As filed with the Commission on July 28, 2000
File Nos.33-73792
811-8270
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13 [X]
(Check appropriate box or boxes)
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
601 Union Street, Suite 2801
Seattle, WA 98101
(Address of Principal Executive Offices, including Zip Code)
(206) 464-0400
(Registrant's Telephone Number, including Area Code)
J. Glenn Haber, Managing Director
Rainier Investment Management, Inc.
601 Union St., Ste. 2801
Seattle, WA 98101
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to Rule 485 (b)
[X] On July 31, 2000 pursuant to Rule 485(b)
[ ] 60 days after filing pursuant to Rule 485(a)(1)
[ ] On pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to Rule 485(a)(2)
[ ] On ____________, pursuant to Rule 485(a)(2)
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Please send copy of Communications to:
David A. Hearth Steven J. Paggioli
Paul, Hastings, Janofsky & Walker LLP Investment Company Administration, LLC
345 California Street, 29th Floor 915 Broadway
San Francisco, CA 94104 New York, NY 10010
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<PAGE>
Prospectus
July 31 , 2000
Small/Mid Cap
Equity Portfolio
Core Equity
Portfolio
Balanced
Portfolio
Intermediate
Fixed Income
Portfolio
<PAGE>
TABLE OF CONTENTS
AN OVERVIEW OF THE PORTFOLIOS
This section introduces each Rainier Investment Management Mutual Fund
Portfolio, explaining its goals, principal investment strategies and principal
risks. Expense and performance information are also displayed.
Small/Mid Cap Equity Portfolio
Core Equity Portfolio
Balanced Portfolio
Intermediate Fixed Income Portfolio
ADDITIONAL INFORMATION ON PRINCIPAL INVESTMENT STRATEGIES
Core Growth Equity
Investment Philosophy
Fixed-Income Security Selection
Short-Term Investments
Portfolio Turnover
ADDITIONAL INFORMATION ON PRINCIPAL RISKS
ORGANIZATION AND MANAGEMENT
Investment Advisor and Advisory Fees
Portfolio Managers
Portfolio Expenses
PURCHASING, SELLING AND EXCHANGING SHARES
Purchasing Shares
Selling Shares (Redemptions)
Exchanging Shares
PRICING OF PORTFOLIO SHARES
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
Tax Consequences
Rule 12b-1 Fees
FINANCIAL HIGHLIGHTS
APPENDIX
Index Descriptions
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION DOES NOT
APPROVE OR DISAPPROVE OF THESE SHARES OR DETERMINE WHETHER THE INFORMATION IN
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS A CRIMINAL OFFENSE FOR ANYONE TO
INFORM OTHERWISE.
<PAGE>
AN OVERVIEW OF THE PORTFOLIOS
SMALL/MID CAP EQUITY PORTFOLIO
THE PORTFOLIO'S GOAL
The Small/Mid Cap Equity Portfolio seeks to MAXIMIZE LONG-TERM
APPRECIATION.
PRINCIPAL INVESTMENT STRATEGIES
In pursuing its goal, the Portfolio invests primarily in the common stocks
of smaller U.S. companies with the prospects of strong earnings growth selling
at attractive valuations. The Portfolio normally will invest at least 65% of its
total assets in equity securities of companies with small and medium-sized
capitalizations. The Advisor, Rainier Investment Management, Inc.(R),
anticipates that the Portfolio will invesT over 90% of its assets in these types
of securities. The Portfolio will purchase companies with market capitalizations
between $100 million and $10 billion. Additionally, companies that are members
of, or fall within, the capitalization range of readily available small- or
mid-cap indices may be candidates for purchase. Investments in companies which
grow above these maximum capitalization criteria may continue to be held if the
Advisor considers them to be particularly attractive.
The Advisor refers to its stock selection philosophy as Core Growth. Stock
selection focuses on companies that are likely to demonstrate superior earnings
growth relative to their peers, and whose equities are selling at attractive
relative valuations. As a result, the Portfolio will invest in a blend of both
"growth" and "value" stocks. Further, the Portfolio is diversified over a broad
cross section of economic sectors and industries. To help control risk, the
Advisor compares the Portfolio's economic sector weightings to a broad index of
small and medium-size companies, such as the Russell 2500(TM) Index, and
normally avoids extreme overweighting or underweighting relative to that index.
