As filed with the Commission on July 29, 1996 File Nos. 33-73792
811-8270
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 6 [ X ]
(Check appropriate box or boxes)
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
601 Union Street, Suite 2801
Seattle, WA 98101
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(206) 464-0400
J. Glenn Haber, Managing Director
Rainier Investment Management, Inc.
601 Union St., Ste. 2801
Seattle, WA 98101
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
XX Immediately upon filing pursuant to Rule 485 (b)
- --
__ On____________, pursuant to Rule 485(b)
__ 60 days after filing pursuant to Rule 485(a)(1)
__ On_____________, pursuant to Rule 485(a)(1)
__ 75 days after filing pursuant to Rule 485(a)(2)
__ On_____________, pursuant to Rule 485(a)(2)
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
elected to register an indefinite number of shares of beneficial interest, no
par value. The notice required by Rule 24f-2 was filed on May 24, 1996.
----------
Please send copy of Communications to:
Julie L. Allecta, Esq. Steven J. Paggioli, Esq.
Heller, Ehrman White & McAuliffe Investment Company
333 Bush Street Administration Corp.
San Francisco, CA 94104 479 W. 22nd Street
New York, NY 10011
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495)
N-1A Item No. Location
- ------------- --------
Part A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Summary of
Expenses
Prospectus
Summary
Item 3. Financial Highlights................. Financial
Highlights
Item 4. General Description of Registrant.... Investment
Objectives
and Policies;
Investment
Restrictions
Item 5. Management of the Fund............... Organization
and Management
Item 6. Capital Stock and Other Securities. . . Dividends
Distributions
and Tax
Status; Share
Price Determ-
ination
Item 7. Purchase of Securities Being Offered . . Purchasing
Shares in the
Portfolios,
Share Price
Determination
Item 8. Redemption or Repurchase. . . . . . . . .Selling Shares
(Redemptions)
Item 9. Pending Legal Proceedings . . . . . . . . N/A
<PAGE>
Part B
Item 10. Cover Page ............................. Cover Page
Item 11. Table of Contents....................... Table of
Contents
Item 12. General Information and History . . . . General
Information
Item 13 Investment Objectives and Policies .... Investment
Objective and
Policies;
Investment
Restrictions;
Item 14. Management of the Fund................... Management
Item 15. Control Persons and Principal Holders
of Securities............................ Management
Item 16. Investment Advisory and Other Services.... Management
Item 17. Brokerage Allocation...................... Portfolio
Transactions
and Brokerage
Item 18. Capital Stock and Other Securities........ General
Information
Item 19. Purchase, Redemption and Pricing of
Shares Being Offered.............. Net Asset
Value;
Redemptions
Item 20. Tax Status.............................. Taxation;
Item 21. Underwriters............................ N/A
Item 22. Performance Information.................. Performance
Information
Item 23. Financial Statements.................... Financial
Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Prospectus
July 29, 1996
Small/Mid Cap
Equity Portfolio
Core Equity
Portfolio
Balanced
Portfolio
Intermediate
Fixed Income
Portfolio
1
<PAGE>
Rainier Investment Management (RIM)
No-Load Mutual Funds
Rainier Investment Management Mutual Funds (the "Funds" or "Trust") is an
open-end investment company consisting of four separate, diversified portfolios
(the "Portfolios"), each of which has its own objective, assets, liabilities and
net assets. Rainier Investment Management, Inc.(R) ("RIM" or the "Advisor")
serves as investment advisor to the Funds and the Portfolios.
Small/Mid Cap Equity Portfolio
The Small/Mid Cap Equity Portfolio seeks to maximize long-term capital
appreciation. The Portfolio invests primarily in a diversified portfolio of
common stocks of companies with small and medium-size capitalizations.
Core Equity Portfolio
The Core Equity Portfolio seeks to maximize long-term capital appreciation. The
Portfolio invests primarily in a diversified portfolio of common stocks of U.S.
companies.
Balanced Portfolio
The Balanced Portfolio seeks to provide investors with a balance of long-term
capital appreciation and current income. The Portfolio invests primarily in a
diversified portfolio of common stocks of U.S. companies and investment grade,
intermediate-term debt securities and cash equivalent securities.
Intermediate Fixed Income Portfolio
The Intermediate Fixed Income Portfolio seeks to provide current income. The
Portfolio invests primarily in a diversified portfolio of investment grade,
intermediate-term debt securities issued by corporations and the U.S.
Government.
This Prospectus sets forth the basic information that prospective investors
should know before investing in the Portfolios. Investors should read it
carefully and retain it for future reference. The "Statement of Additional
Information" dated July 29, 1996, as may be amended from time to time, has been
filed with the Securities and Exchange Commission and is incorporated by
reference in its entirety into this Prospectus. You may obtain this "Statement
of Additional Information" without charge by writing to the Funds at the address
noted below or by calling (800) 248-6314.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION; NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
601 Union Street, Suite 2801
Seattle, Washington 98101
(800) 248-6314
Prospectus dated July 29, 1996.
2
<PAGE>
TABLE OF CONTENTS
SUMMARY OF EXPENSES............................................................2
PROSPECTUS SUMMARY.............................................................3
FINANCIAL HIGHLIGHTS...........................................................4
INVESTMENT OBJECTIVES
AND POLICIES ....................................................6
Small/Mid Cap Equity Portfolio...................................6
Core Equity Portfolio............................................7
Balanced Portfolio...............................................8
Intermediate Fixed Income Portfolio..............................8
RISK CONSIDERATIONS............................................................9
Small Companies..................................................9
Interest Rates...................................................9
Portfolio Leverage..............................................10
Foreign Securities and Other Risks..............................10
Investment Grade Fixed-Income Securities........................10
OTHER SECURITIES AND
INVESTMENT TECHNIQUES.........................................................10
Short-Term Investments..........................................10
U.S. Government Securities......................................10
Asset-Backed Securities.........................................11
Foreign Securities..............................................11
When-Issued Securities..........................................11
Portfolio Turnover..............................................11
Illiquid and Restricted Securities..............................11
Investment Restrictions.........................................11
ORGANIZATION AND MANAGEMENT...................................................12
Organization....................................................12
The Advisor ...................................................12
Management Fee..................................................12
Managers of the Portfolios......................................12
Expense Limitation..............................................12
Portfolio Transactions and Brokerage............................13
The Administrator...............................................13
Distribution Plan...............................................13
PURCHASING SHARES 14
Opening an Account..............................................14
Purchasing by Mail..............................................14
Purchasing by Wire..............................................14
Purchasing by Retirement Plans and IRAs.........................14
Additional Investments..........................................14
SELLING SHARES (REDEMPTIONS)..................................................15
Redemptions by Mail.............................................15
Signature Guarantee.............................................15
Redemptions by Telephone........................................15
Redemptions by Wire.............................................16
Redemption of Small Accounts....................................16
3
<PAGE>
SHAREHOLDER SERVICES..........................................................17
Automatic Reinvestment..........................................17
Exchange Privilege..............................................17
Exchange Privilege Annual Limits................................17
Automatic Withdrawal Plan.......................................17
Shareholder Reports.............................................17
SHARE PRICE DETERMINATION.....................................................18
Share Price ...................................................18
Net Asset Value.................................................18
Share Certificates..............................................18
DIVIDENDS, DISTRIBUTIONS
AND TAX STATUS ...................................................18
Dividends and Distributions.....................................18
Tax Status ...................................................19
PERFORMANCE INFORMATION.......................................................19
Total Return ...................................................19
Yield ...................................................19
GENERAL INFORMATION ..........................................................20
Voting Rights...................................................20
4
<PAGE>
SUMMARY OF EXPENSES
This table is designed to help you understand the costs of investing in the
Portfolios. Although not required to do so, the Advisor has agreed to reimburse
each Portfolio to the extent necessary so that its ratio of total operating
expenses to average net assets will not exceed the following levels: Small/Mid
Cap Equity Portfolio =1.48%; Core Equity Portfolio =1.29%; Balanced Portfolio
=1.19%; Intermediate Fixed Income Portfolio =0.95%.
<TABLE>
<CAPTION>
Small/Mid Intermediate
Cap Equity Core Equity Balanced Fixed Income
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge on purchases
(as a percentage of offering price) None None None None
Sales charge on reinvested dividends None None None None
Redemption fee None None None None
Exchange fee None None None None
Total Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management fees 0.85% 0.75% 0.70% 0.50%
12b-1 expenses* 0.25% 0.25% 0.25% 0.25%
Other expenses after
expense reimbursement 0.38% 0.29% 0.24% 0.20%
----------------------------------------------------------
Total operating expenses
after expense reimbursement 1.48%** 1.29%** 1.19%** 0.95%**
</TABLE>
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in any of the Portfolios will bear
directly or indirectly.
*12b-1 fees may be paid to financial intermediaries including Charles Schwab &
Company, Incorporated ("Schwab") for services provided by Schwab through
Schwab's OneSource -- sales program(s). Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
rules of the National Association of Securities Dealers. For more information on
12b-1 fees, see "Distribution Plan" on page 12.
**For the fiscal period ended March 31, 1996, ratios of total operating expenses
to average net assets for the Portfolios before the Advisor's waivers or
reimbursements or recoupment of expenses previously paid were as follows:
Small/Mid Cap Equity-1.46%; Core Equity-1.30%; Balanced-1.50%; Intermediate
Fixed Income-2.17%. In subsequent years, overall Portfolio operating expenses
will not fall below the applicable percentage limitation until the Advisor has
been fully reimbursed for fees foregone and expenses paid.
For more information regarding costs and expenses, see "Organization and
Management" on page 11.
Example
-------
This table illustrates the net transaction and operating expenses that would be
incurred by an investment in the Portfolios over different time periods assuming
a $1,000 investment, a 5% annual return, and redemption at the end of one,
three, five and ten years. The Portfolios charge no redemption fees.
<TABLE>
<CAPTION>
Small/Mid Intermediate
Cap Equity Core Equity Balanced Fixed Income
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
One year $15 $13 $12 $10
Three years 47 41 38 30
Five years 81 71 66 53
Ten years 178 156 145 117
</TABLE>
The example shown above assumes that the Advisor will limit the annual operating
expenses of each Portfolio to the totals shown. The example should not be
considered to be a representation of past or future expenses and actual expenses
may be greater or less than those shown. In addition, federal regulations
require the example to assume a 5% annual return, but the Portfolios' actual
returns may be higher or lower.
5
<PAGE>
PROSPECTUS SUMMARY
The Funds
The Funds are organized as a series of distinct portfolios within a Delaware
business trust, which is an open-end diversified management investment company.
The Funds consist of four separate, diversified portfolios (the "Portfolios"),
each of which has its own objective, assets, liabilities and net assets.
Investment Objectives and Policies
Each Portfolio has its own investment objectives. See Prospectus for full
discussion of objectives of the Small/Mid Cap Equity Portfolio, Core Equity
Portfolio, Balanced Portfolio and Intermediate Fixed Income Portfolio.
The Investment Advisor
Rainier Investment Management, Inc.(R) ("RIM" or the "Advisor"), Seattle,
Washington, serves as investment advisor to the Funds and the Portfolios. The
Advisor currently manages over $2.5billion of discretionary assets for various
clients including corporations, public and corporate pension plans, foundations
and charitable endowments, and high net worth individuals.
Management Fee
For its services, the Advisor receives a fee, accrued daily and paid monthly at
the following annual percentages of average net assets: Small/Mid Cap Equity
Portfolio-0.85%; Core Equity Portfolio-0.75%; Balanced Portfolio-0.70%;
Intermediate Fixed Income Portfolio-0.50%.
Minimum Purchase
The minimum initial investment in each Portfolio is $25,000. The Funds may waive
the minimum for certain retirement and other employee benefit plans; for the
Advisor=s employees, clients and their affiliates; for advisors or financial
institutions offering investors a program of services; or for any other person
or organization deemed appropriate by the Funds.
