-----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, OK4VzgYSm3o1A/QHZjPbeRjjjJa2DifgkIWKXVwqsOUh13BRFjqeYSawk062deEO TXl/hfTKQQ4Ps+K2yDBzJQ== 0000912057-97-007415.txt : 19970303 0000912057-97-007415.hdr.sgml : 19970303 ACCESSION NUMBER: 0000912057-97-007415 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970228 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: 97547679 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 RCM GROWTH EQUITY FUND MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE The value of an investment in the RCM Growth Equity Fund (the "Fund") appreciated by 19.07% over the 12 months ended December 31, 1996. The Fund finished the year 7 basis points ahead of its primary benchmark, the Russell Midcap Index, which registered a total return of 19.00% for the same period. These results were achieved in the context of a market environment which strongly favored large capitalization equities over medium and small capitalization equities, especially after the June/July correction. 1996 was a year in which the major mid cap benchmarks significantly underperformed large cap indices such as the Dow Jones Industrial Average and the S&P 500 Composite Index, which returned 28.91% and 22.96%, respectively. After posting outstanding returns in 1995, U.S. stocks and bonds rallied strongly again in the first half of 1996. Consensus expectations going into the year called for a slowing economic environment including low inflation and continued declines in interest rates. By early in the second quarter, however, signs of economic re-acceleration appeared, and inflation fears began to surface. Despite the shifting macroeconomic outlook, equity mutual fund cash flows reached record levels in the first half of 1996, and the market for initial public offerings (IPOs) exploded. Stocks of all capitalizations participated in this first half advance, although mid cap issues got off to a weak start in the month of January. The relative strength of the mid cap sector bottomed in February, though, and the Russell Midcap Index outperformed the S&P 500 Index in the months of March, April and May. By June, however, the relative strength of the mid cap sector versus large cap equities began to deteriorate markedly. At midyear, the Russell Midcap Index lagged the S&P 500 by 109 basis points. The Fund's performance, however, was ahead of its primary benchmark and essentially matched the return on the S&P 500. Factors contributing to outperformance in the first half of the year included the Fund's overweightings in communications services and in leisure time products and services. Returns were also aided by the growth stock focus of RCM Capital Management, L.L.C. ("RCM"), investment manager of the Fund. Growth investment styles significantly outperformed value styles in the first six months of 1996. U.S. stocks began to weaken in June and suffered a violent correction in the month of July. A series of stronger-than-expected economic releases generated fears that the Federal Reserve would be forced into a series of rate hikes to keep growth and inflation in tow. As is typical, the mid and small cap sectors of the market exhibited significantly more volatility on the downside during this corrective phase, especially given their appreciation through May. Equity mutual fund cash contributions evaporated and the IPO market "window" slammed shut. The broader market began to recover in the late summer as rate fears eased again and investors began to embrace a "Goldilocks" economic scenario (slow-to-moderate growth with little or no inflation.) Mutual fund cash inflows resumed, albeit not at the record levels of the first half. The Dow Jones Industrial Average and the S&P 500 Index posted exceptional gains from late summer through the end of the year. But while mid cap universes recorded respectable absolute returns - and did better than small cap stocks - they severely underperformed large cap indices, as investors appeared willing to accord a premium to liquidity after the summer correction. The Fund's outperformance relative to the Russell Midcap Index in 1996 was attributable to stock selection, which was positive in several industries. Electronics and new technology was a highly volatile sector during 1996, but individual issue selection in this area was a strong contributor to relative performance versus the Fund's primary benchmark. The Fund's holdings in this group were up an aggregate of 20% versus a gain of approximately 10% for the Russell Midcap Index stocks in this group. The Fund's major holdings in this group included Sanmina Corp. (+118% total return for the year), Network General (+81%) and 3COM Corporation (+57%). The Fund's holdings in the business services sector gained 26% on average, compared to an average return of 6% for the benchmark stocks in this group. Significant positive contributions came from issues such as G&K Services, United Waste Systems and Robert Half International. Technology services stocks held by the Fund were up approximately 15%, compared to an average gain of only about 4% for the technology services stocks in the Russell Midcap Index. CBT Group, Sterling Commerce, American Management Systems and Veritas Software were among the Fund's strongest performers in this industry segment. On the negative side, stock selection in the health care services area hurt relative performance. In general, mid and small cap health care services stocks were weak performers in 1996, as investors' concerns about pricing and reimbursement issues caused HMO, home health care and nursing home stocks to come under pressure. The Fund's holdings in this industry segment were down an average of 9%, compared to a gain of about 6% for the stocks in the benchmark health care services group. RCM's stocks in the insurance group also registered a modest negative impact from adverse stock selection. Overall, the Fund's strategy on industry weightings was not a favorable element in