PRINCIPAL RISKS
Since the Portfolio is invested in equity securities whose prices change
daily, there is the risk that an investor could lose money. The Portfolio's
share price may be affected by sudden declines in the market value of an
investment, or by an overall decline in the stock market. Like all managed
funds, there is a risk that the Advisor's strategy for managing the Portfolio
may not achieve the desired results or may be less effective than other
strategies in a particular market environment. Investments in securities of
small and medium-size companies involve greater risk of loss than investments in
larger companies and their prices can change more frequently and dramatically.
The Portfolio may be appropriate for investors who are comfortable with
above-average risk and can make a long-term investment commitment.
<PAGE>
THE PORTFOLIO'S PAST PERFORMANCE
The following information shows the Portfolio's performance over time and
can illustrate the risks of investing in the Portfolio. The bar chart shows how
the Portfolio's total return has varied from year to year. The table compares
the Portfolio's average annual return for the periods indicated to two
broad-based indices. A description of the indices is contained in the Appendix
to this Prospectus. This past performance will not necessarily continue in the
future.
[The following is the bar chart]
CALENDAR-YEAR TOTAL RETURNS
1995: 47.48%
1996: 22.56%
1997: 32.23%
1998: 2.97%
1999: 17.67%
The year-to-date total return as of June 30, 2000 was 7.05 %
Best Quarter: +24.04% (fourth quarter, 1999)
Worst Quarter: -21.08% (third quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since
1 year 5 years Inception
------ ------- ---------
Small/Mid Cap Equity Portfolio 17.67% 23.70% 21.99%
Russell 2500(TM) Index 24.14% 15.72% 17.52%
Russell Midcap(TM) Index 18.23% 21.85% 19.56%
Russell 2000(R)Index 21.26% 16.69% 15.24%
INCEPTION DATE 5/10/94.
2
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Small/Mid Cap Equity Portfolio.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES*
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 0.85%
Distribution and Service (12b-1) Fees 0.25%
Other expenses 0.15%
-----
Total Annual Fund Operating Expenses 1.25%
Fee Reduction and/or Expense Reimbursement --
-----
Net Expenses 1.25%
=====
----------
* THE ADVISOR HAS CONTRACTUALLY AGREED TO REDUCE ITS FEES AND/OR ABSORB
EXPENSES TO LIMIT THE TOTAL ANNUAL OPERATING EXPENSES OF THE SMALL/MID CAP
EQUITY PORTFOLIO TO 1.48% (EXCLUDING INTEREST AND TAXES). THIS CONTRACT HAS
A ONE-YEAR TERM, RENEWABLE AT THE END OF EACH FISCAL YEAR.
EXAMPLE: This example is intended to help you compare the cost of investing
in shares of the Small/Mid Cap Equity Portfolio with the cost of investing in
other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual cost may be higher or lower, under these assumptions, your cost would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$127 $397 $686 $1,511
3
<PAGE>
CORE EQUITY PORTFOLIO
THE PORTFOLIO'S GOAL
The Core Equity Portfolio seeks to MAXIMIZE LONG-TERM CAPITAL APPRECIATION
PRINCIPAL INVESTMENT STRATEGIES
In pursuing its goal, the Portfolio invests primarily in the common stocks
of U.S. companies. The Portfolio normally will invest at least 65% of its assets
in equity securities of core equity companies. To the Advisor, the term "Core
Equity" denotes a diversified portfolio invested in small-, medium- and
large-capitalization companies. In an effort to diversify and enhance safety,
the Portfolio may invest in stocks of companies of all sizes with
small-capitalization companies normally comprising 20% or less of the Portfolio.
The Advisor refers to its stock selection philosophy as Core Growth. Stock
selection focuses on companies that are likely to demonstrate superior earnings
growth relative to their peers, and whose equities are selling at attractive
relative valuations. As a result, the Portfolio will invest in a blend of both
"growth" and "value" stocks. Further, the Portfolio is diversified over a broad
cross section of economic sectors and industries. To help control risk, the
Advisor compares the Portfolio's economic sector weightings to a broad index,
such as the Standard & Poor's (S&P) 500 Stock Index, and normally avoids extreme
overweighting or underweighting relative to that index.
