-----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, EQUlEMGudwP5naUk+PHcaCYoolKnb/sQXvQ0fmoOUcVyDci639MkYR1NAwCxRTPd 3oaBOpzeKM0+gvw/vFWfrQ== 0000912057-96-003112.txt : 19960228 0000912057-96-003112.hdr.sgml : 19960228 ACCESSION NUMBER: 0000912057-96-003112 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960227 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM CAPITAL FUNDS INC 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: 1940 Act SEC FILE NUMBER: 811-02913 FILM NUMBER: 96526065 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 GROWTH EQUITY FUND INC DATE OF NAME CHANGE: 19920126 N-30D 1 N-30D [LOGO] SMALL CAP FUND ANNUAL REPORT 1995 RCM SMALL CAP FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The value of an investment in the RCM Small Cap Fund (the "Fund") appreciated by 34.08% over the 12 months ended December 31, 1995. The Fund finished the year 564 basis points ahead of its primary benchmark, the Russell 2000 Index, which registered a return of 28.44% for the year. However the Fund's primary emphasis, small capitalization growth stocks, disadvantaged the Fund in comparison to broader market benchmarks such as the S&P 500 Composite Index, which returned 37.59% in 1995. U.S. stocks and bonds rallied strongly in the first half of 1995 after performing poorly in 1994. Investors appeared to have abandoned their fears that the Federal Reserve Board would tighten monetary policy and embraced the "soft landing" economic scenario. Returns on equities of all capitalization ranges benefited from declining interest rates. RCM Capital Management, a California Limited Partnership ("RCM"), the Fund's investment manager, believes that weakness in the U.S. dollar and increasing evidence of economic strength in Europe were among the factors which led to the relative outperformance of large capitalization equities versus small cap stocks, particularly in the first quarter of 1995. At mid-year, the Russell 2000 benchmark was up "only" 14.42%, compared to the S&P 500 return of 20.19%. The Fund trailed its primary benchmark by 155 basis points through the first six months of the year. Contributing factors included the Fund's underweighting in the strong interest sensitive sectors of the market and an overweighting in health care services stocks, which were disastrous performers in the first half of the year. The stock market continued its impressive advance through the third quarter. The summer months of 1995 were characterized by powerful rallies in small capitalization universes, which were fueled by strong cash flows into mutual funds, an upward move in the U.S. dollar and positive earnings reports. The technology sector continued to lead the market (though it showed signs of topping by the end of the third quarter) and the health care services group rebounded from a weak performance in the second quarter. The Fund outperformed the Russell 2000 Index in each month of the third quarter, more than making up for the shortfall versus this benchmark in the first half of the year. Returns were also ahead of the Russell 2000 in the fourth quarter, resulting in performance for the second half of 1995 being 654 basis points above the primary benchmark. Looking at the year as a whole, the Fund's strategy on industry weightings was a positive factor in performance relative to the Russell 2000. A modest overweighting in the strong drugs and hospital supplies group and a more significant overweighting in the technology sector both added to performance. The Fund finished 1995 with approximately 22% of its total investments invested in technology-related issues (versus the benchmark weighting of approximately 16%). The Fund held meaningful positions in strong subgroups within technology, including networking, components and technology services. Despite overweighting the electronics/new technology sector, the Fund was not heavily exposed to the commodity semiconductor and semiconductor equipment stocks. While this lack of exposure hurt the Fund's performance in the first half of 1995, it enhanced relative returns late in the year when these stocks came under extreme selling pressure. Automotive related stocks and raw/basic materials were lagging industry groups underweighted by the Fund in (Continued) 1995, thereby adding to performance. On the negative