RAINIER
INVESTMENT
MANAGEMENT
Mutual Funds
601 Union Street, Suite 2801
Seattle, Washington 98101
phone (800) 248-6314
<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 ........................................... 30
Directory of Funds' service providers ........................... 32
INDEX DESCRIPTIONS ...................................................... 32
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 the Rainier Investment Management No-Load Mutual Funds and a
fellow shareholder in the Funds, I'd like 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 Semi-Annual Report contains
unaudited financial statements for the six months ending September 30, 1998. The
last audited Annual Report was produced as of March 31, 1998, our fiscal year
end.
In this Semi-Annual Report, you will find commentary describing the general
environment of the equity and fixed-income capital markets. Also, you will see
summaries for each of the four Portfolios, which provide performance information
for the last six months, followed by investment total returns. Finally, this
Semi-Annual Report contains financial statements detailing the expenses of the
Portfolio and the Portfolio holdings as of September 30, 1998.
The equity market environment during the last six months has been very
challenging to the portfolio management team at Rainier. Our long-successful
Growth at a Reasonable Price strategy faced a twin-headed dragon feeding on an
extremely narrow band of market favorites and on stratospherically priced
equities. Our well-diversified portfolios, populated with moderately priced
stocks, struggled to keep up with the "big and expensive" phenomenon.
Fortunately, in September we witnessed encouraging signs that the worst of this
highly unusual market may be over.
The equity funds experienced slight net redemptions toward the end of the
six-month period, but nothing alarming. In fact, for the entire period asset
growth increased nicely. We closed the Small/Mid Cap Equity Portfolio to new
investors in May honoring our commitment to shareholders that performance
excellence, not asset collection, will be our primary focus. We are also pleased
that Jim Margard appeared on Louis Rukeyser's Wall Street Week in June. Finally,
we are working on a new Web site that you can expect sometime early next year.
We remind you that most of the employees and all of the principals of
Rainer Investment Management are shareholders in the Funds. We, too, experience
directly and personally the results of the Funds. Our advice to ourselves in
down markets is to stay focused on long-term results. No market environment
lasts forever.
We are interested in your feedback. If you have encountered any problems or
have suggestions to improve our service, please call us. Thank you for your
investment in the Rainier Investment Management Mutual Funds. We embrace and
appreciate the continued challenge and opportunity to meet your investment
needs.
Sincerely,
/s/ J. Glenn Haber
J. Glenn Haber
Chairman
Rainier Investment Management Mutual Funds
2
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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 $4.7 billion of
discretionary assets for primarily institutional clients.
Equity Comments
The six-month period ending in September marked one of the most difficult
and challenging financial market environments in more than a decade. Investors
were forced to contend with a blizzard of bad news, including further economic
deterioration in Asia, a financial collapse in Russia, slowing earnings growth
and a rescue orchestrated by the Federal Reserve of a major hedge fund. The net
effect of the market turmoil was a "flight to quality" by investors to the
largest capitalization stocks and the highest quality bonds.
Our effort to tilt towards defensive areas of the market--such as consumer
staples and utilities--worked to your advantage, but market illiquidity
continued to hammer all but the very highest capitalized stocks. Worried that
the U.S. economy might slip into a recession or, worse, that the credit markets
might collapse, investors apparently concluded that the risk of owning small
stocks simply out-weighed the benefits. Nevertheless, secondary benchmarks did
manage to outperform the large indices in the month of September, suggesting
that many such equities have been oversold.
The severity and magnitude of the downturn in stock prices and the extreme
illiquidity of equities has been stunning. Still, we consider the current market
environment to be highly unusual, and anticipate an improvement. We have not
altered our investment philosophy, which has worked well in most environments. A
more accommodative monetary policy by the Federal Reserve may eventually help
reverse the recent trend in earnings deceleration. Looking foward, we anticipate
that investors will pay greater attention to valuation, and that Growth at a
Reasonable Price will deliver improved relative performance.
James R. Margard, CFA; David A. Veterane, CFA;
Peter M. Musser, CFA; Mark H. Dawson, CFA
Fixed Income Comments
Investing in the U.S. Treasury market became the ultimate flight-to-quality
strategy during the past six months as multiple global and economic events
converged, sending apprehensive investors toward a safe haven. Interest rates on
government bonds plummeted so quickly, that by the time the Federal Reserve
Board managed to orchestrate a much anticipated ease of the Federal Funds rate
on September 29th to 5.25%, Treasury Bills had fallen to 4.40% and the
thirty-year bond yielded 5.08%. The sentiment behind the movement was that the
Fed is not yet done with easing and that the overall supply of government bonds
has diminished during the past few years, and will not be able to satiate the
demands of a fearful market. Inflation remains subdued and real rates of return
are still attractive, even at the historically low current nominal levels.
The aggregate bond market produced overall returns in low single digits,
but suffered the same selective performance characteristics as stocks in that
corporate yield spreads widened severely and liquidity dried up in response to
the global financial crisis. The summer default of Russian debt, the slow
response of Japan to heal its economy, the overhanging concerns about Latin
America, combined with the disclosure that the hedge fund, Long Term Capital,
had over-leveraged itself, all led to underperformance of the corporate sector.
Even U.S. Federal Agency spreads widened as buyers sought maximum liquidity.
Looking forward, the Federal Reserve may ease again and markets will remain
volatile. Spread premiums should narrow. If we are fortunate to have an earlier
resolution, or constructive steps toward global health, rational behavior will
return.
Patricia L. Frost, CEO;
Michael E. Raney, CFA
3
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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 declined 24.1% during the
six months ending in September, compared to a 16.1% fall in the Russell
Midcap(TM) Index and a 23.9% plunge in the Russell 2000(R) Index. Weak
performance by individual issues overwhelmed our defensive sector strategy,
which was to moderately overweight consumer staples and utilities. Smaller
secondary issues lagged large stocks in the second quarter, and accelerated
their slide in July and August as fears of a potential recession in the U.S.
economy increased. There were not many areas of strong returns, but one group
that did particularly well was biotechnology, where Biogen, PathoGenesis and
Genzyme went against the tide. Among the new positions in the Portfolio were Ace
Limited, Avon Products, CKE Restaurants, Ascend Communications and Mindspring
Enterprises. Although secondary stocks have been a disappointment this year, we
think the capitulation selling in recent months and resulting deep
undervaluation, coupled with recent cuts in short-term interest rates, has put a
"floor" under these stocks.
COMPARISON OF CHANGE IN VALUE OF $10,000
Small/Mid Cap Russell Russell Consumer
Equity Portfolio Midcap(tm) Index 2000(r) Index Price Index
---------------- ---------------- ------------- -----------
5/10/94 $10,000 $10,000 $10,000 $10,000
3/31/95 11,938 11,261 11,495 10,272
3/31/96 16,520 15,190 14,539 10,563
3/31/97 18,197 16,185 14,611 10,855
3/31/98 28,138 23,327 20,750 11,004
9/30/98 21,352 19,570 15,797 11,099
TOTAL RETURNS for Periods Ending September 30, 1998
Inception
6 Months 1 Year 3 Years* to 9/30/98*
-------- ------ -------- -----------
Small/Mid Cap Equity Portfolio (24.1%) (15.1%) 13.7% 18.9%
Russell Midcap(TM) Index (16.1) (6.0) 13.8 16.5
Russell 2000(R) Index (23.9) (19.0) 6.9 11.0
Consumer Price Index 0.9 1.5 2.2 2.4
* Annualized returns. Inception date 5/10/94
See page 32 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investments return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
4
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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 Portfolio fell 14.8% for the six months ending in
September, lagging the 7.0% decline in the Standard & Poor's 500 Index. Our
strategy of adhering to a strong price discipline, maintaining exposure to
neglected mid-cap issues and being broadly diversified was at odds with a market
where gains were concentrated in a handful of large-cap high-P/E stocks. All
sectors posted negative results, with the exception of utilities. The weakest
groups were basic industries, capital goods, financial and retail. The two
largest positions in the Portfolio, Merck and Microsoft, performed exceptionally
well, as did positions in biotechnology and selected consumer-staple issues.
Among the new positions initiated during the six months were Dayton Hudson,
Associates First, CVS Corporation, Tyco International and US WEST. We have also
reduced the number of stocks in the Portfolio, and moderately increased the
average market capitalization. Market breadth improved in the month of
September, suggesting the worst may be behind us in terms of narrow large-cap
leadership.
COMPARISON OF CHANGE IN VALUE OF $10,000
Core Equity Standard & Poor's Consumer
Portfolio 500 Stock Index Price Index
--------- --------------- -----------
5/10/94 $10,000 $10,000 $10,000
3/31/95 11,787 11,495 10,272
3/31/96 16,341 15,190 10,563
3/31/97 19,263 18,186 10,855
3/31/98 28,826 26,915 11,004
9/30/98 24,561 25,037 11,099
TOTAL RETURNS for Periods Ending September 30, 1998
Inception
6 Months 1 Year 3 Years* to 9/30/98*
-------- ------ -------- -----------
Core Equity Portfolio (14.8%) (1.4%) 19.5% 22.7%
Standard & Poor's 500 Stock Index (7.0) 9.0 22.6 23.3
Russell 1000(R) Index (8.1) 7.4 21.4 22.5
Consumer Price Index 0.9 1.5 2.2 2.4
*Annualized returns. Inception date 5/10/94.
See page 32 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investments return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
5
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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 fell 8.3% during the six months ending
in September. Losses in the equity component of the Portfolio were partially
offset by gains in fixed-income securities. Excellent performance was generated
by U.S. Treasuries, which surged as panicked investors sought refuge in what is
viewed as the least risky of all assets. The corporate bonds that we hold,
despite their high quality, were affected by a huge widening in the typical
"spread" relationships that are usually present in the fixed-income markets. Our
equity strategy of maintaining exposure to undervalued mid-cap issues and being
broadly diversified was at odds with a market in which gains were narrowly based
in large-cap high-P/E stocks. In addition to the strong performance by Merck and
Microsoft, the Portfolio benefited from holdings in Albertson's, General Mills,
Columbia Energy and MCI Worldcom. Due to the shift in bond and equity prices, we
finished the period with an asset mix of 61% stocks, 33% bonds and 6% cash.