PRINCIPAL RISKS
Since the Portfolio is invested in equity securities whose prices change
daily, there is the risk that an investor could lose money. The Portfolio's
share price may be affected by sudden declines in the market value of an
investment, or by an overall decline in the stock market. Like all managed
funds, there is a risk that the Advisor's strategy for managing the Portfolio
may not achieve the desired results or may be less effective than other
strategies in a particular market environment. Investments in securities of
small and medium-size companies involve greater risk of loss than investing in
larger companies and their prices can change more frequently and dramatically.
The Portfolio may be appropriate for investors who are comfortable with
above-average risk and can make a long-term investment commitment.
4
<PAGE>
THE PORTFOLIO'S PAST PERFORMANCE
The following information shows the Portfolio's performance over time and
can illustrate the risks of investing in the Portfolio. The bar chart shows how
the Portfolio's total return has varied from year to year. The table compares
the Portfolio's average annual return for the periods indicated to two
broad-based indices. A description of the indices is contained in the Appendix
to this Prospectus. This past performance will not necessarily continue in the
future.
[The following is the bar chart]
CALENDAR-YEAR TOTAL RETURNS
1995: 47.16%
1996: 23.28%
1997: 33.87%
1998: 20.67%
1999: 26.63%
The year-to-date total return as of June 30, 2000 was 1.25%.
Best Quarter: +25.09% (fourth quarter, 1998)
Worst Quarter: -14.34% (third quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since
1 year 5 years Inception
------ ------- ---------
Core Equity Portfolio 26.63% 29.99% 27.20%
S&P 500 Stock Index 21.04% 28.55% 25.97%
Russell 1000(R) Index 20.91% 28.04% 25.43%
INCEPTION DATE 5/10/94.
5
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Core Equity Portfolio.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES*
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 0.75%
Distribution and Service (12b-1) Fees 0.25%
Other expenses 0.11%
-----
Total Annual Fund Operating Expenses 1.11%
Fee Reduction and/or Expense Reimbursement --
-----
Net Expenses 1.11%
=====
----------
* THE ADVISOR HAS CONTRACTUALLY AGREED TO REDUCE ITS FEES AND/OR ABSORB
EXPENSES TO LIMIT THE TOTAL ANNUAL OPERATING EXPENSES OF THE CORE EQUITY
PORTFOLIO TO 1.29% (EXCLUDING INTEREST AND TAXES). THIS CONTRACT HAS A
ONE-YEAR TERM, RENEWABLE AT THE END OF EACH FISCAL YEAR.
EXAMPLE: This example is intended to help you compare the cost of investing
in shares of the Core Equity Portfolio with the cost of investing in other
mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual cost may be higher or lower, under these assumptions, your cost would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$113 $353 $612 $1,352
6
<PAGE>
BALANCED PORTFOLIO
THE PORTFOLIO'S GOAL
The Balanced Portfolio seeks to PROVIDE INVESTORS WITH A BALANCE OF
LONG-TERM CAPITAL APPRECIATION AND CURRENT INCOME.
PRINCIPAL INVESTMENT STRATEGIES
The Portfolio invests primarily in a diversified portfolio of common stocks
of U.S. companies and investment grade, intermediate-term debt securities and
cash equivalent securities. The Advisor seeks to provide long-term capital
appreciation and income with less return variability and risk than that of the
stock market. The Portfolio's assets will be allocated among equity,
fixed-income, and short-term cash equivalent securities. Equity securities will
normally constitute from 25% to 70% of the Portfolio's net assets. Fixed-income
securities will normally represent from 30% to 55% of the Portfolio's net
assets. Cash equivalent securities will normally constitute from 0% to 35% of
the Portfolio's net assets. The Advisor utilizes an approach of "strategic"
long-term asset allocation, where the equity allocation remains between 45% and
65% unless extreme short-term market conditions indicate a more cautious or
aggressive allocation. Aggressive market timing is avoided. Shifts from one
asset class to another are normally made in 5% to 10% increments.