Offering Price/Redemption
Shares are offered at net asset value without a sales charge, and may be
redeemed at their net asset value on any business day. See "Purchasing Shares"
and "Selling Shares" on pages 14-16.
Dividends
The two Equity Portfolios intend to pay dividends semi-annually. The Balanced
Portfolio intends to pay dividends quarterly. The Intermediate Fixed Income
Portfolio intends to pay dividends monthly.
Risk Considerations
Like all investments, an investment in the Portfolios involves certain risks.
The equity and fixed-income securities held by the Portfolios and the value of
the Portfolios' shares will fluctuate with market and other economic conditions,
so that investors' shares, when redeemed, may be worth more or less than their
original cost. See page 9 for a further discussion of risk considerations.
Transfer Agent, Custodian and Fund Accountant
Firstar Trust Company
Independent Auditors
KPMG Peat Marwick LLP
Distributor
First Fund Distributors, Inc.
Legal Counsel
Heller Ehrman White & McAuliffe
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the "Statement of Additional Information".
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP, independent
certified public accountants, whose unqualified report on the Financial
Statements and Financial Highlights is included in the Funds' Annual Report
which is part of the "Statement of Additional Information". Further information
about the Fund's performance is contained in its Annual Report, which may be
obtained without charge by writing or calling the Fund at the address or
telephone listed on the first page of this Prospectus.
Rainier Investment Management Mutual
Funds For a share outstanding throughout the period.
<TABLE>
<CAPTION>
Small/Mid Cap Equity Portfolio Core Equity Portfolio
------------------------------------ ------------------------------------
For the Fiscal Year For the Period For the Fiscal Year For the Period
Ended Ended Ended Ended
03/31/96 03/31/95 * 03/31/96 03/31/95 *
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $13.89 $12.00 $13.84 $12.00
Income from investment operations
Net investment income 0.05 0.10 0.11 0.11
Net realized and unrealized gains on investments 5.17 2.18 5.13 2.00
------------------------------------ ------------------------------------
Total from investment operations 5.22 2.28 5.23 2.11
------------------------------------ ------------------------------------
Distributions:
From net investment income (0.06) (0.07) (0.11) (0.07)
From net realized gains (1.16) (0.32) (1.44) (0.20)
------------------------------------ ------------------------------------
Total distributions (1.22) (0.39) (1.55) (0.27)
------------------------------------ ------------------------------------
Net asset value, end of period $17.89 $13.89 $17.53 $13.84
Total return 38.38% 19.38%** 38.64% 17.87%**
Net assets at end of period (in 000's) $79,495 $10,120 $107,665 $20,430
Ratio of expenses to average net assets
Before expense reimbursement 1.46% 2.93%*** 1.30% 1.86%***
After expense reimbursement 1.48% 1.48%*** 1.29% 1.29%***
Ratio of net investment income to average
net assets (net of expense reimbursement/waived) 0.66% 1.04%*** 1.07% 1.25%***
Portfolio turnover rate 151.37% 152.21% 138.02% 133.18%
Average commission per unit $0.0562 -- $0.0575 --
</TABLE>
<TABLE>
<CAPTION>
Balanced Portfolio Intermediate Fixed Income Portfolio
------------------------------------- ------------------------------------
For the Fiscal Year For the Period For the Fiscal Year For the Period
Ended Ended Ended Ended
03/31/96 03/31/95 * 03/31/96 03/31/95 *
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.96 $ 12.00 $12.00 $12.00
Income from investment operations
Net investment income 0.38 0.30 0.70 0.57
Net realized and unrealized gains on investments 2.82 1.13 0.34 --
------------------------------------- ------------------------------------
Total from investment operations 3.20 1.43 1.04 0.57
------------------------------------- ------------------------------------
Distributions:
From net investment income (0.37) (0.31) (0.70) (0.57)
From net realized gains (1.26) (0.16) (0.01) --
------------------------------------- ------------------------------------
Total distributions (1.63) (0.47) (0.71) (0.57)
------------------------------------- ------------------------------------
Net asset value, end of period $14.53 $12.96 $12.33 $12.00
Total return 25.58% 12.23%** 8.85% 4.92%**
Net assets at end of period (in 000's) $32,080 $13,724 $9,740 $6,370
Ratio of expenses to average net assets
Before expense reimbursement 1.50% 2.29%*** 2.17% 2.44%***
After expense reimbursement 1.19% 1.19%*** 0.95% 0.95%***
Ratio of net investment income to average
net assets (net of expense reimbursement/waived) 2.76% 3.04%*** 5.69% 5.57%***
Portfolio turnover rate 114.85% 92.40% 15.49% 5.21%
Average commission per unit $0.0587 -- -- --
</TABLE>
--------------------------------------------------------------------------
* Commencement of operations on May 10, 1994.
** Not Annualized
*** Annualized
<PAGE>
Investment Objectives and Policies
Rainier Investment Management Mutual Funds (the "Funds") is an open-end
management investment company consisting of four separate, diversified
portfolios (the "Portfolios"), each of which has its own objective, assets,
liabilities and net assets. Rainier Investment Management, Inc.(R) ("RIM" or the
"Advisor") serves as investment advisor to the Funds and the Portfolios.
The investment objective and policy of each Portfolio is described below. In
addition, each of the Portfolios may make use of certain types of investments
and investing techniques that are described under "Other Securities and
Investment Techniques" on page 10. The value of the Portfolios' investments will
fluctuate with market and other economic conditions.
Small/Mid Cap Equity Portfolio
The Small/Mid Cap Equity Portfolio seeks to provide investors with maximum
long-term capital appreciation. The Portfolio invests primarily in a diversified
portfolio of common stocks of companies with small and medium-size
capitalizations. The Advisor considers small capitalization companies to be
those with the same capitalization ranges as companies in the Russell 2000
Index(TM) and mid-capitalization companies to be those with the same
capitalization ranges as companies in the Russell Mid-Cap Index.(TM) While not
an investment objective of the Portfolio, capital appreciation that is
consistently greater than that of the Russell Mid-Cap Index(TM) is the goal of
the Advisor. There is no assurance the Portfolio will meet its objective. It is
expected that holdings in securities of small cap companies will range from 15%
to 40% and mid-cap company securities will range from 60% to 85% of the
Portfolio's net assets. The characteristics of equity securities selected by the
Advisor are described on page 7 under "Additional Equity Investment
Considerations."
The securities of small and medium-sized companies may present greater
opportunities for capital appreciation, but may also involve greater risks than
large companies. These securities have the characteristics and risks described
under "Risk Considerations" on page 9.
The Portfolio may invest in stocks of companies which are either included in the
Russell 2000 Index(TM) or the Russell Mid-Cap Index(TM) or have equity
capitalizations within the ranges of these indices at the time of purchase. The
Russell Indices are unmanaged indices of equity securities of companies which,
as of June 30, 1996, range in capitalization from $162 million to $1.0 billion
for the Russell 2000 Index(TM) and from $1.0 billion to $6.5 billion for the
Russell Mid-Cap Index.(TM) Investments in companies whose capitalizations grow
above the maximum capitalization levels of these indices may continue to be held
if particularly attractive. Companies in which the Portfolio invests are
diversified over a broad cross section of industries. As a risk-control measure,
extreme overweighting or underweighting of the Portfolio relative to the Russell
Mid-Cap Index(TM) sector weightings is normally avoided by comparing the
Portfolio to Index weightings and making appropriate adjustments.
Equity securities in which the Portfolio invests include common stocks, American
Depositary Receipts ("ADR"s) and securities having the characteristics of common
stocks, such as convertible preferred stocks, convertible debt securities [which
will be rated Baa or better by Moody's Investors Service, Inc. ("Moody's"), or
BBB or better by Standard & Poor's Corporation ("Standard & Poor's")] and
warrants. See "Risk Considerations" on page 10 for a discussion of the
characteristics of securities rated Baa by Moody's or BBB by Standard & Poor's.
Under normal circumstances, the Portfolio will invest at least 65%, and expects
to invest 90% or more of its total assets in equity securities of small and
mid-capitalization issuers.
Core Equity Portfolio
The Core Equity Portfolio seeks to provide investors with maximum long-term
capital appreciation. The Portfolio invests primarily in a diversified portfolio
of common stocks of U.S. companies. Although not an investment objective of the
Portfolio, capital appreciation that is consistently greater than that of the
Standard & Poor's 500 Stock Index is the goal of the Advisor. There is no
assurance the Portfolio will meet its objective.
Among investment managers, the term "Core Equity" denotes companies within the
Standard & Poor's 500 Stock Index. In order to diversify and enhance safety, the
Portfolio may invest in stocks of companies of all sizes. Companies in which the
Portfolio invests are diversified over a broad cross section of industries. As a
risk-control measure, extreme overweighting or underweighting of the Portfolio
relative to the Standard & Poor's 500 Stock Index's sector weightings is
normally avoided by comparing the Portfolio to Index weightings and making
appropriate adjustments. Other
8
<PAGE>
characteristics of equity securities selected by the Advisor are described below
under "Additional Equity Investment Considerations."
The Core Equity Portfolio may hold equity securities of companies with smaller
market capitalizations. These securities have the characteristics and risks
described under "Risk Considerations" on page 9.
Equity securities in which the Portfolio invests include common stocks, ADRs,
and securities having the characteristics of common stocks, such as convertible
preferred stocks, convertible debt securities (which will be rated Baa or better
by Moody's, or BBB or better by Standard & Poor's) and warrants. See "Risk
Considerations" on page 9 for a discussion of the characteristics of securities
rated Baa by Moody's or BBB by Standard & Poor's. Under normal circumstances,
the Portfolio will invest at least 65% or more of its assets in equity
securities of core equity companies.
Additional Equity
Investment Considerations
The Advisor refers to its investment philosophy with respect to the equity
portion of the Portfolios as the "Growth at a Reasonable Price" ("GARP")
investment philosophy. A primary benefit of the GARP strategy in the view of the
Advisor is the ability to generate competitive investment returns in many
different market environments. For more information on the GARP investment
philosophy, see the "Statement of Additional Information."
In selecting securities for purchase in the Small/Mid Cap Equity Portfolio, Core
Equity Portfolio and the Balanced Portfolios (see below for Balanced Portfolio
objectives), the Advisor emphasizes companies that are likely to demonstrate
superior earnings growth relative to their peers, positive earnings surprises,
and whose equities are selling at attractive valuations. The Advisor favors
companies that exhibit advantageous competitive strategies or operate in
favorable competitive environments. Strong management with a significant
ownership position in the company is desired, as are companies with balance
sheet integrity and financial strength.
The Advisor considers the sale of specific equity securities when they approach
predetermined target prices; when fundamental prospects or earnings are
deteriorating or are expected to deteriorate; or when there are more attractive
equity securities on a risk/reward basis in the same industry, thereby
warranting a swap.
The Advisor supports its selection of individual securities through intensive
research and pursues qualitative and quantitative disciplines to determine when
securities should be purchased and sold. In unusual circumstances, economic,
monetary and other factors may cause the Advisor to assume a temporary,
defensive position during which all or a substantial portion of the equity
assets of each Portfolio may be invested in short-term instruments. Short-term
instruments are described under "Other Securities and Investment Techniques" on
page10. Under normal market conditions, it is expected that investments in such
short-term instruments may range from zero (fully invested) to 20% of the
Portfolio=s assets. The Portfolios may also lend securities, and use repurchase
agreements. For more information on these investments, see the "Statement of
Additional Information."
Balanced Portfolio
The Balanced Portfolio seeks to provide investors with a balance of long-term
capital appreciation and current income. The Portfolio invests primarily in a
diversified portfolio of common stocks of U.S. companies and investment grade,
intermediate-term debt securities and cash equivalent securities. The Advisor
seeks to provide long-term capital appreciation and income with less return
variability and risk than that of the stock market.
The Advisor views the Standard & Poor's 500 Stock Index as a suitable measure of
the stock market. Based on its analysis of the securities markets, the Advisor
believes that over time, a Portfolio that balances its holdings among common
stocks, investment grade fixed-income securities and cash equivalents is less
likely to incur capital loss than the stock market and is more likely to produce
returns that will fluctuate less than those of the stock market.