COMPARISON OF CHANGE IN VALUE OF $10,000
Standard & Poor's Consumer
Balanced Portfolio 500 Stock Index Balanced Index Price Index
------------------ --------------- -------------- -----------
5/10/94 $10,000 $10,000 $10,000 $10,000
3/31/95 11,223 11,495 11,034 10,272
3/31/96 14,094 15,190 13,241 10,563
3/31/97 15,762 18,186 15,044 10,855
3/31/98 21,209 26,915 18,896 11,004
9/30/98 19,457 25,037 18,830 11,099
TOTAL RETURNS for Periods Ending September 30, 1998
Inception
6 Months 1 Year 3 Years* to 9/30/98*
-------- ------ -------- -----------
Balanced Portfolio (8.3%) 2.6% 14.6% 16.4%
Balanced Index (50/40/10) (0.5) 9.8 15.1 15.5
Standard & Poor's 500 Stock Index (7.0) 9.0 22.6 23.3
Lehman Brothers Govt./Corp.
Intermediate Bond Index 6.4 10.4 7.9 8.3
Consumer Price Index 0.9 1.5 2.2 2.4
*Annualized returns. Inception date 5/10/94
See page 32 for index descriptions. Total return assumes reinvestment of
dividends and distributions. Past performance is not predictive of future
results. Investments 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
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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: Global demand for U.S. Treasury securities as a safe haven
against the Asian and Eastern European financial crises was the overriding
influence of fixed-income investment returns during the two quarters ending
September 30, 1998. Interest rates fell over 1% and the Federal Reserve Board
lowered the overnight funds rate to 5.25% with a strong hint of another
reduction later in the year. Corporate bonds did not fare well relative to U.S.
Treasuries as spread premiums widened to historic nominal levels. Lower quality
issuers and the finance and banking sectors were particularly affected. Mortgage
markets suffered underperformance as low rates prompted additional refinancings.
To your benefit, the Portfolio held only high-quality corporate bonds and no
mortgage-related bonds. The Intermediate Fixed Income Portfolio produced strong
returns for the period as over half of the Portfolio was invested in Treasury
issues. The concentration of maturities in intermediate securities and
off-the-run sectors provided some incremental return, as did the continued
emphasis on quality in the overall Portfolio construction.
COMPARISON OF CHANGE IN VALUE OF $10,000
Intermediate Fixed Lehman Government/Corporate Consumer
Income Portfolio Intermediate Bond Index Price Index
---------------- ----------------------- -----------
5/10/94 $10,000 $10,000 $10,000
3/31/95 10,492 10,607 10,272
3/31/96 11,421 11,622 10,563
3/31/97 11,803 12,180 10,855
3/31/98 12,880 13,358 11,004
9/30/98 13,812 14,219 11,099
TOTAL RETURNS for Periods Ending September 30, 1998
Inception
6 Months 1 Year 3 Years* to 9/30/98*
-------- ------ -------- -----------
Intermediate Fixed Income Portfolio 7.2% 11.2% 7.4% 7.6%
Lehman Brothers Govt./Corp
Intermediate Bond Index 6.4 10.4 7.9 8.3
91-Day Treasury Bill Index 2.5 5.2 5.3 5.3
Consumer Price Index 0.9 1.5 2.2 2.4
*Annualized returns. Inception date 5/10/94
See page 32 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
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SCHEDULES OF INVESTMENTS
Small/Mid Cap Equity Portfolio
September 30, 1998 (unaudited)
COMMON STOCKS
(96.99%) Shares Value
- --------------------------------------------------------------------------------
AUTOS AND TRANSPORTATION (2.96%)
Air Transportation (2.20%)
Airborne Freight Corp. 196,150 $3,395,847
Alaska Air Group Inc. 98,700 3,361,969
Expeditors International of Washington Inc. 43,475 1,206,431
Southwest Airlines Co. 118,768 2,375,360
----------
Total Air Transportation 10,339,607
----------
Auto Parts/Original Equipment (0.27%)
Arvin Industries Inc. 34,250 1,275,813
---------
Truckers (0.49%)
US Freightways Corp. 116,650 2,318,419
---------
TOTAL AUTOS AND TRANSPORTATION 13,933,839
----------
CONSUMER DISCRETIONARY (15.61%)
Consumer Electronics (1.11%)
Brightpoint Inc. 306,550 2,356,603
MindSpring Enterprises Inc. 69,950 2,902,925
---------
Total Consumer Electronics 5,259,528
---------
Cosmetics (0.99%)
Avon Products Inc. 128,000 3,592,000
Windmere-Durable Holdings Inc. 188,600 1,060,875
---------
Total Cosmetics 4,652,875
---------
Education Services (0.73%)
Sylvan Learning Systems Inc. 146,150 3,416,256
---------
Funeral Parlors and Cemetaries (0.42%)
Service Corporation International 61,200 1,950,750
---------
Household Furnishings (1.46%)
Blyth Industries Inc. 183,925 5,046,442
Rubbermaid Inc. 74,750 1,789,328
---------
Total Household Furnishings 6,835,770
---------
Leisure Time (1.01%)
Action Performance Cos. Inc. 175,350 4,734,450
---------
Publishing/Newspapers (0.33%)
New York Times Co. Cl. A 55,625 1,529,688
---------
Restaurants (2.22%)
CEC Entertainment Inc. 138,050 2,795,513
CKE Restaurants Inc. 113,275 3,369,931
Outback Steakhouse Inc. 161,850 4,268,794
----------
Total Restaurants 10,434,238
----------
Retail (3.72%)
General Nutrition Cos. Inc. 286,550 3,098,322
Pacific Sunwear Of California 158,975 3,537,194
The Men's Wearhouse Inc. 344,075 5,935,294
The TJX Cos. Inc. 88,350 1,573,734
Zale Corp. 129,300 3,313,313
----------
Total Retail 17,457,857
----------
Shoes (1.65%)
The Timberland Co. 64,975 2,371,588
Wolverine World Wide Inc. 495,925 5,393,184
---------
Total Shoes 7,764,772
=========
Textile Apparel Manufacturer (1.81%)
North Face Inc. 194,325 2,526,225
St. John Knits Inc. 137,250 2,213,156
Tommy Hilfiger Corp. 91,705 3,759,905
---------
Total Textile Apparel Manufacturer 8,499,286
---------
Toys (0.16%)
Cannondale Corp. 80,175 749,135
----------
TOTAL CONSUMER DISCRETIONARY 73,284,605
----------
CONSUMER STAPLES (10.31%)
Beverage: Brewers (Wine) (1.29%)
Canandaigua Brands Inc. Cl. A 153,000 6,043,500
---------
Drug and Grocery Store Chain (0.91%)
Wild Oats Markets Inc. 157,275 4,266,084
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
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Foods (8.11%)
Corn Products International Inc. 163,400 $4,125,850
Earthgrains Co. 156,600 4,844,813
Flowers Industries Inc. 359,450 7,840,503
General Mills Inc. 49,900 3,493,000
McCormick and Co. Inc. 140,000 4,068,750
Smithfield Foods Inc. 152,425 2,696,017
Sysco Corp. 186,225 4,387,927
The Quaker Oats Co. 113,081 6,671,779
----------
Total Foods 38,128,639
----------
TOTAL CONSUMER STAPLES 48,438,223
----------
FINANCIAL SERVICES (15.89%)
Banks/Outside New York City (5.11%)
First American Corp. 249,650 9,580,319
North Fork Bancorp. Inc. 256,175 5,123,500
Prime Bancshares Inc. 55,750 961,688
Summit Bancorp 222,750 8,353,125
----------
Total Banks/Outside New York City 24,018,632
----------
Finance Companies (1.41%)
FIRSTPLUS Financial Group Inc. 403,387 4,613,739
The FINOVA Group Inc. 40,000 1,997,500
----------
Total Finance Companies 6,611,239
----------
Financial/Miscellaneous (0.27%)
Franklin Resources Inc. 5,500 165,000
MGIC Investment Corp. 29,275 1,079,516
----------
Total Financial/Miscellaneous 1,244,516
----------
Insurance/Property and Casualty (4.14%)
ACE Ltd. 175,075 5,252,250
Everest Reinsurance Holdings Inc. 221,100 8,249,794
Mercury General Corp. 77,000 2,887,500
Orion Capital Corp. 57,950 2,068,091
Stirling Cooke Brown Holdings Ltd. 65,800 970,550
----------
Total Insurance/Property and Casualty 19,428,185
----------
Savings and Loan (4.96%)
Astoria Financial Corp. 142,250 5,992,281
Bank United Corp. Cl. A 197,850 7,085,503
Golden State Bancorp Inc. 431,825 8,609,511
Golden State
Bancorp Inc.-warrants 381,750 1,610,508
----------
Total Savings and Loan 23,297,803
----------
TOTAL FINANCIAL SERVICES 74,600,375
----------
HEALTH CARE (12.78%)
Drugs and Pharmaceuticals (10.30%)
Biogen Inc. 78,050 5,136,666
Forest Laboratories Inc. 307,250 10,561,719
Genzyme Corp. 410,525 14,830,216
ICN Pharmaceuticals Inc. 207,825 3,636,938
Immunex Corp. 79,775 4,417,541
PathoGenesis Corp. 292,150 9,750,506
----------
Total Drugs and Pharmaceuticals 48,333,586
----------
Health Care Facilities (1.60%)
HCR Manor Care Inc. 186,900 5,478,506
Sun Healthcare Group Inc. 316,650 2,058,225
----------
Total Health Care Facilities 7,536,731
----------
Medical and Dental
Instruments and Supplies (0.88%)
Henry Schein Inc. 98,875 3,435,906
Respironics Inc. 60,800 684,000
----------
