RAINIER
INVESTMENT
MANAGEMENT
MUTUAL FUNDS
Annual Report
audited
March 31, 1997
Small/Mid Cap Equity Portfolio
Core Equity Portfolio
Balanced Portfolio
Intermediate Fixed Income Portfolio
<PAGE>
Table of Contents
LETTER TO SHAREHOLDERS .................................................... 2
COMMENTS FROM
INVESTMENT ADVISOR ........................................................ 3
PORTFOLIO INVESTMENT RETURNS
Small/Mid Cap Equity Portfolio .................................... 4
Core Equity Portfolio ............................................. 5
Balanced Portfolio ................................................ 6
Intermediate Fixed Income Portfolio ............................... 7
SCHEDULES OF INVESTMENTS
Small/Mid Cap Equity Portfolio .................................... 8
Core Equity Portfolio ............................................. 11
Balanced Portfolio ................................................ 15
Intermediate Fixed Income Portfolio ............................... 20
STATEMENTS OF
ASSETS AND LIABILITIES .................................................... 22
STATEMENTS OF OPERATIONS .................................................. 23
STATEMENTS OF CHANGES
IN NET ASSETS ............................................................. 24
FINANCIAL HIGHLIGHTS ...................................................... 26
NOTES TO FINANCIAL STATEMENTS ............................................. 28
INDEPENDENT AUDITORS' REPORT .............................................. 30
DIRECTORY OF FUNDS'
SERVICE PROVIDERS ......................................................... 31
INDEX DESCRIPTIONS ........................................................ 31
RAINIER
INVESTMENT
MANAGEMENT
Mutual Funds
601 Union Street, Suite 2801
Seattle, Washington 98101
(800) 248-6314
This report and the financial statements contained herein are provided for the
general information of the shareholders of the Rainier Investment Management
Mutual Funds. This report is not authorized for distribution to prospective
investors in the Funds unless preceded or accompanied by an effective
prospectus. For more information on any Fund, including charges and expenses,
call (800) 248-6314 for a free prospectus. Read it carefully before you invest
or send money.
<PAGE>
Letter to Shareholders
Dear Shareholders,
As Chairman of Rainier Investment Management Mutual Funds and a fellow
shareholder in the Funds, I'd like once again to express my appreciation for
your valued investment in one or more of the four Portfolios covered in this
report. If you are a new shareholder, welcome! This Annual Report contains
audited financial statements for the year ending March 31, 1997. The audit of
the financial statements was performed by KPMG Peat Marwick LLP.
Upon review of this Annual Report, you will find Comments from the
Investment Advisor describing the general environment of the equity and
fixed-income capital markets. Also, you will see Investment Return reports
containing commentary and investment total returns for each of the four
Portfolios. Finally, this Annual Report contains financial statements detailing
the expenses of the Portfolios and the holdings as of March 31, 1997.
Of special importance to you is our progress in driving expenses lower.
Steady asset growth and diligent cost control have been the engines of this
change. For the first time, the expenses of the Small/Mid Cap and Core Equity
Portfolios have dropped below their original capped rates. (See the Financial
Highlights report for details.) Also, effective April 1, 1997 we have
dramatically reduced the total expenses that shareholders pay for the
Intermediate Fixed Income Portfolio from a cap of .95% of the Portfolio's
average annual net assets to .55%. The new expenses on the Intermediate Fixed
Income Portfolio are now well below those charged by the median high quality
fixed-income fund, and approach those of "institutional" funds.
As we near our third anniversary this May, I am pleased to report to the
shareholders that the Funds are operating to our complete satisfaction. The back
office is running smoothly. Including our national distribution partners, we now
have well over 10,000 shareholders, ranging from retirement plans to foundations
to individual investors. The national media continues to take notice of us, with
recognition in publications such as Money, Forbes, Fortune, The New York Times,
Smart Money and others.
Returns have been satisfactory in an increasingly fickle market environment.
New shareholders should know that all of the principals and most of the
employees of Rainier Investment Management are shareholders in the Funds. As
fellow shareholders, we experience firsthand the investment results of the
Funds.
We are always interested in your feedback. If you have any ideas that can
help us improve our service, please call us. Thank you again for your investment
in the Rainier Investment Management Mutual Funds. We look forward to the
continued challenge and opportunity of meeting your investment needs.
Sincerely,
/s/ J. Glenn Haber
J. Glenn Haber
Chairman
Rainier Investment Management Mutual Funds
2
<PAGE>
Comments from Investment Advisor
About the Advisor: The Investment Advisor to the Funds is Rainier Investment
Management, Inc.(R) (RIM) located in Seattle, Washington. RIM is one of
America's leading investment advisory firms, managing $3.4 billion of
discretionary assets for primarily institutional clients.
Equity Comments
The fiscal year ending March 31, 1997 was another outstanding year for
investors in the U.S. stock market. The Standard & Poor's 500 Index registered a
gain of nearly 20%, well above the long-term average annual return for equities.
Investor confidence was boosted by continued strength in corporate earnings and
a benign inflationary environment. It was not all smooth sailing for stock
investors, however. The market underwent a sharp downturn in the summer of 1996,
with highly valued newly public companies leading the decline. After a strong
recovery by stocks in the fall, selling pressure intensified again in February
of 1997 when rising interest rates precipitated a wave of profit-taking.
The increase in short-term interest rates by the Federal Reserve on March
25th, the first in more than two years, may mark a fundamental shift in what has
been an extraordinarily favorable environment for stocks. Market participants
are naturally concerned that additional "tightenings" will prevent further price
gains. Other worries include narrow market leadership and an unprecedented
period without a correction of more than ten percent.
Facing greater uncertainty, equity investors have gravitated to the
perceived safety of large-cap "blue-chip" stocks. We have remained skeptical of
this approach, and have deliberately avoided some of the highest-priced but most
popular stocks. Although this stance has made it difficult to keep up with the
S&P 500 Index, it has also helped us avoid some of the major disasters in the
growth stock arena. In our judgment, the basic environment for stocks remains
favorable. Our focus will be on finding the bargains that choppy markets create
rather than on predicting what the Federal Reserve will do.
James R. Margard, CFA
David A. Veterane, CFA
Peter M. Musser, CFA
Mark H. Dawson, CFA
Fixed Income Comments
With emphasis upon "persisting growth in demand," the Federal Reserve raised
the overnight funds rate 25 basis points on March 25, pushing bond prices lower
just as the fiscal year ending March 31, 1997 closed. Total returns in the
market settled into low single digits, with shorter portfolios the better
performers. Overall for the fiscal year, interest rates rose one-half to
three-quarters of a percent, with the move largely occurring during the first
months of 1997.
The Fed played some politics going into the Presidential election, citing
comfort with the level of economic growth. Bond yields then fell to annual lows
after reaching their highs in June. While liquidity was not a problem,
day-to-day volatility increased as the market attempted to interpret in depth
each new piece of economic data. Chairman Greenspan had earlier warned of the
possibility of a pre-emptive strike, so the March rate hike was not a great
surprise after a year of jaw-boning. Wage inflation had been strong since early
summer, industrial activity accelerated, construction spending grew, and
consumption was vigorous. Core inflationary indicators like the CPI stayed
benign, so there remained some hope that intervention would not be necessary.
Investors, however, preferred to remain on the sidelines and, with the exception
of the high yield sector, maintained higher quality defensive portfolios
relative to the indices.
Looking forward, there is the expectation of further rate hikes, but also
widespread caution that "It may be over before it is over." The bond market is
anticipatory, and if there is a sense of success generated from current Fed
policy that points toward a moderating economy, fixed-income investments may see
a brighter year to come.
Patricia L. Frost, CEO
Michael E. Raney, CFA
3
<PAGE>
Portfolio Investment Returns
Small/Mid Cap Equity Portfolio
Objective: The Small/Mid Cap Equity Portfolio seeks to provide investors
with maximum long-term capital appreciation. The Investment Advisor constructs a
diversified portfolio of small and medium capitalization common stocks.
Commentary: The Small/Mid Cap Equity Portfolio had an outstanding year
ending March 31, 1997, rising 14.6% in a market that can best be described as a
"minefield." Results were well ahead of the returns of the Russell Midcap(TM)
and Russell 2000(R) indices, and considerably above other funds with similar
objectives. Secondary stocks were clobbered in the summer of 1996, and staged a
lackluster recovery in the last half of the year, while large-cap stocks soared.
The first quarter of 1997 was especially hard on small-caps; the Russell 2000
fell more than 5% and many "aggressive growth" managers recorded double-digit
negative returns. Returns in the Small/Mid Cap Portfolio were aided by exposure
to financial service, retail, capital goods and energy shares. Particularly
strong results came from positions in Bank United, ReliaStar, The New York
Times, Symbol Technologies, Crane and Pennzoil. Secondary stocks have trailed
large-caps for more than two years. The low valuations accorded these stocks,
coupled with the promising earnings outlook for the specific companies in the
Portfolio, bolster our confidence as we look forward.
Total Returns for Periods Ending March 31, 1997
- -----------------------------------------------
Inception
3 Months 1 Year 2 Years to 3/31/97*
- --------------------------------------------------------------------------------
Small/Mid Cap Equity Portfolio (1.3)% 14.6% 25.9% 24.7%
- --------------------------------------------------------------------------------
Russell Midcap(TM) Index (0.8) 11.3 19.9 18.1
- --------------------------------------------------------------------------------
Russell 2000(R) Index (5.2) 5.1 16.5 14.0
- --------------------------------------------------------------------------------
Consumer Price Index 0.9 2.8 3.0 2.9
- --------------------------------------------------------------------------------
*Average annual return since 5/10/94
See page 31 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
4
<PAGE>
Core Equity Portfolio
Objective: The Core Equity Portfolio seeks to maximize long-term capital
appreciation. The Fund invests primarily in a diversified portfolio of common
stocks of U.S. companies.
Commentary: The Core Equity Portfolio performed well during the year ending
March 31, 1997, generating returns that were only modestly behind the Standard &
Poor's 500 Index, and considerably better than the average equity growth fund.
It was a treacherous year for growth stock managers, particularly those who held
secondary issues. Efforts to participate in the higher growth rates of smaller
companies went largely unrewarded, as large-cap stocks significantly
outperformed small- and mid-cap issues. The Core Portfolio benefitted especially
from its exposure to stocks such as Bristol-Myers Squibb, Philip Morris, Sara
Lee, Microsoft, Intel, Texaco, DuPont, Ameritech and GTE. With many of the
large-cap stocks sporting "rich valuations" at this time, our strategy is to
focus on companies that might be considered "second-tier blue-chips." These
companies are not as widely held as the "nifty-fifty," but have strong
fundamentals and more attractive prices. Examples include Costco, Marsh &
McLennan, General Mills, and Computer Associates. After a lengthy period in
which the biggest stocks have dominated market returns, we anticipate that
secondary issues will begin to deliver improved relative performance.