Under normal market conditions, it is expected that the Portfolio=s assets
should be allocated among equity securities, fixed-income securities, and
short-term cash equivalent securities. Equity securities will normally
constitute from 35% to 65% of the Portfolio=s net assets. Fixed-income
securities normally will represent from 30% to 55% of the Portfolio=s net
assets. Cash equivalent securities will normally constitute from 0% to 35% of
the Portfolio=s net assets. The Advisor utilizes an approach of strategic asset
allocation, where short-term trends in expected equity and fixed-income returns
are evaluated against the background of long-term historical returns. When the
Advisor believes that one asset group is clearly more attractive than another in
the short-term trend, a gradual shift to that asset group may be initiated.
9
<PAGE>
Aggressive market timing is avoided. Shifts from one asset class to another are
normally made in 5% or 10% increments.
The equity securities in which the Balanced Portfolio will invest will be of the
type and have the same selection criteria as those described above for the Core
Equity Portfolio. Fixed-income securities held by the Portfolio will be of the
type and have the same selection criteria as those described below for the
Intermediate Fixed Income Portfolio. See "Risk Considerations" on page 10 for a
discussion of the characteristics of securities rated Baa by Moody's or BBB by
Standard & Poor's.
For a description of short-term cash equivalent securities in which the
Portfolio may invest, U.S. Government securities, repurchase agreements,
securities lending and other investments and techniques the Portfolio may use,
see "Other Securities and Investment Techniques" below.
Intermediate Fixed Income Portfolio
The Intermediate Fixed Income Portfolio seeks to provide investors with current
income. The Portfolio invests primarily in a diversified portfolio of investment
grade, intermediate-term debt securities providing current income. Under normal
market conditions, at least 65% of its total assets will be invested in such
fixed-income securities. Investment grade debt securities are generally
considered to be those rated Baa or better by Moody's, or BBB or better by
Standard & Poor's. See "Risk Considerations" on page10 for a discussion of the
characteristics of securities rated Baa by Moody's or BBB by Standard & Poor's.
The Advisor intends to limit investment in securities rated Baa by Moody's or
BBB by Standard & Poor's to no more than 10% of the Portfolio's total assets.
There is no assurance the Portfolio will meet its objective.
The Portfolio will have a dollar-weighted average maturity between three and ten
years under normal market and economic conditions. Average maturity may be less
than three years if the Advisor believes a temporary defensive posture is
appropriate. The Advisor plans to manage the Portfolio within a duration range
of +/-25% of the duration of the Lehman Brothers Intermediate
Government/Corporate Bond Index.
The Portfolio may invest in all types of domestic or U.S. dollar denominated
foreign fixed-income securities in any proportion, including bonds, notes,
convertible bonds, mortgage-backed and asset-backed securities, government and
government agency securities, zero coupon bonds, and short-term obligations such
as commercial paper and notes, bank deposits and other financial obligations,
and repurchase agreements. Under normal circumstances, the Advisor intends, but
is not obligated, to construct the Portfolio with a higher proportion of
corporate issues than government or government agency securities.
Bonds, notes and other corporate debt instruments include obligations of varying
maturities within the overall maturity range noted above over a cross section of
industries. The value of a debt security changes as interest rates fluctuate.
The magnitude of the change is dependent upon the maturity of the security. See
"Risk Considerations" below for a discussion of interest rate risks.
For a description of short-term cash equivalent securities in which the
Portfolio may invest, government and government agency securities, asset-backed
securities, and other investments and techniques the Portfolio may use, see
"Other Securities and Investment Techniques" on page 9.
In determining whether or not to invest in a particular debt security, the
Advisor considers factors such as the price, coupon and yield to maturity, the
credit quality of the issuer, the issuer's cash flow and related coverage
ratios, the property, if any, securing the obligation and the terms of the debt
instrument, including subordination, default, sinking fund and early redemption
provisions.
The Portfolio will invest in securities consistent with its investment
objective, and which meet the quality and maturity characteristics established
for the Portfolio. In doing so, it will consider the ratings of Moody's and
Standard & Poor's assigned to various obligations.
The Portfolio intends to purchase securities for the portfolio that are rated
investment grade. Subsequent to its purchase, the rating of an issue of
securities may be reduced below the current minimum rating required for its
purchase. This event does not require the sale of such an issue, but the Advisor
will consider such an event in determining whether to continue to hold the
obligation. The "Statement of Additional Information" contains a description of
Moody's and Standard & Poor's ratings.
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Risk Considerations
Small Companies
The Small/Mid Cap Equity, Core Equity and Balanced Portfolios may invest in
smaller companies that can benefit from the development of new products and
services. These smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks than larger companies. Such
smaller companies may have limited product lines, markets or financial
resources, and their securities may trade less frequently and in more limited
volume than the securities of larger, more mature companies. As a result, the
prices of the securities of such smaller companies may fluctuate to a greater
degree than the prices of the securities of other issuers.
Interest Rates
The Balanced and Intermediate Fixed Income Portfolios may invest in debt
securities. The market value of debt securities sensitive to prevailing interest
rates is inversely related to actual changes in interest rates, i.e., a decline
in interest rates produces an increase in market value, while an increase in
interest rates produces a decrease in market value of these debt securities.
Moreover, the longer the remaining maturity of a security, the greater is the
effect of interest rate changes on the market value of the security. In
addition, changes in the ability of an issuer to make payments of interest and
principal and in the market=s perception of an issuer's creditworthiness also
affect the market value of the debt securities of that issuer.
Portfolio Leverage
The Advisor will not invest in any securities with an intent to leverage the
Portfolios.
Foreign Securities and Other Risks
The Portfolios may invest in securities of foreign issuers and may make use of
other investments and investment techniques, including securities lending,
repurchase agreements and illiquid securities. However, the Portfolios have no
present intention to make use of securities lending, repurchase agreements or
illiquid securities. See the "Statement of Additional Information" for a
description of these techniques. Foreign securities are described on page 10
under "Other Securities and Investment Techniques."
Investment Grade Fixed-Income Securities
Investment grade debt securities are generally considered to be those rated Baa
or better by Moody's, or BBB or better by Standard & Poor's. Securities which
are rated Baa by Moody's or BBB by Standard & Poor's, the lowest tier of
investment grade, are generally regarded as having adequate capacity to pay
interest and repay principal, but may have some speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make interest and principal payments than is the case
with higher grade bonds.
Other Securities and Investment Techniques
Short-Term Investments
As noted above, at times the Portfolios may invest in short-term cash equivalent
securities, either for temporary defensive purposes, or as part of their overall
investment strategy. These consist of high-quality debt obligations maturing in
one year or less from the date of purchase, such as U.S. Government securities,
certificates of deposit, bankers= acceptances, repurchase agreements and
commercial paper. High quality means the obligations have been rated at least
A-1 by Standard & Poor's or Prime-1 by Moody's, have an outstanding issue of
debt securities rated at least A by Standard & Poor's or Moody's, or are of
comparable quality in the opinion of the Advisor.
U.S. Government Securities
U.S. Government securities include direct obligations issued by the United
States Treasury, such as Treasury bills, certificates of indebtedness, notes and
bonds. They also include U.S. Government agencies and instrumentalities that
issue or guarantee securities, such as the Federal Home Loan Banks, the Federal
National Mortgage Association and the Student Loan Marketing Association. Except
for U.S. Treasury securities, obligations of U.S. Government agencies and
instrumentalities may or may not be supported by the full faith and credit of
the United States. Some, such as those of the Federal Home Loan Banks, are
backed by the right of the issuer to borrow from the Treasury, others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations, while still others, such as the Student Loan
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Marketing Association, are supported only by the credit of the instrumentality.
In the case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment and may not be able to assert a claim
against the United States itself in the event the agency or instrumentality does
not meet its commitment.
Asset-Backed Securities
Each Portfolio may invest in asset-backed receivables, which represent undivided
fractional interests in a trust with assets consisting of a pool of domestic
loans such as motor vehicle retail installment sales contracts or credit card
receivables. Asset-backed receivables are generally issued by governmental,
government-related and private organizations. Payments are typically made
monthly, consisting of both principal and interest payments. Asset-backed
securities may be prepaid prior to maturity and hence the actual life of the
security cannot be accurately predicted. During periods of falling interest
rates, prepayments may accelerate, which would require a Portfolio to reinvest
the proceeds at a lower interest rate. Although generally rated AAA, it is
possible that the securities could become illiquid or experience losses if
guarantors or insurers default.
Foreign Securities
Each Portfolio may invest up to 20% of its assets in foreign securities. These
include U.S. dollar denominated securities of foreign issuers and securities of
foreign issuers that are listed and traded on a domestic national securities
exchange. Currently, the Advisor intends to invest only in U.S. dollar
denominated securities of foreign issuers or ADRs.
There are risks associated with investing in foreign securities. There may be
less publicly available information about these issuers than is available about
companies in the U.S., and foreign auditing requirements may not be comparable
to those in the U.S. Interest or dividends on foreign securities may be subject
to foreign withholding taxes. Investments in foreign countries may be subject to
the possibility of expropriation or confiscatory taxation, exchange controls,
political or social instability or diplomatic developments that could adversely
affect the value of those investments. In addition, the value of the foreign
securities may be adversely affected by movements in the exchange rates between
foreign currencies and the U.S. dollar, as well as other political and economic
developments.
When-Issued Securities
The Portfolios may purchase securities on a when-issued or delayed-delivery
basis, generally in connection with an underwriting or other offering.
When-issued and delayed-delivery transactions occur when securities are bought
with payment for and delivery of the securities scheduled to take place at a
future time, beyond normal settlement dates, generally from 15 to 45 days after
the transaction. The Portfolios will segregate liquid assets, such as cash, U.S.
Government securities and other liquid, high-quality debt securities in an
amount sufficient to meet their payment obligations with respect to these
transactions.
Portfolio Turnover
Portfolio turnover may exceed 100% for the Small/Mid Cap Equity, Core Equity and
Balanced Portfolios. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
the Portfolios, and may increase realized capital gains which are taxable to
shareholders when distributed.
Illiquid and Restricted Securities
None of the Portfolios may invest more than 15% of their net assets in illiquid
securities. For more information, see the "Statement of Additional Information."
Investment Restrictions
The Funds and the Portfolios have adopted certain investment restrictions, which
are described fully in the "Statement of Additional Information." Like the
Portfolios' investment objectives, certain of these restrictions are fundamental
and may be changed only by a majority vote of the Portfolios'outstanding shares.
Organization and Management
Organization
The Funds are organized as a series of distinct portfolios within a Trust,
commonly known as a Delaware business trust, which is an open-end diversified
management investment company. The Funds consist of four separate diversified
portfolios (the "Portfolios"), each of which has its own objective, assets,
liabilities and net assets. The Trust's Board of Trustees decides on matters of
general policy and reviews the activities of the Advisor, Distributor and
Administrator.
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The Trust=s officers conduct and supervise the daily business operations of the
Trust.
The Advisor
Rainier Investment Management, Inc.(R) ("RIM"), incorporated in 1989, serves as
investment advisor to the Funds. RIM currently manages over $2.5billion of
discretionary assets for various clients including corporations, public and
corporate pension plans, foundations and charitable endowments, and high net
worth individuals. The Advisor is owned and operated by its five principals. RIM
is located at:
601 Union Street, Suite 2801
Seattle, Washington 98101
Management Fee
Subject to the direction and control of the Trustees, the Advisor formulates and
implements an investment program for each Portfolio, which includes determining
which securities should be bought and sold. The Advisor also provides certain of
the officers of the Trust. For its services, the Advisor receives a fee, accrued
daily and paid monthly at the following annual percentages of average net
assets: Small/Mid Cap Equity Portfolio-0.85%; Core Equity Portfolio- 0.75%;
Balanced Portfolio-0.70%; Intermediate Fixed Income Portfolio-0.50%.