Total Medical and Dental
Instruments and Supplies 4,119,906
----------
TOTAL HEALTH CARE 59,990,223
----------
INTEGRATED OILS (3.79%)
Oil/Integrated Domestic (2.89%)
Amerada Hess Corp. 37,350 2,154,628
Coastal Corp. 20,800 702,000
USX-Marathon Group 302,225 10,710,098
----------
Total Oil/Integrated Domestic 13,566,726
----------
Oil/Integrated International (0.90%)
YPF Sociedad Anonima 162,925 4,236,050
----------
TOTAL INTEGRATED OILS 17,802,776
----------
MATERIALS AND PROCESSING (6.70%)
Building Materials (0.02%)
Centex Corp. 2,950 101,775
----------
Chemicals (2.02%)
BFGoodrich Co. 289,950 9,477,741
----------
Diversified Materials (0.97%)
Pentair Inc. 141,650 4,568,213
----------
Metals and Minerals/Miscellaneous (1.04%)
Titanium Metals Corp. 345,825 4,884,778
----------
Metal Fabricating (0.05%)
Precision Castparts Corp. 5,325 219,656
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
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SCHEDULE OF INVESTMENTS - SMALL/MID CAP EQUITY PORTFOLIO, CONTINUED
Paper (1.10%)
The Mead Corp. 121,275 $3,570,033
Willamette Industries Inc. 56,275 1,614,389
-----------
Total Paper 5,184,422
-----------
Textile Products (1.50%)
Mohawk Industries Inc. 257,268 7,042,712
-----------
TOTAL MATERIALS AND PROCESSING 31,479,297
-----------
OTHER (0.61%)
Multi-Sector Companies (0.61%)
McDermott International Inc. 106,200 2,860,763
-----------
OTHER ENERGY (0.54%)
Machinery/Oil Well Equipment and Services (0.54%)
Newpark Resources Inc. 203,400 1,398,375
Willbros Group Inc. 181,400 1,156,425
-----------
Total Machinery/Oil Well
Equipment and Services 2,554,800
-----------
PRODUCER DURABLES (4.28%)
Aerospace (0.43%)
Sundstrand Corp. 43,225 2,004,559
-----------
Machinery/Industrial and Specialty (1.20%)
Applied Power Inc. 71,500 1,952,844
Ingersoll-Rand Co. 96,650 3,666,659
-----------
Total Machinery/
Industrial and Specialty 5,619,503
-----------
Office Furniture and Business (0.89%)
Herman Miller Inc. 68,750 1,357,813
-----------
HON INDUSTRIES Inc. 121,550 2,871,619
-----------
Total Office Furniture and Business 4,229,432
-----------
Pollution Control (0.56%)
U.S. Filter Corp. 163,350 2,613,600
-----------
Telecommunications Equipment (1.20%)
General Cable Corp. 303,450 5,613,825
-----------
Total Producer Durables 20,080,919
-----------
TECHNOLOGY (7.71%)
Communications Technology (1.14%)
Ascend Communications Inc. 24,700 1,123,850
Scientific-Atlanta Inc. 106,275 2,245,059
Tellabs Inc. 50,000 1,990,625
-----------
Total Communications Technology 5,359,534
-----------
Computer Services Software and Systems (5.83%)
Cadence Design Systems Inc. 96,025 2,454,639
Cambridge Technology Partners 190,575 4,252,205
Platinum Software Corp. 60,350 618,588
PLATINUM Technology Inc. 324,900 5,848,200
Symantec Corp. 470,825 6,209,005
Systems & Computer
Technology Corp. 345,350 4,446,381
Walker Interactive Systems Inc. 404,800 3,529,350
-----------
Total Computer Services
Software and Systems 27,358,368
-----------
Computer Technology (0.74%)
CHS Electronics Inc. 320,900 3,489,788
-----------
Total Technology 36,207,690
-----------
UTILITIES AND REITS (15.81%)
Real Estate Investment Trusts (3.96%)
American Health Properties Inc. 129,725 3,048,538
Innkeepers USA Trust 62,150 738,031
LTC Properties Inc. 320,925 5,596,130
Nationwide Health Properties Inc. 170,325 3,832,313
Omega Healthcare Investors Inc. 163,600 5,347,675
-----------
Total Real Estate Investment Trusts 18,562,687
-----------
Utilities/Electrical (3.73%)
PECO Energy Co. 317,850 11,621,391
Pinnacle West Capital Corp. 131,325 5,885,002
-----------
Total Utilities/Electrical 17,506,393
-----------
Utilities/Gas Distributors (3.11%)
Columbia Energy Group 50,887 2,983,250
Consolidated Natural Gas Co. 46,245 2,520,353
KN Energy Inc. 154,950 7,941,188
Questar Corp. 60,950 1,173,288
-----------
Total Utilities/Gas Distributors 14,618,079
-----------
Utilities/Miscellaneous (2.91%)
New Century Energies Inc. 281,050 13,683,622
Utilities/Telecommunications (2.10%)
Century Telephone
Enterprises Inc. 111,842 5,284,535
Frontier Corp. 166,875 4,568,193
-----------
Total Utilities/Telecommunications 9,852,728
-----------
TOTAL UTILITIES AND REITs 74,223,509
-----------
TOTAL COMMON STOCKS
(cost $534,584,867) $455,457,019
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
SHORT-TERM INVESTMENTS
(1.20%) Par Value Value
- --------------------------------------------------------------------------------
Variable Rate Demand Notes* (1.20%)
American Family
4.963% 07-26-1999 $427,375 $427,375
General Mills Inc.
4.949% 02-15-1999 440,000 440,000
Pitney Bowes
4.949% 02-03-1999 1,510,229 1,510,229
Sara Lee
4.944% 10-28-1998 936,791 936,791
Warner Lambert
4.963% 10-26-1998 1,849,487 1,849,486
Wisconsin Electric
4.963% 10-19-1998 460,000 460,000
------------
TOTAL VARIABLE RATE DEMAND
NOTES (COST $5,623,881) 5,623,881
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,623,881) $5,623,881
------------
TOTAL INVESTMENTS IN
SECURITIES (98.19%)
(cost $540,208,748) $461,080,900
------------
OTHER ASSETS Less
LIABILITIES (1.81%) $8,509,348
------------
Net Assets (100.00%) $469,590,249
============
*The variable-rate securities are subject to a demand feature which reduces the
remaining maturity.
Core Equity Portfolio
September 30, 1998 (unaudited)
Common Stocks
(99.35%) Shares Value
- --------------------------------------------------------------------------------
BASIC INDUSTRY (4.09%)
Chemical/Major (0.37%)
E.I. duPont de Nemours and Co. 45,375 $2,546,672
------------
Chemical/Specialty (1.58%)
BFGoodrich Co. 334,425 10,931,517
------------
Metals (1.02%)
Aluminum Co. of America 60,010 4,260,710
Titanium Metals Corp. 202,650 2,862,431
------------
Total Metals 7,123,141
------------
Paper and Forest Products (1.12%)
The Mead Corp. 192,625 5,670,398
Willamette Industries Inc. 71,450 2,049,722
------------
Total Paper and Forest Products 7,720,120
------------
TOTAL BASIC INDUSTRY 28,321,450
------------
CAPITAL GOODS (6.65%)
Aerospace/Industrial (2.69%)
Ingersoll-Rand Co. 129,274 4,904,332
Lockheed Martin Corp. 102,750 10,358,484
Sundstrand Corp. 72,725 3,372,622
------------
Total Aerospace/Industrial 18,635,438
------------
Diversified/Manufacturing (3.14%)
Pentair Inc. 24,900 803,025
Tyco International Ltd. 180,575 9,976,769
United Technologies Corp. 143,150 10,942,028
------------
Total Diversified/Manufacturing 21,721,822
------------
Pollution Control (0.83%)
Waste Management Inc. 118,850 5,712,228
------------
TOTAL CAPITAL GOODS 46,069,488
------------
CONGLOMERATES (1.00%)
Electric Equipment (1.00%)
General Electric Co. 87,600 6,969,675
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
SCHEDULE OF INVESTMENTS - CORE EQUITY PORTFOLIO, CONTINUED
CONSUMER CYCLICAL (6.74%)
Apparel/Shoes (1.20%)
North Face Inc. 87,400 $1,136,200
St. John Knits Inc. 112,050 1,806,806
Tommy Hilfiger Corp. 78,325 3,211,325
Wolverine World Wide Inc. 197,925 2,152,434
------------
Total Apparel/Shoes 8,306,765
------------
Autos and Auto Parts (0.67%)
Ford Motor Co. 98,825 4,638,598
------------
Consumer Cyclical/Miscellaneous (1.00%)
Action Performance Cos. Inc. 154,800 4,179,600
Mohawk Industries Inc. 100,825 2,760,084
------------
Total Consumer
Cyclical/Miscellaneous 6,939,684
------------
Office Furniture (0.63%)
Herman Miller Inc. 75,400 1,489,150
HON INDUSTRIES Inc. 121,600 2,872,800
------------
Total Office Furniture 4,361,950
------------
Retail (3.24%)
Dayton Hudson Corp. 202,800 7,250,100
General Nutrition Cos. Inc. 237,225 2,564,995
Home Depot Inc. 159,970 6,318,815
The Men's Wearhouse Inc. 207,537 3,580,013
The TJX Cos. Inc. 106,500 1,897,031
Zale Corp. 30,650 785,406
------------
Total Retail 22,396,360
------------
TOTAL CONSUMER CYCLICAL 46,643,357
------------
CONSUMER SERVICES (3.20%)
Cable Television (0.49%)
Viacom Inc. Cl. B 58,375 3,385,750
------------
Education (0.31%)
Sylvan Learning Systems Inc. 92,512 2,162,468
------------
Funeral Services (0.07%)
Service Corporation International 14,950 476,531
------------
Healthcare Services (1.14%)
HCR Manor Care Inc. 211,400 6,196,663
Sun Healthcare Group Inc. 258,050 1,677,325
------------
Total Healthcare Services 7,873,988
------------
Publishing/Newspapers (0.14%)
New York Times Co. Cl. A 36,100 992,750