Total Returns for Periods Ending March 31, 1997
Inception
3 Months 1 Year 2 Years to 3/31/97*
- --------------------------------------------------------------------------------
Core Equity Portfolio 1.3% 17.9% 27.8% 25.5%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index 2.7 19.8 25.8 23.1
- --------------------------------------------------------------------------------
Russell 1000(R)Index 1.6 17.8 25.1 22.3
- --------------------------------------------------------------------------------
Consumer Price Index 0.9 2.8 3.0 2.9
- --------------------------------------------------------------------------------
*Average annual return since 5/10/94
See page 31 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
5
<PAGE>
Balanced Portfolio
Objective: The Balanced Portfolio seeks to provide investors with a balance
of long-term capital appreciation and current income. The Fund invests primarily
in a diversified portfolio of common stocks of U.S. companies, investment grade
intermediate-term debt securities and cash equivalent securities.
Commentary: The Balanced Portfolio was a steady performer in the year ending
March 31, 1997, generating a solid gain of 11.8%. Almost all of the gain came
from the stock component of the Portfolio, as a slight rise in interest rates
cut into the returns from the fixed-income segment. In a year in which "bigger
was better," gains in the Portfolio were paced by the outstanding returns of
stocks such as Intel, General Electric, Warner-Lambert, Travelers, and First
Union. The equity strategy in the Portfolio is the same as that of the Core
Portfolio; approximately half of the stock exposure is invested in large-cap
issues, and the remainder primarily in mid-cap shares. The bond component is
invested in high-quality, intermediate term corporate and U.S. Government
issues. At year-end the asset mix of the Portfolio was 60% stocks, 35% bonds and
5% cash. With an increased possibility for greater volatility in the equity
markets in 1997, the more stable return characteristics of the Balanced
Portfolio may offer a suitable alternative to pure stock funds for some
investors.
<TABLE>
<CAPTION>
Total Returns for Periods Ending March 31, 1997
Inception
3 Months 1 Year 2 Years to 3/31/97*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Portfolio 0.6% 11.8% 18.5% 17.1%
- -----------------------------------------------------------------------------------------------------
Balanced Index (50/40/10) 2.8 13.8 16.8 15.2
- -----------------------------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index 2.7 19.8 25.8 23.1
- -----------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Intermediate Bond Index (0.1) 4.8 7.2 7.1
- -----------------------------------------------------------------------------------------------------
Consumer Price Index 0.9 2.8 3.0 2.9
- -----------------------------------------------------------------------------------------------------
*Average annual return since 5/10/94
</TABLE>
See page 31 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The Advisor is
currently limiting fund expenses, which enhances return.
6
<PAGE>
Intermediate Fixed Income Portfolio
Objective: The Intermediate Fixed Income Portfolio seeks to provide
investors with current income. The Fund invests primarily in a diversified
portfolio of investment grade, intermediate-term debt securities providing
current income. The Portfolio does not use risky derivative instruments.
Commentary: For the year ending March 31, 1997, interest rates rose
approximately 65 basis points, with the greatest pressure within the longer
intermediate maturities. Total returns for most fixed-income strategies settled
into the low single digits, and portfolios with low durations were the best
performers. After more than a year of anticipation, the Federal Reserve raised
the overnight rate 25 basis points on March 25, verifying investor concerns that
the Central Bank would dampen a strong economy in order to contain accelerating
inflation. During the fiscal year, corporate bond-credit quality strengthened
overall, and the Portfolio benefitted both from issuer upgrades and from the
continued tight spreads between corporate and treasury yields. A "modified
barbell" structure kept a portion of the Portfolio in shorter bonds and helped
moderate principal volatility. Looking forward, we believe that the defensive
characteristics of the Portfolio bode well for the near term scenario of
possibly rising interest rates, while the relative liquidity of the shorter
individual issues will enable us to extend into longer maturity bonds at higher
coupon levels.
<TABLE>
<CAPTION>
Total Returns for Periods Ending March 31, 1997
Inception
3 Months 1 Year 2 Years to 3/31/97*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate Fixed Income Portfolio (0.3)% 3.4% 6.1% 5.9%
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Intermediate Bond Index (0.1) 4.8 7.2 7.1
- -------------------------------------------------------------------------------------------------------
91-Day Treasury Bill Index 1.3 5.2 5.4 5.3
- -------------------------------------------------------------------------------------------------------
Consumer Price Index 0.9 2.8 3.0 2.9
- -------------------------------------------------------------------------------------------------------
*Average annual return since 5/10/94
</TABLE>
See page 31 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The Advisor is
currently limiting fund expenses, which enhances return.
7
<PAGE>
Schedules of Investments
Small/Mid Cap Equity Portfolio
March 31, 1997
Variable rate Demand Notes*
(3.38%) Par Value Value
- --------------------------------------------------------------------------------
American Family
5.2865% 05-16-1997 $1,602,026 $1,602,026
Johnson Controls Inc.
5.3200% 04-08-1997 2,337,151 2,337,151
Wisconsin Electric
5.3265% 11-30-1997 672,441 672,441
----------
TOTAL DEMAND NOTES
(cost $4,611,618) $4,611,618
----------
Common Stocks
(98.25%) Shares Value
- --------------------------------------------------------------------------------
Autos and Transportation (1.92%)
Air Transportation (1.92%)
Alaska Air Group Inc.** 58,550 $1,500,344
Offshore Logistics Inc.** 43,300 692,800
Southwest Airlines Co. 19,125 423,141
----------
Total Air Transportation 2,616,285
----------
Consumer Discretionary (12.79%)
Commercial Information Service (0.43%)
Cellular Technical Services Co.** 64,150 581,359
----------
Hotel/Motel (0.07%)
Promus Hotel Corp.** 2,750 91,438
----------
Household Furnishings (1.18%)
Newell Co. 47,875 1,603,812
----------
Jewelry Watches and Gemstones (0.29%)
Tiffany & Co. 10,675 400,301
----------
Publishing/Newspapers (1.56%)
Knight-Ridder Inc. 26,075 1,039,741
The New York Times Co. 24,650 1,087,681
----------
Total Publishing/Newspapers 2,127,422
Restaurants (0.26%)
Wendy's International Inc. 17,450 359,906
----------
Retail (7.29%)
Costco Companies Inc. 39,300 $1,085,662
General Nutrition Companies** 102,750 2,080,687
Lowe's Companies Inc. 20,600 769,925
Staples Inc.** 62,200 1,251,775
The Mens Wearhouse** 8,000 220,000
The Neiman Marcus Group** 23,500 605,125
The Pep Boys-Manny, Mo & Jack 36,650 1,099,500
The TJX Companies Inc. 33,600 1,436,400
Zale Corp.** 76,020 1,396,868
----------
Total Retail 9,945,942
----------
Services/Commercial (0.70%)
Sabre Group Holdings Inc.** 37,600 949,400
----------
Toys (1.01%)
Cannondale Corp.** 74,475 1,377,787
----------
Total Consumer
Discretionary 17,437,367
----------
Consumer Staples (4.52%)
Foods (4.52%)
Dean Foods Co. 41,700 1,443,862
Dole Food Co. Inc. 55,550 2,097,012
Flowers Industries Inc. 24,300 555,862
Iowa Beef Processing Inc. 43,050 1,060,106
McCormick and Co. Inc. 40,850 1,000,825
----------
Total Foods 6,157,667
----------
Financial Services (17.46%)
Banks/Outside New York City (7.34%)
Bank of Boston Corp. 17,900 1,199,300
City National Corp. 63,050 1,387,100
Commerce Bancorp. Inc. 31,998 879,945
Crestar Financial Corp. 46,150 1,597,944
First American Corp. 26,075 1,659,022
Mercantile Bancorp. Inc. 23,850 1,264,050
Peoples Heritage Financial Group 45,000 1,383,750
UnionBanCal Corp. 11,425 631,231
----------
Total Banks/Outside New York City 10,002,342
----------
8
<PAGE>
Finance Companies (1.16%)
Green Tree Financial Corp. 46,950 $1,584,562
----------
Financial/Miscellaneous (0.62%)
Sotheby's Holdings Inc. 52,600 841,600
----------
Finance/Small Loan (0.53%)
Student Loan Marketing Ass'n 7,600 729,242
----------
Insurance/Life (1.85%)
AmerUs Life Holdings Inc. 39,000 867,750
ReliaStar Financial Corp. 27,990 1,654,909
----------
Total Insurance/Life 2,522,659
----------
Insurance/Multi-Line (1.41%)
ITT Hartford Group Inc. 19,125 1,379,391
The Guarantee Life Companies Inc. 28,725 549,366
----------
Total Insurance/Multi-Line 1,928,757
----------
Insurance/Property and Casualty (1.51%)
Everest Reinsurance Holdings 35,400 1,039,875
W.R. Berkley Corp. 19,900 1,014,900
----------
Total Insurance/Property and Casualty 2,054,775
----------
Investment Management Company (0.97%)
Donaldson, Lufkin & Jenrette
Securities Corp. 35,950 1,316,669
----------
Savings and Loan (2.07%)
Bank United Corp. 60,000 1,770,000
Sovereign Bancorp. Inc. 87,840 1,054,080
----------
Total Savings and Loan 2,824,080
----------
Total Financial Services 23,804,686
----------
Health Care (9.53%)
Biotechnology Research and Production (0.52%)
North American Biologicals Inc.** 103,950 708,159
----------
Drugs and Pharmaceuticals (4.40%)
Genzyme Corp.** 44,850 1,009,125
Pathogenesis Corp.** 58,600 1,465,000
RP Scherer Corp.** 35,300 1,831,188
Watson Pharmaceuticals Inc.** 47,425 1,695,444