Managers of the Portfolios
The managers of the Small/Mid Cap Equity and Core Equity Portfolios are James R.
Margard, CFA, and David A. Veterane, CFA and Peter M. Musser, CFA. The managers
of the Intermediate Fixed Income Portfolio are Patricia L. Frost and Michael E.
Raney, CFA. The Balanced Portfolio is team managed by the Advisor's Investment
Committee, whose members are firm principals and/or equity and fixed-income
portfolio managers. Current members are: Patricia L. Frost; J. Glenn Haber;
James R. Margard, CFA; Peter M. Musser, CFA; Michael E. Raney, CFA; and David A.
Veterane, CFA. All have been associated with the Advisor in management
capacities for at least the past five years.
Expense Limitation
The Portfolios are responsible for paying their own operating expenses. Although
not required to do so, the Advisor has agreed to waive or reimburse the expenses
of each Portfolio to the extent necessary so that its ratio of operating
expenses to average net assets will not exceed the following levels: Small/Mid
Cap Equity Portfolio-1.48%; Core Equity Portfolio-1.29%; Balanced
Portfolio-1.19%; Intermediate Fixed Income Portfolio-0.95%. Any reductions made
by the Advisor in its fees or payments or reimbursement of expenses which are
the Portfolio's obligation are subject to reimbursement by the Portfolio
provided the Portfolio is able to effect such reimbursement and remain in
compliance with applicable expense limitations that may be imposed by regulatory
authorities. The Trustees believe that it is likely that the Portfolios will be
of a sufficient size to permit the reimbursement of any such reductions or
payments. A description of any such reimbursements and the amounts paid will be
set forth in the Financial Statements that are included in the Portfolio's
Annual and Semi-Annual Reports to shareholders.
Portfolio Transactions and Brokerage
The Advisor considers a number of factors in determining which brokers or
dealers to use for the Portfolios' transactions. These factors include, but are
not limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment management and advisory capacities. Provided
the Portfolio receives prompt execution at competitive prices, the Advisor may
also consider the sale of Portfolio shares as a factor in selecting
broker-dealers for portfolio transactions.For more information, please refer to
the "Statement of Additional Information."
The Administrator
Investment Company Administration Corporation (the "Administrator"), pursuant to
an administration agreement with the Funds, supervises the overall
administration of the Funds and the Portfolios including, among other
responsibilities, the preparation and filing of all documents required for
compliance by the Trust or the Portfolios with applicable laws and regulations,
arranging for the maintenance of books and records of the Trust and the
Portfolios, and supervision of other organizations that provide services to the
Trust and the Portfolios. Certain officers of the Funds and the Portfolios may
be provided by the Administrator. Under the terms of the agreement, each
Portfolio will pay the Administrator an annual fee of 0.10% of the first $100
million of average daily net assets, 0.05% of the next $100 million of average
daily net assets, and 0.03% oft assets over $200 million, payable monthly and
subject to an annual minimum of $40,000.
Distribution Plan
The Small/Mid Cap Equity Portfolio, Core Equity Portfolio, Balanced Portfolio,
and Intermediate Fixed Income
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Portfolio each have adopted a Distribution Plan pursuant to Rule 12b-1. Each
plan provides that the Portfolio may pay distribution and related expenses of up
to an annual rate of 0.25% of each Portfolio's average net assets. Expenses
permitted to be paid by a Portfolio under its Distribution Plan include:
preparation, printing and mailing of prospectuses; shareholder reports such as
semi-annual and annual reports, performance reports and newsletters; sales
literature and other promotional material to prospective investors; direct mail
solicitation; advertising; public relations; compensation of sales personnel,
advisors or other third parties for their assistance with respect to the
distribution of the Portfolio's shares; payments to financial intermediaries,
including ERISA third-party retirement plan administrators, for shareholder
support, administrative and accounting services with respect to the shareholders
of the Portfolio; and such other expenses as may be approved from time to time
by the Board of Trustees.
The Advisor, out of its own funds, also may compensate broker-dealers who have
signed dealer agreements for the distribution of a Portfolio's shares as well as
other service providers who provide shareholder and administrative services.
Purchasing Shares
Investors may purchase shares of a Portfolio from the Fund's transfer agent or
from other selected securities brokers or dealers. A broker may charge a
commission or transaction fee.
Opening an Account
Investment Minimums. The minimum initial investment in each Portfolio is
$25,000. The Funds may reduce or waive the minimum for certain retirement and
other employee benefit plans; for the Advisor's employees, clients and their
affiliates; for advisors or financial institutions offering investors a program
of services; or any other person or organization deemed appropriate by the
Funds.
Purchasing by Mail
Firstar Trust Company, of Milwaukee, Wisconsin (the "Transfer Agent") acts as
transfer and shareholder service agent for the Portfolios. An investor may
purchase shares by sending a check payable to Rainier Investment Management
Mutual Funds, together with an Application Form, to the Transfer Agent at the
following address:
Rainier Investment Management
Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701 Overnight
courier deliveries should be sent to:
Rainier Investment Management
Mutual Funds
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202
Purchasing by Wire
For an initial purchase of shares of a Portfolio by wire, shareholders should
first telephone the Transfer Agent at (800) 248-6314 between the hours of 9:00
AM and 4:00 PM (Eastern time) on a day when the New York Stock Exchange is open
for normal trading to receive an account number. The following information will
be requested: your name, address, tax identification number, dividend
distribution election, amount being wired and wiring bank. You should then give
instructions to your bank to transfer funds by wire to the Transfer Agent at the
following address:
Rainier Investment Management
Mutual Funds
Firstar National Bank
ABA (MFS) No. 075000022
Firstar Trust Co., Account No. 112-952-137
For Credit to Rainier Investment
Management [Portfolio name]
Account of [your account name]
If you arrange for receipt by the Transfer Agent of federal funds prior to the
close of trading (currently 4:00 PM, Eastern time) of the New York Stock
Exchange on a day the Exchange is open for normal trading, you may purchase
shares of a Portfolio as of that day. Your bank may charge a fee for wiring
money on your behalf.
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Purchasing by Retirement Plans and Individual Retirement Accounts (IRAs)
Shares of the Portfolios are available for purchase by any retirement plan,
including 401(k) plans, profit sharing plans, 403(b) and IRAs.
Purchasing with Securities
Shares may be purchased by tendering payment in kind in the form of marketable
securities, including, but not limited to, shares of common stock and debt
securities, provided the acquisition of such securities is consistent with the
Portfolio's investment objective and otherwise acceptable to the Advisor.
Additional Investments
Minimum Subsequent Investment. The minimum "subsequent" investment is $1,000.
The amount of the minimum subsequent investment, like the minimum "initial"
investment, may be reduced or waived by the Funds. See waiver discussion under
"Investment Minimums" above. The Funds reserve the right to reject any order.
Cash investments may be made either by check or by wire.
Additional Investments by Mail. If the purchase is a subsequent investment, the
shareholder should either include the stub from a confirmation form previously
sent by the Transfer Agent or include a letter giving the shareholder=s name and
account number.
Additional Investments by Wire. In making a subsequent purchase order by wire,
you should wire funds to the Transfer Agent in the manner described above,
making sure that the wire specifies the name of the Portfolio, your name and the
account number. However, it is not necessary to call the Transfer Agent to make
subsequent purchase orders using federal funds.
Selling Shares (Redemptions)
Redemptions by Mail
Shareholders may redeem shares of any Portfolio by writing to the Transfer Agent
at the following address:
Rainier Investment Management
Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight courier deliveries should be sent to:
Rainier Investment Management
Mutual Funds
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202
Please specify the name of the Portfolio, the number of shares or dollar amount
to be redeemed and your name and account number. You should also enclose any
certificated shares that you wish to redeem.
The signature on a redemption request must be exactly as names appear on the
Portfolio's account records, and the request must be signed by the minimum
number of persons designated on the account application that are required to
effect a redemption. Requests by participants of qualified retirement plans must
include all other signatures required by the plan and applicable federal law.
Signature Guarantee
If a redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. If the proceeds of the redemption exceed
$50,000, and are to be paid to a person other than the record owner, or are to
be sent to an address other than the address on the Transfer Agent's records, or
are to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request and on the certificates, if any, or stock
powers must be guaranteed by an "eligible guarantor" which includes certain
banks, brokers, dealers, credit unions, securities exchanges, clearing agencies
and savings associations. A signature guarantee is not the same as notarization
and an acknowledgment by a notary public is not acceptable as a substitute for a
signature guarantee.
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The price you receive for the Portfolio shares redeemed is at the
next-determined net asset value for the shares after a completed redemption
request is received by the Transfer Agent.
Redemptions by Telephone
You may establish telephone redemption privileges if you have checked the
appropriate box and supplied the necessary information on the account
application. You may then redeem shares of a Portfolio by telephoning the
Transfer Agent at (800) 248-6314, between the hours of 9:00 AM and 4:00 PM
(Eastern time) on a day when the New York Stock Exchange is open for normal
trading. Redemptions by telephone must be at least $1,000.
In periods of severe market or economic conditions, telephone exchanges may be
difficult to implement, in which case you should mail or send by overnight
delivery a written exchange request to the Transfer Agent. Overnight deliveries
should be sent to the Transfer Agent at the following address:
Rainier Investment Management
Mutual Funds
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202
All exchanges will be made on the basis of the relative net asset values of the
Portfolios next determined after a completed request is received. Requests for
telephone exchanges received before 4:00 PM (Eastern time) on a day when the New
York Stock Exchange is open for normal trading will be processed as of the close
of trading on that day.Otherwise, processing will occur on the next business
day.
Special Factors Regarding Telephone Redemptions. In order to protect itself and
shareholders from liability for unauthorized or fraudulent telephone
transactions, the Trust will use reasonable procedures in an attempt to verify
the identity of a person making a telephone redemption request. The Trust
reserves the right to refuse a telephone redemption request if it believes that
the person making the request is neither the record owner of the shares being
redeemed nor otherwise authorized by the shareholder to request the redemption.
Shareholders will be promptly notified of any refused request for a telephone
redemption. As long as these normal identification procedures are followed,
neither the Trust nor any Portfolio or its agents will be liable for any loss,
liability or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
Redemptions by Wire
Redemption proceeds are generally paid to you by check. However, at your
request, redemption proceeds of $1,000 or more may be wired by the Transfer
Agent to your bank account. Requests for redemption by wire should include the
name, location and ABA or bank routing number (if known) of your designated bank
and your account number. Payment will be made within seven days after receipt by
the Transfer Agent of the written or telephone redemption request. Such payment
may be postponed or the right of redemption suspended at times when (a) the New
York Stock Exchange is closed for other than customary weekends and holidays;
(b) trading on such exchange is restricted; (c) an emergency exists, the result
of which disposal of Portfolio securities or determination of the value of the
Portfolio=s net assets are not reasonably practicable; or (d) during any other
period when the Securities and Exchange Commission, by order, so permits.
Payment for redemption of recently purchased shares will be delayed until the
Transfer Agent has been advised that the purchase check has been honored, up to
12 calendar days from the time of receipt of the purchase check by the Transfer
Agent. Such delay may be avoided by purchasing shares by wire or by certified or
official bank checks.
Redemption of Small Accounts
In order to reduce expenses, the Portfolios may redeem shares in any account,
other than retirement plan or Uniform Gift to Minors Act accounts, if at any
time, due to redemptions, the total value of a shareholder's account does not
meet a specified minimum. Shareholders will be given 30 days' prior written
notice in which to purchase sufficient additional shares to avoid such a
redemption.
Shareholder Services
Automatic Reinvestment
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Dividends and capital gain distributions are reinvested in additional shares at
no sales charge unless you indicate otherwise on the account applications. You
may elect to have dividends or capital gain distributions paid in cash.