The equity securities in which the Portfolio invests are the type and have
the same Core Growth selection criteria as those described on page 16 for the
Core Equity Portfolio. Fixed-income securities held by the Portfolio will be of
the type and have the same selection criteria as those described on page 13 for
the Intermediate Fixed Income Portfolio.
PRINCIPAL RISKS
Since the Portfolio is invested in equity and fixed-income securities whose
prices change daily, there is the risk that an investor could lose money. The
Portfolio's share price will be affected by sudden declines in the market value
of an investment, or by an overall decline in the stock market. A rise in
interest rates may cause the Portfolio's shares to decline in value. Like all
managed funds, there is a risk that the Advisor's strategy for managing the
Portfolio may not achieve the desired results or may be less effective than
other strategies in a particular market environment. The Portfolio may be
appropriate for investors who are comfortable with the risks of equity and
fixed-income investing and can make a long-term investment commitment.
THE PORTFOLIO'S PAST PERFORMANCE
The following information shows the Portfolio's performance over time and
can illustrate the risks of investing in the Portfolio. The bar chart shows how
the Portfolio's total return has varied from year to year. The table compares
the Portfolio's average annual return for the periods indicated to a broad-based
7
<PAGE>
stock index, fixed-income index and a blended custom index. A description of the
indices is contained in the Appendix to this Prospectus. This past performance
will not necessarily continue in the future.
The following is the bar chart]
CALENDAR-YEAR TOTAL RETURNS
1995: 33.16%
1996: 14.04%
1997: 23.94%
1998: 15.46%
1999: 16.94%
The year-to-date total return as of June 30, 2000 was 1.58%.
Best Quarter: 15.20% (fourth quarter, 1998)
Worst Quarter -8.48% (third quarter, 1998)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since
1 year 5 years Inception
------ ------- ---------
Balanced Portfolio 16.94% 20.51% 18.61%
Balanced Index + 10.93% 17.44% 15.99%
S&P 500 Stock Index 21.04% 28.55% 25.97%
Lehman Brothers Govt./Corp.
Intermediate Bond Index 0.39% 7.10% 6.56%
INCEPTION DATE 5/10/94
+ 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. SEE PAGE 27 FOR INDEX DESCRIPTIONS.
8
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Balanced Portfolio.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES*
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 0.70%
Distribution and Service (12b-1) Fees 0.25%
Other expenses 0.26%
-----
Total Annual Fund Operating Expenses 1.21%
-----
Fee Reduction and/or Expense Reimbursement -0.02%
-----
Net Expenses 1.19%
=====
----------
* THE ADVISOR HAS CONTRACTUALLY AGREED TO REDUCE ITS FEES AND/OR ABSORB
EXPENSES TO LIMIT THE TOTAL ANNUAL OPERATING EXPENSES OF THE BALANCED
PORTFOLIO TO 1.19% (EXCLUDING INTEREST AND TAXES). THIS CONTRACT HAS A
ONE-YEAR TERM, RENEWABLE AT THE END OF EACH FISCAL YEAR.
EXAMPLE: This example is intended to help you compare the cost of investing
in shares of the Balanced Portfolio with the cost of investing in other mutual
funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual cost may be higher or lower, under these assumptions, your cost would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$121 $382 $663 $1,464
9
<PAGE>
INTERMEDIATE FIXED INCOME PORTFOLIO
THE PORTFOLIO'S GOAL
The Intermediate Fixed Income Portfolio seeks to PROVIDE INVESTORS WITH
CURRENT INCOME.
PRINCIPAL INVESTMENT STRATEGIES
The Portfolio invests primarily in a diversified portfolio of investment
grade, intermediate-term debt securities providing current income. The Portfolio
normally invests at least 65% of its total assets in investment grade,
intermediate-term debt securities providing current income. Most of its
investments are debt securities issued or guaranteed by the U.S. Government or
its agencies, and corporate issuers. The Advisor intends, but is not obligated,
to construct the Portfolio with a higher proportion of corporate issues than
government or government agency securities. Investment grade debt securities are
generally considered to be those rated Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by S&P. Securities which are rated
Baa by Moody's or BBB by S&P, the lowest tier of investment grade, are generally
regarded as having adequate capacity to pay interest and repay principal, but
may have some speculative characteristics. The Advisor intends to limit
investment in securities rated Baa by Moody's or BBB by S&P to no more than 10%
of the Portfolio's total assets.