side, the Fund's overweighting in transportation services hurt relative performance. Holdings in the regional trucking group came under pressure due to intensified competition and a weak pricing environment, and exposure to this industry was reduced significantly in the second half of 1995. The Fund's underweighting in the interest sensitive and financial industry groups (5% versus 23%, excluding utilities, in the Russell 2000 Index at the end of 1995) was also a negative factor in relative performance from an industry strategy perspective. These groups were strong performers during 1995 as interest rates declined. However, due to the growth stock orientation of RCM, it is typical for the Fund to have only modest exposure in the interest sensitive sector. Although the Fund's average cash position of about 7% for the year was within its "normal" range, cash was a negative contributor to relative performance given the rising market environment. Stock picking by RCM added significantly to the Fund's performance in 1995. Overall, this was a much more important contributor to relative performance than was the Fund's strategy on industry weightings, and stock selection was strongly positive in several industries. Health care services stocks were very weak in the first half of 1995, as investors' concerns about pricing and reimbursement issues caused HMO and nursing home stocks in particular to come under severe pressure. This group rebounded strongly in the second half of the year, with health care services stocks held by the Fund (including Physician Reliance Network, Renal Treatment Centers and Maxicare Health Plans) up an average of 39% compared to an average gain of 19% for health care services stocks in the Russell 2000 Index. The Fund's holdings in the drugs and hospital supplies group gained 90% compared to an average return of 64% for the benchmark stocks in this very strong sector. Idexx Labs, Lunar Corp and Autoimmune were significant holdings and were among the Fund's outstanding performers in this group. The Fund also experience positive stock selection in the business services group (up 52% versus 33% for the Russell 2000 business services stocks), with contributions from such issues as Wallace Computer Services, Robert Half International, and Comverse Technology. Meaningful contributions from positive stock selection were also achieved in the retail, computer, food, and general finance groups. On the negative side, stock selection in the transportation services area hurt relative performance. The Fund's holdings (including Old Dominion Freight, American Freightways and TNT Freightways) declined 2% compared to a gain of 15% for the stocks in the benchmark group. The industrial equipment, beverage/tobacco and energy groups also registered modest negative impacts from adverse stock selection. Although small cap equities underperformed large cap equities in 1995, it was an extraordinary year in terms of absolute returns for investors in U.S. stocks across all capitalization ranges. Like many market observers, RCM believes that similar gains are unlikely in the current year. Going into 1996, signs of slowing economic growth are abundant, and earnings expectations are undergoing downward revisions in some industries. However, RCM believes that a slow growth macroeconomic environment is likely to favor the growth style of investing, particularly if Federal Reserve policy is oriented toward lowering interest rates. Within this context , RCM believes that small capitalization growth stocks are favorably positioned, given the higher relative earnings growth rates of small-sized companies. Page 2 RCM Small Cap Fund Performance Summary ________________________________________________________________________________ [GRAPH] 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. The chart represents a cumulative return of 74.96%+ for the Fund. The average annual total return from the Fund's inception was 15.01%*+. The chart assumes a hypothetical $10,000 initial investment in the Fund and reflects all Fund expenses. Average Annual Total Returns+ December 31, 1995 1 Year Life of Fund* 34.08% 15.01% + RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AT NET ASSET VALUE. * THE FUND BEGAN OPERATIONS ON JANUARY 4, 1992. The data above represent past performance of