Exchange Privilege
You may exchange shares of any Portfolio for shares of other Portfolios by
mailing or delivering written instructions to the Transfer Agent at the
following address:
Rainier Investment Management
Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701
Please specify the name of the applicable Portfolio, the number of shares or
dollar amount to be exchanged and your name and account number. You may also
exchange shares by telephoning the Transfer Agent at (800) 248-6314 between the
hours of 9:00 AM and 4:00 PM (Eastern time) on a day when the New York Stock
Exchange is open for normal trading.
You may also exchange shares of any Portfolio for shares of the Portico Money
Market Fund or Portico U.S. Government Money Market Fund, both money market
mutual funds not affiliated with the Trust or the Advisor, if such shares are
offered in your state of residence. Prior to making such an exchange, you should
obtain and carefully read the prospectus for the Portico Money Market Fund or
Portico U.S. Government Money Market Fund. The exchange privilege does not
constitute an offering or recommendation on the part of the Funds or Advisor of
an investment in the Portico Funds.
Exchange Privilege Annual Limits. The Funds reserve the right to limit the
number of exchanges a shareholder may make in any year to four to avoid
excessive Portfolio expenses.
Automatic Withdrawal Plan
An automatic withdrawal plan may be established by an investor or by a qualified
retirement plan sponsor or administrator for its participants subject to the
requirements of the plan and applicable federal law. Automatic withdrawals may
be made from a Portfolio in an amount of $100 or more on a monthly or quarterly
basis if an investor has an account of $10,000 or more in the Portfolio.
Withdrawal proceeds will normally be received prior to the end of the month or
quarter. See the account application for further information.
Shareholder Reports
To keep shareholders informed, you will receive an audited annual report and a
semi-annual report, both of which present the financial statements of the Funds.
Share Price Determination
Share Price
Shares of a Portfolio are purchased at the net asset value after an order in
proper form is received by the Transfer Agent. An order in proper form must
include all correct and complete information, documents and signatures required
to process your purchase, as well as a check or bank wire payment properly drawn
and collectable. Payment should be made by check drawn on a U.S. bank, savings
and loan, or credit union. The net asset value per share is determined as of the
close of trading of the New York Stock Exchange on each day the Exchange is open
for normal trading. Orders received before 4:00 PM (Eastern time) on a day when
the Exchange is open for normal trading will be processed as of the close of
trading on that day. Otherwise, processing will occur on the next business day.
The Distributor reserves the right to reject any purchase order.
Net Asset Value
The net asset value of each Portfolio is determined as of the close of trading
(currently 4:00 PM, Eastern time) on each day that the New York Stock Exchange
is open for trading. The net asset value per share of each Portfolio is the
value of the Portfolio's assets, less its liabilities, divided by the number of
outstanding shares of the Portfolio. Each Portfolio values its investments on
the basis of the market value of its securities. Securities and other assets for
which market prices are not readily available are valued at fair value as
determined in good faith by the Board of Trustees. Debt securities with
remaining maturities of 60 days or less are normally valued at amortized cost,
unless the Board of Trustees determines that amortized cost does not represent
fair value. Cash and receivables will be valued at their face
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amounts. Interest will be recorded as accrued, and dividends will be recorded on
their ex-dividend date.
Share Certificates
Shares are credited to your account and certificates are not issued unless
specifically requested. This eliminates the costly problem of lost or destroyed
certificates. If you would like certificates issued, please request them by
writing to the Transfer Agent. There is usually no charge for issuing
certificates in reasonable denominations, but certificates will be issued only
for full shares.
Dividends, Distributions and Tax Status
Dividends and Distributions
The Small/Mid Cap Equity and Core Equity Portfolios intend to pay dividends
semi-annually. The Balanced Portfolio intends to pay dividends quarterly. The
Intermediate Fixed Income Portfolio intends to pay dividends monthly. Each
Portfolio makes distributions of its net capital gains, if any, at least
annually. The Board of Trustees may determine to declare dividends and make
distributions more frequently.
Dividends and capital gain distributions are automatically reinvested in
additional shares of the Portfolio at the net asset value per share on the
reinvestment date unless the shareholder has previously requested in writing to
the Transfer Agent that payment be made in cash.
Any dividend or distribution paid by the Portfolio has the effect of reducing
the net asset value per share on the reinvestment date by the amount of the
dividend or distribution. Investors should note that a dividend or distribution
paid on shares purchased shortly before such dividend or distribution was
declared will be subject to income taxes as discussed below, even though the
dividend or distribution represents, in substance, a partial return of capital
to the shareholder.
Tax Status
Each Portfolio has qualified and elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986 (the "Code") for
the fiscal year ended March 31, 1996 and intends to be able to continue to
qualify in future years. As long as the Portfolio continues to qualify, and as
long as the Portfolio distributes all of its income each year to the
shareholders, the Portfolio will not be subject to any federal or excise taxes.
The distributions made by the Portfolio will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains dividends are taxable as long-term capital gains
regardless of the length of time shares of the Portfolio have been held.
Although distributions are generally taxable when received, certain
distributions made in January are taxable as if received the prior December.
Shareholders will be informed annually of the amount and nature of the
Portfolio's distributions.
A Portfolio may be required to impose backup withholding at a rate of 31% from
income dividends and capital gain distributions and upon payment of redemption
proceeds if provisions of the Code relating to the furnishing and certification
of taxpayer identification numbers and reporting of dividends are not complied
with by a shareholder. Any such accounts without a tax identification number may
be liquidated and distributed to a shareholder, net of withholding, after the
sixtieth day of investment.
Additional information about taxes is set forth in the "Statement of Additional
Information." Shareholders should consult their own advisors concerning federal,
state and local taxation of distributions from the Portfolio.
Performance Information
Total Return
From time to time, the Portfolio may publish its total return in advertisements
and communications to investors. Total return information will include the
Portfolio's average annual compounded rate of return over the four most recent
calendar quarters and over the period from the Portfolio's inception of
operations. The Portfolio may also advertise aggregate and average total return
information over different periods of time. The Portfolio's total return will be
based
18
<PAGE>
upon the value of the shares acquired through a hypothetical $1,000 investment
(at the maximum public offering price) at the beginning of the specified period,
and the net asset value of such shares at the end of the period, assuming
reinvestment of all distributions and after giving effect to the maximum
applicable sales charge. Total return figures will reflect all recurring charges
against Portfolio income. Investors should note that the investment results of
the Portfolio will fluctuate over time, and any presentation of the Portfolio's
total return for any prior period should not be considered as a representation
of what an investor's total return may be in any future period.
Yield
A Portfolio may also refer in its advertising and promotional materials to its
yield. A Portfolio's yield shows the rate of income that it earns on its
investments, expressed as a percentage of the net asset value of Portfolio
shares. A Portfolio calculates yield by determining the interest income it
earned from its portfolio investments for a specified thirty-day period (net of
expenses), dividing such income by the average number of Portfolio shares
outstanding, and expressing the result as an annualized percentage based on the
net asset value at the end of that thirty-day period. Yield accounting methods
differ from the methods used for other accounting purposes; accordingly, a
Portfolio's yield may not equal the dividend income actually paid to investors
or the income reported in the Portfolio's financial statements.
In addition to standardized return, performance advertisements and sales
literature may also include other total return performance data
("non-standardized return"). Non-standardized return may be quoted for the same
or different periods as those for which standardized return is quoted and may
consist of aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof. All data included in performance
advertisements will reflect past performance and will not necessarily be
indicative of future results. The Portfolios may also advertise their relative
rankings by mutual fund ranking services such as Lipper Analytical Services or
Morningstar, Inc. The investment return and principal value of an investment in
a Portfolio will fluctuate and an investor's proceeds upon redeeming Portfolio
shares may be more or less than the original cost of the shares.
General Information
Each Portfolio is one of a series of shares of the Trust, each having separate
assets and liabilities. The Trust was organized as a Delaware business trust on
December 15, 1993.
Each Portfolio has reserved the right to invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as the
Portfolios. It is not presently intended that such investment will be made.
Voting Rights
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held. Rule 18f-2 under the Act
provides that matters submitted to shareholders be approved by a majority of the
outstanding securities of each series, unless it is clear that the interests of
each series in the matter are identical or the matter does not affect a series.
However, the rule exempts the selection of accountants and the election of
Trustees from the separate voting requirements.
The Declaration of Trust provides that the shareholders have the right, upon the
declaration in writing or vote of more than two-thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of 10% of its shares. In addition, ten shareholders holding the lesser of
$25,000 worth or 1% of the shares may advise the Trustees in writing that they
wish to communicate with other shareholders for the purpose of requesting a
meeting to remove a Trustee.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representation other than
those contained in this Prospectus or in the Statement of Additional
Information.
601 Union Street, Suite 2801
Seattle, Washington 98101
(800) 248-6314
19
<PAGE>
RAINIER INVESTMENT MANAGEMENT ("RIM") MUTUAL FUNDS
Statement of Additional Information
Dated July 29, 1996
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the applicable prospectus of Rainier Investment
Management ("RIM") Mutual Funds (the "Trust"). The Trust consists of four
separate portfolios: the Small/Mid Cap Equity Portfolio, the Core Equity
Portfolio, the Balanced Portfolio and the Intermediate Fixed Income Portfolio.
(In this Statement of Additional Information, all four Portfolios may be
referred to as the "Portfolios" and the Small/Mid Cap Equity Portfolio, Core
Equity Portfolio, and Balanced Portfolios may be referred to as the "Equity
Portfolios"). Rainier Investment Management, Inc..(R) ("RIM" or the "Advisor")
is the Advisor to the Trust and the Portfolios. A copy of the prospectus may be
obtained from the Trust at 601 Union St., Ste. 2801, Seattle, WA 98101 or by
calling (800) 248- 6314.
TABLE OF CONTENTS
Cross-
reference
to page
in Prospectus
-------------
Investment Objective and Policies . . . . 2 6
Investment Restrictions . . . . . . . . . 2 10
Repurchase Agreements . . . . . . 5 10
When-Issued Securities . . . . . . . 5 11
Illiquid and Rule 144A Securities. . 6 11
Mortgage-Related Securities . . . 7 10
Securities Lending . . . . . . . . . 9 9
Management . . . . . . . . . . . . . . . 9 12
Portfolio Transactions and Brokerage . . 15 13
Net Asset Value . . . . . . . . . . . . 17 18
Redemptions . . . . . . . . . . . . . . 18 15
Taxation . . . . . . . . . . . . . . . . 18 19
Dividends and Distributions . . . . . . 19 18
Performance Information . . . . . . . . 20 19
General Information . . . . . . . . . . 22 20
Financial Statements .. . . . . . . . . 23 --
Appendix-Description of Ratings . . . . 24 --
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INVESTMENT OBJECTIVES AND POLICIES
The Small/MidCap Equity Portfolio seeks to maximize long-term capital
appreciation. The Portfolio invests primarily in a diversified portfolio of
common stocks of companies with small and medium-size capitalizations.
The Core Equity Portfolio seeks to maximize long-term capital appreciation. The
Portfolio invests primarily in a diversified portfolio of common stocks of U.S.
companies.
The Balanced Portfolio seeks to provide investors with a balance of long-term
capital appreciation and current income. The Portfolio invests primarily in a
diversified portfolio of common stocks of U.S. companies and investment grade,
intermediate-term debt securities and cash equivalent securities.
The Intermediate Fixed Income Portfolio seeks to provide current income. The
Portfolio invests primarily in a diversified portfolio of investment grade,
intermediate-term debt securities issued by corporations and the U.S.
Government.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Portfolios, has adopted the following
fundamental investment policies and restrictions in addition to the policies and
restrictions discussed in the prospectus. With respect to each Portfolio, the
policies and restrictions listed below cannot be changed without approval by the
holders of a "majority of the outstanding voting securities" of that Portfolio
(which is defined in the Investment Company Act of 1940 (the "1940 Act") to mean
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). As a matter of fundamental policy, the Portfolios are
diversified; i.e., as to 75% of the value of a Portfolio's total assets, no more
than 5% of the value of its total assets may be invested in the securities of
any one issuer (other than U.S.Government securities).