----------
Total Drugs and Pharmaceuticals 6,000,757
----------
Electronics/Medical Systems (1.25%)
DENTSPLY International Inc. 34,200 1,710,000
----------
Health Care Facilities (1.49%)
Manor Care Inc. 83,350 2,031,656
----------
Health Care Services (0.64%)
Olsten Corp. 53,750 866,719
----------
Medical and Dental Instruments
and Supplies (1.12%)
Sola International Inc.** 28,250 $653,281
Stryker Corp.** 35,000 870,625
----------
Total Medical and Dental
Instruments and Supplies 1,523,906
----------
Miscellaneous Health Care (0.11%)
Mallinckrodt Group Inc. 3,750 154,219
----------
Total Health Care 12,995,416
----------
Integrated Oils (3.27%)
Oils/Integrated Domestic (3.27%)
Amerada Hess Corp. 22,050 1,168,650
Coastal Corp. 14,550 698,400
Kerr-McGee Corp. 33,150 2,051,156
Pennzoil Co. 10,500 543,375
----------
Total Oil/Integrated Domestic 4,461,581
----------
Materials and Processing (9.98%)
Agriculture Fishing and Ranching (0.11%)
Pioneer Hi-Bred International Inc. 2,450 154,044
----------
Aluminum (0.90%)
Reynolds Metals Co. 19,800 1,227,600
----------
Building Materials (0.57%)
Armstrong World Industries Inc. 12,000 777,000
----------
Chemicals (1.25%)
Sigma-Aldrich Corp. 21,050 649,919
The BF Goodrich Co. 28,950 1,060,294
----------
Total Chemicals 1,710,213
----------
Fertilizers (1.00%)
Mississippi Chemical Corp. 57,150 1,364,456
----------
Metals and Minerals Miscellaneous (1.40%)
Titanium Metals Corp.** 75,200 1,908,200
----------
Metal Fabricating (1.28%)
Precision Castparts Corp. 34,275 1,748,025
----------
Paints and Coatings (1.84%)
H.B. Fuller Co. 39,000 1,901,250
RPM Inc. 36,600 608,475
----------
Total Paints and Coatings 2,509,725
----------
Paper (0.93%)
Willamette Industries Inc. 20,250 1,265,625
----------
9
<PAGE>
Schedule of Investments - Small/Mid Cap Equity Portfolio, continued
Textile Products (0.69%)
Mohawk Industries Inc.** 45,000 $939,375
----------
Total Materials
and Processing 13,604,263
----------
Other (3.47%)
Multi-Sector Companies (3.47%)
Ceridian Corp.** 38,050 1,365,044
Crane Co. 40,450 1,269,119
Eastern Enterprises 34,075 1,052,918
Lancaster Colony Corp. 22,825 1,049,950
----------
Total Multi-Sector Companies 4,737,031
----------
Other Energy (5.41%)
Machinery/Oil Well Equipment and Services (1.90%)
Weatherford International Inc.** 34,600 1,016,375
Western Atlas Inc.** 26,075 1,580,797
----------
Total Machinery/Oil Well
Equipment and Services 2,597,172
----------
Offshore Drilling (1.06%)
Reading & Bates Corp.** 63,750 1,442,344
----------
Oil/Crude Producers (2.45%)
Costilla Energy Inc.** 45,400 658,300
Louisiana Land & Exploration Co. 14,650 694,044
Nuevo Energy Co.** 29,550 1,133,981
Santa Fe Energy Resources Inc.** 12,100 167,888
Union Texas Petroleum Holdings 37,250 684,469
----------
Total Oil/Crude Producers 3,338,682
----------
Total Other Energy 7,378,198
----------
Producer Durables (9.54%)
Diversified Production (2.62%)
EG&G Inc. 58,125 1,213,774
General Signal Corp. 32,000 1,252,000
Harnischfeger Industries Inc. 23,775 1,099,044
----------
Total Diversified Production 3,564,818
----------
Homebuilding (0.49%)
Kaufman and Broad Home Corp. 50,550 669,789
----------
Identification Control and Filter Devices (1.84%)
Duriron Co. Inc. 40,000 880,000
Honeywell Inc. 8,500 576,937
Hubbell Inc. 25,000 1,056,250
----------
Total Identification Control
and Filter Devices 2,513,187
----------
Machine Tools (0.74%)
Snap-on Inc. 25,925 $1,004,594
----------
Machinery/Agricultural (0.58%)
AGCO Corp. 28,400 784,550
----------
Machinery/Industrial and Specialty (1.44%)
Applied Power Inc. 27,675 1,162,350
Ingersoll-Rand Co. 18,400 802,700
----------
Total Machinery/
Industrial and Specialty 1,965,050
----------
Manufactured Housing (0.42%)
Champion Enterprises Inc.** 38,700 575,662
----------
Power Transmission Equipment (1.07%)
Mark IV Industries Inc. 62,150 1,460,525
----------
Production Technology Equipment (0.34%)
Electro Scientific Industries Inc.** 18,400 464,600
----------
Total Producer Durables 13,002,775
----------
Technology (10.03%)
Communications Technology (1.18%)
U.S. Robotics Corp.** 29,150 1,610,285
----------
Computer Services Software and Systems (3.94%)
Adobe Systems Inc. 56,000 2,247,000
Cadence Design Systems Inc.** 64,350 2,212,031
Mentor Graphics Corp.** 108,650 909,944
----------
Total Computer Services
Software and Systems 5,368,975
----------
Computer Technology (2.93%)
Cabletron Systems Inc.** 47,450 1,383,443
Computer Sciences Corp.** 15,000 926,250
FileNet Corp.** 24,400 393,450
Tandem Computers Inc.** 109,075 1,295,266
----------
Total Computer Technology 3,998,409
----------
Electronics/Semi-Conductors/Components (1.06%)
Analog Devices Inc.** 18,415 402,740
Atmel Corp.** 43,525 1,041,880
----------
Total Electronics/
Semi-Conductors/Components 1,444,620
----------
Electronics/Technology (0.92%)
Symbol Technologies Inc. 25,950 1,252,088
----------
Total Technology 13,674,377
----------
10
<PAGE>
Utilities and REITs (10.33%)
Real Estate Investment Trusts (2.53%)
American Health Properties Inc. 26,950 $663,644
Innkeepers USA Trust 50,650 740,756
LTC Properties Inc. 24,000 399,000
Nationwide Health Properties Inc. 56,200 1,201,275
Omega Healthcare Investors Inc. 14,300 446,875
----------
Total Real Estate Investment Trusts 3,451,550
----------
Utilities/Electrical (2.81%)
New York State Electric & Gas 40,675 879,597
Pinnacle West Capital Corp. 57,975 1,746,497
TECO Energy Inc. 49,825 1,195,800
----------
Total Utilities/Electrical 3,821,894
----------
Utilities/Gas Distributors (1.83%)
Columbia Gas System Inc. 23,600 1,365,850
Consolidated Natural Gas Co. 22,375 1,127,141
----------
Total Utilities/Gas Distributors 2,492,991
----------
Utilities/Miscellaneous (0.79%)
Citizens Utilities Co.** 91,157 1,082,487
----------
Utilities/Telecommunications (2.37%)
Century Telephone Enterprises Inc. 51,125 $1,508,187
Frontier Corp. 50,725 906,709
Tele Danmark ADS 31,225 815,751
----------
Total Utilities/Telecommunications 3,230,647
----------
Total Utilities and REITs 14,079,569
----------
TOTAL COMMON STOCKS
(cost $133,740,931) $133,949,215
------------
TOTAL INVESTMENTS IN
SECURITIES (101.63%)
(cost $138,352,549)*** $138,560,833
------------
LIABILITIES LESS
OTHER ASSETS (-1.63%) ($2,219,985)
------------
Net Assets (100.00%) $136,340,848
============
*The variable-rate securities are subject to a demand feature which reduces
the remaining maturity.
**Non-Income Producing Security.
***Aggregate cost for federal income tax purposes is $138,459,961.
Core Equity Portfolio
March 31, 1997
Variable Rate Demand Notes*
(3.63%) Par Value Value
- --------------------------------------------------------------------------------
American Family
5.2865% 05-16-1997 $1,643,721 $1,643,721
American Express Credit Corp.
6.0000% 04-01-1997 1,900,000 1,900,000
General Mills
5.2750% 08-19-1997 60,000 60,000
Johnson Controls Inc.
5.3200% 04-08-1997 1,300,060 1,300,060
Pitney Bowes
5.2854% 08-04-1997 43,000 43,000
Sara Lee Corp.
5.2652% 05-02-1997 1,270,000 1,270,000
Warner-Lambert Co.
5.2570% 01-26-1998 $2,656,000 $2,656,000
Wisconsin Electric
5.3265% 11-30-1997 594,000 594,000
----------
TOTAL DEMAND NOTES
(cost $9,466,781) $9,466,781
----------
COMMON STOCKS
(97.80%) Shares Value
- --------------------------------------------------------------------------------
Basic Industry (5.12%)
Chemical/Fertilizer (0.49%)
Mississippi Chemical Corp. 53,250 $1,271,344
----------
Chemical/Major (0.96%)
E.I. duPont de Nemours and Co. 23,550 2,496,300
----------
11
<PAGE>
Schedule of Investments-Core Equity Portfolio, continued
Chemical/Specialty (1.68%)
H.B. Fuller Co. 15,000 $731,250
RPM Inc. 21,000 349,125
Sigma-Aldrich Corp. 29,900 923,163
The B.F. Goodrich Co. 65,000 2,380,625
----------
Total Chemical/Specialty 4,384,163
----------
Metals (1.59%)
Aluminum Co. of America 31,150 2,118,200
Titanium Metals Corp. 80,000 2,030,000
----------
Total Metals 4,148,200
----------
Paper and Forest Products (0.40%)
Willamette Industries Inc. 16,500 1,038,266
----------
Total Basic Industry 13,338,273
----------
Capital Goods (5.61%)
Aerospace/Industrial (1.88%)
Crane Co. 35,700 1,120,087
Ingersoll-Rand Co. 30,800 1,343,650
Precision Castparts Corp. 47,000 2,397,000
----------
Total Aerospace/Industrial 4,860,737
----------
Agriculture/Construction Equipment (0.41%)
AGCO Corp. 22,400 618,800
Deere & Co. 10,625 462,187
----------
Total Agriculture/
Construction Equipment 1,080,987
----------
Construction Mining Equipment (0.52%)
Harnischfeger Industries Inc. 29,475 1,360,848
----------
Electric Equipment (2.35%)
General Electric Co. 44,050 4,371,962
General Signal Corp. 45,000 1,760,625
----------
Total Electrical Equipment 6,132,587
----------
Miscellaneous Capital Goods (0.45%)
Duriron Co. Inc. 45,000 986,257
Hubbell Inc. 4,675 197,519
----------
Total Miscellaneous Capital Goods 1,183,776
----------
Total Capital Goods 14,618,935
----------
Consumer Cyclical (8.06%)
Automotive and Related (0.84%)
Mark IV Industries Inc. 47,800 1,123,300
Snap-on Inc. 27,525 1,066,594
----------
Total Automotive and Related 2,189,894
----------
Building Materials (1.15%)
Armstrong World Industries Inc. 45,950 $2,975,262
----------
Manufacturing Housing (0.16%)
Champion Enterprises Inc.** 28,000 416,500
----------
Miscellaneous Consumer Cyclical (0.37%)
Cannondale Corp.** 52,000 962,000
----------
Retail (5.54%)
Costco Companies Inc.** 78,150 2,158,894
Federated Department Stores Inc.** 46,900 1,541,837
General Nutrition Companies Inc. 109,350 2,214,338
Lowe's Companies Inc. 31,475 1,176,378
Sears Roebuck and Co. 21,550 1,082,888
Sotheby's Holdings Inc. 81,050 1,296,800
