Year ended December 31, 1996 ------------------------------ ----------------------------- Shares Amount Shares Amount ------------------------------ ----------------------------- Shares sold 6,800,562 $ 43,427,063 5,272,649 $ 49,629,302 Shares issued in connection with reinvestment of distributions - - 56,967,931 351,492,134 Shares repurchased (11,982,886) (76,863,110) (67,435,650) (658,264,238) ------------------------------ ----------------------------- Net decrease (5,182,324) $ (33,436,047) (5,195,070) $(257,142,802) ------------------------------ ----------------------------- ------------------------------ ----------------------------- Six Months ended June 30, 1997 SMALL CAP FUND (Unaudited) Year ended December 31, 1996 ------------------------------ ----------------------------- Shares Amount Shares Amount ------------------------------ ----------------------------- Shares sold 3,490,849 $ 39,099,367 10,624,664 $ 145,473,916 Shares issued in connection with reinvestment of distributions - - 10,879,522 121,959,444 Shares repurchased (6,619,507) (75,730,185) (9,267,406) (119,774,761) ------------------------------ ----------------------------- Net decrease (3,128,658) $ (36,630,818) 12,236,780 $ 147,658,599 ------------------------------ ----------------------------- ------------------------------ ----------------------------- INTERNATIONAL FUND Six Months ended June 30, 1997 (Unaudited) Year ended December 31, 1996 ------------------------------ ----------------------------- Shares Amount Shares Amount ------------------------------ ----------------------------- Shares sold 1,073,899 $ 14,163,305 958,208 $ 12,239,598 Shares issued in connection with reinvestment of distributions - - 293,007 3,621,573 Shares repurchased (6,226) (88,041) (86,083) (1,143,164) ------------------------------ ----------------------------- Net decrease 1,067,673 $ 14,075,264 1,165,132 $ 14,718,007 ------------------------------ ----------------------------- ------------------------------ -----------------------------
Page 44 RCM CAPITAL FUNDS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 3. CAPITAL SHARES (CONTINUED) At June 30, 1997, seven shareholders in the Growth Fund, five shareholders in the Small Cap Fund and three shareholders in the International Fund each held more than 5% of the outstanding shares of the respective Funds. 4. PURCHASES AND SALES OF SECURITIES The following summarizes purchases and sales of investment securities, other than short-term investments, by each Fund, for the six months ended June 30, 1997: PURCHASES AND SALES OF SECURITIES PURCHASES -------------------------------------------- U.S. Government Other Issues -------------------- ------------------- Growth Fund - $ 557,786,357 Small Cap Fund - $ 276,070,283 International Fund - $ 42,517,722 SALES -------------------------------------------- U.S. Government Other Issues -------------------- ------------------- Growth Fund - $ 597,302,939 Small Cap Fund - $ 311,763,051 International Fund - $ 25,534,127 5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES RCM manages the Funds' investments and provides various administrative services, subject to the authority of the Board of Directors. The Growth Fund, Small Cap Fund and International Fund pay investment management fees monthly at an annualized rate of 0.75%, 1.00% and 0.75%, respectively, of the Funds' average daily net assets. For the six months ended June 30, 1997, investment management fees were $3,258,889 for the Growth Fund, $2,595,251 for the Small Cap Fund and $238,982 for the International Fund. RCM has voluntarily agreed to pay the International Fund on a monthly basis the amount, if any, by which certain ordinary operating expenses of the Fund exceed the annualized rate of 1% of the International Fund's average daily net assets. For the six months ended June 30, 1997, RCM reimbursed the International Fund for operating expenses totaling $38,236. On June 30, 1997, the RCM Capital Management Profit Sharing Plan, participation in which is limited to employees of RCM, owned 274,001 shares of the Growth Fund, 412,112 shares of the Small Cap Fund and 435,586 shares of the International Fund. 6. DIRECTORS' FEES Each Director who is not an interested person of the Company receives from the Company an annual retainer of $9,000 (the retainer is evenly prorated among each series of the Company), plus $1,500 for each meeting of the Board attended and $500 for each committee meeting attended. Page 45 INVESTMENT MANAGER RCM Capital Management, L.L.C. Four Embarcadero Center 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 1776 Heritage Drive North Quincy, Massachusetts 02171 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 NOTES - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----