In addition, no Portfolio may:
1. Issue senior securities, borrow money or pledge its assets,
B-2
<PAGE>
except that a Portfolio may borrow on an unsecured basis from banks for
temporary or emergency purposes or for the clearance of transactions in amounts
not exceeding 10% of its total assets (not including the amount borrowed),
provided that it will not make investments while borrowings in excess of 5% of
the value of its total assets are outstanding;
2. Make short sales of securities or maintain a short position, except for short
sales against the box;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options, except that the Portfolios reserve the right to
write put or call options for hedging or other purposes as may subsequently be
described in their Prospectus and permitted under applicable federal and state
laws and regulations;
5. Act as underwriter (except to the extent a Portfolio may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
6. Invest 25% or more of its total assets, calculated at the time of purchase
and taken at market value, in any one industry (other than U.S. Government
securities), (except that the Portfolios reserve the right to invest all of
their assets in shares of another investment company);
7. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although any Portfolio may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
8. Purchase or sell commodities or commodity futures contracts, (except that the
Portfolios reserve the right to purchase and sell stock index futures contracts
and interest rate futures contracts; as may subsequently be described in their
Prospectus and in this Statement as permitted under applicable federal and state
laws and regulations);
9. Make loans (except for purchases of debt securities consistent with the
investment policies of the Portfolios and except for repurchase agreements); or
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<PAGE>
10. Make investments for the purpose of exercising control or management.
11. Invest in oil and gas limited partnerships or oil, gas or mineral leases;
The Portfolios observe the following restrictions as a matter of operating but
not fundamental policy, pursuant to positions taken by federal and state
regulatory authorities:
No Portfolio may:
1. Purchase any security if as a result the Portfolio would then hold more than
10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class) except that each Portfolio reserves the right to
invest all of its assets in a class of voting securities of an investment
company;
2. Invest in securities of any issuer if, to the knowledge of the Portfolio, any
officer or Trustee of the Portfolio or any officer or Director of the Advisor
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, Trustees and Directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer;
3. Invest more than 5% of the value of its net assets in warrants (included in
that amount, but not to exceed 2% of the value of the Portfolio's net assets,
may be warrants which are not listed on the New York or American Stock
Exchange).
4. Invest in any security if as a result the Portfolio would have more than 5%
of its total assets invested in securities of companies which together with any
predecessor have been in continuous operation for fewer than three years.
5. Invest more than 10% of its assets in the securities of other investment
companies or purchase more than 3% of any other investment company's voting
securities or make any other investment in other investment companies except as
permitted by federal and state law. (Each Portfolio reserves the right to invest
all of its assets in another investment company).
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<PAGE>
Repurchase Agreements
Repurchase agreements are transactions in which a Portfolio purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon date and price reflecting
a market rate of interest unrelated to the coupon rate or maturity of the
purchased security. The majority of these transactions run from day to day and
not more than seven days from the original purchase. The purchaser maintains
custody of the underlying securities prior to their repurchase; thus the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such underlying securities. If the value of such
securities is less than the repurchase price, the other party to the agreement
will provide additional collateral so that at all times the collateral is at
least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Portfolios intend to enter into repurchase
agreements only with banks and dealers believed by the Advisor to present
minimum credit risks in accordance with guidelines established by the Boards of
Trustees. The Advisor will review and monitor the creditworthiness of such
institutions under the Board's general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the purchaser would suffer a
loss. If the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the purchaser's ability to sell the collateral and the
purchaser could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, the Portfolios intend to comply with provisions under such Code that would
allow them immediately to resell the collateral.
When-Issued Securities
The Portfolios may from time to time purchase securities on a
"when-issued" basis. The price of such securities, which may be expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement
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<PAGE>
date occurs within one month of the purchase; during the period between purchase
and settlement, no payment is made by the Portfolio to the issuer and no
interest accrues to the Portfolio. To the extent that assets of a Portfolio are
held in cash pending the settlement of a purchase of securities, the Portfolio
would earn no income. While when-issued securities may be sold prior to the
settlement date, the Portfolios intend to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Portfolio makes the commitment to purchase a
security on a when- issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The market value of
the when-issued securities may be more or less than the purchase price. The
Advisor does not believe that the Portfolios' net asset value or income will be
adversely affected by the purchase of securities on a when-issued basis. The
Portfolios will establish a segregated account with the Custodian in which they
will maintain ^ liquid assets equal in value to commitments for when-issued
securities. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date.
Illiquid Securities; Rule 144A Securities
There is no present intention for the Portfolios to hold any illiquid
securities. As noted in the prospectus, each Portfolio has the right to invest
in such securities but not to the extent of more than 15% of its net assets.
Illiquid securities include (a) securities for which there is no available
market, (b) securities that at the time of purchase have legal or contractual
restrictions on resale, (c) repurchase agreements having more than seven days to
maturity and (d) fixed time deposits subject to withdrawal penalties (other than
those with a term of less than seven days).
Mutual funds do not typically hold a significant amount of restricted or
other illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a Portfolio might not be able to
dispose of such securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions. A Portfolio might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay.
B-6
<PAGE>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act of 1933,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accord with Rule 144A promulgated by the Securities and Exchange Commission,
the Trustees may determine that such securities are not illiquid notwithstanding
their legal or contractual restrictions on resale.
Mortgage-Related Securities.
The Intermediate Fixed Income Portfolio and Balanced Portfolio reserve the
right to invest in mortgage-related securities, although they have no present
intention to do so. These securities include mortgage pass-through securities,
which represent interests in pools of mortgages in which payments of both
interest and principal on the securities are generally made monthly, in effect
"passing through" monthly payments made by the individual borrowers on the
residential mortgage loans which underlie the securities (net of fees paid to
the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
the sale of underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Portfolio to a lower rate of return
upon reinvestment of principal. Also, if a security subject to repayment has
been purchased at a premium, in the event of prepayment the value of the premium
would be lost.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U. S. Government (in the case of securities
guaranteed by GNMA), by agencies or instrumentalities of the U.S. Government (in
the case of securities guaranteed by FNMA or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the
B-7
<PAGE>
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized mortgage obligations ("CMO's) are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMO's may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMO's are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
Other mortgage related securities include those that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans
on real property, such as CMO residuals or stripped mortgage-backed securities,
and may be structured in classes with rights to receive varying proportions of
principal and interest. Certain of these government interest-only and
principal-only fixed mortgage-backed securities may be considered liquid under
guidelines to be established by the Board of Trustees, if, under such
procedures, they can be disposed of promptly in the ordinary course of business
at a value reasonably close to that used in the calculation of net asset value
per share. Any interest-only and principal-only securities not determined to be
liquid under these guidelines will be subject to the Portfolios' limitations on
illiquid securities as set forth in the prospectus. The Portfolios have no
present intention to invest in such interest-only and principal-only securities.
B-8
<PAGE>
Securities Lending
The Portfolios have the ability to lend securities, but have no present
intention to do so. The Portfolios may lend their securities in an amount not to
exceed 30% of their assets to financial institutions such as banks and brokers
if the loan is collateralized in accordance with applicable regulations. Under
the present regulatory requirements which govern loans of portfolio securities,
the loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks or securities of the U.S. Government or
its agencies.
MANAGEMENT
The overall management of the business and affairs of the Trust is
vested with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
The day to day operations of the Trust and the Portfolios are delegated to their
officers, subject to their investment objectives and policies and to general
supervision by their Boards of Trustees.
The Trustees and officers of the Trust, their ages, business addresses
and principal occupations during the past five years are:
J. Glenn Haber, 45* Trustee, President, Secretary;
601 Union St., Ste. 2801 and Treasurer,Principal of the
Seattle, WA 98101 Advisor May, 1991 to date;
formerly Portfolio Manager and
Pension Administrator,
Security Pacific Bank of
Washington
Patricia L. Frost, 51* Trustee and Vice President;
601 Union St., Ste. 2801 Principal and Chief Executive
Seattle, WA 98101 Officer of the Advisor, May,
1991 to date; formerly
Manager, Institutional
Investments, Security Pacific
Bank of Washington.
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<PAGE>
James E. Diamond, Jr., 49 Trustee; President and Chief
3217 NW Yeon Ave. Financial Officer, Paul O.
Portland, OR 97210 Giesey Adcrafters, Inc.,
August, 1991 to date (printing and
typography); formerly Executive Vice
President, Security Pacific Bank of Oregon
John W. Ferris, 55 Trustee; Partner, Peterson
Peterson, Sullivan & Co. Sullivan & Co., (certified
2330 Two Union Square public accountants)
Seattle, WA 98101
Gary L. Sundem, 51 Trustee; Associate Dean and
University of Washington Professor of Accounting;
School of Business Administration University of Washington
Seattle, WA 98195
James R. Margard, 43* Vice President; Principal
601 Union St. Ste. 2801 of the Advisor 1989 to
Seattle, WA 98101 date; formerly Senior Analyst
and Portfolio Manager, Value
Line, Inc.
Michael E. Raney, 47* Vice President; Principal
601 Union St. Ste. 2801 of the Advisor 1989 to date.
Seattle, WA 98101
David A. Veterane, 54* Vice President; Principal
601 Union St., Ste. 2801 of the Advisor 1989 to date.
Seattle WA 98101
- --------------------------------------
*Denotes "interested person" as defined in the Investment Company
Act of 1940
The officers of the Trust, and the Trustees who are considered "interested
persons" of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. However, those officers and Trustees who
are oficers or principals of the Advisor may receive remuneration indirectly
because the Advisor receives a management fee from the Portfolios. The Trustees
who are not affiliated with the Advisor receive an annual
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<PAGE>
retainer of $4,000 plus $1,000 per meeting. These unaffiliated Trustees also
receive a fee of $1,000 for any committee meetings held on dates other than a
scheduled Board meeting date. Such Trustees also are reimbursed for any expenses
incurred in attending meetings. The aggregate compensation paid in equal parts
by each Portfolio of the Trust to each of the Trustees during the fiscal year
ended March 31, 1996 is set forth below:
Total compensation
Name of Trustee from the Trust
- --------------- --------------
J. Glenn Haber None
Patricia L. Frost None
James E. Diamond, Jr. $5,000
Gary L. Sundem $5,000
John W. Ferris $4,750
The Portfolios do not maintain pension or retirement plans for Trustees.
Principal Shareholders
As of June 28, 1996, the current Trustees and officers of the Trust as a group
held of record and beneficially less than 1% of the outstanding shares of each
Portfolio. To the best knowledge of the Portfolios, shareholders owning 5% or
more of the outstanding shares of the Portfolio as of record are set forth
below:
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<PAGE>
Shareholder % held as of
Portfolio Name & Address June 28, 1996
- --------- -------------- -------------
Small/Mid Cap Equity Charles Schwab & Co. Inc. 53.82%
Portfolio Specialty Custody Account
Exclusive Benefit of
Customers
101 Montgomery St.,
San Francisco, CA 94104-4122
Jupiter & Co. 8.09%
C/o Investors Bank & Trust Co.
P.O. Box 1537
Boston, MA 02205-1537
National Financial Services 8.05%
For the Exclusive Benefit of
Our Customers
Attn Mike McLaughlin 5NY
P.O. Box 3908
New York, NY 10008-3908
Core Equity Portfolio Charles Schwab & Co. Inc. 34.36%
Specialty Custody Account
For Exclusive Benefit of
Customers
101 Montgomery St.,
San Francisco, CA 94104-4122
The Johns Hopkins University 7.36%
Office of the Treasurer
303 Garland Hall
Baltimore, MD 21218
Balanced Portfolio Wendell & Co. 16.89%
A/C #199731
C/o The Bank of New York
Mutual Fund Section
Wall Street Station
P.O. Box 1066
New York, NY 10286
Copeland Lumber Co. 401K 16.11%
Profit Sharing Trust
Copper Mountain Trust Corp.