------------
Restaurants (0.57%)
Outback Steakhouse Inc. 149,650 3,947,019
------------
Water Treatment (0.48%)
U.S. Filter Corp. 207,400 3,318,400
------------
TOTAL CONSUMER SERVICES 22,156,906
------------
CONSUMER STAPLES (27.75%)
Biotechnology (3.07%)
Biogen Inc. 39,825 2,620,983
Genzyme Corp. 297,050 10,730,931
Immunex Corp. 62,600 3,466,475
PathoGenesis Corp. 132,250 4,413,844
------------
Total Biotechnology 21,232,233
------------
Drugs (7.90%)
American Home Products Corp. 24,805 1,299,162
Bristol-Myers Squibb Co. 187,575 19,484,353
Forest Laboratories Inc. 175,325 6,026,797
ICN Pharmaceuticals Inc. 89,325 1,563,188
Merck & Co. Inc. 203,300 26,340,056
------------
Total Drugs 54,713,556
------------
Foods/Beverages (8.35%)
Anheuser-Busch Cos. Inc. 55,950 3,021,300
Canandaigua Brands Inc. Cl. A 132,375 5,228,813
Corn Products International Inc. 148,825 3,757,831
Earthgrains Co. 176,850 5,471,297
Flowers Industries Inc. 277,300 6,048,606
General Mills Inc. 49,975 3,498,250
McCormick & Co. Inc. 94,300 2,740,594
PepsiCo Inc. 328,075 9,657,708
Smithfield Foods Inc. 78,550 1,389,353
SYSCO Corp. 278,950 6,572,759
The Quaker Oats Co. 176,025 10,385,475
------------
Total Foods/Beverages 57,771,986
------------
Food/Drug Retail (1.82%)
Albertson's Inc. 62,000 3,355,750
CVS Corp. 139,580 6,115,349
Safeway Inc. 66,800 3,097,850
------------
Total Food/Drug Retail 12,568,949
------------
Hospital Supplies (1.52%)
Baxter International Inc. 104,700 6,229,650
Henry Schein Inc. 106,650 3,706,088
Respironics Inc. 51,050 574,313
------------
Total Hospital Supplies 10,510,051
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
Household Products/Cosmetics (2.86%)
Avon Products Inc. 219,300 $6,154,106
Blyth Industries Inc. 53,150 1,458,303
Colgate-Palmolive Co. 45,775 3,135,588
Kimberly-Clark Corp. 97,775 3,959,888
Rubbermaid Inc. 96,225 2,303,386
The Gillette Co. 74,100 2,834,325
------------
Total Household Products/Cosmetics 19,845,596
------------
Tobacco (2.23%)
Philip Morris Cos. Inc. 335,075 15,434,392
------------
TOTAL CONSUMER STAPLES 192,076,763
------------
CREDIT CYCLICAL (0.33%)
Home Builders (0.33%)
Centex Corp. 66,450 2,292,525
------------
ENERGY (6.19%)
Natural Gas Diversified (0.36%)
Coastal Corp. 73,725 2,488,219
------------
Oil/Integrated Domestic (2.88%)
Amerada Hess Corp. 51,400 2,965,138
Phillips Petroleum Co. 74,475 3,360,684
USX-Marathon Group 383,800 13,600,913
------------
Total Oil/Integrated Domestic 19,926,735
------------
Oil/Integrated International (2.36%)
Mobil Corp. 133,500 10,137,656
YPF Sociedad Anonima 238,075 6,189,950
------------
Total Oil/Integrated International 16,327,606
------------
Oil Services (0.59%)
Halliburton Co. 25,325 723,345
Newpark Resources Inc. 67,275 462,516
McDermott International Inc. 109,425 2,947,636
------------
Total Oil Services 4,133,497
------------
TOTAL ENERGY 42,876,057
------------
FINANCIAL (15.78%)
Banks (5.60%)
BankAmerica Corp. 120,950 7,272,119
First American Corp. 52,600 2,018,525
Fleet Financial Group 171,150 12,568,828
PNC Bank Corp. 255,735 11,508,075
Summit Bancorp 143,150 5,368,125
------------
Total Banks 38,735,672
------------
Finance Companies (2.49%)
Associates First Capital Corp. 100,481 6,556,385
FIRSTPLUS Financial Group Inc. 216,050 2,471,072
Household International Inc. 218,750 8,203,125
------------
Total Finance Companies 17,230,582
------------
Financial/Miscellaneous (0.72%)
Franklin Resources Inc. 88,925 2,667,750
MGIC Investment Corp. 63,600 2,345,250
------------
Total Financial/Miscellaneous 5,013,000
------------
Financial Services (2.56%)
American Express Co. 49,200 3,819,150
Marsh & McLennan Cos. Inc. 223,513 11,119,747
Travelers Group Inc. 73,725 2,764,688
------------
Total Financial Services 17,703,585
------------
Insurance (2.08%)
ACE Ltd. 146,800 4,404,000
Allstate Corp. 194,550 8,110,303
Everest Reinsurance Holdings Inc. 44,550 1,662,272
Mercury General Corp. 6,250 234,375
------------
Total Insurance 14,410,950
------------
Savings and Loan (2.33%)
Astoria Financial Corp. 45,000 1,895,625
Bank United Corp. Cl. A 100,800 3,609,900
Golden State Bancorp Inc. 306,725 6,115,330
Golden State
Bancorp Inc.-warrants 203,975 860,520
Washington Mutual Inc. 107,937 3,642,874
------------
Total Savings and Loan 16,124,249
------------
TOTAL FINANCIAL 109,218,038
------------
TECHNOLOGY (14.41%)
Computer Software/Services (7.81%)
America Online Inc. 33,125 3,685,156
Cadence Design Systems Inc. 114,725 2,932,658
Cambridge Technology Partners 132,600 2,958,638
Computer Associates Intl. Inc. 117,550 4,349,350
Microsoft Corp. 224,405 24,698,575
PeopleSoft Inc. 77,675 2,534,147
PLATINUM Technology Inc. 232,900 4,192,200
Symantec Corp. 358,800 4,731,675
Systems & Computer
Technology Corp. 196,600 2,531,225
Walker Interactive Systems Inc. 162,650 1,418,105
------------
Total Computer Software/Services 54,031,729
------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
SCHEDULE OF INVESTMENTS - CORE EQUITY PORTFOLIO, CONTINUED
Computer Systems (2.14%)
IBM 46,270 $5,922,560
Sun Microsystems Inc. 178,475 8,890,286
------------
Total Computer Systems 14,812,846
------------
Distribution (0.21%)
Brightpoint Inc. 193,400 1,486,763
------------
Networking/Communications Equipment (3.82%)
Ascend Communications Inc. 54,600 2,484,300
Cisco Systems Inc. 157,313 9,723,879
Northern Telecom Ltd. 190,615 6,099,680
Scientific-Atlanta Inc. 94,250 1,991,031
Tellabs Inc. 154,370 6,145,856
------------
Total Networking/
Communications Equipment 26,444,746
------------
Technology/Miscellaneous (0.42%)
General Cable Corp. 156,825 2,901,263
------------
TOTAL TECHNOLOGY 99,677,347
------------
TRANSPORTATION (0.97%)
Airlines/Air Freight (0.71%)
Alaska Air Group Inc. 15,075 513,492
Airborne Freight Corp. 95,800 1,658,538
Southwest Airlines Co. 136,843 2,736,860
------------
Total Airlines/Air Freight 4,908,890
------------
Trucking (0.26%)
USFreightways Corp. 91,250 1,813,594
------------
Total Transportation 6,722,484
------------
UTILITIES AND REITS (12.24%)
Communications (8.25%)
Ameritech Corp. 64,475 3,054,503
Bell Atlantic Corp. 380,056 18,408,963
MCI Worldcom Inc. 234,125 11,442,859
SBC Communications Inc. 301,100 13,380,131
US WEST Inc. 206,425 10,824,411
------------
Total Communications 57,110,867
------------
Electric/Natural Gas (3.73%)
Columbia Energy Group 52,875 3,099,797
Consolidated Natural Gas Co. 75,235 4,100,308
Duke Energy Corp. 22,500 1,489,219
KN Energy Inc. 118,700 6,083,375
New Century Energies Inc. 146,800 7,147,325
PECO Energy Company 64,225 2,348,227
Questar Corp. 81,450 1,567,913
------------
Total Electric/Natural Gas 25,836,164
------------
Real Estate Investment Trusts (0.26%)
Innkeepers USA Trust 63,900 758,813
Nationwide Health Properties Inc. 45,875 1,032,181
------------
Total Real Estate Investment Trusts 1,790,994
------------
Total Utilities and REITs 84,738,025
------------
TOTAL COMMON STOCKS
(cost $ 733,612,054) $687,762,115
------------
SHORT-TERM INVESTMENTS
(0.55%) Par Value Value
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* (0.55%)
American Family
4.963% 07-26-1999 $1,421,049 $1,421,049
Pitney Bowes
4.949% 02-03-1999 1,150,186 1,150,186
Warner-Lambert
4.963% 10-26-1998 250,000 250,000
Wisconsin Electric
4.963% 10-19-1998 982,011 982,011
------------
TOTAL VARIABLE RATE DEMAND
NOTES (COST $3,803,246) 3,803,246
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,803,246) $3,803,246
------------
TOTAL INVESTMENTS
IN SECURITIES (99.90%)
(cost $737,415,300) $691,565,361
------------
OTHER ASSETS LESS
LIABILITIES (0.10%) $693,333
------------
NET ASSETS (100.00%) $692,258,694
============
*THE VARIABLE-RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH REDUCES THE
REMAINING MATURITY.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Balanced Portfolio
September 30, 1998 (unaudited)
LONG-TERM DEBT SECURITIES
(32.69%) Par Value Value
- --------------------------------------------------------------------------------
CORPORATE BONDS (17.34%)
FINANCE (15.44%)
Automobile (0.83%)
Ford Motor Credit Co.
6.375% 04-15-2000 $190,000 $192,786
GMAC
5.500% 12-15-2001 500,000 498,546
----------
Total Automobile 691,332
----------
Banks (2.78%)
Citicorp
7.125% 06-01-2003 1,000,000 1,063,218
NationsBank Corp.