performance relative to the Russell Midcap Index in 1996. Nevertheless, industry strategies that were positive contributors included an overweighting in the strong aerospace sector (3.5% versus 1.5% in the Russell Midcap Index). Several lagging industry groups were underweighted by the Fund in 1996, thereby adding to relative performance. These included raw and basic materials, retail trade and utilities (the latter is not typically an industry in which the Fund would have significant investment). Unfortunately, several key growth industries in which RCM traditionally maintains high relative weightings were severely punished during the mid summer correction and in the market's pull-back in the October time frame. Overweightings in technology services, health care services, drugs and hospital supplies and business services resulted in negative contributions from industry strategy (although, as noted above, individual issue selection was significantly positive in technology services and business services). The Fund's weightings in health care services were reduced significantly in the first half of the year. Technology holdings were also reduced to less significant overweightings before the summer correction, then raised again going into the fall time frame. The Fund's underweighting in the interest sensitive and financial industry groups (6.5% versus 18%, excluding utilities, in the Russell Midcap Index) was also a negative factor in relative performance from an industry strategy perspective. Due to the growth stock orientation of RCM, it is typical for the Fund to be underweighted in the interest sensitive area versus the large weighting in these groups in the Russell Midcap Index. Although the Fund's average cash position of about 4% for the year was at the low end of its "normal" range, cash was a negative contributor to relative performance given the rising market environment. Like 1995, the past year was an exceptional one in terms of absolute returns for investors in U.S. stocks across all capitalization ranges, even though mid cap universes did not match the returns of the Dow Jones Industrial Average or the S&P 500 Index. While RCM is not bearish going into 1997, historical precedent and RCM's valuations argue strongly against placing a high probability on similar gains for the overall market for 1997. Nevertheless, RCM believes that a slow-to-moderate growth macroeconomic environment is likely to favor the growth style of investing. Furthermore, RCM believes that the conspicuous outperformance of large capitalization equities in the second half of 1996 (exacerbated by the surging popularity of indexing) has resulted in attractive relative valuations in mid and small capitalization stocks early in 1997, especially given the higher relative earnings growth rates of medium and small-sized companies. Page 2 RCM GROWTH EQUITY FUND PERFORMANCE SUMMARY - ------------------------------------------------------------------------------- [GRAPHIC] RCM Growth Equity Fund Russell Midcap Index 11/6/79 10,000 10,000 11/30/79 10,393 10,740 12/31/79 10,719 11,158 1/31/80 11,210 11,777 2/28/80 10,792 11,516 3/31/80 9,599 9,996 4/30/80 10,028 10,641 5/31/80 10,856 11,467 6/30/80 11,315 12,024 7/31/80 12,980 13,034 8/31/80 13,656 13,375 9/30/80 14,396 13,821 10/31/80 14,878 13,966 11/30/80 15,935 15,074 12/31/80 15,665 14,784 1/31/81 15,304 14,439 2/28/81 15,725 14,694 3/31/81 17,588 15,843 4/30/81 18,134 15,918 5/31/81 19,279 16,306 6/30/81 18,560 16,008 7/31/81 18,247 15,809 8/31/81 17,371 14,908 9/30/81 16,587 13,951 10/31/81 18,157 14,914 11/30/81 18,503 15,518 12/31/81 18,211 15,139 1/31/82 17,929 14,583 2/28/82 17,527 13,964 3/31/82 17,476 13,825 4/30/82 18,682 14,486 5/31/82 18,511 13,970 6/30/82 18,441 13,595 7/31/82 18,512 13,274 8/31/82 20,047 14,871 9/30/82 20,666 15,293 10/31/82 23,233 17,338 11/30/82 25,235 18,395 12/31/82 25,710 18,660 1/31/83 27,172 19,319 2/28/83 28,967 19,987 3/31/83 30,108 20,691 4/30/83 32,700 21,984 5/31/83 34,645 22,903 6/30/83 36,064 23,737 7/31/83 34,391 22,991 8/31/83 33,610 22,846 9/30/83 34,935 23,486 10/31/83 33,413 22,575 11/30/83 34,930 23,541 12/31/83 34,348 23,105 1/31/84 32,764 22,449 2/29/84 31,089 21,235 3/31/84 31,709 21,587 4/30/84 31,839 21,350 5/31/84 30,674 20,146 6/30/84 32,051 20,774 7/31/84 31,196 20,166 8/31/84 34,191 22,684 9/30/84 33,648 22,791 10/31/84 33,611 22,880 11/30/84 32,993 22,784 12/31/84 33,496 23,435 1/31/85 37,254 25,659 2/29/1985 38,042 26,119 3/31/85 37,399 25,970 4/30/85 36,747 25,894 5/31/85 39,165 27,365 6/30/85 39,965 28,030 7/31/85 40,928 27,994 8/31/85 40,385 27,876 9/30/85 38,429 26,510 10/31/85 40,118 27,883 11/30/85 42,578 29,810 12/31/85 44,235 30,937 1/31/86 45,046 31,633 2/28/86 48,307 34,205 3/31/86 49,783 36,003 4/30/86 50,541 35,845 5/31/86 52,554 37,701 6/30/86 51,571 38,216 7/31/86 47,374 35,687 8/31/86 49,140 38,219 9/30/86 45,601 35,511 10/31/86 48,335 37,364 11/30/86 48,946 37,640 12/31/86 48,361 36,569 1/31/87 54,951 41,072 2/28/87 59,189 43,530 3/31/87 60,968 43,942 4/30/87 60,390 42,842 5/31/87 62,092 42,989 6/30/87 64,592 44,737 7/31/87 67,740 46,653 8/31/87 70,486 48,302 9/30/87 68,483 47,379 10/31/87 49,455 35,710 11/30/87 47,006 33,727 12/31/87 53,665 36,652 1/31/88 53,930 38,355 2/29/88 58,780 41,072 3/31/88 60,415 41,126 4/30/88 61,386 41,380 5/31/88 60,234 41,283 6/30/88 64,720 44,110 7/31/88 63,335 43,225 8/31/88 61,789 42,264 9/30/88 64,192 43,702 10/31/88 63,486 43,889 11/30/88 62,127 42,836 12/31/88 64,859 43,910 1/31/89 68,192 46,537 2/28/89 67,612 46,427 3/31/89 68,994 47,190 4/30/89 73,125 49,465 5/31/89 77,254 51,695 6/30/89 74,440 51,503 7/31/89 79,915 55,093 8/31/89 83,387 56,935 9/30/89 83,428 56,413 10/31/89 79,787 53,752 11/30/89 80,873 54,489 12/31/89 82,292 55,446 1/31/90 75,120 50,999 2/28/90 77,825 52,033 3/31/90 80,029 53,300 4/30/90 78,163 51,011 5/31/90 86,194 55,632 6/30/90 87,034 55,271 7/31/90 84,425 53,628 8/31/90 75,868 47,860 9/30/90 71,033 44,312 10/31/90 69,568 42,913 