1211 SW 5th Ave. Ste 1900
Portland, OR 97204-3713
Wendell & Co. 8.27%
A/C #368473
C/o The Bank of New York
Mutual Fund Section
Wall Street Station
P.O. Box 1066
New York, NY 10286
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<PAGE>
Charles Schwab & Co. Inc. 7.77%
Specialty Custody Account
For Exclusive Benefit of
Customers
101 Montgomery St.,
San Francisco, CA 94104-4122
Intermediate Fixed Income Key Trust Company of Alaska 24.47%
Portfolio Under Agreement DTD 10/20/95
With Koniag Inc.
P.O. Box 94871
Cleveland, OH 44101-4871
Northwest Roofers & Employers 13.47%
Health & Security Trust Fund
Michael S Hendrickson TR
P.O. Box 34203
Seattle, WA 98124-1203
Key Trust Co. 13.44%
Koniag Shareholder RIM
A/C #0105022002
P.O. Box 94871
Cleveland, OH 44101-4871
Wendel & Co.A/C #200202 12.90%
C/o Bank of New York
Attn Mutual Fund Section
Wall Street Station
P.O. Box 1066
New York, NY 10286
Wendel & Co.A/C #222752 12.31%
C/o Bank of New York
Attn Mutual Fund Section
Wall Street Station
P.O. Box 1066
New York, NY 10286
Capinco 7.58%
C/o Firstar Trust Company
P.O. Box 1787
Milwaukee, MI 53201-1787
Trobar 6.59%
C/o Barnett Bank Trust Co.
M/C 572-1270
Attn Mutual Funds
P.O. Box 40200
Jacksonville, FL 32203-0200
The Advisor
Subject to the supervision of the Board of Trustees, investment management and
services are provided to the Portfolios by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Advisor provides a continuous investment program for the
Portfolios and
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<PAGE>
makes decisions and places orders to buy, sell or hold particular securities. In
addition to the fees payable to the Advisor and the Administrator, the
Portfolios and the Trust are responsible for their operating expenses,
including: (i) interest and taxes; (ii) brokerage commissions; (iii) insurance
premiums; (iv) compensation and expenses of Trustees other than those affiliated
with the Advisor or the Administrator; (v) legal and audit expenses; (vi) fees
and expenses of the custodian, shareholder service and transfer agents; (vii)
fees and expenses for registration or qualification of the Trust and its shares
under federal or state securities laws; (viii) expenses of preparing, printing
and mailing reports and notices and proxy material to shareholders; (ix) other
expenses incidental to holding any shareholder meetings; (x) dues or assessments
of or contributions to the Investment Company Institute or any successor; (xi)
such non-recurring expenses as may arise, including litigation affecting the
Trust or the Portfolios and the legal obligations with respect to which the
Trust or the Portfolios may have to indemnify their officers and Trustees; and
(xii) amortization of organization costs.
Under the Advisory Agreement, the Advisor is not liable to the Portfolios for
any error of judgment by the Advisor or any loss sustained by the Trust or
Portfolios except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages will be
limited as provided in the 1940 Act) or of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisory Agreement remains in effect for two years from its execution.
Thereafter, if not terminated, it will continue automatically for successive
annual periods, provided that such continuance is specifically approved at least
annually (i) by a majority vote of the Independent Trustees cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
of Trustees or by vote of a majority of the outstanding voting securities.
The Advisory Agreement is terminable by vote of the Board of Trustees or by the
holders of a majority of the outstanding voting securities of the Portfolios at
any time without penalty, on 60 days written notice to the Advisor. The Advisory
Agreement also may be terminated by the Advisor on 60 days written notice to the
Portfolios. The Advisory Agreement terminates automatically upon
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<PAGE>
its assignment (as defined in the 1940 Act).
For the [^] fiscal year ended March 31, 1996 and the period from May 10, 1994
(commencement of operations) to March 31, 1995, investment advisory fees payable
by the portfolios to the Advisor [^] were as follows: Small/Mid Cap Equity
Portfolio $283,325 and $42,711; Core Equity Portfolio $393,043 and $83,064;
Balanced Portfolio $151,624 and $48,732; Intermediate Fixed Income Portfolio
$39,123 and $25,109, respectively.
Expenses or advisory fees waived or reimbursed(or recouped fees and expenses
previously waived) by the Advisor For the fiscal year ended March 31, 1996 and
the period from May 10, 1994 (commencement of operations) to March 31, 1995,
were as follows: Small/Mid Cap Equity Portfolio ($5,715) and $73,535; Core
Equity Portfolio $6,206 and $63,778; Balanced Portfolio $68,025 and $77,462;
Intermediate Fixed Income Portfolio $94,910 and $75,159, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE
In all purchases and sales of securities for the Portfolios, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Advisory Agreement, the Advisor determines which securities are
to be purchased and sold by the Portfolios and which broker-dealers are eligible
to execute portfolio transactions, subject to the instructions of and review by
the Trust's Board of Trustees.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolios will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principals for their own
accounts. Purchases from underwriters will include a commission paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter that has provided research or other services as
discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the
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<PAGE>
services necessary to obtain the most favorable price and execution available.
The full range and quality of services available will be considered in making
these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities, and other factors.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available and the transaction involves a brokerage commission,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor that it may lawfully and
appropriately use in its investment advisory capacity for the Portfolios and for
other accounts, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to, and
not in lieu of, the services required to be performed by it under the Agreement,
to be useful in varying degrees, but of indeterminable value. The Board of
Trustees reviews all brokerage allocations where services other than best
price/execution capabilities are a factor to ensure that the other services
provided meet the tests outlined above and produce a benefit to the Portfolios.
The placement of portfolio transactions with broker-dealers who sell shares
of the Portfolios is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD"). Provided the Trust's officers are satisfied
that the Portfolio is receiving the most favorable price and execution
available, the Advisor may also consider the sale of the Portfolios' shares as a
factor in the selection of broker-dealers to execute its portfolio transactions.
Investment decisions for the Portfolios are made independently from those of
other client accounts of the Advisor. Nevertheless, it is possible that at times
the same securities will be acceptable for the Portfolios and for one or more of
such client accounts. To the extent any of these client accounts and a Portfolio
seek to acquire the same security at the same time, the Portfolio may not be
able to acquire as large a portion of such security as it desires, or it may
have to pay a higher price to obtain a lower yield for such security. Similarly,
a Portfolio may not be able to obtain as high a price for, or as large an
execution of, an order
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<PAGE>
to sell any particular security at the same time. If one or more of such client
accounts simultaneously purchases or sells the same security that a Portfolio is
purchasing or selling, each day's transactions in such security will be
allocated between the Portfolio and all such client accounts in a manner deemed
equitable by the Advisor, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Advisor. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as the
Portfolio is concerned. In other cases, however, it is believed that the ability
of the Portfolio to participate in volume transactions may produce better
executions for the Portfolio.
Depending on the Advisor's view of market conditions, a Portfolio may or
may not purchase securities with the expectation of holding them to maturity,
although its general policy is to hold securities to maturity. A portfolio may,
however, sell securities prior to maturity to meet redemptions or as a result of
a revised management evaluation of the issuer.
The Portfolios do not effect securities transactions through broker-dealers
in accordance with any formula, nor do they effect securities transactions
through such broker-dealers solely for selling shares of the Portfolios.
However, as stated above, broker-dealers who execute transactions for the
Portfolios may from time to time effect purchase of shares of the Portfolios for
their customers.
For the [^] fiscal year ended March 31, 1996 and the period from May 10,
1994 (commencement of operations) to March 31, 1995, brokerage commissions paid
by the Portfolios were as follows: Small/MidCap Equity Portfolio-$172,507 and
$30,678; Core Equity Portfolio-$244,391 and $52,090; Balanced Portfolio-$60,011
and $19,486, respectively. Intermediate Fixed Income Portfolio paid no brokerage
commissions for the periods indicated herein.
NET ASSET VALUE
The net asset value of the Portfolios' shares will fluctuate and is determined
as of the close of trading on the New York Stock Exchange (currently 4:00 p.m.
Eastern time) each business day. The Exchange annually announces the days on
which it will not be open
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<PAGE>
for trading. The most recent announcement indicates that it will not be open on
the following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, the
Exchange may close on days not included in that announcement.
REDEMPTIONS
The Portfolios intend to pay cash (U.S. dollars) for all shares
redeemed, but, under abnormal conditions which make payment in cash unwise, a
Portfolio may make payment partly in securities with a current market value
equal to the redemption price. Although the Portfolios do not anticipate that
they will make any part of a redemption payment in securities, if such payment
were made, an investor may incur brokerage costs in converting such securities
to cash. The Trust has elected to be governed by the provisions of Rule 18f-1
under the 1940 Act, which contains a formula for determining the minimum
redemption amounts that must be paid in cash.
TAXATION
The Portfolios will each be taxed as separate entities under the Internal
Revenue Code, and each intends to elect to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Code. In each taxable year
that the Portfolios qualify, the Portfolios (but not their shareholders) will
not be subject to federal income tax on that part of their investment company
taxable income (consisting generally of interest and dividend income, net short
term capital gain and net realized gains from currency transactions) and net
capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, the Portfolios must distribute
annually to shareholders at least 90% of their investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of each Portfolio's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or currencies; (2) less than 30% of each Portfolio's gross income
each taxable
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<PAGE>
year may be derived from the sale or other disposition of securities held for
less than three months; (3) at the close of each quarter of each Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, limited in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Portfolio and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (4) at the
close of each quarter of each Portfolio's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
Each Portfolio will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Portfolio's investment company taxable income (whether paid in
cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Portfolio's earnings and profits.
Distributions of a Portfolio's net capital gain (whether paid in cash or
invested in additional shares) will be taxable to shareholders as long-term
capital gain, regardless of how long they have held their Portfolio shares.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Portfolio and received by the shareholders on
the record date if the dividends are paid by a Portfolio during the following
January. Accordingly, such dividends will be taxed to shareholders for the year
in which the record date falls.
Each Portfolio is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Portfolio with a correct
taxpayer identification number. Each Portfolio also is required to withhold 31%
of all dividends and capital gain distributions paid to such shareholders
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<PAGE>
who otherwise are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in a Portfolio's advertising and
promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
The time periods used in advertising will be updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions. Any
performance information used in advertising and sales literature will include
information based on this formula for the most recent one, five and ten year
periods, or for the life of the Portfolio, whichever is available.
Average annual total returns for the one year period ended March 31, 1996 and
from inception on May 10, 1994 through that date were as follows, respectively:
Small/Mid Cap Equity Portfolio - 38.37% and 30.41%; Core Equity Portfolio -
38.64% and 29.67%; Balanced Portfolio - 25.57% and 19.90%; Intermediate Fixed
Income Portfolio - 8.86% and 7.28%.
Yield
Annualized yield quotations used in a Portfolio's advertising and promotional
materials are calculated by dividing the Portfolio's interest income for a
specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-
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<PAGE>
annual compounding) of the net asset value per share at the end of the period.
Yield quotations are calculated according to the following formula:
6
YIELD = 2 [(a-b + 1) - 1]
---
cd
where a equals dividends and interest earned during the period; b equals
expenses accrued for the period, net of reimbursements; c equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and d equals the maximum offering price per share on the last
day of the period. Except as noted below, in determining net investment income
earned during the period ("a" in the above formula), a Portfolio calculates
interest earned on the debt obligations held by it during the period by (1)
computing the obligation's yield to maturity, based on the market value of the
obligation (including actual accrued interest) on the last business day of the
period or, if the obligation was purchased during the period, the purchase price
plus accrued interest; (2) dividing the yield to maturity by 360 and multiplying
the resulting quotient by the market value of the obligation (including actual
accrued interest) and; (c) totalling the interest earned on all debt obligations
and all dividends accrued on all equity securities during the period.