Staples Inc.** 85,950 1,729,744
The Neiman Marcus Group** 12,050 310,288
The Pep Boys-Manny, Mo & Jack 41,750 1,252,500
The TJX Companies Inc. 10,300 440,325
Zale Corp.** 67,825 1,246,284
----------
Total Retail 14,450,276
----------
Total Consumer Cyclical 20,993,932
----------
Consumer Services (2.77%)
Healthcare Management (1.08%)
Manor Care Inc. 74,800 1,823,250
Olsten Corp. 61,275 988,059
----------
Total Healthcare Management 2,811,309
----------
Publishing/Newspaper (1.69%)
Knight-Ridder Inc. 53,675 2,140,291
The New York Times Co. 51,600 2,276,850
----------
Total Publishing/Newspaper 4,417,141
----------
Total Consumer Services 7,228,450
----------
Consumer Staples (20.67%)
Biotechnology (1.30%)
Genzyme Corp.** 70,300 1,581,750
North American Biologicals Inc.** 114,925 782,927
Pathogenesis 41,000 1,025,000
----------
Total Biotechnology 3,389,677
----------
Drugs (7.05%)
American Home Products Corp. 19,725 1,183,500
Bristol-Myers Squibb Co. 86,500 5,103,500
RP Scherer Corp.** 37,300 1,934,938
12
<PAGE>
SmithKline Beecham PLC 106,600 $7,462,000
Warner-Lambert Co. 18,925 1,633,455
Watson Pharmaceuticals Inc.** 29,300 1,047,475
----------
Total Drugs 18,364,868
----------
Food Merchandising (0.53%)
Albertson's Inc. 40,950 1,392,300
----------
Foods (7.28%)
ConAgra Inc. 73,625 3,994,156
Dean Foods Co. 42,050 1,455,981
Dole Food Co. Inc. 78,125 2,949,219
General Mills Inc. 40,700 2,528,488
H.J. Heinz Co. 63,300 2,500,350
Iowa Beef Processing Inc. 43,925 1,081,653
McCormick and Co. Inc.** 25,000 612,500
Sara Lee Corp. 95,200 3,855,600
----------
Total Foods 18,977,947
----------
Hospital Supplies (0.99%)
DENTSPLY International Inc. 41,900 2,095,000
Stryker Corp.** 20,000 497,500
----------
Total Hospital Supplies 2,592,500
----------
Household Products (1.15%)
Procter & Gamble Co. 7,750 891,250
Newell Co. 62,850 2,105,475
----------
Total Household Products 2,996,725
----------
Miscellaneous Consumer Staples (0.69%)
Lancaster Colony Corp. 27,800 1,278,800
Sola International Inc.** 22,000 508,750
----------
Total Miscellaneous Consumer Staples 1,787,550
----------
Tobacco (1.68%)
Philip Morris Co. Inc. 38,400 4,382,400
----------
Total Consumer Staples 53,883,967
----------
Credit Cyclical (0.32%)
Homebuilding (0.32%)
Kaufman and Broad Home Corp. 62,375 826,469
----------
Energy (9.96%)
Miscellaneous Energy (0.27%)
Offshore Logistics Inc.** 43,550 696,800
----------
Natural Gas Diversified (0.43%)
Coastal Corp. 23,400 1,123,200
----------
Oil/Gas Production (1.16%)
Costilla Energy Inc.** 21,700 $314,650
Louisiana Land & Exploration Co. 27,950 1,324,131
Nuevo Energy Co.** 36,100 1,385,338
----------
Total Oil/Gas Production 3,024,119
----------
Oil/Integrated Domestic (2.82%)
Amerada Hess Corp. 21,350 1,130,414
Kerr-McGee Corp. 62,775 3,884,203
Pennzoil Co. 20,200 1,045,350
Union Texas Petroleum Holdings 70,775 1,300,491
----------
Total Oil/Integrated Domestic 7,360,458
----------
Oil/Integrated International (2.88%)
Mobil Corp. 21,525 2,811,703
Texaco Inc. 42,850 4,692,075
----------
Total Oil/Integrated International 7,503,778
----------
Oil Service (2.40%)
Reading & Bates Corp.** 75,000 1,696,875
Weatherford International Inc.** 48,025 1,410,734
Western Atlas Inc.** 52,025 3,154,016
----------
Total Oil Service 6,261,625
----------
Total Energy 25,969,980
----------
Financial (15.88%)
Banks (5.83%)
Bank of Boston Corp. 34,000 2,278,000
City National Corp. 30,000 660,000
Commerce Bancorp Inc. 35,050 963,875
Crestar Financial Corp. 59,175 2,048,934
Mercantile Bancorp Inc. 19,000 1,007,000
PNC Bank Corp. 68,050 2,722,000
Sovereign Bancorp Inc. 97,940 1,175,280
The Chase Manhattan Corp. 35,825 3,354,116
UnionBanCal Corp. 17,800 983,450
----------
Total Banks 15,192,655
----------
Finance Companies (1.36%)
Associates First Capital Corp. 31,325 1,347,194
Green Tree Financial Corp. 65,100 2,197,125
----------
Total Finance Companies 3,544,319
----------
Financial Services (1.94%)
Donaldson, Lufkin & Jenrette
Securities Corp. 34,900 1,278,212
Marsh & McLennan Co. Inc. 33,400 3,782,550
----------
Total Financial Services 5,060,762
----------
13
<PAGE>
Schedule of Investments-Core Equity Portfolio, continued
Insurance (5.77%)
AmerUs Life Holdings Inc. 9,950 $218,580
CIGNA Corp. 30,025 4,387,403
Everest Reinsurance Holdings 40,000 1,175,000
ITT Hartford Group Inc. 30,025 2,165,553
Loews Corp. 41,150 3,657,206
ReliaStar Financial Corp. 39,150 2,314,744
W.R. Berkley Corp. 22,700 1,157,700
----------
Total Insurance 15,076,186
----------
Miscellaneous Financial (0.49%)
Student Loan Marketing Ass'n 13,200 1,266,578
----------
Savings and Loan (0.48%)
Bank United Corp. 42,800 1,262,381
----------
Total Financial 41,402,881
----------
Technology (15.86%)
Aerospace (1.49%)
The Boeing Co. 39,400 3,885,825
----------
Computer Software (3.94%)
Adobe Systems Inc. 53,025 2,127,628
Cadence Design Systems Inc.** 83,725 2,878,047
Computer Associates International 45,700 1,776,587
FileNet Corp.** 15,000 241,875
Mentor Graphics Corp.** 114,375 957,891
Microsoft Corp.** 25,100 2,301,356
----------
Total Computer Software 10,283,384
----------
Computer Services (1.87%)
Ceridian Corp.** 59,900 2,148,912
Computer Sciences Corp.** 14,150 875,994
Sabre Group Holdings Inc.** 73,325 1,851,456
----------
Total Computer Services 4,876,362
----------
Computer Systems (2.93%)
Hewlett-Packard Co. 34,900 1,858,425
International Business Machines 27,400 3,764,075
Sun Microsystems Inc.** 36,075 1,043,700
Tandem Computers Inc.** 81,700 970,188
----------
Total Computer Systems 7,636,388
----------
Electronic Systems (0.88%)
EG&G Inc. 36,700 766,112
Honeywell Inc. 2,375 161,203
Symbol Technologies Inc. 28,050 1,353,413
----------
Total Electronic Systems 2,280,728
----------
Networking Equipment (1.65%)
Cabletron Systems Inc.** 58,260 $1,692,484
3Com Corp.** 52,000 1,703,000
U.S. Robotics Corp.** 16,700 911,777
----------
Total Networking Equipment 4,307,261
----------
Photography (0.56%)
Eastman Kodak Co. 19,200 1,456,800
----------
Semi-Conductors and Related (2.38%)
Analog Devices Inc.** 24,802 552,138
Atmel Corp.** 26,325 630,155
Intel Corp. 36,025 5,011,978
----------
Total Semi-Conductors and Related 6,194,271
----------
Wireless Communications (0.16%)
Cellular Technical Services Co.** 45,000 407,812
----------
Total Technology 41,328,831
----------
Transportation (1.15%)
Airlines (0.77%)
Alaska Air Group Inc.** 68,325 1,750,828
Southwest Airlines Co. 11,425 252,778
----------
Total Airlines 2,003,606
----------
Railroad (0.38%)
Burlington Northern Santa Fe** 13,350 987,900
----------
Total Transportation 2,991,506
----------
Utilities and REITs (12.40%)
Communications (7.36%)
Ameritech Corp. 68,600 4,218,900
Century Telephone Enterprises Inc. 55,625 1,640,937
Citizens Utilities Co.** 89,582 1,063,786
Frontier Corp. 46,200 825,825
GTE Corp. 145,275 6,761,732
SBC Communications Inc. 85,875 4,519,376
Tele Danmark ADS 5,400 141,075
----------
Total Communications 19,171,631
----------
Electric (2.33%)
Duke Power Co. 29,200 1,288,450
New York State Electric & Gas 57,475 1,242,897
Pinnacle West Capital Corp. 68,075 2,050,759
TECO Energy Inc. 61,850 1,484,400
----------
Total Electric 6,066,506
----------
14
<PAGE>
Natural Gas (1.86%)
Columbia Gas Systems Inc. 44,025 $2,547,947
Consolidated Natural Gas Co. 36,900 1,858,837
Eastern Enterprises 14,375 445,106
----------
Total Natural Gas 4,851,890
----------
Real Estate Investment Trusts (0.85%)
American Health Properties Inc. 12,325 304,423
Innkeepers USA Trust 63,900 934,538
LTC Properties Inc. 11,100 184,538
Nationwide Health Properties Inc. 24,500 523,688
Omega Health Investors Inc. 8,700 271,875
----------
Total Real Estate Investment Trusts 2,219,062
----------
Total Utilities and REITs 32,309,089
----------
TOTAL COMMON STOCKS
(cost $251,382,543) $254,892,313
------------
TOTAL INVESTMENTS
IN SECURITIES (101.43%)
(cost $260,849,324)*** $264,359,094
------------
LIABILITIES LESS
OTHER ASSETS (-1.43%) ($3,729,986)
------------
Net Assets (100.00%) $260,629,108
============
*The variable-rate securities are subject to a demand feature which reduces
the remaining maturity.
**Non-Income Producing Security.
***Aggregate cost for federal income tax purposes is $260,971,966.
Balanced Portfolio
March 31, 1997
VARIABLE RATE DEMAND NOTES*
(3.51%) Par Value Value
- --------------------------------------------------------------------------------
American Family
5.2865% 05-16-1997 $132,108 $132,108
Johnson Controls Inc.
5.3200% 04-08-1997 948,287 948,287
Wisconsin Electric
5.3265% 11-30-1997 345,028 345,028
----------
TOTAL DEMAND NOTES
(cost $1,425,423) $1,425,423
----------
LONG-TERM DEBT SECURITIES
(35.06%) Par Value Value
- --------------------------------------------------------------------------------
U.S. Treasury Obligations (17.18%)
U.S. Treasury Notes
5.2500% 07-31-1998 $100,000 $98,813
7.5000% 10-31-1999 400,000 408,750
7.8750% 11-15-1999 200,000 206,250
7.1250% 02-29-2000 $400,000 $405,375
6.7500% 04-30-2000 1,000,000 1,003,438
5.7500% 10-31-2000 700,000 679,657
7.7500% 02-15-2001 970,000 1,004,254
7.5000% 11-15-2001 400,000 411,500
6.3750% 08-15-2002 475,000 466,391
6.2500% 02-15-2003 425,000 413,446
5.7500% 08-15-2003 700,000 660,626
7.2500% 08-15-2004 1,200,000 1,223,626
----------
Total U.S. Treasury
Obligations 6,982,126
----------
Government--Regional (0.37%)
Ontario Global Bond
7.3750% 01-27-2003 150,000 152,249
----------
Regional Government--
Agency (0.12%)
Hydro Quebec
7.3750% 02-01-2003 50,000 50,333
----------
15
<PAGE>
Schedule of Investments-Balanced Portfolio, continued
Corporate Bonds (17.37%)
Industrials (2.28%)
Ford Motor Co.