6.125% 07-15-2004 1,200,000 1,240,604
----------
Total Banks 2,303,822
----------
Consumer (2.24%)
Beneficial Corp. Medium Term Notes
8.050% 04-02-1999 450,000 455,392
6.350% 12-03-2001 700,000 719,724
Sears Roebuck Acceptance Corp. Medium Term Note
7.110% 06-19-2001 650,000 678,671
----------
Total Consumer 1,853,787
----------
Diversified (2.80%)
American General Finance
6.875% 01-15-2000 50,000 50,939
Associates Corp. of North America
6.000% 06-15-2000 25,000 25,308
7.500% 04-15-2002 100,000 107,250
Associates Corp. of North America
Medium Term Notes
6.375% 06-01-2000 75,000 76,177
6.840% 07-03-2001 700,000 727,558
Commercial Credit TRV
6.875% 05-01-2002 200,000 210,816
6.500% 06-01-2005 1,000,000 1,051,283
General Electric Capital
6.660% 05-01-2018 75,000 76,754
----------
Total Diversified 2,326,085
----------
Insurance (1.91%)
Hartford Life Inc.
6.900% 06-15-2004 1,000,000 1,061,278
Travelers PPTY
6.750% 04-15-2001 500,000 518,778
Total Insurance 1,580,056
Leasing Companies (1.18%)
International Lease Finance
6.250% 10-15-2000 500,000 509,494
International Lease Finance
Medium Term Note
6.340% 02-01-2002 450,000 464,952
----------
Total Leasing Companies 974,446
----------
Other (3.70%)
Dean Witter Discovry and Co.
6.250% 03-15-2000 30,000 30,403
6.750% 08-15-2000 200,000 205,527
Merrill Lynch
7.375% 08-17-2002 30,000 32,232
7.050% 04-15-2003 55,000 55,015
6.000% 02-12-2003 500,000 511,294
Merrill Lynch Medium Term Note
7.050% 06-04-2001 350,000 365,221
Morgan Stanley Group
6.1250% 10-01-2003 215,000 221,745
Morgan Stanley Group Medium Term Note
5.750% 02-15-2001 500,000 505,497
Salomon Smith Barney
6.625% 07-01-2002 1,100,000 1,138,372
----------
Total Other 3,065,306
----------
TOTAL FINANCE 12,794,834
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
SCHEDULE OF INVESTMENTS - BALANCED PORTFOLIO, CONTINUED
INDUSTRIAL (1.90%)
Automotive (0.03%)
Ford Motor Co.
7.500% 11-15-1999 $25,000 $25,616
-----------
Consumer (1.29%)
Sears Roebuck & Co.
6.670% 07-07-2003 1,000,000 1,065,313
-----------
Energy and Related Goods and Services (0.52%)
Texaco Capital
Medium Term Note
7.250% 08-01-2002 400,000 427,940
-----------
Medical and Related Goods and Services (0.06%)
SmithKline Beecham PLC Corp.
Medium Term Note
6.625% 10-01-2005 50,000 53,076
-----------
TOTAL INDUSTRIAL 1,571,945
-----------
TOTAL CORPORATE BONDS 14,366,779
-----------
U.S. GOVERNMENT
SECURITIES (14.03%)
U.S. TREASURY NOTES
7.125% 02-29-2000 400,000 414,250
6.750% 04-30-2000 1,000,000 1,034,063
5.750% 10-31-2000 700,000 719,032
7.750% 02-15-2001 970,000 1,043,054
7.500% 11-15-2001 400,000 436,000
6.375% 08-15-2002 2,000,000 2,141,252
6.250% 02-15-2003 425,000 457,008
5.750% 08-15-2003 700,000 743,094
7.250% 08-15-2004 1,200,000 1,721,720
7.000% 07-15-2006 2,500,000 2,914,065
-----------
TOTAL U.S. TREASURY NOTES 11,623,538
-----------
FOREIGN BONDS (U.S. DOLLAR
DENOMINATED) (1.32%)
Hydro Quebec
7.375% 02-01-2003 350,000 379,348
Ontario Global Bond
7.375% 01-27-2003 650,000 711,861
-----------
TOTAL FOREIGN BONDS 1,091,209
-----------
TOTAL LONG-TERM
DEBT SECURITIES
(cost $26,008,855) $27,081,526
-----------
COMMON STOCKS
(60.55%) Shares Value
- --------------------------------------------------------------------------------
BASIC INDUSTRY (2.48%)
Chemical/Major (0.24%)
E.I. duPont de Nemours and Co. 3,550 $ 199,244
Chemical/Specialty (1.01%)
BFGoodrich Co. 25,675 839,252
Metals (0.63%)
Aluminum Co. of America 4,550 323,050
Titanium Metals Corp. 14,150 199,869
-----------
Total Metals 522,919
-----------
Paper and Forest Products (0.60%)
The Mead Corp. 12,250 360,609
Willamette Industries Inc. 4,800 137,700
-----------
Total Paper and Forest Products 498,309
-----------
TOTAL BASIC INDUSTRY 2,059,724
-----------
CAPITAL GOODS (3.98%)
Aerospace/Industrial (1.63%)
Ingersoll-Rand Co. 8,950 339,541
Lockheed Martin Corp. 7,175 723,330
Sundstrand Corp. 6,250 289,844
-----------
Total Aerospace/Industrial 1,352,715
-----------
Diversified/Manufacturing (1.83%)
Pentair Inc. 3,950 127,388
Tyco International Ltd. 12,975 716,869
United Technologies Corp. 8,775 670,739
-----------
Total Diversified/Manufacturing 1,514,996
-----------
Pollution Control (0.52%)
Waste Management Inc. 8,900 427,756
-----------
TOTAL CAPITAL GOODS 3,295,467
-----------
CONGLOMERATES (0.52%)
Electric Equipment (0.52%)
General Electric Co. 5,450 433,616
-----------
CONSUMER CYCLICAL (4.36%)
Apparel/Shoes (0.59%)
North Face Inc. 8,275 107,575
St. John Knits Inc. 5,700 91,913
Tommy Hilfiger Corp. 4,800 196,800
Wolverine World Wide Inc. 8,850 96,244
-----------
Total Apparel/Shoes 492,532
-----------
Autos and Auto Parts (0.54%)
Ford Motor Co. 9,600 450,600
-----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Consumer Cyclical/Miscellaneous (0.49%)
Action Performance Cos. Inc. 7,650 $ 206,550
Mohawk Industries Inc. 7,200 197,100
----------
Total Consumer Cyclical/Miscellaneous 403,650
----------
Office Furniture (0.17%)
HON INDUSTRIES Inc. 5,950 140,569
----------
Restaurants (0.35%)
Outback Steakhouse Inc. 10,875 286,828
----------
Retail (2.22%)
Dayton Hudson Corp. 13,875 496,031
General Nutrition Cos. Inc. 14,900 161,106
Home Depot Inc. 9,725 384,138
Pacific Sunwear Of California 5,150 114,588
The Men's Wearhouse Inc. 14,250 245,813
The TJX Cos. Inc. 10,700 190,594
Zale Corp. 9,500 243,438
----------
Total Retail 1,835,708
----------
TOTAL CONSUMER CYCLICAL 3,609,887
----------
CONSUMER SERVICES (1.83%)
Cable Television (0.30%)
Viacom Inc. Cl. B 4,300 249,400
----------
Education (0.20%)
Sylvan Learning Systems Inc. 6,962 162,737
----------
Funeral Services (0.13%)
Service Corporation International 3,250 103,594
----------
Healthcare Services (0.67%)
HCR Manor Care Inc. 13,550 397,184
Sun Healthcare Group Inc. 25,600 166,400
----------
Total Healthcare Services 563,584
----------
Publishing/Newspapers (0.19%)
New York Times Co. Cl. A 5,725 157,438
----------
Water Treatment (0.34%)
U.S. Filter Corp. 17,375 278,000
----------
TOTAL CONSUMER SERVICES 1,514,753
----------
CONSUMER STAPLES (16.41%)
Biotechnology (2.02%)
Biogen Inc. 5,350 352,097
Genzyme Corp. 22,000 794,750
Immunex Corp. 4,700 260,263
PathoGenesis Corp. 7,900 263,663
----------
Total Biotechnology 1,670,773
----------
Drugs (4.48%)
American Home Products Corp. 1,675 87,728
Bristol-Myers Squibb Co. 14,725 1,529,559
Forest Laboratories Inc. 11,250 386,719
ICN Pharmaceuticals Inc. 3,750 65,625
Merck & Co. Inc. 12,650 1,638,966
----------
Total Drugs 3,708,597
----------
Foods/Beverages (4.60%)
Anheuser-Busch Cos. Inc. 3,250 175,500
Canandaigua Brands Inc. Cl. A 8,950 353,525
Corn Products International Inc. 9,650 243,663
Earthgrains Co. 11,625 359,648
Flowers Industries Inc. 19,800 431,888
General Mills Inc. 4,850 339,500
McCormick & Co. Inc. 2,000 58,125
PepsiCo Inc. 21,700 638,794
Smithfield Foods Inc. 6,025 106,567
SYSCO Corp. 20,450 481,853
The Quaker Oats Co. 10,600 625,400
----------
Total Foods/Beverages 3,814,463
----------
Food/Drug Retail (0.95%)
Albertson's Inc. 4,250 230,031
CVS Corp. 8,350 365,834
Safeway Inc. 4,150 192,456
----------
Total Food/Drug Retail 788,321
----------
Hospital Supplies (1.08%)
Baxter International Inc. 8,400 499,800
Henry Schein Inc. 7,600 264,100
Respironics Inc. 11,950 134,438
----------
Total Hospital Supplies 898,338
----------
Household Products/Cosmetics (1.85%)
Avon Products Inc. 17,050 478,466
Blyth Industries Inc. 3,500 96,031
Colgate-Palmolive Co. 2,950 202,075
Kimberly-Clark Corp. 7,600 307,800