11/30/90 75,112 47,046 12/31/90 78,902 49,072 1/31/91 85,003 52,398 2/28/91 92,631 56,764 3/31/91 97,028 59,119 4/30/91 96,459 59,474 5/31/91 101,948 62,298 6/30/91 96,909 59,427 7/31/91 102,335 62,340 8/31/91 105,602 64,204 9/30/91 105,329 63,830 10/31/91 108,557 65,138 11/30/91 104,724 62,445 12/31/91 116,960 69,442 1/31/92 119,326 70,748 2/28/92 120,948 72,373 3/31/92 115,847 70,524 4/30/92 113,545 71,075 5/31/92 114,312 71,534 6/30/92 108,991 70,374 7/31/92 112,618 73,316 8/31/92 110,272 71,628 9/30/92 113,146 73,113 10/31/92 117,301 74,902 11/30/92 122,190 78,677 12/31/92 125,186 80,789 1/31/93 125,594 82,405 2/28/93 121,886 82,496 3/31/93 124,822 85,179 4/30/93 121,150 82,922 5/31/93 126,171 85,555 6/30/93 126,630 86,522 7/31/93 125,543 86,939 8/31/93 131,747 90,806 9/30/93 134,398 91,153 10/31/93 135,795 91,229 11/30/93 131,931 89,113 12/31/93 138,604 92,341 1/31/94 143,687 94,889 2/28/94 142,568 93,598 3/31/94 134,622 89,611 4/30/94 135,889 90,226 5/31/94 134,603 90,349 6/30/94 130,975 87,673 7/31/94 132,730 90,682 8/31/94 141,423 94,981 9/30/94 140,120 92,660 10/31/94 142,420 93,369 11/30/94 137,052 89,250 12/31/94 139,650 90,409 1/31/95 140,145 92,266 2/28/95 146,023 97,042 3/31/95 151,805 99,819 4/30/95 152,385 101,324 5/31/95 155,053 104,654 6/30/95 162,810 108,171 7/31/95 174,821 113,423 8/31/95 177,454 115,160 9/30/95 183,158 117,762 10/31/95 179,789 115,128 11/30/95 185,416 120,853 12/31/95 187,880 121,558 1/31/96 190,835 124,137 2/28/96 200,326 127,052 3/31/96 203,882 128,890 4/30/96 212,394 132,542 5/31/96 215,917 134,544 6/30/96 206,821 132,526 7/31/96 188,917 124,324 8/31/96 198,795 130,243 9/30/96 211,760 136,676 10/31/96 211,966 137,772 11/30/96 222,461 146,165 12/31/96 223,710 144,673 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. The chart above shows the performance of the RCM Growth Equity Fund since its inception versus the Russell Midcap Index.# The chart represents a cumulative return of 2,137.10%+ for the Fund. The average annual total return from the Fund's inception was 19.85%*+. The chart assumes a hypothetical $10,000 initial investment in the Fund and reflects all Fund expenses. AVERAGE ANNUAL TOTAL RETURNS+ DECEMBER 31, 1996 LIFE OF 1 YEAR 5 YEAR 10 YEAR FUND* - ------ ------ ------- ------- 19.07% 13.85% 16.55% 19.85% The data above represents past performance of the Fund, and may not be indicative of future results. The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. - ------------------------- # The Russell Midcap Index is composed of the smallest 800 companies in the Russell 1000 Index. The Russell 1000 Index is made up of the 1,000 largest companies in the Russell 3000 Index, which is composed of 3,000 large U.S. companies by market capitalization and represents approximately 98% of the U.S. equity market. + Returns assume reinvestment of all dividends and capital gains distributions at net asset value. * The Fund began operations on November 6, 1979. Page 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of RCM Growth Equity Fund and Board of Directors of RCM Capital Funds, Inc: We have audited the accompanying statement of assets and liabilities of RCM Growth Equity Fund (the "Fund"), including the statement of investments in securities and net assets, as of December 31, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RCM Growth Equity Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts February 20, 1997 Page 4 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE ---------- ---------------------------- -------------- -------------- CONSUMER DURABLES SECTOR 2.17% AUTOMOTIVE RELATED 1.82% 362,000 Lear Corp. * $ 12,353,250 126,800 Tower Automotive Inc. * 3,962,500 ------------- 16,315,750 ------------- OTHER CONSUMER DURABLES 0.35% 57,500 Bemis Co. Inc. 2,120,313 31,000 Newell Co. 976,500 ------------ 3,096,813 ------------ CONSUMER NON-DURABLES SECTOR 9.89% BEVERAGE AND TOBACCO 0.44% 33,500 Coca Cola Enterprises Inc. 1,624,750 26,000 Robert Mondavi Corp. * 949,000 28,000 Pan American Beverages Inc. Class A 1,312,500 ------------ 3,886,250 ------------ GENERAL RETAIL 3.26% 31,000 CVS Corp. 1,282,625 18,000 Circuit City Stores Inc. 542,250 36,500 Consolidated Stores Corp. * 1,172,563 88,000 Global DirectMail Corp. * 3,839,000 64,000 Hannaford Bros. Co. 2,176,000 40,500 Nine West Group Inc. * 1,878,188 142,000 PETsMART Inc. * 3,106,250 70,000 Proffitt's Inc. * 2,581,250 153,800 Saks Holdings Inc. * 4,152,600 318,000 Viking Office Products Inc. * 8,486,625 ------------ 29,217,351 ------------ HOUSEHOLD/RELATED NON-DURABLES 0.59% 59,500 Designer Holdings Ltd. * 959,438 54,000 Nu Skin Asia Pacific Inc. * 1,667,250 9,828 Salton/Maxim Housewares Inc. 68,796 35,700 Sola International Inc. 1,356,600 The accompanying notes are an integral part of the financial statements. Page 5 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- -------------- -------------- HOUSEHOLD/RELATED NON-DURABLES (CONTINUED) 39,000 Unifi Inc. $ 1,252,875 ------------- 5,304,959 ------------- LEISURE TIME PRODUCTS/SERVICES 5.60% 297,500 Doubletree Corp. * 13,387,500 18,000 Family Golf Centers Inc. * 542,250 195,000 Hasbro Inc. 7,580,625 1,050,900 Host Marriott Corp. * 16,814,400 125,000 Interstate Hotels Co. * 3,531,250 45,000 Marriott International Inc. 2,486,250 297,000 Planet Hollywood International Inc. * 5,865,750 ------------- 50,208,025 ------------- CYCLICAL/CAPITAL GOODS SECTOR 12.95% AEROSPACE/DEFENSE 3.57% 670,000 Sundstrand Corp. 28,475,000 160,000 Wyman-Gordon Co. * 3,560,000 ------------- 32,035,000 ------------- BUILDING AND CONSTRUCTION 0.32% 40,000 Foster Wheeler Corp. 1,485,000 60,000 Jacobs Engineering Group Inc. * 1,417,500 ------------- 2,902,500 ------------- CHEMICALS AND TEXTILES 0.52% 35,000 Cytec Industries Inc. * 1,421,875 40,000 Rohm & Haas Co. 3,265,000 ------------- 4,686,875 ------------- ELECTRICAL EQUIPMENT 1.66% 66,000 Honeywell Inc. 4,339,500 62,500 Hubbell Inc. Class B 2,703,125 97,500 Raychem Corp. 7,812,188 ------------- 