the Fund, and may not be indicative of future results. The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Page 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of RCM Capital Funds, Inc: We have audited the accompanying statement of assets and liabilities of RCM Small Cap Fund (the "Fund"), including the statement of investments in securities and net assets as of December 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995 by correspondence with custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RCM Small Cap Fund as of December 31, 1995, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and financial highlights for each of the four years in the period then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND, L.L.P. Boston, Massachusetts February 9, 1996 Page 4 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------------- ----------- ------------- CONSUMER DURABLES SECTOR 2.27% AUTOMOTIVE RELATED 0.00% 1,100 Special Devices Inc. * $ 14,300 OTHER CONSUMER DURABLES 2.27% 211,500 AptarGroup Inc. 7,904,813 150,000 Lifetime Hoan Corp. * 1,387,500 ----------- 9,292,313 ----------- CONSUMER NON-DURABLES SECTOR 14.19% FOOD AND FOOD PROCESSING 1.07% 28,000 Dekalb Genetics Corp. Class B 1,263,500 93,500 Dreyers Grand Ice Cream Inc. 3,108,875 ----------- 4,372,375 ----------- GENERAL RETAIL 5.61% 262,000 Big B Inc. 2,620,000 82,300 Global DirectMail Corp. * 2,263,250 148,800 Movie Gallery Inc. * 4,538,400 187,500 Orchard Supply Hardware Corp. * 3,867,188 282,600 Proffitts Inc. * 7,418,250 104,000 Quality Food Centers Inc. 2,288,000 ----------- 22,995,088 ----------- HOUSEHOLD/RELATED NON-DURABLES 2.76% 276,200 Armor All Products Corp. 5,006,125 158,200 Guest Supply Inc. * 3,579,275 107,500 Sola International Inc. * 2,714,375 ----------- 11,299,775 -----------
* Non-income producing The accompanying notes are an integral part of the financial statements. Page 5 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------------- ----------- ------------- LEISURE TIME PRODUCTS/SERVICES 4.75% 205,200 Apple South Inc. $ 4,411,800 199,000 Bristol Hotel Co. * 4,850,625 292,000 Doubletree Corp. * 7,665,000 370,000 Uno Restaurant Corp. * 2,543,750 ----------- 19,471,175 ----------- CYCLICAL/CAPITAL GOODS SECTOR 12.00% BUILDING AND CONSTRUCTION 3.08% 275,000 Michael Baker Corp. * 1,375,000 262,800 Jacobs Engineering Group Inc. * 6,570,000 188,300 NCI Building Systems Inc. * 4,660,425 ----------- 12,605,425 ----------- INDUSTRIAL EQUIPMENT 3.25% 50,000 ABC Rail Products Corp. * 1,106,250 74,000 Applied Power Inc. Class A 2,220,000 273,400 Duriron Co. Inc. 6,390,725 179,000 Furon Co. 3,580,000 ----------- 13,296,975 ----------- RAW AND BASIC MATERIALS 0.91% 150,000 Commercial Metals Co. 3,712,500 TRANSPORTATION SERVICES 4.76% 332,300 Expeditors International of Washington Inc. 8,681,338 120,000 Harper Group Inc. 2,130,000 115,469 Heartland Express Inc. * 2,280,513 202,000 Mark VII Inc. * 3,131,000 30,000 Midwest Express Holdings Inc. * 832,500 49,000 Railtex Inc. * 1,029,000 70,000 TNT Freightways Corp. 1,408,750 ----------- 19,493,101 -----------
* Non-income producing The accompanying notes are an integral part of the financial statements. Page 6 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------------- ----------- ------------- ENERGY SECTOR 2.43% OIL AND RELATED SERVICES 2.43% 82,000 BJ Services Co. * $ 2,378,000 45,000 Devon Energy Corp. 1,147,500 360,000 Forcenergy Gas Exploration Inc. * 3,960,000 107,000 Nowsco Well Service Ltd. 1,337,500 50,000 Nuevo Energy Co. * 1,118,750 ----------- 9,941,750 ----------- HEALTHCARE SECTOR 27.59% DRUGS & HOSPITAL SERVICES 11.17% 70,000 Allergan Ligand Retinoid Theraputics Units * 1,242,500 53,100 Anesta Corp. * 491,175 33,000 Athena Neurosciences Inc. * 404,250 144,500 Autoimmune Inc. * 1,625,625 62,250 Cyberonics Inc. * 295,688 59,000 Cytotherapeutics Inc. * 1,010,375 308,900 Gelman Sciences Inc. * 7,799,725 57,300 ImmuLogic Pharmaceutical Corp. * 1,103,025 75,000 Invacare Corp. 1,893,750 349,950 LUNAR Corp. * 9,623,625 48,250 Magainin Pharmaceuticals Inc. * 633,281 205,000 Metra Biosystems Inc. * 3,536,250 80,300 Penederm Inc. * 913,413 377,000 Physio-Control International * 6,738,875 50,000 Respironics Inc. * 1,050,000 96,000 SangStat Medical Corp. * 996,000 119,700 Sepracor Inc. * 2,199,488 85,000 Sofamor/Danek Group Inc. * 2,411,875 42,700 Thermolase Corp. * 1,104,863 6,000 Thermedics Inc. * 166,500 42,200 Vical Inc. * 511,675 ----------- 45,751,958 -----------