Rubbermaid Inc. 5,100 122,081
The Gillette Co. 7,050 269,663
Windmere-Durable Holdings Inc. 10,000 56,250
----------
Total Household Products/Cosmetics 1,532,366
----------
Tobacco (1.42%)
Philip Morris Cos. Inc. 25,550 1,176,897
----------
TOTAL CONSUMER STAPLES 13,589,755
----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
SCHEDULE OF INVESTMENTS - BALANCED PORTFOLIO, CONTINUED
CREDIT CYCLICAL (0.35%)
Home Builders (0.35%)
Centex Corp. 8,425 $290,663
---------
ENERGY (4.08%)
Natural Gas Diversified (0.38%)
Coastal Corp. 9,400 317,250
---------
Oil/Integrated Domestic (1.97%)
Amerada Hess Corp. 4,200 242,288
Phillips Petroleum Co. 5,425 244,803
USX-Marathon Group 32,250 1,142,859
---------
Total Oil/Integrated Domestic 1,629,950
---------
Oil/Integrated International (1.35%)
Mobil Corp. 8,400 637,875
YPF Sociedad Anonima 18,475 480,350
---------
Total Oil/Integrated International 1,118,225
---------
Oil Services (0.38%)
McDermott International Inc. 9,900 266,681
Newpark Resources Inc. 7,050 48,469
---------
Total Oil Services 315,150
---------
TOTAL ENERGY 3,380,575
---------
FINANCIAL (9.63%)
Banks (3.51%)
BankAmerica Corp. 9,425 566,678
First American Corp. 11,000 422,125
Fleet Financial Group 10,375 761,914
PNC Bank Corp. 14,600 657,000
Summit Bancorp 13,300 498,750
---------
Total Banks 2,906,467
---------
Finance Companies (1.47%)
Associates First Capital Corp. 8,099 528,460
FIRSTPLUS Financial Group Inc. 14,075 160,983
Household International Inc. 14,075 527,813
---------
Total Finance Companies 1,217,256
---------
Financial/Miscellaneous (0.39%)
Franklin Resources Inc. 5,050 151,500
MGIC Investment Corp. 4,750 175,156
---------
Total Financial/Miscellaneous 326,656
---------
Financial Services (1.47%)
American Express Co. 2,900 225,113
Marsh & McLennan Cos. Inc. 15,750 783,563
Travelers Group Inc. 5,675 212,813
---------
Total Financial Services 1,221,489
---------
Insurance (1.48%)
ACE Ltd. 11,075 332,250
Allstate Corp. 13,500 562,781
Everest Reinsurance Holdings Inc. 4,600 171,638
Mercury General Corp. 2,650 99,375
Orion Capital Corp. 1,750 62,453
---------
Total Insurance 1,228,497
---------
Savings and Loan (1.31%)
Astoria Financial Corp. 3,400 143,225
Bank United Corp. Cl. A 5,500 196,969
Golden State Bancorp Inc. 21,400 426,663
Golden State Bancorp-warrants 15,900 67,078
Washington Mutual Inc. 7,387 249,311
---------
Total Savings and Loan 1,083,246
---------
TOTAL FINANCIAL 7,983,611
---------
TECHNOLOGY (8.26%)
Computer Software/Services (4.27%)
America Online Inc. 2,100 233,625
Cadence Design Systems Inc. 4,300 109,919
Cambridge Technology Partners 8,750 195,234
Computer Associates Intl. Inc. 8,900 329,300
PLATINUM Technology Inc. 12,550 225,900
Microsoft Corp. 15,675 1,725,230
PeopleSoft Inc. 4,675 152,522
Symantec Corp. 26,825 353,755
Systems & Computer
Technology Corp. 10,950 140,981
Walker Interactive Systems Inc. 8,000 69,750
---------
Total Computer Software/Services 3,536,216
---------
Computer Systems (1.55%)
IBM 5,050 646,400
Sun Microsystems Inc. 12,800 637,600
---------
Total Computer Systems 1,284,000
---------
Distribution (0.17%)
Brightpoint Inc. 18,850 144,909
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Networking/Communications Equipment (2.03%)
Ascend Communications Inc. 4,000 $182,000
Cisco Systems Inc. 10,088 623,534
Northern Telecom Ltd. 14,475 463,200
Scientific-Atlanta Inc. 4,650 98,231
Tellabs Inc. 7,900 314,519
-----------
Total Networking/
Communications Equipment 1,681,484
-----------
Technology/Miscellaneous (0.24%)
General Cable Corp. 10,825 200,263
-----------
TOTAL TECHNOLOGY 6,846,872
-----------
TRANSPORTATION (0.88%)
Airlines/Air Freight (0.63%)
Airborne Freight Corp. 15,000 259,688
Southwest Airlines Co. 13,200 264,000
-----------
Total Airlines/Air Freight 523,688
-----------
Trucking (0.25%)
USFreightways Corp. 10,450 207,694
-----------
TOTAL TRANSPORTATION 731,382
-----------
UTILITIES AND REITS (7.77%)
Communications (5.02%)
Ameritech Corp. 4,625 219,109
Bell Atlantic Corp. 24,850 1,203,672
Frontier Corp. 3,650 99,919
MCI Worldcom Inc. 17,475 854,091
SBC Communications Inc. 20,575 914,302
US WEST Inc. 16,525 866,530
-----------
Total Communications 4,157,623
-----------
Electric/Natural Gas (2.29%)
Columbia Energy Group 2,450 143,631
Consolidated Natural Gas Co. 7,750 422,375
Duke Energy Co. 1,575 104,245
KN Energy Inc. 7,700 394,625
New Century Energies Inc. 12,400 603,725
PECO Energy Company 5,975 218,461
-----------
Total Electric/Natural Gas 1,887,062
-----------
Real Estate Investment Trusts (0.46%)
Innkeepers USA Trust 7,500 89,063
Nationwide Health Properties Inc. 13,100 294,737
-----------
Total Real Estate
Investment Trusts 383,800
-----------
TOTAL UTILITIES AND REITS 6,428,485
-----------
TOTAL COMMON STOCKS
(cost $53,388,044) $50,164,790
-----------
SHORT-TERM INVESTMENTS
(5.80%) Par Value Value
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* (5.80%)
American Family
4.963% 07-26-1999 $2,122,808 $2,122,808
Warner Lambert
4.9630% 10-26-1998 1,035,327 1,035,327
Wisconsin Electric
4.963% 10-19-1998 1,643,170 1,643,170
-----------
TOTAL VARIABLE RATE DEMAND
NOTES (COST $4,801,305) 4,801,305
-----------
TOTAL SHORT-TERM
INVESTMENTS (COST $4,801,305) $4,801,305
-----------
TOTAL INVESTMENTS
IN SECURITIES (99.03%)
(cost $84,198,203) $82,047,621
-----------
OTHER ASSETS LESS
LIABILITIES (0.97%) $800,409
-----------
NET ASSETS (100.00%) $82,848,030
===========
*THE VARIABLE-RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH REDUCES THE
REMAINING MATURITY.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Intermediate Fixed Income Portfolio
SEPTEMBER 30, 1998 (UNAUDITED)
LONG-TERM DEBT SECURITIES
(96.95%) Par Value Value
- --------------------------------------------------------------------------------
CORPORATE BONDS (39.95%)
FINANCE (31.54%)
Automobile (3.37%)
Ford Motor Credit Co.
6.375% 04-15-2000 $75,000 $76,100
GMAC Medium Term Note
6.500% 12-06-2004 500,000 527,105
---------
Total Automobile 603,205
---------
Banks (4.70%)
Banc One Corp.
7.375% 12-01-2002 780,000 840,831
---------
Consumer (6.31%)
Beneficial Corp. Medium Term Note
6.510% 12-03-2003 500,000 523,090
Household Finance Co.
Medium Term Note
7.000% 09-18-2001 600,000 606,619
---------
Total Consumer 1,129,709
---------
Credit Card (0.57%)
Discover Credit Medium Term Note
8.350% 05-06-1999 100,000 101,632
---------
Diversified (5.39%)
American General Finance
6.875% 01-15-2000 25,000 25,470
Associates Corp. of North America
7.500% 05-15-1999 100,000 101,169
Associates Corp. of North America
Medium Term Notes
6.375% 06-01-2000 25,000 25,392
6.840% 07-03-2001 300,000 311,810
Commercial Credit TRV
6.500% 06-01-2005 300,000 315,385
General Electric Capital
6.660% 05-01-2018 180,000 184,209
---------
Total Diversified 963,435
---------
Leasing Companies (1.14%)
International Lease Finance
6.250% 10-15-2000 200,000 203,797
---------
Other (10.06%)
Dean Witter Discovry and Co.
6.250% 03-15-2000 40,000 40,537
Merrill Lynch
7.050% 04-15-2003 100,000 100,027
Merrill Lynch Medium Term Note
7.050% 06-04-2001 375,000 391,308
Morgan Stanley Group
6.125% 10-01-2003 200,000 206,274
6.375% 12-05-2003 25,000 26,094
Salomon Smith Barney Holdings
6.625% 07-01-2002 1,000,000 1,034,884
---------
Total Other 1,799,124
---------
Total Finance 5,641,733
---------
Industrial (8.41%)
Automotive (0.14%)
Ford Motor Co.
7.500% 11-15-1999 25,000 25,616
---------
Consumer (5.96%)
Sears Roebuck & Co.