14,854,813 ------------- The accompanying notes are an integral part of the financial statements. Page 6 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- -------------- -------------- INDUSTRIAL EQUIPMENT 2.48% 87,500 Duriron Co. Inc. $ 2,373,438 50,000 Illinois Tool Works Inc. 3,993,750 62,000 Johnson Controls Inc. 5,138,250 133,500 Tyco International Ltd. 7,058,813 65,000 York International Corp. 3,631,875 ------------- 22,196,126 ------------- RAW AND BASIC MATERIALS 1.89% 331,000 Commercial Metals Co. 9,971,375 185,000 UCAR International Inc. * 6,960,625 ------------- 16,932,000 ------------- TRANSPORTATION SERVICES 2.51% 444,000 Expeditors International of Washington Inc. 10,212,000 83,900 Heartland Express Inc. * 2,045,063 75,000 Southwest Airlines Co. 1,659,375 265,000 Swift Transportation Co. Inc. * 6,227,500 130,000 Werner Enterprises Inc. 2,356,250 ------------- 22,500,188 ------------- ENERGY SECTOR 2.74% OIL AND RELATED SERVICES 2.74% 172,000 BJ Services Co. * 8,772,000 102,000 Camco International Inc. 4,704,750 180,000 Forcenergy Gas Exploration Inc. * 6,525,000 225,000 Houston Exploration Co. * 3,937,500 12,500 Noble Affiliates Inc. 598,438 ------------- 24,537,688 ------------- HEALTH CARE SECTOR 14.25% DRUGS & HOSPITAL SERVICES 6.27% 29,400 Allergan Inc. 1,047,375 25,000 Amgen Inc. * 1,359,375 29,300 Anesta Corp. * 564,025 27,200 Autoimmune Inc. * 418,200 1,400 Boston Scientific Corp. * 84,000 The accompanying notes are an integral part of the financial statements. Page 7 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- -------------- -------------- DRUGS & HOSPITAL SERVICES (CONTINUED) 345,100 Centocor Inc. * $ 12,337,325 109,100 CIMA Labs Inc. * 668,238 85,000 Dura Pharmaceuticals Inc. * 4,058,750 121,614 Guidant Corp. 6,931,998 63,000 Invacare Corp. 1,732,500 28,000 Mentor Corp. Minn. 826,000 65,600 Pharmacia & Upjohn Inc. 2,599,400 74,600 Physio-Control International Corp. * 1,678,500 128,000 Respironics Inc. * 2,224,000 31,000 SangStat Medical Corp. * 821,500 32,700 Sepracor Inc. * 543,638 266,100 Sofamor/Danek Group Inc. * 8,116,050 17,600 Synthelabo 1,902,978 37,000 Thermo Cardiosystems Inc. * 1,110,000 13,700 Thermolase Corp. * 215,775 315,000 VISX Inc. * 6,969,375 ------------- 56,209,002 ------------- HEALTH CARE SERVICES 7.98% 78,300 American Medical Response Inc. * 2,544,750 73,800 AmeriSource Health Corp. * 3,560,850 27,000 Cardinal Health Inc. 1,572,750 255,000 Health Care & Retirement Corp. * 7,299,375 335,000 Maxicare Health Plans Inc. * 7,453,750 133,900 Medaphis Corp. * 1,498,006 130,000 Multicare Cos. Inc. * 2,632,500 38,200 Orthodontic Centers of America Inc. * 611,200 30,100 Oxford Health Plans Inc. * 1,762,731 16,300 Pacificare Health Systems Inc. Class A * 1,324,375 15,100 Pacificare Health Systems Inc. Class B * 1,287,275 185,500 PhyCor Inc. * 5,263,563 5,000 Quintiles Transnational Corp. * 331,250 417,800 Renal Treatment Centers Inc. * 10,653,900 250,000 RoTech Medical Corp. * 5,250,000 46,000 Service Corp International 1,288,000 52,500 Sunquest Information Systems Inc. * 748,125 24,500 Total Renal Care Holdings Inc. * 888,125 32,000 Universal Health Services Inc., Class B * 916,000 531,200 Vivra Inc. * 14,674,400 ------------- 71,560,925 ------------- The accompanying notes are an integral part of the financial statements. Page 8 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- -------------- -------------- INTEREST SENSITIVE SECTOR 7.41% BANKING 2.97% 39,800 BanPonce Corp. $ 1,343,250 256,800 Community First Bankshares Inc. 7,062,000 40,300 Compass Bancshares Inc. 1,601,925 27,000 First American Corp. of Tennessee 1,555,875 53,200 First Security Corp. 1,795,500 31,900 Firstar Corp. 1,674,750 48,200 North Fork Bancorporation Inc. 1,717,125 98,700 WestAmerica Bancorporation 5,699,925 40,000 Zions Bancorp 4,160,000 ------------- 26,610,350 ------------- GENERAL FINANCE 3.33% 63,300 AMRESCO Inc. * 1,693,275 25,000 Bank United Corp. Class A 668,750 30,700 Bay View Capital Corp. 1,300,913 40,122 Charter One Financial Inc. 1,685,124 36,500 Credit Acceptance Corp. * 857,750 25,000 First Financial Corp. 612,500 37,800 First USA Inc. 1,308,825 349,900 Glendale Federal Bank FSB (California) * 8,135,175 2,000 Household International Inc. 184,500 212,500 The Money Store Inc. 5,870,313 54,700 Newcourt Credit Group Inc. 1,889,513 12,000 Charles Schwab Corp. 384,000 120,550 TCF Financial Corp. 5,243,925 ------------- 29,834,563 ------------- INSURANCE 1.11% 32,350 Executive Risk Inc. 1,196,950 168,100 MMI Companies Inc. 5,421,225 30,300 PMI Group Inc. 1,677,863 20,800 Transatlantic Holdings Inc. 1,674,400 ------------- 9,970,438 ------------- The accompanying notes are an integral part of the financial statements. Page 9 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996 % OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ---------- ---------------------------------- -------------- -------------- SERVICES/MEDIA SECTOR 16.82% BUSINESS AND FOOD SERVICES 9.63% 8,000 ABR Information Services Inc. * $ 315,000 236,800 AccuStaff Inc. * 5,002,400 490,000 Avery Dennison Corp. 17,333,750 268,400 CUC International Inc. * 6,374,500 20,000 Caribiner International Inc. * 1,005,000 197,500 Danka Business Systems PLC Sponsored ADR 6,986,563 329,500 G & K Services Inc. Class A 12,438,625 30,000 Olsten Corp. 453,750 19,200 Precision Response Corp. * 674,400 22,300 The Registry Inc. * 1,028,588 155,000 Reynolds & Reynolds Co. Class A 4,030,000 63,000 Robert Half International Inc. * 2,165,625 18,000 SITEL Corp. * 254,250 15,000 Snyder Communications Inc. * 405,000 210,000 Tetra Tech Inc. * 4,147,500 135,000 USA Waste Services Inc. * 4,303,125 120,000 United Waste Systems Inc. * 4,125,000 80,000 Unitog Co. 2,180,000 380,500 Wallace Computer Services Inc. 13,127,250 ------------- 86,350,326 ------------- COMMUNICATION SERVICES 5.06% 125,000 ICG Communications Inc. * 2,203,125 253,000 LCI International Inc. * 5,439,500 283,636 MFS Communications Inc. * 15,458,162 