7.5000% 11-15-1999 $25,000 $25,344
McKesson Corp.
8.6250% 02-01-1998 50,000 50,929
Sears Roebuck Acceptance Corp.
Medium Term Note
7.1100% 06-19-2001 650,000 651,475
SmithKline Beecham PLC Corp.
Medium Term Note
6.6250% 10-01-2005 50,000 47,835
Texaco Capital Medium Term Note
7.2500% 08-01-2002 150,000 150,000
----------
Total Industrials 925,583
----------
Finance Companies (15.09%)
Allstate Corp.
5.8750% 06-15-1998 150,000 149,011
American General Finance
6.8750% 01-15-2000 50,000 49,976
Associates Corp. of North America
Medium Term Notes
8.0000% 10-27-1999 50,000 51,313
6.3750% 06-01-2000 75,000 73,772
6.8400% 07-03-2001 700,000 692,774
Associates Corp. of North America
6.0000% 06-15-2000 25,000 24,311
7.5000% 04-15-2002 100,000 101,572
Beneficial Corp. Medium Term Note
8.0500% 04-02-1999 200,000 204,996
Commercial TRV
6.8750% 05-01-2002 200,000 197,111
6.5000% 06-01-2005 500,000 472,448
Dean Witter Discovry and Co.
6.2500% 03-15-2000 30,000 29,522
6.7500% 08-15-2000 200,000 198,980
Discover Credit
7.9700% 05-07-1997 100,000 100,224
Ford Motor Credit Co.
6.3750% 04-15-2000 190,000 186,952
Ford Motor Credit Medium Term Note
5.9000% 06-09-1998 75,000 74,571
General Electric Capital
6.6600% 05-01-2018 75,000 74,625
GMAC Medium Term Notes
5.5000% 12-15-2001 500,000 464,465
6.7500% 07-10-1997 125,000 125,362
7.5000% 11-04-1997 50,000 50,449
Household Finance Co.
Medium Term Note
7.0000% 05-15-2000 $200,000 $200,159
International Lease Finance
8.1250% 01-15-1998 150,000 152,199
6.2500% 10-15-2000 500,000 488,259
Merrill Lynch
6.3750% 03-30-1999 50,000 49,638
7.3750% 08-17-2002 30,000 30,298
7.0500% 04-15-2003 55,000 53,603
Merrill Lynch Medium Term Note
7.0500% 06-04-2001 350,000 349,167
Morgan Stanley Group
5.6500% 06-15-1997 35,000 34,997
9.2500% 03-01-1998 125,000 128,211
5.7500% 02-15-2001 500,000 477,998
6.1250% 10-01-2003 215,000 202,082
Travelers PPTY
6.7500% 04-15-2001 500,000 493,317
USLIFE Corp.
6.7500% 01-15-1998 150,000 150,546
----------
Total Finance Companies 6,132,908
----------
Total Corporate Bonds 7,058,491
----------
TOTAL LONG-TERM
DEBT SECURITIES
(cost $14,448,589) $14,243,199
===========
COMMON STOCKS
(60.71%) Shares Value
- --------------------------------------------------------------------------------
Basic Industry (3.18%)
Chemical/Fertilizer (0.30%)
Mississippi Chemical Corp. 5,100 $121,763
----------
Chemical/Major (0.42%)
E.I. duPont de Nemours and Co. 1,600 169,600
----------
Chemical/Specialty (1.18%)
H.B. Fuller Co. 5,000 243,750
RPM Inc. 5,550 92,269
The B.F. Goodrich Co. 4,000 146,500
----------
Total Chemical/Specialty 482,519
----------
Metals (0.99%)
Aluminum Co. of America 3,300 224,400
Titanium Metals Corp.** 6,950 176,356
----------
Total Metals 400,756
----------
16
<PAGE>
Paper and Forest Products (0.29%)
Willamette Industries Inc. 1,900 $118,387
----------
Total Basic Industry 1,293,025
----------
Capital Goods (3.74%)
Aerospace/Industrial (1.23%)
Crane Co. 5,400 169,425
Ingersoll-Rand Co. 2,350 102,519
Precision Castparts Corp. 4,500 229,500
----------
Total Aerospace/Industrial 501,444
----------
Agriculture/Construction Equipment (0.20%)
Deere & Co. 1,850 80,475
----------
Construction Mining Equipment (0.25%)
Harnischfeger Industries Inc. 2,175 100,596
----------
Electric Equipment (1.76%)
General Electric Co. 5,700 565,998
General Signal Corp. 3,800 148,675
----------
Total Electric Equipment 714,673
----------
Miscellaneous Capital Goods (0.30%)
Duriron Co. Inc. 5,600 123,200
----------
Total Capital Goods 1,520,388
----------
Consumer Cyclical (5.19%)
Automotive and Related (0.58%)
Mark IV Industries Inc. 5,650 132,775
Snap-on Inc. 2,625 101,719
----------
Total Automotive and Related 234,494
----------
Building Materials (0.35%)
Armstrong World Industries Inc. 2,200 142,450
----------
Manufacturing Housing (0.33%)
Champion Enterprises Inc.** 9,000 133,875
----------
Miscellaneous Consumer Cyclical (0.21%)
Cannondale Corp.** 4,600 85,100
----------
Retail (3.72%)
Costco Companies Inc.** 5,300 146,412
Federated Department Stores Inc.** 6,000 197,250
General Nutrition Companies** 11,250 227,812
Lowe's Companies Inc. 2,450 91,569
Sears Roebuck and Co. 1,900 95,475
Sotheby's Holdings Inc. 7,550 121,940
Staples Inc.** 11,750 236,469
The TJX Companies Inc. 3,750 $160,966
The Pep Boys-Manny, Mo & Jack 4,250 127,500
Zale Corp.** 5,875 107,953
----------
Total Retail 1,513,346
----------
Total Consumer Cyclical 2,109,265
----------
Consumer Services (0.92%)
Healthcare Management (0.62%)
Manor Care Inc. 5,000 121,875
Olsten Corp. 8,150 131,419
----------
Total Healthcare Management 253,294
----------
Publishing/Newspaper (0.30%)
Knight-Ridder Inc. 3,100 123,613
----------
Total Consumer Services 376,907
----------
Consumer Staples (12.87%)
Biotechnology (0.29%)
Genzyme Corp.** 2,000 45,000
North American Biologicals Inc.** 10,875 74,086
----------
Total Biotechnology 119,086
----------
Drugs (4.50%)
American Home Products Corp. 3,700 222,000
Bristol-Myers Squibb Co. 8,900 525,100
RP Scherer Corp.** 4,500 233,438
SmithKline Beecham PLC 9,400 658,000
Warner-Lambert Co. 1,450 125,425
Watson Pharmaceuticals Inc.** 1,800 64,350
----------
Total Drugs 1,828,313
----------
Food Merchandising (0.33%)
Albertson's Inc. 4,000 136,000
----------
Foods (5.00%)
ConAgra Inc. 7,825 424,506
Dean Foods Co. 4,800 166,200
Dole Food Co. Inc. 9,350 352,962
General Mills Inc. 3,250 201,906
H.J. Heinz Co. 7,825 309,087
Iowa Beef Processing Inc. 7,625 187,766
Sara Lee Corp. 9,600 388,800
----------
Total Foods 2,031,227
----------
Hospital Supplies (0.48%)
DENTSPLY International Inc. 3,900 195,000
----------
17
<PAGE>
Schedule of Investments-Balanced Portfolio, continued
Household Products (0.67%)
Procter & Gamble Co. 650 $73,587
Newell Co. 5,900 197,650
----------
Total Household Products 271,237
----------
Miscellaneous Consumer Staples (0.50%)
Lancaster Colony Corp. 2,100 96,600
Sola International Inc.** 4,550 105,219
----------
Total Miscellaneous Consumer Staples 201,819
----------
Tobacco (1.10%)
Philip Morris Co. Inc. 3,925 447,941
----------
Total Consumer Staples 5,230,623
----------
Credit Cyclical (0.25%)
Homebuilding (0.25%)
Kaufman and Broad Home Corp. 7,625 101,031
----------
Energy (6.50%)
Miscellaneous Energy (0.28%)
Offshore Logistics Inc.** 7,050 112,800
----------
Natural Gas Diversified (0.34%)
Coastal Corp. 2,850 136,800
----------
Oil/Gas Production (0.78%)
Louisiana Land & Exploration Co. 3,000 142,125
Nuevo Energy Co.** 1,700 65,238
Santa Fe Energy Resources** 8,000 111,000
----------
Total Oil/Gas Production 318,363
----------
Oil/Integrated Domestic (1.78%)
Amerada Hess Corp. 1,600 84,615
Kerr-McGee Corp. 6,175 382,078
Pennzoil Co. 2,050 106,088
Union Texas Petroleum Holdings 8,100 148,838
----------
Total Oil/Integrated Domestic 721,619
----------
Oil/Integrated International (1.66%)
Mobil Corp. 3,150 411,469
Texaco Inc. 2,450 268,275
----------
Total Oil/Integrated International 679,744
----------
Oil Services (1.66%)
Reading & Bates Corp.** 9,400 212,675
Weatherford International Inc.** 6,675 196,078
Western Atlas Inc.** 4,350 263,719
----------
Total Machinery/Oil Well
Equipment and Services 672,472
----------
Total Energy 2,641,798
----------
Financial (9.24%)
Banks (3.18%)
Bank of Boston Corp. 3,335 $223,445
City National Corp. 5,000 110,000
Commerce Bancorp Inc. 850 23,375
Crestar Financial Corp. 3,900 135,037
Mercantile Bancorp. Inc. 2,300 121,960
PNC Bank Corp. 4,900 196,000
Sovereign Bancorp. Inc. 5,620 67,440
The Chase Manhattan Corp. 3,450 323,006
UnionBanCal Corp. 1,650 91,163
----------
Total Banks 1,291,426
----------
Finance Companies (0.87%)
Associates First Capital Corp. 3,075 132,269
Green Tree Financial Corp. 6,550 221,062
----------
Total Finance Companies 353,331
----------
Financial Services (1.12%)
Donaldson, Lufkin & Jenrette
Securities Corp. 2,850 104,381
Marsh & McLennan Co. 3,100 351,075
----------
Total Financial Services 455,456
----------
Insurance (3.52%)