* Non-income producing The accompanying notes are an integral part of the financial statements. Page 7 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------------- ----------- ------------- HEALTH CARE SERVICES 16.42% 190,600 American Medical Response Inc. * $ 6,194,500 2,500 American Oncology Resources Inc. * 121,563 40,000 Amerisource Health Corp. * 1,320,000 201,000 Arbor Health Care Co. * 3,517,500 140,000 Cima Labs Inc. * 840,000 231,000 Community Health Systems Inc. * 8,229,375 178,300 Curative Technologies Inc. * 2,540,775 77,500 Genesis Health Ventures Inc. * 2,828,750 456,000 Maxicare Health Plans Inc. * 12,255,000 159,600 Multicare Cos. Inc. * 3,830,400 61,000 Orthodontic Centers of America Inc. * 2,943,250 47,500 Physician Reliance Network Inc. * 1,888,125 76,000 Renal Treatment Centers Inc. * 3,344,000 125,200 Rural/Metro Corp. * 2,832,650 95,000 Sterling House Corp. * 914,375 252,000 Summit Care Corp. * 5,764,500 89,000 Veterinary Centers of America * 1,501,875 253,500 Vivra Inc. * 6,369,188 ----------- 67,235,826 ----------- INTEREST SENSITIVE SECTOR 5.65% BANKING 3.56% 158,500 Community First Bankshares 3,605,875 120,700 Silicon Valley Bancshares * 2,896,800 100,500 Texas Regional Bancshares Inc. 1,683,375 132,800 ValliCorp Holdings Inc. 1,842,600 68,000 WestAmerica Bancorporation 2,941,000 20,000 Zions Bancorp 1,605,000 ----------- 14,574,650 -----------
* Non-income producing The accompanying notes are an integral part of the financial statements. Page 8 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - --------- ---------------------------------------- ----------- ------------- GENERAL FINANCE 0.81% 60,000 California Federal Bank * 945,000 5,000 Charter One Financial Inc. 153,125 40,000 First Financial Corp. 920,000 58,000 Oxford Resources Corp. * 1,305,000 ----------- 3,323,125 ----------- INSURANCE 1.28% 148,000 American Travellers Corp. * 4,162,500 22,000 CMAC Investment Corp. 968,000 2,000 Trenwick Group Inc. 112,500 ----------- 5,243,000 ----------- SERVICES/MEDIA SECTOR 10.38% BUSINESS AND FOOD SERVICES 6.03% 131,000 Franklin Quest Co. * 2,554,500 250,200 G & K Services Inc. Class A 6,380,100 104,300 Healthcare Services Group Inc. * 977,813 30,000 Interim Services Inc. * 1,042,500 339,000 Personnel Group of America, Inc. * 4,957,875 122,700 Renaissance Solutions Inc. * 1,748,475 21,500 Robert Half International Inc. * 900,313 55,000 SITEL Corp. * 1,684,375 5,000 Tetra Tech Inc. * 113,750 45,500 United Waste Systems Inc. * 1,694,875 110,000 Unitog Co. 2,653,750 ----------- 24,708,326 ----------- COMMUNICATION SERVICES 2.19% 86,500 American Mobile Satellite Corp. * 2,649,063 61,900 Arch Communications Group Inc. * 1,485,600 103,000 CommNet Cellular Inc. * 2,974,125 102,400 Midcom Communications Inc. * 1,868,800 ----------- 8,977,588 -----------
* Non-income producing The accompanying notes are an integral part of the financial statements. Page 9 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------------- ----------- ------------- MEDIA SERVICES 2.16% 40,000 Emmis Broadcasting Corp. Class A * $ 1,240,000 133,000 Heritage Media Corp. Class A * 3,408,125 81,000 Central European Media Entertainment Ltd. Class A * 1,660,500 204,000 Comcast UK Cable Partners Ltd. * 2,550,000 ------------ 8,858,625 ------------ TECHNOLOGY SECTOR 23.24% COMPUTERS AND OFFICE EQUIPMENT 3.29% 75,000 Comverse Technology Inc. * 1,500,000 243,000 Micros Systems Inc. * 11,967,750 ------------ 13,467,750 ------------ ELECTRONICS AND NEW TECHNOLOGY 13.44% 126,500 Allen Group Inc. 2,830,438 119,900 Altron Inc. * 3,597,000 408,000 Black Box Corp. * 6,681,000 935,000 Computer Products Inc. * 10,752,500 212,100 Continental Circuits Corp. * 3,446,625 147,000 Information Storage Devices Inc. * 1,635,375 130,500 Kent Electronics Corp. * 7,617,938 27,000 Lattice Semiconductor Corp. * 880,875 180,500 Methode Electronics Inc. Class A 2,572,125 261,800 MICOM Communications Corp. * 1,996,225 210,000 Network Equipment Technologies Inc. * 5,748,750 121,500 Network General Corp. * 4,055,063 62,500 Sanmina Corp. * 3,242,188 ------------ 55,056,102 ------------ TECHNOLOGY SERVICES 6.51% 155,000 American Management Systems Inc. * 4,650,000 68,000 Aspen Technology Inc. * 2,295,000 209,000 BISYS Group Inc. * 6,426,750 115,000 Brock Control Systems Inc. * 1,236,250