213,500 McLeod Inc. * 5,444,250 111,000 Nextel Communications Inc. * 1,449,938 108,500 Orbital Sciences Corp. * 1,871,625 18,000 Pacific Gateway Exchange Inc. * 657,000 78,400 Smartalk Teleservices Inc. * 1,332,800 258,200 Tel-Save Holdings Inc. * 7,487,800 38,000 Teleport Communications Group Inc. * 1,159,000 105,000 Vanguard Cellular Systems Inc. Class A * 1,653,750 132,000 Viatel Inc. * 1,188,000 ------------- 45,344,950 ------------- MEDIA SERVICES 2.13% 68,000 Bell Cablemedia PLC * 1,054,000 The accompanying notes are an integral part of the financial statements. Page 10 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ------ --------------------------------------------------- ---------- ------------ MEDIA SERVICES (CONTINUED) 287,400 Central European Media Entertainment Ltd. Class A * $ 9,124,950 120,000 Comcast UK Cable Partners Ltd. * 1,635,000 77,500 Gartner Group Inc. Class A * 3,017,656 50,000 Harcourt General Inc. 2,306,250 160,000 Metromedia International Group Inc. * 1,580,000 13,000 Regal Cinemas Inc. * 399,750 ----------- 19,117,606 ----------- TECHNOLOGY SECTOR 30.71% COMPUTERS AND OFFICE EQUIPMENT 2.51% 159,000 Black Box Corp. * 6,558,750 34,500 Compaq Computer Corp. * 2,561,625 15,000 Comverse Technology Inc. * 567,188 70,000 E M C Corp. * 2,318,750 56,050 Quantum Corp. * 1,604,431 81,400 Seagate Technology Inc. * 3,215,300 222,000 Sun Microsystems Inc. * 5,702,625 ----------- 22,528,669 ----------- ELECTRONICS AND NEW TECHNOLOGY 18.06% 26,800 Altera Corp. * 1,948,025 249,600 Altron Inc. * 5,241,600 401,300 Analog Devices Inc. * 13,594,038 203,500 Ascend Communications Inc. * 12,642,438 205,600 Cabletron Systems Inc. * 6,836,200 5,000 Cisco Systems Inc. * 318,125 36,000 Ericsson LM Telephone Co. Sponsored ADR 1,086,750 49,000 Gemstar International Group Ltd. 857,500 320,150 LSI Logic Corp. * 8,564,013 8,000 Maxim Integrated Products Inc. * 346,000 208,000 Microchip Technology Inc. * 10,582,000 210,000 Molex Inc. Class A 7,481,250 25,000 Network Equipment Technologies Inc. * 412,500 51,100 Network Appliance Inc. * 2,599,713 660,000 Network General Corp. * 19,965,000 219,900 Newbridge Networks Corp. * 6,212,175 59,900 Nokia Corp.Sponsored ADR A 3,451,738 97,000 PairGain Technologies Inc. * 2,952,438
The accompanying notes are an integral part of the financial statements. Page 11 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ------ --------------------------------------------------- ---------- ------------ ELECTRONICS AND NEW TECHNOLOGY (CONTINUED) 56,000 Qualcomm Inc. * $ 2,233,000 13,300 SGS Thomson Microelectronics N.V. * 931,000 189,700 Sanmina Corp. * 10,718,050 101,000 Thermo Electron Corp. * 4,166,250 192,700 3Com Corp.* 14,139,363 100,350 U. S. Robotics Corp. * 7,225,200 164,800 Uniphase Corp. * 8,652,000 235,650 Xilink Inc. * 8,674,866 ----------- 161,831,232 ----------- TECHNOLOGY SERVICES 10.14% 133,800 American Management Systems Inc. * 3,278,100 4,000 Aspen Technologies Inc. * 321,000 377,000 BISYS Group Inc. * 13,972,563 92,000 Business Objects S A Sponsored ADR * 1,242,000 45,500 CBT Group PLC Sponsored ADR * 2,468,375 124,300 Ceridian Corp. * 5,034,150 26,300 Computer Sciences Corp. * 2,159,888 19,000 Concord EFS Inc. * 536,750 21,000 Documentum Inc. * 708,750 57,300 Electronics Arts Inc. * 1,715,419 164,100 FileNet Corp. * 5,251,200 114,600 HBO & Co. 6,804,375 180,250 Informix Corp. * 3,672,594 52,000 Intuit Inc. * 1,638,000 23,000 Macromedia Inc * 414,000 8,000 McAfee Associates Inc. * 352,000 67,400 Medic Computer Systems Inc. * 2,717,063 37,000 National Data Corp. 1,609,500 399,000 PMT Services Inc. * 6,982,500 33,100 PeopleSoft Inc. * 1,586,731 90,200 Raptor Systems Inc. * 1,815,275 8,000 Rational Software Corp. * 316,500 604,000 Sterling Commerce Inc. * 21,291,000 42,500 Transaction Network Services Inc. * 488,750 29,000 Vantive Corp. * 906,250 34,600 VERITAS Software Co. * 1,721,350 39,300 Wind River Systems Inc. * 1,861,824 ----------- 90,865,907 -----------
The accompanying notes are an integral part of the financial statements. Page 12 RCM GROWTH EQUITY FUND INVESTMENTS IN SECURITIES AND NET ASSETS DECEMBER 31, 1996
% OF SHARES EQUITY INVESTMENTS NET ASSETS MARKET VALUE - ------ --------------------------------------------------- ---------- ------------ TOTAL EQUITY INVESTMENTS (COST $722,621,413) 96.94% $ 868,898,306 ----------- SHORT-TERM INVESTMENTS MONEY MARKET FUNDS 1.27% 96,713 SSgA U.S. Government Money Market Fund 96,713 11,309,015 SSgA Money Market Fund 11,309,015 ----------- 11,405,728 ----------- PRINCIPAL COMMERCIAL PAPER 1.67% --------- $ 15,000,000 General Electric Capital Corp. 5.31% maturing 01/13/1997 14,973,450 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $26,379,178) 2.94% 26,379,178 ----------- TOTAL INVESTMENTS (COST $749,000,591) ** 895,277,484 OTHER ASSETS LESS LIABILITIES 0.12% 1,042,666 ----------- NET ASSETS 100.00% $ 896,320,150 ----------- ----------- * Non-income producing security - ---------------------- TAX INFORMATION: ** For Federal income tax purposes, cost is $754,444,813 and unrealized appreciation (depreciation) of equity securities is as follows: Unrealized appreciation $ 163,725,733 Unrealized depreciation (22,893,062) ----------- Net unrealized appreciation $ 140,832,671 ----------- -----------