CIGNA Corp. 3,300 482,212
Everest Reinsurance Holdings 3,650 107,219
ITT Hartford Group Inc. 2,000 144,250
Loews Corp. 4,600 408,825
ReliaStar Financial Corp. 4,000 236,500
W.R. Berkley Corp. 1,000 51,000
----------
Total Insurance 1,430,006
----------
Miscellaneous Financial (0.33%)
Student Loan Marketing Ass'n 1,400 134,334
----------
Savings and Loan (0.22%)
Bank United Corp. 3,000 88,500
----------
Total Financial 3,753,053
----------
Technology (9.23%)
Aerospace (1.22%)
The Boeing Co. 5,025 495,591
----------
Computer Software (2.09%)
Adobe Systems Inc. 4,800 192,600
Cadence Design Systems Inc.** 8,050 276,719
18
<PAGE>
Computer Associates International 5,150 $200,206
Microsoft Corp.** 1,900 174,206
----------
Total Computer Software 843,731
----------
Computer Services (1.52%)
Ceridian Corp.** 7,300 261,887
Computer Sciences Corp.** 2,500 154,375
Sabre Group Holdings Inc.** 8,050 203,263
----------
Total Computer Services 619,525
----------
Computer Systems (1.38%)
Hewlett-Packard Co. 2,450 130,462
International Business Machines 2,350 322,831
Tandem Computers Inc.** 8,950 106,281
----------
Total Computer Systems 559,574
----------
Electronic Systems (0.21%)
EG&G Inc. 250 5,219
Symbol Technologies Inc. 1,700 82,025
----------
Total Electronic Systems 87,244
----------
Networking Equipment (1.36%)
Cabletron Systems Inc.** 6,600 192,514
3Com Corp.** 5,600 183,400
U.S. Robotics Corp.** 3,200 174,863
----------
Total Networking Equipment 550,777
----------
Photography (0.14%)
Eastman Kodak Co. 750 56,906
----------
Semi-Conductors and Related (1.13%)
Atmel Corp.** 3,375 80,789
Intel Corp. 2,725 379,116
----------
Total Semi-Conductors and Related 459,905
----------
Wireless Communications (0.18%)
Cellular Technical Services Co.** 8,000 72,500
----------
Total Technology 3,745,753
----------
Transportation (0.94%)
Airlines (0.61%)
Alaska Air Group Inc.** 6,625 169,766
Southwest Airlines Co. 3,600 79,650
----------
Total Airlines 249,416
----------
Railroads (0.33%)
Burlington Northern Santa Fe** 1,800 133,200
----------
Total Transportation 382,616
----------
Utilities and REITs (8.65%)
Communications (4.90%)
Ameritech Corp. 7,150 $439,725
Century Telephone Enterprises Inc. 7,475 219,946
Citizens Utilities Co. 13,208 156,845
Frontier Corp. 6,125 109,484
GTE Corp. 15,175 707,534
SBC Communications Inc. 6,800 357,917
----------
Total Communications 1,991,451
----------
Electric (1.75%)
Duke Power Co. 2,500 110,312
New York State Electric & Gas Corp. 9,075 196,247
Pinnacle West Capital Corp. 4,375 131,797
TECO Energy Inc. 11,250 270,000
----------
Total Electric 708,356
----------
Natural Gas (1.18%)
Columbia Gas Systems Inc. 3,725 215,584
Consolidated Natural Gas Co. 3,800 191,425
Eastern Enterprises 2,325 72,210
----------
Total Natural Gas 479,219
----------
Real Estate Investment Trusts (0.82%)
Innkeepers USA Trust 7,500 109,688
LTC Properties Inc. 2,550 42,394
Nationwide Health Properties Inc. 5,000 106,875
Omega Health Investors Inc. 2,400 75,000
----------
Total Real Estate Investment Trusts 333,957
----------
Total Utilities and REITs 3,512,983
----------
TOTAL COMMON STOCKS
(cost $24,426,629) $24,667,442
-----------
TOTAL INVESTMENTS
IN SECURITIES (99.28%)
(cost $40,300,641)*** $40,336,064
-----------
OTHER ASSETS LESS
LIABILITIES (0.72%) $294,214
--------
Net Assets (100.00%) $40,630,278
===========
*The variable-rate securities are subject to a demand feature which reduces
the remaining maturity.
**Non-Income Producing Security.
***Aggregate cost for federal income tax purposes is $40,324,548.
19
<PAGE>
Schedule of Investments, continued
RIM Intermediate Fixed Income Portfolio
March 31, 1997
VARIABLE RATE DEMAND NOTES*
(9.56%) Par Value Value
- --------------------------------------------------------------------------------
American Family
5.2865% 05-16-1997 $567,258 $567,258
General Mills
5.2750% 08-19-1997 57,092 57,092
Johnson Controls Inc.
5.3200% 04-08-1997 634,079 634,079
Pitney Bowes
5.2854% 08-04-1997 78,000 78,000
Sara Lee Corp.
5.2652% 05-02-1997 64,350 64,350
Warner-Lambert Co.
5.1660% 01-26-1998 318,404 318,404
Wisconsin Electric
5.2570% 11-30-1997 127,034 127,034
----------
TOTAL DEMAND NOTES
(cost $1,846,217) $1,846,217
----------
CERTIFICATES OF DEPOSIT &
OTHER SHORT-TERM INSTRUMENTS (0.05%) Par Value Value
- --------------------------------------------------------------------------------
Bank of NY Wilmington
9.1500% 01-06-1998 $10,000 $10,000
----------
TOTAL CERTIFICATES
OF DEPOSIT & OTHER
SHORT-TERM INSTRUMENTS
(cost $10,000) $10,000
----------
LONG-TERM DEBT SECURITIES
(89.46%) Par Value Value
- --------------------------------------------------------------------------------
U.S. Treasury Obligations (46.90%)
Certificate of Accrual Treasury Securities
6.5800%** 11-15-1999 $100,000 $84,369
U.S. Treasury Notes
9.0000% 05-15-1998 415,000 427,580
6.3750% 01-15-1999 250,000 250,078
7.0000% 04-15-1999 125,000 126,328
7.8750% 11-15-1999 345,000 355,782
7.1250% 02-29-2000 300,000 304,031
6.7500% 04-30-2000 250,000 250,859
6.2500% 05-31-2000 100,000 98,938
7.7500% 02-15-2001 1,380,000 1,428,732
7.5000% 11-15-2001 1,000,000 1,028,751
6.3750% 08-15-2002 600,000 589,126
6.2500% 02-15-2003 350,000 340,485
5.7500% 08-15-2003 800,000 755,000
7.2500% 05-15-2004 1,000,000 1,020,001
7.2500% 08-15-2004 1,000,000 1,019,688
6.5000% 05-15-2005 1,000,000 973,126
----------
Total U.S. Treasury
Obligations 9,052,874
----------
U.S. Agency Obligations (13.69%)
Federal Farm Credit Bank (FFCB)
Medium Term Note
7.5500% 03-25-1999 150,000 152,914
----------
FNMA
5.1100%** 04-30-1997 2,500,000 2,489,467
----------
Total U.S. Agency
Obligations 2,642,381
----------
20
<PAGE>
Government--Regional (1.26%)
Ontario Global Bond
7.3750% 01-27-2003 $240,000 $243,598
----------
Regional Government--
Agency (0.65%)
Hydro Quebec
7.3750% 02-01-2003 125,000 125,833
----------
Corporate Bonds (26.96%)
Asset-Backed Security (2.22%)
JC Penney Master Credit Card Trust
9.6250% 06-30-2000 400,000 428,268
----------
Industrials (0.13%)
Ford Motor Co.
7.5000% 11-15-1999 25,000 25,344
----------
Finance Companies (24.61%)
Allstate Corp.
5.8750% 06-15-1998 250,000 248,352
American General Finance
6.8750% 01-15-2000 25,000 24,988
Associates Corp. of North America
Medium Term Notes
6.3750% 06-01-2000 25,000 24,591
6.8400% 07-03-2001 300,000 296,903
Associates Corp. of North America
7.5000% 05-15-1999 100,000 101,399
Beneficial Financial Corp. Medium Term Notes
6.5100% 12-03-2003 500,000 478,731
CNA Financial Note
8.8750% 03-01-1998 225,000 230,103
Commercial Credit TRV
6.5000% 06-01-2005 300,000 283,469
Dean Witter Discovry and Co.
6.2500% 03-15-2000 40,000 39,363
Discover Credit Medium Term Note
8.3500% 05-06-1999 100,000 103,062
Ford Motor Credit Co.
6.3750% 04-15-2000 75,000 73,797
Ford Motor Credit Medium Term Note
5.9000% 06-09-1998 50,000 49,714
General Electric Capital
6.6600% 05-01-2018 $180,000 $179,101
GMAC Medium Term Notes
7.5000% 11-04-1997 185,000 186,662
6.5000% 12-06-2004 500,000 472,453
Household Finance Corp.
Medium Term Note
7.0000% 09-18-2001 600,000 593,495
International Lease Finance
6.2500% 10-15-2000 200,000 195,304
Merrill Lynch
7.2500% 05-15-1997 50,000 50,090
6.3750% 03-30-1999 25,000 24,819
7.0500% 04-15-2003 100,000 97,460
Merrill Lynch Medium Term Note
7.0500% 06-04-2001 175,000 174,584
Morgan Stanley Group
6.1250% 10-01-2003 200,000 187,983
6.3750% 12-05-2003 25,000 23,749
Nordstrom Credit Medium Term Note
7.8900% 02-14-2000 400,000 409,946
USLIFE Corp.
6.7500% 01-15-1998 200,000 200,727
----------
Total Finance Companies 4,750,845
----------
Total Corporate Bonds 5,204,457
----------
TOTAL LONG-TERM
DEBT SECURITIES
(cost $17,478,454) $17,269,143
-----------
TOTAL INVESTMENTS
IN SECURITIES (99.07%)
(cost $19,334,671)*** $19,125,360
-----------
other assets less
Liabilities (0.93%) $178,029
--------
Net Assets (100.00%) $19,303,389
===========
*The variable-rate securities are subject to a demand feature which reduces
the remaining maturity.