*Non-income producing The accompanying notes are an integral part of the financial statements. Page 10 RCM SMALL CAP FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1995
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------------- ----------- ------------- TECHNOLOGY SERVICES (CONTINUED) 20,500 CBT Group PLC Sponsored ADR * $ 1,086,500 65,000 FileNet Corp. * 3,055,000 55,000 PMT Services Inc. * 1,663,750 23,000 Security Dynamics Technologies Inc. * 1,253,500 289,500 Unison Software Inc. * 4,993,867 ------------ 26,660,617 ------------ TOTAL EQUITY INVESTMENTS (COST $315,915,782) 97.75% 400,352,344 ------------ SHORT-TERM INVESTMENTS MONEY MARKET FUNDS 0.86% 3,518,911 Seven Seas Series U.S. Government Money Market Fund 3,518,911 PRINCIPAL COMMERCIAL PAPER 1.22% - ----------- $5,000,000 Ford Motor Credit Co. 5.75% maturing 1/12/96 4,991,215 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $8,510,126) 2.08% 8,510,126 ------------ TOTAL INVESTMENTS (COST $324,425,908) (a) 99.83% 408,862,470 OTHER ASSETS LESS LIABILITIES 0.17% 704,199 ------------ NET ASSETS 100.00% $409,566,669 ------------ ------------
- --------------- (a) For Federal income tax purposes, cost is $325,628,826 and unrealized appreciation (depreciation) of equity securities is as follows: Unrealized appreciation $ 95,184,048 Unrealized depreciation (11,950,404) ------------ Net unrealized appreciation $ 83,233,644 ------------ ------------ *Non-income producing The accompanying notes are an integral part of the financial statements. Page 11 RCM SMALL CAP FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31 1995 ASSETS: Investments in securities, at value (cost $324,425,908) (Note 1) $408,862,470 Receivable for securities sold 3,854,179 Dividends receivable 120,821 Receivable for Fund shares sold 9,150 ------------ Total Assets 412,846,620 ------------ LIABILITIES: Payable for securities purchased 1,998,128 Payable for investment management fees (Note 5) 1,239,206 Payable for Fund shares repurchased 27,000 Payable for custodian fees 15,617 ------------ Total Liabilities 3,279,951 ------------ NET ASSETS $409,566,669 ------------ ------------ NET ASSET VALUE PER SHARE ($409,566,669 DIVIDED BY 3,006,802 shares outstanding) $ 136.21 ------------ ------------ NET ASSETS CONSIST OF: Paid in capital $305,471,776 Accumulated net realized gain on investments 19,658,331 Net unrealized appreciation of investments 84,436,562 ------------ NET ASSETS $409,566,669 ------------ ------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Page 12 RCM SMALL CAP FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 INVESTMENT INCOME: Income: Dividends (net of foreign withholding tax of $9,813) $ 2,038,870 Interest 1,423,067 ------------ Total income 3,461,937 ------------ Expenses: Investment management fees (Note 5) 4,385,825 Custodian fees 54,299 Miscellaneous expenses 800 ------------ Total expenses 4,440,924 ------------ Net investment loss (978,987) ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 63,212,427 Net unrealized appreciation of investments 66,594,922 ------------ Net realized and unrealized gain on investments 129,807,349 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $128,828,362 ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Page 13 RCM SMALL CAP FUND STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 ------------ ------------- OPERATIONS: Net investment loss $ (978,987) $ (1,803,412) Net realized gain on investments 63,212,427 35,770,272 Net unrealized appreciation (depreciation) on investments 66,594,922 (51,956,607) ------------ ------------- Net increase (decrease) in net assets resulting from operations 128,828,362 (17,989,747) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net realized gain on investments (Note 2) (47,579,854) (30,873,545) NET DECREASE FROM CAPITAL SHARE TRANSACTIONS (NOTE 3) (87,329,307) (195,537,932) ------------ ------------- NET DECREASE IN NET ASSETS (6,080,799) (244,401,224) NET ASSETS: Beginning of year 415,647,468 660,048,692 ------------ ------------ End of year $409,566,669 $415,647,468 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Page 14 RCM SMALL CAP FUND FINANCIAL HIGHLIGHTS Selected data for each share of capital stock outstanding for the four years ended December 31, 1995 are as follows:
Year Ended December 31 --------------------------------------- 1995 1994 1993 1992 ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year $ 113.01 $ 124.94 $ 121.82 $ 100.00 ------- ------- ------- ------- Net investment income (loss) (0.44) (0.51) (0.01) 0.31 Net realized and unrealized gain (loss) on investments 38.49 (2.43) 10.90 21.82 ------- ------- ------- ------- Net increase (decrease) in net asset value resulting from investment operations 38.05 (2.94) 10.89 22.13 ------- ------- ------- ------- Distributions: Net investment income (0.00) (0.00) (0.00) (0.31) Net realized gain on investments (14.85) (8.99) (7.77) (0.00) ------- ------- ------- ------- Total distributions (14.85) (8.99) (7.77) (0.31) ------- ------- ------- ------- NET ASSET VALUE, END OF YEAR $ 136.21 $ 113.01 $ 124.94 $ 121.82 ------- ------- ------- ------- ------- ------- ------- ------- TOTAL RETURN * 34.08% (2.16%) 9.20% 22.14% ------- ------- ------- ------- ------- ------- ------- ------- RATIOS AND SUPPLEMENTAL DATA: Net assets, end of year (in 000's) $409,567 $415,647 $660,049 $457,994 -------- -------- -------- -------- -------- -------- -------- -------- Ratio of expenses to average net assets 1.0% 1.1% 0.9% 0.7% -------- -------- -------- -------- -------- -------- -------- -------- Ratio of net investment income (loss) to average net assets (0.2%) (0.3%) 0.0% 0.4% -------- -------- -------- -------- -------- -------- -------- -------- Portfolio turnover 83.9% 117.7% 80.0% 72.0% -------- -------- -------- -------- -------- -------- -------- --------
- -------------------- * Total return measures the change in value of an investment over the period indicated. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. Page 15 RCM SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES RCM Small Cap Fund (the "Fund") is a diversified series of RCM Capital Funds, Inc. (the "Company"). The Company is organized as a Maryland corporation and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The following is a summary of significant accounting policies consistently followed by the Company in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amount of assets and liabilities. A. SECURITIES VALUATIONS: Investment securities are stated at fair market value. Equity securities traded on stock exchanges are valued at the last sale price on the exchange or in the principal over-the-counter market in which such securities are traded as of the close of business on the day the securities are being valued. If there has been no sale on such day, then the security will be valued at the closing bid price on such day. If no bid price is quoted on such day, then the security will be valued by such method as the Board of Directors of the Company in good faith deems appropriate to reflect its fair market value. Readily marketable securities traded only in the over-the-counter market that are not listed on the National Association of Securities Dealers, Inc. Automated Quotation System or similar foreign reporting service will be valued at the mean bid price, or such other comparable sources as the Board of Directors of the Company deems appropriate to reflect their fair market value. Other portfolio securities held by the Fund will be valued at current market value, if current market quotations are readily available for such securities. To the extent that market quotations are not readily available such securities will be valued by whatever means the Board of Directors of the Company in good faith deems appropriate to reflect their fair market value. Short-term investments with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are recorded as of the date of purchase or sale. Realized gains and losses on security transactions are determined on identified cost basis for both financial statement and federal income tax purposes. Interest income, foreign taxes and expenses are accrued daily. C. FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the requirements for qualifications as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). It is also the intention of the Fund to make distributions sufficient to avoid imposition of any excise tax under Section 4982 of the Code. Therefore, no provision has been made for Federal or excise taxes on income and capital gains. Page 16 RCM SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. DISTRIBUTIONS: Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with Federal income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund and timing differences. 