The Portfolio may purchase bonds of any maturity, but the Portfolio will
normally have a dollar-weighted average maturity between three and ten years.
The average maturity may be less than three years if the Advisor believes a
temporary defensive posture is appropriate. The Advisor plans to manage the
Portfolio within a range of +/-25% of the duration of the Lehman Brothers
Government/Corporate Intermediate Bond Index. If, for example, the duration of
the Lehman Index were 4.0 years, the Portfolio's duration would normally range
between 3.0 and 5.0 years. Duration measures the sensitivity of a fixed-income
portfolio to interest-rate changes. To illustrate, if a portfolio had an average
effective duration of 5.0 years, a 1% increase in market interest rates would
cause the principal value of the portfolio to gain approximately 5%.
PRINCIPAL RISKS
Since the Portfolio is invested in securities whose prices change daily,
there is the risk that an investor could lose money. A rise in interest rates
may cause the Portfolio's shares to decline in value. When interest rates are
low, the Portfolio's income distributions may be reduced. Also, the value of any
of the Portfolio's investments may decline in response to events affecting the
issuer or its credit rating. Like all managed funds, there is a risk that the
Advisor's strategy for managing the Portfolio may not achieve the desired
results or may be less effective than other strategies in a particular market
environment. The Portfolio may be appropriate for investors who are comfortable
with the risks of fixed-income investing and seek high current income with
greater stability in the value of shares than a long term fixed-income fund.
10
<PAGE>
THE PORTFOLIO'S PAST PERFORMANCE
The following information shows the Portfolio's performance over time and
can illustrate the risks of investing in the Portfolio. The bar chart shows how
the Portfolio's total return has varied from year to year. The table compares
the Portfolio's average annual return for the periods indicated to two
broad-based fixed-income indices. A description of the indices is contained in
the Appendix to this Prospectus. This past performance will not necessarily
continue in the future.
The following is the bar chart]
CALENDAR-YEAR TOTAL RETURNS
1995: 13.35%
1996: 2.93%
1997: 7.32%
1998: 8.61%
1999: -0.20%
The year-to-date total return as of June 30, 2000 was 3.17 %
Best Quarter: 5.20% (third quarter, 1998)
Worst Quarter: -0.67% (first quarter, 1996)
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999
Since
1 year 5 years Inception
------ ------- ---------
Intermediate Fixed Income Portfolio -0.20% 6.30% 5.82%
Lehman Brothers Govt./Corp.
Intermediate Bond Index 0.39% 7.10% 6.56%
91-Day U.S. Treasury Bill Index 4.74% 5.20% 5.16%
INCEPTION DATE 5/10/94.
11
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Balanced Portfolio.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES*
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)
Management Fees 0.50%
Distribution and Service (12b-1) Fees 0.10%
Other expenses 0.34%
-----
Total Annual Fund Operating Expenses 0.94%
-----
Fee Reduction and/or Expense Reimbursement -0.39%
-----
Net Expenses 0.55%
=====
----------
* THE ADVISOR HAS CONTRACTUALLY AGREED TO REDUCE ITS FEES AND/OR ABSORB
EXPENSES TO LIMIT THE TOTAL ANNUAL OPERATING EXPENSES OF THE INTERMEDIATE
FIXED INCOME PORTFOLIO TO 0.55% (EXCLUDING INTEREST AND TAXES). THIS
CONTRACT HAS A ONE-YEAR TERM, RENEWABLE AT THE END OF EACH FISCAL YEAR.