6.670% 07-07-2003 1,000,000 1,065,313
---------
Credit Card (2.31%)
Nordstrom Credit Medium Term Note
7.890% 02-14-2000 400,000 413,767
---------
Total Industrial 1,504,696
---------
Total Corporate Bonds 7,146,429
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS (54.77%)
U.S. TREASURY OBLIGATIONS (54.77%)
Certificate of Accrual
Treasury Securities
0.000% 11-15-1999 $100,000 $95,097
U.S. Treasury Notes
7.500% 11-15-2001 600,000 654,001
6.625% 03-31-2002 1,000,000 1,072,188
6.375% 08-15-2002 1,200,000 1,284,751
5.750% 08-15-2003 800,000 849,250
7.250% 05-15-2004 1,000,000 1,142,188
7.250% 08-15-2004 1,250,000 1,434,766
7.000% 07-15-2006 2,800,000 3,263,753
-----------
Total U.S. Treasury Notes 9,700,897
-----------
TOTAL U.S. TREASURY
OBLIGATIONS 9,795,994
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS $9,795,994
-----------
FOREIGN BONDS
(U.S. DOLLAR DENOMINATED)
(2.23%)
Hydro Quebec
7.375% 02-01-2003 125,000 135,483
Ontario Global Bond
7.375% 01-27-2003 240,000 262,843
-----------
TOTAL FOREIGN BONDS 398,326
-----------
TOTAL LONG-TERM
DEBT SECURITIES
(cost $16,448,911) $17,340,749
-----------
SHORT-TERM INVESTMENTS
(1.88%) Par Value Value
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES* (1.88%)
American Family
4.963% 01-26-1999 $127,164 $127,164
Wisconsin Electric
4.963% 10-19-1998 210,000 210,000
-----------
TOTAL VARIABLE RATE DEMAND
NOTES (COST $337,164) 337,164
-----------
TOTAL SHORT-TERM
INVESTMENTS (COST $337,164) $337,164
-----------
TOTAL INVESTMENTS
IN SECURITIES (98.83%)
(cost $16,786,075) $17,677,913
-----------
OTHER ASSETS LESS
LIABILITIES (1.17%) $209,011
-----------
NET ASSETS (100.00%) $17,886,924
===========
*THE VARIABLE-RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH REDUCES THE
REMAINING MATURITY.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
SEPTEMBER 30, 1998 (UNAUDITED)
<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 (Note 2)
(cost of $540,208,748, $737,415,300,
$84,198,203 and $16,786,075 respectively) $ 461,080,900 $ 691,565,361 $ 82,047,621 $ 17,677,913
Receivables
Investment securities sold 8,830,158 2,629,571 668,006 --
Fund shares sold 263,320 135,707 107,761 15,192
Dividends and interest 342,491 904,710 549,833 284,426
Net deferred organization costs 3,704 3,704 3,704 3,704
Prepaid expenses 98,452 155,419 11,505 1,668
----------------------------------------------------------------
Total assets 470,619,025 695,394,472 83,388,430 17,982,903
----------------------------------------------------------------
LIABILITIES
Payables for investment securities purchased 344,716 2,240,498 86,576 --
Fund shares redeemed 241,612 321,191 5,025 --
Distributions to shareholders -- -- 374,675 71,659
Due to Investment Advisor (Note 3) 424,956 568,948 59,280 206
Other accrued expenses 17,492 5,141 14,844 24,114
----------------------------------------------------------------
Total liabilities 1,028,776 3,135,778 540,400 95,979
----------------------------------------------------------------
Net assets $ 469,590,249 $ 692,258,694 $ 82,848,030 $ 17,886,924
================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $ 530,014,420 $ 682,012,692 $ 79,450,697 $ 16,704,576
Accumulated undistributed
net investment income (loss) (93,656) 1,697,838 9,865 15,094
Accumulated undistributed
net realized gain on investments 18,797,333 54,398,103 5,538,050 275,416
Net unrealized appreciation
(depreciation) on investments (79,127,848) (45,849,939) (2,150,582) 891,838
----------------------------------------------------------------
Net assets $ 469,590,249 $ 692,258,694 $ 82,848,030 $ 17,886,924
================================================================
Number of shares issued and outstanding
(unlimited shares authorized) no par value 24,835,633 32,929,870 5,430,074 1,378,070
================================================================
Net asset value per share $ 18.91 $ 21.02 $ 15.26 $ 12.98
================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
STATEMENTS OF OPERATIONS
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FOR THE SIX MONTHS ENDING SEPTEMBER 30, 1998 (UNAUDITED)
<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 $ 2,973,674 $ 5,120,532 $ 331,414 $ --
Interest income 242,279 374,765 814,664 68,522
----------------------------------------------------------------
Total income 3,215,953 5,495,297 1,146,078 568,522
----------------------------------------------------------------
Expenses
Investment advisory fees (Note 3) 2,324,481 2,893,226 262,164 41,697
Custodian fees 58,342 79,395 15,623 2,507
Administration fees (Note 3) 127,164 160,852 37,452 9,266
Fund accounting fees 28,714 34,329 12,769 11,029
Transfer agent fees 13,644 16,419 7,049 5,891
Legal fees 4,191 5,957 608 276
Distribution fees (Note 3) 683,671 964,408 93,630 9,266
Insurance 2,932 4,037 428 123
Audit fees 10,947 10,947 10,947 4,262
Miscellaneous fees 7,521 11,029 3,510 2,006
Reports to shareholders 22,562 25,069 4,513 2,006
Registration fees 55,586 62,635 8,556 5,265
Trustees fees 3,197 3,197 3,197 3,197
Amortization of deferred organization costs 2,130 2,130 2,130 2,130
----------------------------------------------------------------
Total expenses 3,345,082 4,273,630 462,576 98,921
Less: expenses reimbursed (Note 3) -- -- (16,898) (47,958)
----------------------------------------------------------------
Net expenses 3,345,082 4,273,630 445,678 50,963
----------------------------------------------------------------
Net investment income (loss) (129,129) 1,221,667 700,400 517,559
----------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments sold (815,319) 28,268,837 3,370,830 263,582
Net change in unrealized appreciation
(depreciation) on investments (148,979,187) (153,918,862) (10,212,718) 486,024
----------------------------------------------------------------
Net gain (loss) on investments (149,794,506) (125,650,025) (6,841,888) 749,606
----------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS ($149,923,635) ($124,428,358) ($ 6,141,488) $ 1,267,165
================================================================
</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 six For the fiscal For the six For the fiscal
months ending year ending months ending year ending
09/30/98* 03/31/98 09/30/98* 03/31/98
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN
NET ASSETS
Operations
Net investment income (loss) ($ 129,129) ($ 183,051) $ 1,221,667 $ 1,616,874
Net realized gain (loss) on
investments sold (815,319) 41,050,081 28,268,837 66,867,764
Net change in unrealized appreciation
(depreciation) on investments (148,979,187) 69,643,055 (153,918,862) 104,559,153
----------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations (149,923,635) 110,510,085 (124,428,358) 173,043,791
----------------------------------------------------------------
Distributions to shareholders
From net investment income -- (13,604) -- (1,469,662)
From net realized gain on investments sold -- (31,425,265) -- (62,718,809)
----------------------------------------------------------------
Total distributions -- (31,438,869) -- (64,188,471)
----------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 198,608,961 340,494,460 241,271,810 364,293,961
Net asset value of shares issued on
reinvestment of distributions -- 30,892,800 -- 61,029,604
Cost of shares redeemed (94,777,168) (71,117,233) (123,249,314) (96,143,437)
----------------------------------------------------------------
Net increase (decrease) from
capital share transactions 103,831,793 300,270,027 118,022,496 329,180,128
----------------------------------------------------------------
Net increase (decrease) in net assets (46,091,842) 379,341,243 (6,405,862) 438,035,448
NET ASSETS
Beginning of period 515,682,091 136,340,848 698,664,556 260,629,108
----------------------------------------------------------------
End of period $ 469,590,249 $ 515,682,091 $ 692,258,694 $ 698,664,556
================================================================
CHANGE IN SHARES
OUTSTANDING
Shares sold 8,412,104 15,058,868 10,004,694 15,990,331
Shares issued on reinvestment of distributions -- 1,419,060 -- 2,845,203
Shares redeemed (4,266,704) (3,138,581) (5,393,388) (4,261,129)
----------------------------------------------------------------
Net increase (decrease)
in shares outstanding 4,145,400 13,339,347 4,611,306 14,574,405
================================================================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Intermediate Fixed
Balanced Portfolio Income Portfolio
------------------------------------------------------------
For the six For the fiscal For the six For the fiscal
months ending year ending months ending year ending
09/30/98* 03/31/98 09/30/98* 03/31/98
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN
NET ASSETS
Operations
Net investment income (loss) $ 700,400 $ 1,110,474 $ 517,559 $ 1,174,187
Net realized gain (loss) on
investments sold 3,370,830 6,644,465 263,582 12,053
Net change in unrealized appreciation
(depreciation) on investments (10,212,718) 8,026,713 486,024 615,125
------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations (6,141,488) 15,781,652 1,267,165 1,801,365
------------------------------------------------------------
Distributions to shareholders
From net investment income (692,520) (1,106,230) (515,577) (1,165,960)
From net realized gain on investments sold -- (7,227,079) -- --
------------------------------------------------------------
Total distributions (692,520) (8,333,309) (515,577) (1,165,960)
------------------------------------------------------------
Capital share transactions
Proceeds from shares sold 22,629,951 24,528,609 1,472,537 4,057,430
Net asset value of shares issued on
reinvestment of distributions 590,662 8,173,577 548,080 1,159,961
Cost of shares redeemed (6,262,723) (8,056,659) (4,846,346) (5,195,120)
------------------------------------------------------------
Net increase (decrease) from
capital share transactions 16,957,890 24,645,527 (2,825,729) 22,271
------------------------------------------------------------
Net increase (decrease) in net assets 10,123,882 32,093,870 (2,074,141) 657,676
NET ASSETS
Beginning of period 72,724,148 40,630,278 19,961,065 19,303,389
------------------------------------------------------------
End of period $ 82,848,030 $ 72,724,148 $ 17,886,924 $ 19,961,065
============================================================
CHANGE IN SHARES
OUTSTANDING
Shares sold 1,443,865 1,535,463 116,132 325,627
Shares issued on reinvestment of distributions 35,234 533,121 43,818 94,075
Shares redeemed (382,499) (487,729) (385,593) (414,956)
------------------------------------------------------------
Net increase (decrease)
in shares outstanding 1,096,600 1,580,855 (225,643) 4,746
============================================================
</TABLE>
*UNAUDITED.
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 Semi-Annual
Report. The calculations are based on a share outstanding for each period.