2. DISTRIBUTIONS On December 14, 1995 a distribution of $14.85 per share, aggregating $47,579,854 was paid from investment operations. This per share amount consisted of $7.62 short-term capital gains and $7.23 long-term capital gains. The dividend was recorded on December 14, 1995 to shareholders of record on the same date. 3. CAPITAL SHARES At December 31, 1995, there were 25,000,000 shares of the Company's common stock authorized, at $0.10 par value. Of this amount, 8,000,000 were classified as shares of the Fund; 12,000,000 were classified as shares of RCM Growth Equity Fund; 4,500,000 were classified as shares of RCM International Growth Equity Fund A; and 500,000 shares remain unclassified. Transactions in capital shares of the Fund were as follows: CAPITAL SHARE TRANSACTIONS
Year ended December 31, 1995 ---------------------------- Shares Amount ---------- ------------- Shares sold 556,071 $ 75,194,368 Shares issued in connection with reinvestment of distributions 351,319 46,437,296 Shares repurchased (1,578,603) (208,960,971) ---------- ------------- Net decrease (671,213) $ (87,329,307) ---------- ------------- ---------- ------------- Year ended December 31, 1994 ---------------------------- Shares Amount ---------- ------------- Shares sold 139,742 $ 16,375,155 Shares issued in connection with reinvestment of distributions 277,252 30,525,490 Shares repurchased (2,021,972) (242,438,577) ---------- ------------- Net decrease (1,604,978) $(195,537,932) ---------- ------------- ---------- -------------
At December 31, 1995 one affiliated shareholder held 19% of the outstanding shares of the Fund. Page 17 RCM SMALL CAP FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 4. PURCHASES AND SALES OF SECURITIES Purchases and sales proceeds of investment securities by the Fund, excluding short-term securities, aggregated $345,137,519 and $472,158,658, respectively, for the year ended December 31, 1995. 5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES RCM Capital Management, a California Limited Partnership ("RCM") is the Fund's investment manager. RCM manages the Fund's investments, provides various administrative services, and supervises the Fund's daily business affairs, subject to the authority of the Board of Directors. The Fund pays investment management fees quarterly to RCM at a rate of 1/4 of 1% (approximately 1% on an annual basis) of the average net assets of the Fund during the preceding quarter. For the year ended December 31, 1995, the Fund recorded investment management fees aggregated $4,385,825. The RCM Capital Management Profit Sharing Plan ("the Plan"), participation in which is limited to officers and employees of RCM, owned 18,425 shares of the Fund on December 31, 1995. Certain officers and directors of the Company are beneficiaries of the Plan and have vested rights in its assets. In December 1995, RCM entered into an Agreement of Purchase and Sale pursuant to which RCM will become a wholly owned subsidiary of Dresdner Bank AG, an international banking organization with headquarters in Frankfurt, Germany. It is expected that the day-to-day operations of RCM will not be affected and that the individuals who are primarily responsible for the management of the Fund"s portfolio will remain the same. The closing of the transaction is subject to a number of contingencies, including the receipt of certain regulatory approvals. The transaction is currently expected to close in mid-1996. Because the transaction will constitute an "assignment" of the Fund"s management agreement with RCM under the Investment Company Act of 1940, and thus a termination of such management agreement, the Fund will seek prior approval of a new management agreement from the Fund"s Board of Directors and shareholders prior to the closing of the transaction. The terms of the new management agreement are expected to be substantially the same as those of the current management agreement. Page 18 -----END PRIVACY-ENHANCED MESSAGE-----