**Bond Equivalent Yield.
***Aggregate cost for federal income tax purposes is identical.
21
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
Rainier Investment Management Mutual Funds
March 31, 1997
<TABLE>
<CAPTION>
Small/Mid Intermediate
Cap Equity Core Equity Balanced Fixed Income
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities at market value
(cost of $138,352,549, $260,849,324,
$40,300,641 and $19,334,671, respectively) $138,560,833 $264,359,094 $40,336,064 $19,125,360
Cash 156,276 - 19,976 -
Receivables
Investment securities sold 1,513,595 7,131,714 1,139,764 -
Dividends and interest 119,522 443,440 333,116 294,376
Net deferred organization costs 10,083 10,083 10,083 10,083
Prepaid expenses 34,131 40,812 4,737 3,773
-------------------------------------------------------------
Total assets 140,394,440 271,985,143 41,843,740 19,433,592
-------------------------------------------------------------
LIABILITIES
Cash overdraft due to custodian - 2,870,899 - -
Payables for investment securities purchased 3,896,471 8,231,745 944,980 -
Distributions to shareholders - - 222,962 102,334
Due to Investment Advisor (Note 3) 130,783 221,762 28,466 12,498
Other accrued expenses 26,338 31,629 17,054 15,371
-------------------------------------------------------------
Total liabilities 4,053,592 11,356,035 1,213,462 130,203
-------------------------------------------------------------
Net assets $136,340,848 $260,629,108 $40,630,278 $19,303,389
=============================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $125,943,274 $234,808,859 $37,857,933 $19,513,147
Accumulated undistributed
net investment income 52,305 328,959 - -
Accumulated undistributed
net realized gain (loss) on investments 10,136,985 21,981,520 2,736,922 (447)
Net unrealized appreciation
(depreciation) on investments 208,284 3,509,770 35,423 (209,311)
-------------------------------------------------------------
Net assets $136,340,848 $260,629,108 $40,630,278 $19,303,389
=============================================================
Number of shares issued and outstanding
(unlimited shares authorized) no par value 7,350,886 13,744,160 2,752,619 1,598,967
=============================================================
Net asset value per share $18.54 $18.97 $14.76 $12.08
=============================================================
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
STATEMENTS OF OPERATIONS
Rainier Investment Management Mutual Funds
For the year ended March 31, 1997
<TABLE>
<CAPTION>
Small/Mid Core Intermediate
Cap Equity Equity Balanced Fixed Income
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income
Dividend income $1,629,632 $ 3,405,249 $ 461,837 $ --
Interest income 179,667 261,592 983,899 930,806
-------------------------------------------------------------
Total Income 1,809,299 3,666,841 1,445,736 930,806
-------------------------------------------------------------
Expenses
Investment advisory fees (Note 3) 920,491 1,402,959 274,557 73,573
Custodian fees 33,302 57,887 12,897 5,996
Administration fees (Note 3) 101,871 140,667 40,000 40,000
Fund accounting fees 28,871 38,666 26,955 22,580
Transfer agent fees 10,993 11,001 10,993 9,993
Legal fees 5,230 7,480 3,521 767
Distribution fees (Note 3) 270,733 467,653 98,056 36,786
Insurance 5,199 7,051 2,126 666
Audit fees 10,444 10,444 10,444 10,444
Miscellaneous fees 4,992 4,984 1,985 1,485
Reports to shareholders 3,992 3,480 2,500 504
Registration fees 38,792 49,705 21,931 13,999
Trustees fees 4,000 4,000 4,000 4,000
Amortization of deferred organization costs 4,249 4,249 4,249 4,249
-------------------------------------------------------------
Total expenses 1,443,159 2,210,226 514,214 225,042
Expenses recouped (reimbursed)
(Note 3) 74,038 74,294 (47,467) (85,255)
-------------------------------------------------------------
Net expenses 1,517,197 2,284,520 466,747 139,787
-------------------------------------------------------------
Net investment income 292,102 1,382,321 978,989 791,019
-------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments sold 16,142,537 30,203,631 4,125,731 (219)
Net change in unrealized depreciation
on investments (3,369,874) (2,396,132) (1,187,032) (330,754)
-------------------------------------------------------------
Net gain (loss) on investments 12,772,663 27,807,499 2,938,699 (330,973)
-------------------------------------------------------------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS $ 13,064,765 $ 29,189,820 $ 3,917,688 $ 460,046
=============================================================
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Rainier Investment Management Mutual Funds
<TABLE>
<CAPTION>
Small/Mid Cap Equity Portfolio Core Equity Portfolio
---------------------------------------------------------------------
For the fiscal For the fiscal For the fiscal For the fiscal
year ended year ended year ended year ended
03/31/97 03/31/96 03/31/97 03/31/96
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment income $ 292,102 $ 219,991 $ 1,382,321 $ 564,271
Net realized gain (loss) on investments sold 16,142,537 6,469,365 30,203,631 9,962,750
Net change in unrealized appreciation
(depreciation) on investments (3,369,874) 3,113,718 (2,396,132) 4,750,865
---------------------------------------------------------------------
Increase in net assets resulting
from operations 13,064,765 9,803,074 29,189,820 15,277,886
---------------------------------------------------------------------
Distributions to shareholders
From net investment income (308,354) (174,847) (1,262,143) (414,862)
From net realized gain on investments sold (10,030,448) (3,070,420) (13,714,949) (5,319,129)
---------------------------------------------------------------------
Total distributions (10,338,802) (3,245,267) (14,977,092) (5,733,991)
---------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 96,287,091 68,177,149 176,244,166 83,183,140
Net asset value of shares issued on
reinvestment of distributions 10,111,612 2,037,533 13,857,557 5,016,780
Cost of shares redeemed (52,278,448) (7,397,555) (51,350,687) (10,508,694)
---------------------------------------------------------------------
Net increase from
capital share transactions 54,120,255 62,817,127 138,751,036 77,691,226
---------------------------------------------------------------------
Net increase in net assets 56,846,218 69,374,934 152,963,764 87,235,121
NET ASSETS
Beginning of period 79,494,630 10,119,696 107,665,344 20,430,223
---------------------------------------------------------------------
End of period $ 136,340,848 $ 79,494,630 $ 260,629,108 $ 107,665,344
=====================================================================
CHANGE IN SHARES
OUTSTANDING
Shares sold 5,221,248 4,019,207 9,611,640 4,981,758
Shares issued on reinvestment of distributions 567,235 123,637 776,911 306,462
Shares redeemed (2,882,015) (427,002) (2,787,624) (621,227)
---------------------------------------------------------------------
Net increase in shares outstanding 2,906,468 3,715,842 7,600,927 4,666,993
=====================================================================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Intermediate Fixed
Balanced Portfolio Income Portfolio
-----------------------------------------------------------------
For the fiscal For the fiscal For the fiscal For the fiscal
year ended year ended year ended year ended
03/31/97 03/31/96 03/31/97 03/31/96
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment income $ 978,989 $ 598,335 $ 791,019 $ 444,329
Net realized gain (loss) on
investments sold 4,125,731 3,064,177 (219) 16,825
Net change in unrealized appreciation
(depreciation) on investments (1,187,032) 829,555 (330,754) 120,026
-----------------------------------------------------------------
Increase in net assets resulting
from operations 3,917,688 4,492,067 460,046 581,180
-----------------------------------------------------------------
Distributions to shareholders
From net investment income (983,196) (587,477) (800,647) (444,289)
From net realized gain on investments sold (2,897,392) (1,931,855) (5,863) (8,254)
-----------------------------------------------------------------
Total distributions (3,880,588) (2,519,332) (806,510) (452,543)
-----------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 28,696,866 16,060,694 10,867,359 4,228,208
Net asset value of shares issued on
reinvestment of distributions 3,801,012 2,334,948 748,944 404,112
Cost of shares redeemed (23,984,319) (2,012,747) (1,706,775) (1,390,314)
-----------------------------------------------------------------
Net increase from
capital share transactions 8,513,559 16,382,895 9,909,528 3,242,006
-----------------------------------------------------------------
Net increase in net assets 8,550,659 18,355,630 9,563,064 3,370,643
NET ASSETS
Beginning of period 32,079,619 13,723,989 9,740,325 6,369,682
-----------------------------------------------------------------
End of period $ 40,630,278 $ 32,079,619 $ 19,303,389 $ 9,740,325
=================================================================
CHANGE IN SHARES
OUTSTANDING
Shares sold 1,939,290 1,124,356 887,089 337,423
Shares issued on reinvestment of distributions 262,719 166,862 61,083 32,613
Shares redeemed (1,657,681) (142,240) (139,004) (111,110)
-----------------------------------------------------------------
Net increase in shares outstanding 544,328 1,148,978 809,168 258,926
=================================================================
</TABLE>
See Accompanying Notes to Financial Statements
25
<PAGE>
FINANCIAL HIGHLIGHTS
The following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Annual Report.
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 For the fiscal From 05/10/94* For the fiscal For the fiscal From 05/10/94*
year ended year ended through year ended year ended through
03/31/97 03/31/96 03/31/95 03/31/97 03/31/96 03/31/95
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.89 $ 13.89 $ 12.00 $ 17.53 $ 13.84 $ 12.00
Income from investment operations
Net investment income 0.05 0.05 0.10 0.13 0.11 0.11
Net realized and unrealized gains
on investments 2.43 5.17 2.18 2.86 5.13 2.00
-----------------------------------------------------------------------------------------
Total from investment operations 2.48 5.22 2.28 2.99 5.24 2.11
-----------------------------------------------------------------------------------------
Distributions
From net investment income (0.06) (0.06) (0.07) (0.13) (0.11) (0.07)
From net realized gains (1.77) (1.16) (0.32) (1.42) (1.44) (0.20)
-----------------------------------------------------------------------------------------
Total distributions (1.83) (1.22) (0.39) (1.55) (1.55) (0.27)
-----------------------------------------------------------------------------------------
Net asset value, end of period $ 18.54 $ 17.89 $ 13.89 $ 18.97 $ 17.53 $ 13.84
=========================================================================================
Total return 14.57% 38.38% 19.38%** 17.88% 38.64% 17.87%**
=========================================================================================
Net assets at end of period (in 000's) $ 136,341 $ 79,495 $ 10,120 $ 260,629 $ 107,665 $ 20,430
=========================================================================================
Ratio of expenses to average net assets
Before expense
reimbursement/recoupment 1.33% 1.46% 2.93%*** 1.18% 1.30% 1.86%***
After expense
reimbursement/recoupment 1.40% 1.48% 1.48%*** 1.22% 1.29% 1.29%***
=========================================================================================
Ratio of net investment income to
average net assets (net of expense
reimbursement/recoupment) 0.27% 0.66% 1.40%*** 0.74% 1.07% 1.25%***
=========================================================================================
Portfolio turnover rate 130.54% 151.37% 152.21% 146.12% 138.02% 133.18%
=========================================================================================
Average commission rate paid+ $0.0588 $0.0562 - $0.0591 $0.0575 -
=========================================================================================
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Intermediate Fixed
Balanced Portfolio Income Portfolio
-----------------------------------------------------------------------------------------
For the fiscal For the fiscal From 05/10/94* For the fiscal For the fiscal From 05/10/94*
year ended year ended through year ended year ended through
03/31/97 03/31/96 03/31/95 03/31/97 03/31/96 03/31/95
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.53 $ 12.96 $ 12.00 $ 12.33 $ 12.00 $ 12.00
Income from investment operations
Net investment income 0.37 0.38 0.30 0.65 0.70 0.57
Net realized and unrealized gains
on investments 1.28 2.82 1.13 (0.25) 0.34 --
-----------------------------------------------------------------------------------------
Total from investment operations 1.65 3.20 1.43 0.40 1.04 0.57
-----------------------------------------------------------------------------------------
Distributions
From net investment income (0.37) (0.37) (0.31) (0.64) (0.70) (0.57)
From net realized gains (1.05) (1.26) (0.16) (0.01) (0.01) --
-----------------------------------------------------------------------------------------
Total distributions (1.42) (1.63) (0.47) (0.65) (0.71) (0.57)
-----------------------------------------------------------------------------------------
Net asset value, end of period $ 14.76 $ 14.53 $ 12.96 $ 12.08 $ 12.33 $ 12.00
=========================================================================================
Total return 11.83% 25.58% 12.23%** 3.35% 8.85% 4.92%**
=========================================================================================
Net assets at end of period (in 000's) $ 40,630 $ 32,080 $ 13,724 $ 19,303 $ 9,740 $ 6,370
=========================================================================================
Ratio of expenses to average net assets
Before expense
reimbursement/recoupment 1.31% 1.50% 2.29%*** 1.53% 2.17% 2.44%***
After expense
reimbursement/recoupment 1.19% 1.19% 1.19%*** 0.95% 0.95% 0.95%***
=========================================================================================
Ratio of net investment income to
average net assets (net of expense
reimbursement/recoupment) 2.50% 2.76% 3.04%*** 5.42% 5.69% 5.57%***
=========================================================================================
Portfolio turnover rate 133.68% 114.85% 92.40% 8.37% 15.49% 5.21%
=========================================================================================
Average commission rate paid+ $0.0576 $0.0587 - - - -
=========================================================================================
</TABLE>
*Commencement of operations.