The accompanying notes are an integral part of the financial statements. Page 13 RCM GROWTH EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS: Investments in securities, at value (cost $749,00,591) (Note 1) $ 895,277,484 Cash 49,330 Foreign currency, at value (cost $202,649) 202,693 Receivable for securities sold 11,216,724 Dividends and dividend reclaims receivable 258,350 -------------- Total Assets 907,004,581 -------------- LIABILITIES: Payable for securities purchased 9,440,436 Payable for Fund shares repurchased 664,754 Payable for investment management fees (Note 5) 556,688 Payable for custodian fees 22,553 -------------- Total Liabilities 10,684,431 -------------- NET ASSETS $ 896,320,150 -------------- -------------- NET ASSETS CONSIST OF: Paid in capital (Note 3) 735,809,126 Accumulated net realized gain on investments and foreign currency transactions 14,233,814 Net unrealized appreciation on foreign currency transactions 317 Net unrealized appreciation on investments 146,276,893 -------------- NET ASSETS $ 896,320,150 -------------- -------------- NET ASSET VALUE PER SHARE ($896,320,150 divided by 139,975,548 shares outstanding) $ 6.40 -------------- -------------- The accompanying notes are an integral part of the financial statements. Page 14 RCM GROWTH EQUITY FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Income: Dividends (net of foreign withholding tax of $14,889) $ 6,163,761 Interest 878,979 -------------- Total income 7,042,740 -------------- Expenses: Investment management fees (Note 5) 8,121,322 Custodian fees 111,423 Miscellaneous expenses 800 -------------- Total expenses 8,233,545 -------------- Net investment loss (1,190,805) -------------- NET REALIZED AND UNREALIZED GAIN (LOSS): (NOTE 1) Net realized gain on investments 303,746,862 Net realized loss on foreign currency transactions (48,335) -------------- Net realized gain 303,698,527 -------------- Net change in unrealized appreciation on foreign currency transactions 47,081 Net change in unrealized depreciation on investments (119,213,430) -------------- Net unrealized depreciation (119,166,349) -------------- Net realized and unrealized gain during the year 184,532,178 -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 183,341,373 -------------- -------------- The accompanying notes are an integral part of the financial statements. Page 15 RCM GROWTH EQUITY FUND STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended December 31, 1996 December 31, 1996 ----------------- ----------------- OPERATIONS: Net investment income (loss) $ (1,190,805) $ 3,246,152 Net realized gain on investments and foreign currency transactions 303,698,527 280,992,471 Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions (119,166,349) 152,170,790 ----------------- ----------------- Net increase in net assets resulting from operations 183,341,373 436,409,413 DISTRIBUTIONS TO SHAREHOLDERS FROM: (NOTE 2) Net investment income --- (3,221,602) Net realized gain on investments (355,168,907) (203,938,943) NET DECREASE FROM CAPITAL SHARE TRANSACTIONS (NOTE 3) (257,142,802) (269,044,478) ----------------- ----------------- TOTAL DECREASE IN NET ASSETS (428,970,336) (39,795,610) NET ASSETS: Beginning of year 1,325,290,486 1,365,086,096 ----------------- ----------------- End of year * $ 896,320,150 $ 1,325,290,486 ----------------- ----------------- - ---------------------- ----------------- ----------------- * Includes undistributed net investment income of $ --- $ 49,873 ----------------- ----------------- ----------------- -----------------
The accompanying notes are an integral part of the financial statements. Page 16 RCM GROWTH EQUITY FUND FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding for the ten years ended December 31, 1996 are as follows: Year Ended December 31, ---------------------------------------------------------------------------------- 1996*(a) 1995 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE:(b) Net asset value, beginning of period $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 $ 8.49 $ 9.12 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net investment income (loss) (0.01) 0.02 0.03 0.04 0.07 0.09 0.15 Net realized and unrealized gain (loss) on investments 1.59 2.66 0.01 1.08 0.71 3.93 (0.53) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value resulting from investment operations 1.58 2.68 0.04 1.12 0.78 4.02 (0.38) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Distributions: Net investment income (0.00) (0.02) (0.03) (0.04) (0.07) (0.09) (0.17) Net realized gain on investments (4.31) (1.42) (2.54) (1.63) (1.28) (0.88) (0.08) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total distributions (4.31) (1.44) (2.57) (1.67) (1.35) (0.97) (0.25) ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 6.40 $ 9.13 $ 7.89 $ 10.42 $ 10.97 $ 11.54 $ 8.49 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN(c) 19.07% 34.53% 0.76% 10.72% 7.03% 48.23% (4.12%) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share(d) $ 0.0571 - - - - - - ---------- ---------- Net assets, end of period (in millions) $ 896 $ 1,325 $ 1,365 $ 2,049 $ 2,122 $ 2,138 $ 1,300 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of expenses to average net assets 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.8% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of net investment income to average net assets -0.1% 0.2% 0.2% 0.3% 0.6% 0.9% 1.8% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Portfolio turnover 115.9% 96.5% 111.1% 67.0% 56.8% 62.7% 50.0% ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Year Ended December 31, ---------------------------------- 1989 1988 1987 ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE:(b) Net asset value, beginning of period $ 8.00 $ 7.09 $ 8.30 ---------- ---------- ---------- Net investment income (loss) 0.16 0.11 0.07 Net realized and unrealized gain (loss) on investments 1.98 1.36 0.82 ---------- ---------- ---------- Net increase (decrease) in net asset value resulting from investment operations 2.14 1.47 0.89 ---------- ---------- ---------- Distributions: Net investment income (0.16) (0.12) (0.16) Net realized gain on investments (0.86) (0.44) (1.94) ---------- ---------- ---------- Total distributions (1.02) (0.56) (2.10) ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 9.12 $ 8.00 $ 7.09 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN(c) 26.87% 20.86% 10.97% ---------- ---------- ---------- ---------- ---------- ---------- RATIOS AND SUPPLEMENTAL DATA: Average commission rate paid per share(d) - - - Net assets, end of period (in millions) $ 1,284 $ 964 $ 553 ---------- ---------- ---------- ---------- ---------- ---------- Ratio of expenses to average net assets 0.7% 0.7% 0.8% ---------- ---------- ---------- ---------- ---------- ---------- Ratio of net investment income to average net assets 1.8% 1.8% 0.9% ---------- ---------- ---------- ---------- ---------- ---------- Portfolio turnover 70.8% 64.7% 79.9% ---------- ---------- ---------- ---------- ---------- ----------