EXAMPLE: This example is intended to help you compare the cost of investing
in shares of the Intermediate Fixed Income Portfolio with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual cost may be higher or lower, under these assumptions, your cost would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$56 $261 $482 $1,119
12
<PAGE>
ADDITIONAL INFORMATION ON PRINCIPAL INVESTMENT STRATEGIES
CORE GROWTH
EQUITY INVESTMENT PHILOSOPHY
The Advisor refers to its investment philosophy with respect to the equity
portion of the Portfolios as Core Growth. Since the Core Growth strategy
combines some aspects of both "value" and "growth" investment styles, a primary
benefit of the Core Growth strategy in the view of the Advisor is the ability to
generate competitive investment returns in many different market environments.
In selecting securities for purchase in the Small/Mid Cap Equity Portfolio, the
Core Equity Portfolio and the Balanced Portfolio, the Advisor emphasizes
companies that are likely to demonstrate superior earnings growth relative to
their peers, positive earnings surprises, and whose equities are selling at
attractive relative valuations. The Advisor favors companies that exhibit
advantageous competitive strategies or operate in favorable competitive
environments. Strong management with a significant ownership position in the
company is desired, as are companies with balance sheet integrity and financial
strength.
The Advisor considers the sale of specific equity securities when they
approach predetermined target prices; when fundamental prospects or earnings are
deteriorating or are expected to deteriorate; or when there are more attractive
equity securities on a risk/reward basis in the same industry, thereby
warranting a swap.
FIXED-INCOME SECURITY SELECTION
In determining whether or not to invest in a particular debt security,
the Advisor considers a number of factors, including:
* the price of the security
* the coupon of the security
* the relationship between long-term and short-term rates
* the credit quality of the issuer
* the issuer's cash flow and related coverage ratios
* the property, if any, securing the obligation
* the terms of the debt instrument, including subordination, default,
sinking fund and early redemption provisions
* the ratings assigned to the security by Moody's and S&P
Fixed-income securities may be sold if downgraded, or as a swap to more
attractive values.
SHORT-TERM INVESTMENTS
Cash equivalent securities, which may be held by any of the four
Portfolios, are high-quality debt obligations maturing in one year or less from
the date of purchase. These include U.S. Government securities, certificates of
deposit, bankers' acceptances, repurchase agreements, demand notes, and
commercial paper. The Advisor considers obligations that have been rated
13
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at least A-1 by S&P or Prime-1 by Moody's, have an outstanding issue of debt
securities rated at least A by S&P or Moody's, or are of comparable quality in
the opinion of the Advisor, to be "high-quality."
Under normal market conditions, each Portfolio will stay fully invested in
stocks and/or bonds. However, a Portfolio may temporarily depart from its
principal investment strategies by making short-term investments in cash
equivalents in response to adverse market, economic or political conditions.
This may result in the Portfolio not achieving its investment objective.
PORTFOLIO TURNOVER
Due to a sell discipline based in part on price targets, all the
Portfolios, except the Intermediate Fixed Income Portfolio, may be actively
traded. This is particularly true in a market environment where securities
prices are rising rapidly. Generally, the rate of portfolio turnover will not be
a deciding factor in determining whether to sell or hold securities. The
Small/Mid Cap Equity, Core Equity and Balanced Portfolios may have a portfolio
turnover rate in excess of 100%. A high portfolio turnover rate (100% or more)
has the potential to result in the realization and distribution to shareholders
of higher capital gains. This may mean that you would be likely to have a higher
tax liability. A high portfolio turnover rate also leads to higher transaction
costs, which would negatively affect a Portfolio's performance. Active trading,
however, can also be defensive and actually add to a Portfolio's performance if,
for example, a fully valued investment is sold before a price decline or in
favor of an investment with better appreciation potential.
ADDITIONAL INFORMATION ON PRINCIPAL RISKS
THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS THAT MAY ADVERSELY AFFECT THE
VALUE OF A PORTFOLIO'S SHARES OR TOTAL RETURN ARE DISCUSSED IN THE "OVERVIEW OF
THE PORTFOLIOS". FURTHER ELEMENTS ON RISK ARE DISCUSSED BELOW.
MARKET RISK
An investor in any Portfolio faces the risk that the market value of a
security may move up and down, sometimes rapidly and unpredictably. These
fluctuations may cause a security to be worth less than the price originally
paid for it, or less than it was worth at an earlier time. Market risk may
affect a single issuer, industry, sector of the economy or the market as a
whole.