**Not Annualized.
***Annualized.
+ For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commissions rate per share for security trades on
which commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
See Accompanying Notes to Financial Statements.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Rainier Investment Management Mutual Funds
March 31, 1997
Note 1. Organization
Rainier Investment Management Mutual Funds (the "Trust") was organized as a
business trust in Delaware on December 15, 1993 and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management investment company. The Trust consists of four separate
series of portfolios: Small/Mid Cap Equity Portfolio, Core Equity Portfolio,
Balanced Portfolio, and Intermediate Fixed Income Portfolio (each a "Fund" and
collectively the "Funds").
Note 2. Significant Accounting Policies
The following significant accounting policies are consistently followed by
the Funds in the preparation of its financial statements, and such policies are
in conformity with generally accepted accounting principles for investment
companies.
A) Security Valuation: The Funds invest in a range of securities, generally
including equities and U.S. Government securities. Equity securities are valued
at the last sale price (for exchange-listed securites) or the last bid price (if
lacking any sales and for over-the-counter securities). Debt securities
generally are valued at the mean between the last bid and asked prices. Debt
securities with 60 days or less remaining to maturity are valued on an amortized
cost basis.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith by or under the direction of the Board
of Trustees. There were no such trades for the fiscal year ended March 31, 1997.
B) Security Transactions, Dividends and Distributions: Security
transactions are recorded on trade date. Dividend income is recognized on the
ex-dividend date, and interest income is recorded on an accrual basis. Realized
gains or losses are reported on the basis of identified cost of securities
delivered. Bond discounts are accreted and premiums are amortized. Distributions
to shareholders are recorded on the ex-dividend date.
C) Federal Income Taxes: The Funds intend to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of their net investment income and any net realized
capital gains to shareholders of the Funds. Therefore, no provision is made for
Federal income or excise taxes. Due to the timing of dividend distributions and
the differences in accounting for income and realized gains (losses) for
financial statement and federal income tax purposes, the fiscal year in which
amounts are distributed may differ from the year in which the income and
realized gains (losses) are recorded by the Funds.
On the Statement of Assets and Liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made between the
capital paid in, undistributed net investment income and undistributed net
realized gain (loss) on invesment accounts.
D) Deferred Organization Costs: Organization costs of $22,375 have been
capitalized for each Fund as of April 8, 1994 and are being amortized over a
period of 60 months beginning on the date the Funds' registration became
effective. Rainier Investment Management, Inc.(R) (the "Investment Advisor") has
agreed that, in the event any of the initial shares are redeemed during the
60-month period for amortizing the Funds' organization costs, the proceeds will
be reduced for the unamortized balances of such costs in the same proportion as
the number of shares redeemed bears to the number of initial shares outstanding
at the time of redemption.
E) Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of income and expenses at the date of the financial
statements and the reported amount of
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revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Note 3. Investment Management Fee
and Other Transactions with Affiliates
A) Investment Management Agreement: The Trust, on behalf of the Funds, has
entered into an investment management agreement with the Investment Advisor.
Under the terms of the agreement, the Trust will pay a fee equal to the
following annual percentages of average daily net assets:
Small/Mid Cap Equity Portfolio 0.85%
Core Equity Portfolio 0.75%
Balanced Portfolio 0.70%
Intermediate Fixed Income Portfolio 0.50%
For the fiscal year beginning April 1, 1997, the Investment Advisor has
voluntarily undertaken to limit the management fee for the Intermediate Fixed
Income Portfolio to 0.45% of the Portfolio's average annual net assets.
Although not required to do so, the Investment Advisor has agreed to
reimburse each Fund to the extent necessary so that its ratio of operating
expenses to average daily net assets will not exceed the following levels.
Overall operating expense for each Fund will not fall below the applicable
percentage limitation until the Investment Advisor has been fully reimbursed for
fees foregone and expenses paid by the Investment Advisor under this agreement:
Small/Mid Cap Equity Portfolio 1.48%
Core Equity Portfolio 1.29%
Balanced Portfolio 1.19%
Intermediate Fixed Income Portfolio 0.95%
These percentages are based on the average daily net assets of the Funds,
exclusive of interest, taxes, brokerage commissions, extraordinary expenses and
sales charges. This agreement may be terminated by either party upon 60 days'
written notice.
For the fiscal year beginning April 1, 1997, the Investment Advisor has
voluntarily undertaken to limit the total annual operating expenses of the
Intermediate Fixed Income Portfolio to 0.55% of the Portfolio's average annual
net assets.
B) Distribution Plan: The Trust, on behalf of the Funds, has approved a
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the 1940 Act.
The Plan provides that the Funds will pay a fee to the Investment Advisor at an
annual rate of up to 0.25% of each Fund's average daily net assets. The fee is
paid to the Investment Advisor as reimbursement for, or in anticipation of,
expenses incurred for distribution-related activities.
For the fiscal year beginning April 1, 1997, the Investment Advisor has
voluntarily undertaken to limit the distribution fee for the Intermediate Fixed
Income Portfolio to 0.10% of the Portfolio's average annual net assets.
C) Administrative Service Agreement: The Trust, on behalf of the Funds, has
entered into an administrative services agreement with an unrelated third party.
Under the terms of the agreement, each Fund will pay a monthly fee based on the
greater of $40,000 annual minimum or the annual rate of:
0.10% of first $100 million of average daily net assets
0.05% of next $100 million of average daily net assets
0.03% of average net assets over $200 million.
Note 4. Purchases and Sales of Securities
The aggregate security purchases and sales, other than short-term
obligations and U.S. Government securities, for the year ended March 31, 1997
were as follows:
Fund Purchases Sales
Small/Mid Cap
Equity Portfolio $180,537,587 $137,824,011
Core Equity Portfolio 388,981,761 266,713,395
Balanced Portfolio 52,467,397 47,103,908
Intermediate Fixed
Income Portfolio 5,866,074 455,000
Balanced Portfolio and Intermediate Fixed Income Portfolio purchased
$2,269,360 and $6,286,391 respectively, and sold $29,321,000 and $1,523,614,
respectively, of U.S. Government securities. There were no purchases or sales of
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Notes to Financial Statements, continued
U.S. Government securities by the Small/Mid Cap Equity Portfolio and Core Equity
Portfolio.
The aggregate unrealized appreciation and depreciation of portfolio
securities at March 31, 1997, based on costs for federal income tax purposes
were as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Fund Appreciation Depreciation Appr./(Depr.)
Small/Mid
Cap Equity $4,652,227 $4,551,355 $100,872
Core Equity 7,111,493 3,724,365 3,387,128
Balanced 611,747 600,231 11,516
Intermediate
Fixed Income 1,572 210,883 (209,311)
Note 5. Related Party Transactions
Certain officers and Trustees of the Funds are also officers and/or
directors of the Investment Advisor. Outside Trustees are compensated by the
Trust at the total rate of $4,000 per year plus $1,000 for each meeting of the
Board of Trustees attended and any travel expenses incurred in such meetings.
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
Rainier Investment Management Mutual Funds
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Rainier Investment Management Mutual
Funds (comprised of Small/Mid Cap Equity, Core Equity, Balanced and Intermediate
Fixed Income Portfolios), as of March 31, 1997, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for the periods indicated herein. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned Funds of Rainier Investment Management Mutual Funds
as of March 31, 1997, the results of their operations, the changes in their net
assets, and their financial highlights for the periods indicated herein in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
May 9, 1997
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DIRECTORY OF FUNDS' SERVICE PROVIDERS
Investment Advisor
Rainier Investment Management, Inc.,(R)
601 Union Street, Suite 2801, Seattle, WA 98101
Distributor
First Fund Distributors, Inc.,
4455 E. Camelback Road, Suite 261-E, Phoenix, AZ 85018
Administrator
Investment Company Administration Corporation,
2025 E. Financial Way, Suite 101, Glendora, CA 91741
Custodian, Transfer Agent and Fund Accountant
Firstar Trust Company,
615 E. Michigan Street, Milwaukee, WI 53202
Independent Auditors
KPMG Peat Marwick LLP,
3100 Two Union Square, 601 Union Street, Seattle, WA 98101
Legal Counsel
Heller Ehrman White & McAuliffe,
333 Bush Street, San Francisco, CA 94104
Index Descriptions
------------------
The Standard & Poor's 500 Stock Index is an unmanaged index composed of 500
industrial, utility, transportation, and financial companies of the U.S.
markets. The Index represents about 75% of New York Stock Exchange ("NYSE")
market capitalization and 30% of NYSE issues. It is a capitalization-weighted
index calculated on a total return basis with dividends reinvested.
The Russell Midcap(TM) Index is an unmanaged index composed of the equities of
companies ranging in value from approximately $1.0 to $6.5 billion, as of June
30, 1996.
The Lehman Brothers Government/Corporate Intermediate Bond Index ("Lehman
Intermediate Bond Index") is an unmanaged index composed of all bonds covered by
the Lehman Brothers Government/Corporate Index with maturities between one and
9.99 years. The Consumer Price Index ("CPI") is a measure of change in consumer
prices as determined by a monthly survey of the U.S. Bureau of Labor Statistics.
The Salomon Brothers 3-Month Treasury Bill Index ("91-Day U.S. Treasury Bill
Index") is an unmanaged index of equal dollar amounts of three-month Treasury
bills purchased at the beginning of each of three consecutive months.
The "Balanced Index" consists of 50% Standard & Poor's 500 Stock Index, 40%
Lehman Brothers Government/Corporate Intermediate Bond Index, 10% 91-Day U.S.
Treasury Bill Index.
31
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NOTES
32
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RAINIER
INVESTMENT
MANAGEMENT
Mutual Funds
601 Union Street, Suite 2801
Seattle, Washington 98101
phone (800) 248-6314