- ----------------------------- * Calculated using the average share method. (a) On June 14, 1996, RCM Capital Management, L.L.C. became the investment manager (see Note 5). (b) Stock split 25:1 at the close of business on June 17, 1996 (see Note 3). All prior period per share amounts were restated to reflect the stock split. (c) Total return measures the change in value of an investment over the period indicated. (d) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. Page 17 RCM GROWTH EQUITY FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES RCM Growth Equity Fund (the "Fund") is a diversified series of RCM Capital Funds, Inc. (the "Company"). The Company is organized as a Maryland corporation and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amount of assets and liabilities. Actual results may differ from these estimates. A. SECURITIES VALUATIONS: Investment securities are stated at fair market value. Equity securities traded on stock exchanges are valued at the last sale price on the exchange or in the principal over-the-counter market in which such securities are traded as of the close of business on the day the securities are being valued. If there has been no sale on such day, then the security will be valued at the closing bid price on such day. If no bid price is quoted on such day, then the security will be valued by such method as the Board of Directors of the Company in good faith deems appropriate to reflect its fair market value. Readily marketable securities traded only in the over-the-counter market that are not listed on the National Association of Securities Dealers, Inc. Automated Quotation System or similar foreign reporting service will be valued at the mean bid price, or such other comparable sources as the Board of Directors of the Company deems appropriate to reflect their fair market value. Other portfolio securities held by the Fund will be valued at current market value, if current market quotations are readily available for such securities. To the extent that market quotations are not readily available, such securities will be valued by whatever means the Board of Directors of the Company in good faith deems appropriate to reflect their fair market value. Short-term investments with a maturity of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions are recorded as of the date of purchase or sale. Realized gains and losses on security transactions are determined on the identified cost basis for both financial statement and federal income tax purposes. Interest income, foreign taxes and expenses are accrued daily. Dividends are recorded on the ex-dividend date. C. FOREIGN CURRENCY TRANSACTIONS: The records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at current exchange rates. Purchases and sales of foreign securities and income and withholding taxes are translated on the respective dates of such transactions. Net realized currency gains and losses include foreign currency gains and losses between trade date and settlement date and foreign currency transactions. The Fund does not isolate that portion of foreign currency exchange fluctuation on investments from unrealized appreciation and depreciation which arises from changes in market prices. Such fluctuations are included with the net unrealized appreciation or depreciation on investments. Page 18 RCM GROWTH EQUITY FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the requirements for qualification as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). It is also the intention of the Fund to make distributions sufficient to avoid imposition of any excise tax under Section 4982 of the Code. Therefore, no provision has been made for Federal or excise taxes on income and capital gains. E. DISTRIBUTIONS: Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with Federal income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for losses as a result of wash sales. 2. DISTRIBUTIONS On December 17, 1996, a distribution of $4.31 per share, aggregating $355,168,907, was paid from investment operations. This per share amount consisted of $1.55 short-term capital gains and $2.76 long-term capital gains. The dividend was recorded on December 17, 1996 to shareholders of record on the same date. 3. CAPITAL SHARES At December 31, 1996, there were 1,000,000,000 shares of the Company's common stock authorized, at $0.0001 par value. Of this amount, 300,000,000 were classified as shares of the Fund; 100,000,000 were classified as shares of RCM Small Cap Fund; 100,000,000 were classified as shares of RCM International Growth Equity Fund A; and 500,000,000 shares remain unclassified. As of the close of business on June 17, 1996, each outstanding share of capital stock of the Fund was split into 25 shares of capital stock, resulting in 91,056,470 outstanding shares of capital stock of the Fund. Transactions in capital shares for the Fund shown below were restated to reflect the stock split: CAPITAL SHARE TRANSACTIONS Year ended December 31, 1996 ---------------------------- Shares Amount ------------ ------------- Shares sold 5,272,649 $ 49,629,302 Shares issued in connection with reinvestment of distributions 56,967,931 351,492,134 Shares repurchased (67,435,650) (658,264,238) ------------ ------------- Net decrease (5,195,070) $(257,142,802) ------------ ------------- ------------ ------------- Page 19 RCM GROWTH EQUITY FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 3. CAPITAL SHARES (CONTINUED) Year ended December 31, 1996 ---------------------------- Shares Amount ------------ ------------- Shares sold 9,295,000 $ 87,032,923 Shares issued in connection with reinvestment of distributions 23,031,575 203,424,163 Shares repurchased (60,117,757) (559,501,564) ------------ ------------- Net decrease (27,791,182) $(269,044,478) ------------ ------------- ------------ ------------- At December 31, 1996, seven shareholders held more than 5% of the outstanding shares of the Fund individually and 57.6% in aggregate. 