SMALL COMPANY RISK
The Small/Mid Cap Equity, Core Equity and Balanced Portfolios may invest in
smaller companies that can benefit from the development of new products and
services. These smaller companies may present greater opportunities for capital
14
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appreciation, but may also involve greater risks than larger companies. Such
smaller companies may have limited product lines, markets or financial
resources, and their securities may trade less frequently and in more limited
volume than the securities of larger, more mature companies. As a result, the
prices of the securities of such smaller companies may fluctuate to a greater
degree than the prices of the securities of other issuers.
DEBT SECURITIES RISK
The Balanced and Intermediate Fixed Income Portfolios may invest in debt
securities. The market value of debt securities is sensitive to prevailing
interest rates. Generally, when interest rates rise, the debt security's value
declines and when interest rates decline, its market value rises. Generally, the
longer the remaining maturity of a security, the greater the effect of interest
rate changes on the market value of the security. In addition, changes in the
ability of an issuer to make payments of interest and principal and in the
market's perception of an issuer's creditworthiness affect the market value of
the debt securities of that issuer.
ORGANIZATION AND MANAGEMENT
INVESTMENT ADVISOR AND ADVISORY FEES
Rainier Investment Management, Inc.(RIM), incorporated in 1989, serves as
investment advisor to the Portfolios. RIM's address is:
601 Union Street, Suite 2801
Seattle, WA 98101
RIM currently manages $6.0 billion of discretionary assets for various clients
including corporations, public and corporate pension plans, foundations and
charitable endowments, and high net worth individuals. The Advisor is owned and
operated by seven principals. Subject to the direction and control of the
Trustees, the Advisor formulates and implements an investment program for each
Portfolio, which includes determining which securities should be bought and
sold. The Advisor also provides certain of the officers of the Trust. For the
fiscal year ending March 31, 2000, before the reductions and/or expense
reimbursements, the Advisor received advisory fees computed as a percentage of
each Portfolio's average daily net assets as follows: 0.85% for the Small/Mid
Cap Equity Portfolio; 0.75% for the Core Equity Portfolio; 0.70% for the
Balanced Portfolio; and 0.50% for the Intermediate Fixed Income Portfolio.
PORTFOLIO MANAGERS
The portfolio managers of the Small/Mid Cap Equity and Core Equity
Portfolios are: James R. Margard, CFA; David A. Veterane, CFA; Peter M. Musser,
CFA; and Mark H. Dawson, CFA. The portfolio managers of the Intermediate Fixed
Income Portfolio are Patricia L. Frost, CEO, and Michael E. Raney, CFA. The
15
<PAGE>
Balanced Portfolio is team managed by the Advisor's Investment Committee, whose
members are firm principals and/or equity and fixed-income portfolio managers.
Current members are: Mark H. Dawson, CFA, Senior Portfolio Manager; Patricia L.
Frost, CEO and Principal; J. Glenn Haber, Principal; James R. Margard, CFA,
Principal; Peter M. Musser, CFA, Senior Portfolio Manager; Michael E. Raney,
CFA, Principal; and David A. Veterane, CFA, Principal. Each portfolio manager
has been associated with the Advisor in the position noted for more than the
past five years with the exception of Mr. Dawson, who was employed by Badgley,
Phelps & Bell Inc. as an Investment Counselor and Research Analyst until he
joined the Advisor in 1996.
PORTFOLIO EXPENSES
The Portfolios are responsible for paying their own operating expenses. The
Advisor has agreed in an Operating Expense Agreement to reduce its advisory fee
or reimburse the expenses of each Portfolio to the extent necessary so that its
ratio of total operating expenses to average net assets will not exceed the
following levels: Small/Mid Cap Equity Portfolio-1.48%; Core Equity
Portfolio-1.29%; Balanced Portfolio-1.19%; Intermediate Fixed Income
Portfolio-0.55%. That agreement has a one-year term, renewable at the end of
each fiscal year. Any reductions made by the Advisor in its fees or payments or
reimbursement of expenses which are the Portfolio's obligation are subject to
reimbursement by the Portfolios within the following three years, provided the
Portfolio is able to effect such reimbursement and remain in compliance with any
applicable expense limitations.