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Small/Mid Cap Equity Portfolio
-----------------------------------------------------------------------------
For the six For the fiscal For the fiscal For the fiscal From 05/10/94
months ending year ending year ending year ending through
09/30/98* 03/31/98 03/31/97 03/31/96 03/31/95**
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.92 $ 18.54 $ 17.89 $ 13.89 $ 12.00
-----------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) (0.01) (0.01) 0.05 0.05 0.10
Net realized and unrealized
gain (loss) on investments (6.00) 8.71 2.43 5.17 2.18
-----------------------------------------------------------------------------
Total from investment operations (6.01) 8.70 2.48 5.22 2.28
-----------------------------------------------------------------------------
Distributions
From net investment income -- (0.01) (0.06) (0.06) (0.07)
From net realized gains -- (2.31) (1.77) (1.16) (0.32)
-----------------------------------------------------------------------------
Total distributions -- (2.32) (1.83) (1.22) (0.39)
-----------------------------------------------------------------------------
Net asset value, end of period $ 18.91 $ 24.92 $ 18.54 $ 17.89 $ 13.89
=============================================================================
Total return (24.12%)+ 48.68% 14.57% 38.38% 19.38%+
=============================================================================
Net assets at end of period (in 000's) $ 469,590 $ 515,682 $ 136,341 $ 79,495 $ 10,120
=============================================================================
Ratio of expenses to average net assets
Before expense reimbursement/recoupment 1.22%++ 1.26% 1.33% 1.46% 2.93%++
After expense reimbursement/recoupment n/a n/a 1.40% 1.48% 1.48%++
=============================================================================
Ratio of net investment income (loss)
to average net assets, net of expense
reimbursement/recoupment (0.05%)++ (0.06%) 0.27% 0.66% 1.40%++
=============================================================================
Portfolio turnover rate 71.04% 107.17% 130.54% 151.37% 152.21%
=============================================================================
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Core Equity Portfolio
-----------------------------------------------------------------------------
For the six For the fiscal For the fiscal For the fiscal From 05/10/94
months ending year ending year ending year ending through
09/30/98* 03/31/98 03/31/97 03/31/96 03/31/95**
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 24.67 $ 18.97 $ 17.53 $ 13.84 $ 12.00
-----------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) 0.03 0.07 0.13 0.11 0.11
Net realized and unrealized
gain (loss) on investments (3.68) 8.86 2.86 5.13 2.00
-----------------------------------------------------------------------------
Total from investment operations (3.65) 8.93 2.99 5.24 2.11
-----------------------------------------------------------------------------
Distributions
From net investment income -- (0.07) (0.13) (0.11) (0.07)
From net realized gains -- (3.16) (1.42) (1.44) (0.20)
-----------------------------------------------------------------------------
Total distributions -- (3.23) (1.55) (1.55) (0.27)
-----------------------------------------------------------------------------
Net asset value, end of period $ 21.02 $ 24.67 $ 18.97 $ 17.53 $ 13.84
=============================================================================
Total return (14.80%)+ 49.64% 17.88% 38.64% 17.87%+
=============================================================================
Net assets at end of period (in 000's) $ 692,259 $ 698,665 $ 260,629 $ 107,665 $ 20,430
=============================================================================
Ratio of expenses to average net assets
Before expense reimbursement/recoupment 1.11%++ 1.14% 1.18% 1.30% 1.86%++
After expense reimbursement/recoupment n/a n/a 1.22% 1.29% 1.29%++
=============================================================================
Ratio of net investment income (loss)
to average net assets, net of expense
reimbursement/recoupment 0.31%++ 0.37% 0.74% 1.07% 1.25%++
=============================================================================
Portfolio turnover rate 65.98% 119.88% 146.12% 138.02% 133.18%
=============================================================================
</TABLE>
* UNAUDITED
** COMMENCEMENT OF OPERATIONS 05/10/94.
+ NOT ANNUALIZED
++ ANNUALIZED
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
FINANCIAL HIGHLIGHTES, CONTINUED
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Balanced Portfolio
-----------------------------------------------------------------------------
For the six For the fiscal For the fiscal For the fiscal From 05/10/94
months ending year ending year ending year ending through
09/30/98* 03/31/98 03/31/97 03/31/96 03/31/95**
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.78 $ 14.76 $ 14.53 $ 12.96 $ 12.00
-----------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) 0.14 0.35 0.37 0.38 0.30
Net realized and unrealized
gain (loss) on investments (1.52) 4.46 1.28 2.82 1.13
-----------------------------------------------------------------------------
Total from investment operations (1.38) 4.81 1.65 3.20 1.43
-----------------------------------------------------------------------------
Distributions
From net investment income (0.14) (0.35) (0.37) (0.37) (0.31)
From net realized gains -- (2.44) (1.05) (1.26) (0.16)
-----------------------------------------------------------------------------
Total distributions (0.14) (2.79) (1.42) (1.63) (0.47)
-----------------------------------------------------------------------------
Net asset value, end of period $ 15.26 $ 16.78 $ 14.76 $ 14.53 $ 12.96
=============================================================================
Total return (8.26%)+ 34.57% 11.83% 25.58% 12.23%+
=============================================================================
Net assets at end of period (in 000's) $ 82,848 $ 72,724 $ 40,630 $ 32,080 $ 13,724
=============================================================================
Ratio of expenses to average net assets
Before expense reimbursement/recoupment 1.23%++ 1.28% 1.31% 1.50% 2.29%++
After expense reimbursement/recoupment 1.19%++ 1.19% 1.19% 1.19% 1.19%++
=============================================================================
Ratio of net investment income (loss)
to average net assets, net of expense
reimbursement/recoupment 1.86%++ 2.09% 2.50% 2.76% 3.04%++
=============================================================================
Portfolio turnover rate 56.13% 102.98% 133.68% 114.85% 92.40%
=============================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Intermediate Fixed Income Portfolio
-----------------------------------------------------------------------------
For the six For the fiscal For the fiscal For the fiscal From 05/10/94
months ending year ending year ending year ending through
09/30/98* 03/31/98 03/31/97 03/31/96 03/31/95**
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.45 $ 12.08 $ 12.33 $ 12.00 $ 12.00
-----------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) 0.36 0.71 0.65 0.70 0.57
Net realized and unrealized
gain (loss) on investments 0.53 0.37 (0.25) 0.34 --
-----------------------------------------------------------------------------
Total from investment operations 0.89 1.08 0.40 1.04 0.57
Distributions
From net investment income (0.36) (0.71) (0.64) (0.70) (0.57)
-----------------------------------------------------------------------------
From net realized gains -- -- (0.01) (0.01) --
Total distributions (0.36) (0.71) (0.65) (0.71) (0.57)
Net asset value, end of period $ 12.98 $ 12.45 $ 12.08 $ 12.33 $ 12.00
=============================================================================
Total return 7.24%+ 9.11% 3.35% 8.85% 4.92%+
-----------------------------------------------------------------------------
Net assets at end of period (in 000's) $ 17,887 $ 19,961 $ 19,303 $ 9,740 $ 6,370
=============================================================================
Ratio of expenses to average net assets
Before expense reimbursement/recoupment 1.06%++ 1.19% 1.53% 2.17% 2.44%++
After expense reimbursement/recoupment 0.55%++ 0.55% 0.95% 0.95% 0.95%++
Ratio of net investment income (loss)
to average net assets, net of expense
reimbursement/recoupment 5.56%++ 5.73% 5.42% 5.69% 5.57%++
=============================================================================
Portfolio turnover rate 25.57% 15.99% 8.37% 15.49% 5.21%
=============================================================================
</TABLE>
* UNAUDITED.
** COMMENCEMENT OF OPERATIONS 05/10/94.
+ NOT ANNUALIZED.
++ ANNUALIZED.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
SEPTEMBER 30, 1998 (UNAUDITED)
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 securities held during the six months
ending September 30, 1998.
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
paid-in capital, undistributed net investment income and undistributed net
realized gain (loss) on investment 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 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:
30
<PAGE>
Small/Mid Cap Equity Portfolio 0.85%
Core Equity Portfolio 0.75%
Balanced Portfolio 0.70%
Intermediate Fixed Income Portfolio 0.50%
Effective 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 0.55%
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.
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 (as
the distribution coordinator) 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.
Effective 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 Services 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.
For the fiscal year beginning April 1, 1998, the Administrator has
agreed to waive its annual minimum fee for the Intermediate Fixed Income
Portfolio.
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 six months ending September
30, 1998 were as follows:
Fund Purchases Sales
---- --------- -----
Small/Mid Cap
Equity Portfolio $470,600,051 $369,730,588
Core Equity Portfolio 613,363,761 485,923,590
Balanced Portfolio 49,605,470 36,029,587
Intermediate Fixed
Income Portfolio -- 300,000
The Balanced Portfolio and Intermediate Fixed Income Portfolio
purchased $4,722,269 and $4,615,287 respectively, and sold $3,767,188 and
$7,061,000, respectively, of U.S. Government securities. There were no purchases
or sales of 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 September 30, 1998, 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 $ 782,915 $ 79,910,763 ($79,127,848)
Core Equity 9,294,826 55,144,765 (45,849,939)
Balanced 1,815,712 3,966,294 (2,150,582)
Intermediate
Fixed Income 891,838 -- 891,838
NOTE 5. RELATED PARTY TRANSACTIONS
Certain officers and Trustees of the Funds are also officers and/or
directors of the Investment Advisor. Each outside Trustee are compensated by the
Trust at the total rate of $4,000 per year plus $1,800 for each meeting of the
Board of Trustees attended and any travel expenses incurred in such meetings.
31
<PAGE>
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 LLC, 2020 E. Financial Way, Suite 100,
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
Paul, Hastings, Janofsky & Walker LLP, 345 California 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 1000(R) Index, the Russell Midcap(TM) Index and the Russell 2000(R)
Index are unmanaged indices composed of the equities of companies ranging in
value from approximately $1.4 to $271.6 billion, $1.4 to $10.3 billion, and
$221.9 million to $1.4 billion, respectively, as of May 31, 1998.
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.