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 1996, purchases and sales proceeds of investment securities by the Fund, other than U.S. government obligations and short-term securities, aggregated $1,095,771,941 and $1,696,778,562, respectively. Purchases and sales/maturities of U.S. government obligations by the Fund aggregated $9,989,792 and $10,000,000, respectively. 5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES On June 14, 1996, all of the outstanding general and limited partnership interests in the Fund's investment manager, RCM Capital Management, a California Limited Partnership ("Old RCM"), were acquired by RCM Capital Management, L.L.C. ("RCM"), a wholly owned subsidiary of Dresdner Bank AG, an international banking organization headquartered in Frankfurt, Germany. Because the transaction may have constituted an "assignment" of the Fund's management agreement with Old RCM under the Investment Company Act of 1940, and thus a termination of such management agreement, the Fund sought and obtained prior approval of a new management agreement from the Company's Board of Directors and from the Fund's stockholders at a special meeting of stockholders of the Company held on May 28, 1996. The terms of the new management agreement are substantially the same as those of the previous management agreement. RCM manages the Fund's investments and provides various administrative services, subject to the authority of the Board of Directors. For the period from January 1, 1996 to June 30, 1996, the Fund paid investment management fees quarterly to RCM at a rate of 3/16 of 1% (approximately 3/4 of 1% on an annual basis) of the average net assets of the Fund during the preceding quarter. As discussed above, the stockholders approved a new investment management agreement between the Company, on behalf of the Fund, and RCM. Pursuant to this new investment management agreement, beginning July 1, 1996, the Fund pays investment management fees monthly at an annualized rate of 0.75% of the Fund's average daily net assets. For the year ended December 31, 1996, the Fund recorded investment management fees of $8,121,322. The RCM Capital Management Profit Sharing Plan, participation in which is limited to employees of RCM, owned 416,698 shares of the Fund on December 31, 1996. Page 20 RCM CAPITAL FUNDS, INC. STOCKHOLDER MEETING RESULTS (UNAUDITED) A Special Meeting of Stockholders of the RCM Capital Funds, Inc. (the "Company") was held on Tuesday, May 28, 1996. The number of shares issued, outstanding and eligible to vote as of April 18, 1996 (the "Record Date") was 7,110,217. Present were 5,477,386 shares in person or represented by proxy, or 77% of the shares outstanding on the Record Date. The matters voted upon by stockholders and the resulting votes for each matter are presented below: 1. Each person nominated as a director was elected as set forth below: For Withhold --------- -------- Kenneth E. Scott 5,109,781 332,162 DeWitt F. Bowman 5,245,037 196,905 Thomas S. Foley 4,910,846 531,097 Frank P. Greene 5,109,781 332,162 Pamela A. Farr 5,109,781 332,162 George G.C. Parker 5,109,781 332,162 2. An Amendment to the Articles of Incorporation of the Company to reduce the par value of the shares of the Company was approved: For: 4,849,864; Against: 517,895; Abstain 74,184. 3. The selection by the Board of Directors of Coopers & Lybrand L.L.P. as independent public accountants for the fiscal year ending December 31, 1996 was approved: For: 5,367,761; Against: 0; Abstain: 74,182. In addition, certain matters were presented to the stockholders of the RCM Growth Equity Fund (the "Fund") for approval or ratification. As of the Record Date, there were 3,852,312 shares of the Fund outstanding and eligible to vote. At the Special Meeting 2,864,752 shares were present in person or by proxy, or 74.36% of the shares outstanding on the Record Date. The matters voted upon by stockholders of the Fund and the resulting votes for each matter are presented below: 1. The new Investment Management Agreement between the Company, on behalf of the Fund, and RCM Capital Management, L.L.C. was approved: For: 2,828,176; Against: 0; Abstain: 30,389. 2. Certain revisions to the investment objectives of the Fund were approved: For: 2,459,253; Against: 368,909; Abstain: 30,389. 3. A revision to the fundamental investment policies of the Fund regarding investment in companies without a three-year operating history was approved. For: 2,459,253; Against: 368,909; Abstain: 30,389. 4. A revision to the fundamental investment policies of the Fund regarding investment in warrants was approved: For: 2,459,253; Against: 368,909; Abstain: 30,389. Page 21 INVESTMENT MANAGER RCM Capital Management, L.L.C. Four Embarcadero Center, Suite 3000 San Francisco, California 94111 TRANSFER AND REDEMPTION AGENT RCM Capital Trust Company Four Embarcadero Center, Suite 2800 San Francisco, California 94111 DISTRIBUTOR Funds Distributor, Inc. 60 State Street, Suite 1300 Boston, Massachusetts 02109 CUSTODIAN State Street Bank and Trust Company P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL Paul, Hastings, Janofsky & Walker 555 South Flower Street Los Angeles, California 90071 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. One Post Office Square Boston, Massachusetts 02109 NOTES - ------------------------------------------------------------------------------- NOTES - ------------------------------------------------------------------------------- [LOGO] GROWTH EQUITY FUND ANNUAL REPORT DECEMBER 31, 1996 -----END PRIVACY-ENHANCED MESSAGE-----