Yield for Intermediate Fixed Income Portfolio for the 30-day period ended March
31, 1996 was 4.79%
For purposes of these calculations, the maturity of an obligation with one or
more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
Other Performance Information
Performance data of a Portfolio quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Portfolio
will fluctuate, and an investor's redemption proceeds may be more or less than
the original investment amount. In advertising and promotional materials a
Portfolio may compare its performance with data published by Lipper Analytical
Services, Inc. ("Lipper"),
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<PAGE>
Morningstar, Inc. ("Morningstar") or CDA Investment Technologies, Inc.("CDA"). A
Portfolio also may refer in such materials to mutual fund performance rankings
and other data, such as comparative asset, expense and fee levels, published by
Lipper, CDA or Morningstar. Advertising and promotional materials also may refer
to discussions of a Portfolio and comparative mutual fund data and ratings
reported in independent periodicals including, but not limited to, The Wall
Street Journal, Money Magazine, Forbes, Business Week, Financial World and
Barron's.
The Investment Advisor in advertising and sales material may also refer to its
investment philosophy with respect to the equity portfolios or components of
portfolios as the "Growth at a Reasonable Price ("GARP")" investment philosophy.
Such references connote the advisor's structuring of the Portfolios to provide
an opportunity to invest in companies with superior earnings growth, and whose
equity securities are selling at attractive valuations. The result is expected
to be equity portfolios whose average earnings growth is normally greater than
the market averages and whose price-to-earnings ratio is often below the market
averages. In this regard, the Advisor believes the appropriate market average
reference points are the Russell MidCap (TM) Index for the Small/MidCap
Portfolio and the Standard & Poor's 500 Index for the Core Equity Portfolio and
equity portion of the Balanced Portfolio.
A primary benefit of the GARP strategy in the view of the Advisor is the ability
to generate competitive investment returns in many different market
environments. The Advisor believes that earnings growth is the primary factor
influencing capital appreciation of equity investments. At the same time, many
companies with good earnings growth prospects can be purchased at attractive
valuations. The Advisor believes that this disciplined analysis of both earnings
growth and valuations is one of the primary factors influencing the ability to
generate competitive investment returns in a variety of market conditions.
GENERAL INFORMATION
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest and to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial
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<PAGE>
interest in a Portfolio. Each share represents an interest in a Portfolio
proportionately equal to the interest of each other share. Upon the Trust's
liquidation, all shareholders would share pro rata in the net assets of the
Portfolio in question available for distribution to shareholders. If they deem
it advisable and in the best interest of shareholders, the Board of Trustees may
create additional series of shares which differ from each other only as to
dividends. The Board of Trustees has created four series of shares, and may
create additional series in the future, which have separate assets and
liabilities. Income and operating expenses not specifically attributable to a
particular Portfolio are allocated fairly among the Portfolios by the Trustees,
generally on the basis of the relative net assets of each Portfolio.
Rule 18f-2 under the 1940 Act provides that as to any investment company which
has two or more series outstanding and as to any matter required to be submitted
to shareholder vote, such matter is not deemed to have been effectively acted
upon unless approved by the holders of a "majority" (as defined in the Rule) of
the voting securities of each series affected by the matter. Such separate
voting requirements do not apply to the election of Trustees or the ratification
of the selection of accountants. The Rule contains special provisions for cases
in which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
The Trust's custodian, Firstar Trust Company, is responsible for holding the
Portfolios" assets, and also acts as the Trust's transfer and accounting
services agent. KMPG Peat Marwick LLP has been selected as the independent
auditors for the Trust. KMPG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain Securities and Exchange Commission filings.
FINANCIAL STATEMENTS
Incorporated by reference herein are portions of the Trust's Annual Report to
shareholders for the fiscal year ended March 31, 1996 under the headings:
"Independent Auditor's Report," "Schedule of
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<PAGE>
Investments." "Statement of Assets and Liabilities," "Statement of Operations,"
"Statement of Changes in Net Assets," and "Notes to Financial Statements." A
copy of the Trust's Annual Report can be obtained at no charge by calling the
toll free number on page 1 or writing the Trust on the front page of this
Statement of Additional Information.
APPENDIX
Description of Ratings
Moody's Investors Service, Inc.: Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate
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<PAGE>
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great period of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Standard & Poor's Corporation: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Commercial Paper Ratings
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having
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<PAGE>
the greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
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<PAGE>
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FORM N-1A
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements (for each Portfolio) incorporated by reference
included in Part B:
Schedule of Investments, March 31, 1996
Statements of Assets and Liabilities,
March 31, 1996
Statements of Operations, March 31, 1996
Statements of Changes In Assets,
March 31, 1996
Financial Highlights, March 31, 1996
Notes to Financial Statements
(b) Exhibits:
(1) Declaration of Trust*
(2) By-Laws*
(3) Voting Trust Agreement -- Not applicable
(4) Specimen Share Certificate**
(5) Management Agreement**
(6) Distribution Agreement**
(7) Benefit Plan -- Not applicable
(8) Form of Custodian Agreement**
(9a)Fund Accounting Servicing Agreement**
(9b)Transfer Agent Agreement**
(9c)Administration Agreement**
(9d)Services Agreement**
(10)Consent and Opinion of Counsel***
(11)Consent of Independent Auditors
(12)Financial Statements omitted - Not applicable
(13)Letter of Understanding relating to initial
capital***
(14)Individual Retirement Account Statement**
(15)Plan pursuant to Rule 12b-1**
(16)Schedule for Computation of Performance
Quotations
(27)Financial Data Schedule
1
<PAGE>
*Filed with the Registrant's initial Registration Statement, File No. 33-73792
on January 5, 1994.
**Filed with Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement, File No. 33-73792 on February 23, 1994.
***Filed with Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement, File No. 33-73792 on April 6, 1994
****Filed with Pre-Effective Amendment No. 3 to the Registrant's Registration
Statement, File No. 33-73792 on April 28, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant.
As of the date of this amendment to this Registration Statement, there
are no persons controlled or under common control with the Registrant.
Item 26. Number of Holders of Securities.
Number of Record Holders
------------------------
as of June 28, 1996
-------------------
Small/MidCap Portfolio 83
Core Equity Portfolio 103
Balanced Portfolio 56
Intermediate Fixed Income Portfolio 25
Item 27. Indemnification
Article VII, Section 2 of the Registrant's Declaration of Trust provides as
follows:
" Section 2. Indemnification and Limitation of Liability. The Trustees shall not
be responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, Manager or Principal Underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
and the Trust out of its assets shall indemnify and hold harmless each and every
Trustee from and against any and all claims and demands whatsoever arising out
of or related to each
2
<PAGE>
Trustee's performance of his duties as a Trustee of the Trust; provided that
nothing herein contained shall indemnify, hold harmless or protect any Trustee
from or against any liability to the Trust or any Shareholder to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The response to this item is incorporated by reference to its Form ADV
as amended (File No. 801-35638).
Item 29. Principal Underwriters.
3
<PAGE>
a. RNC Liquid Assets Fund, Inc.
PIC Investment Trust
Hotchkis and Wiley Funds
Professionally Managed Portfolios
Guinness Flight Investment Funds
Jurika & Voyles Fund Group
b. The officers of First Fund Distributors, Inc. are:
Robert H. Wadsworth President and Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Vice President and Secretary
Each officer's business address with the Distributor is 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018.
c. Not applicable
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which are kept by the Trust at 601 Union St., Ste. 2810, Seattle WA
98101.
Item 31. Management Services.
There are no management-related service contracts not discussed in
Parts A and B.
Item 32. Undertakings
Registrant undertakes that if requested to do so by the holders of at least
10% of the registrant's outstanding shares, it will call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this Amendment
meets all of the requirements for effectiveness pursuant to Rule 485(b) under
the Securities Act of 1933 and that it has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle in the State of Washington on the 29th day of July, 1996.
RAINIER INVESTMENT MANAGEMENT
MUTUAL FUNDS
By: /s/ J. Glenn Haber
---------------------
J. Glenn Haber
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ J. Glenn Haber
- ------------------------- President, July 29, 1996
J. Glenn Haber Treasurer
Chief Financial Officer
and Trustee
/s/ Patricia Louise Frost
- ------------------------- Trustee July 29, 1996
Patricia Louise Frost
*Gary L. Sundem Trustee July 29, 1996
- -------------------------
Gary L. Sundem
*James E. Diamond, Jr. Trustee July 29, 1996
- -------------------------
James E. Diamond, Jr.
/s/ John W. Ferris
- ------------------------- Trustee July 29, 1996
John W. Ferris
* By /s/ J. Glenn Haber
----------------------
J. Glenn Haber, Attorney-in-Fact
under powers of attorney as filed
with Post-Effective Amendment No. 1
to the Registration Statement
5
<PAGE>
As filed with the Securities
Exchange Commission on July 29, 1996
Registration No. 33-73792
File No. 811-8270
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM N-1A
---------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3 [ X }
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6 [ X ]
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
(Exact name of registrant as specified in charter)
601 Union Street, Suite 2801
Seattle, WA 98101
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 464-0400
Exhibits 11 and 16
1
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
11 Consent of Independent Auditors
16.1 Schedule for Computation of Performance Quotations
Small/Mid Cap Equity Portfolio
16.2 Schedule for Computation of Performance Quotations
Core Equity Portfolio
16.3 Schedule for Computation of Performance Quotations
Balanced Portfolio
16.4 Schedule for Computation of Performance Quotations
Intermediate Fixed Income Portfolio
2
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Rainier Investment Management Mutual Funds
We consent to the inclusion in Rainier Investment Management Mutual Funds'
Post-Effective Amendment No. 3 to the Registration Statement No. 33-73792 on
Form N-1A under the Securities Act of 1933 and Amendment No. 6 to the
Registration Statement No. 811-8270 filed on N-1A under the Investment Company
Act of 1940 of our report dated May 3, 1996 on the financial statements and
financial highlights of the Small/Mid Cap Equity Portfolio, Core Equity
Portfolio, Balanced Portfolio, and Intermediate Fixed Income Portfolio (the
series presently constituting Rainier Investment Management Mutual Funds) for
the periods indicated therein, which report has been incorporated by reference
in the Statement of Additional Information of Rainier Investment Management
Mutual Funds. We also consent to the reference to our firm under the heading
"Financial Highlights" in the Prospectus of the Rainier Investment Management
Mutual Funds and under the heading "General Information" in the Statement of
Additional Information.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
July 29, 1996
EXHIBIT 16.1
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
SMALL/MID CAP EQUITY PORTFOLIO
TOTAL RETURN FORMULA
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year periods (or fractional
portion thereof)
For the 1-year period ended March 31, 1996:
1
$1,000(1+T) = $1,383.71 or an annual compounded rate of 38.37%
For the period May 10, 1994 (inception) to March 31, 1996:
1.89
$1,000(1+T) = $1,651.90 or an average annual compounded rate of 30.41%
4
EXHIBIT 16.2
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
CORE EQUITY PORTFOLIO
TOTAL RETURN FORMULA
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year periods (or fractional
portion thereof)
For the 1-year period ended March 31, 1996:
1
$1,000(1+T) = $1,386.37 or an annual compounded rate of 38.64%
For the period May 10, 1994 (inception) to March 31, 1996:
1.89
$1,000(1+T) = $1,634.11 or an average annual compounded rate of 29.67%
5
EXHIBIT 16.3
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
BALANCED PORTFOLIO
TOTAL RETURN FORMULA
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year periods (or fractional
portion thereof)
For the 1-year period ended March 31, 1996:
1
$1,000(1+T) = $1,255.73 or an annual compounded rate of 25.57%
For the period May 10, 1994 (inception) to March 31, 1996:
1.89
$1,000(1+T) = $1,409.37 or an average annual compounded rate of 19.90%
6
EXHIBIT 16.4
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS OF THE
INTERMEDIATE FIXED INCOME PORTFOLIO
TOTAL RETURN FORMULA
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5- or 10-year periods (or fractional
portion thereof)
For the 1-year period ended March 31, 1996:
1
$1,000(1+T) = $1,088.64 or an annual compounded rate of 8.86%
For the period May 10, 1994 (inception) to March 31, 1996:
1.89
$1,000(1+T) = $1,142.15 or an average annual compounded rate of 7.28%
7
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