PURCHASING, SELLING AND EXCHANGING SHARES
PURCHASING SHARES
MINIMUM INVESTMENT AMOUNT
The minimum initial investment in each Portfolio is $25,000. Additional
investments may be made at any time with $1,000 or more. The minimum investment
requirements may be occasionally waived by the Funds.
PURCHASING BY MAIL
Shares of the Portfolios may be purchased by mail. If you wish to invest by
mail, simply complete an Account Application and mail it with a check (made
payable to "Rainier Investment Management Mutual Funds") to the Funds' Transfer
Agent, Firstar Mutual Fund Services, LLC, at the following address:
Rainier Investment Management Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701
All purchases by check should be in U.S. dollars. Third-party checks and
cash will not be accepted. If your purchase check is returned for insufficient
funds, the Portfolio may charge you a fee of $20.00.
BY OVERNIGHT DELIVERY
If you wish to send your Account Application and check via an overnight
delivery service, delivery cannot be made to a post office box. In that case,
you should use the following address:
Rainier Investment Management Mutual Funds
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
16
<PAGE>
PURCHASING BY WIRE
Shares of the Portfolios may be purchased the same day with a wire transfer
of money. Before sending a wire, please call (800) 248-6314 between 9:00 a.m.
and 4:00 p.m. (Eastern time) on a day when the New York Stock Exchange (NYSE) is
open for trading, in order to receive an account number. The following
information will be requested: your name, address, tax identification number,
dividend distribution election, amount being wired and wiring bank. It is
important to call and receive this account number, because if your wire is sent
without it or without the name of the Portfolio, your investment may be delayed.
Please wire money to:
Firstar Bank Milwaukee N.A.
ABA No. 075000022
For credit to Firstar Mutual Fund Services, LLC Account No. 112-952-137 For
further credit to Rainier Investment Management [Portfolio name] Account of
[your account number and account name]
Your bank may charge you a fee for sending a wire to the Funds.
PURCHASING WITH SECURITIES
In certain situations, Portfolio shares may be purchased by tendering
payment in kind in the form of shares of stock, bonds or other securities. Any
securities used to buy Portfolio shares must be readily marketable, their
acquisition consistent with the Portfolio's objective and otherwise acceptable
to the Advisor. Prior to making such a purchase, you should call the Adviser to
determine if the securities you wish to use to make a purchase are appropriate.
PURCHASES THROUGH AN INVESTMENT BROKER OR DEALER
Shares of the Portfolios are available through certain brokers (and their
agents) that have made arrangements with the Funds to sell shares. When placing
an order with such a broker or its authorized agent, the order is treated as if
it had been placed directly with the Funds' Transfer Agent, and you will pay or
receive the next price calculated by the Portfolio. The broker (or agent) may
hold your shares in an omnibus account in the broker's (or agent's) name, and
the broker (or agent) maintains your individual ownership records. The
Portfolios may pay the broker (or agent) for maintaining these records and
providing other shareholder services. The broker (or agent) may charge a fee for
handling the order. The broker (or agent) is responsible for processing your
order correctly and promptly, advising your of the status of your individual
account, confirming your transactions and ensuring that you receive copies of
the Funds' prospectus.
RETIREMENT PLANS
Shares of the Portfolios are available for purchase by most retirement
plans, including 401(k) plans, profit sharing plans, and IRAs.
17
<PAGE>
SUBSEQUENT INVESTMENTS
Additional shares of a Portfolio are available for purchase, in amounts of
$1,000 or more, by sending a check together with the remittance form from a
confirmation statement, to the Transfer Agent. Please write your account number
on the check. If you do not have a remittance form, please send the Transfer
Agent a letter giving the name of the Portfolio, your name and account number.
To send additional money for investment by wire, follow the instructions noted
above.
PURCHASE ORDER PROCESSING
Any money received for investment in a Portfolio, whether sent by check or
wire, is invested at the net asset value of the Portfolio which is next
calculated after your order is received in proper form. An order in proper form
must include all correct and complete information, documents and signatures
required to process the order, as well as a check or bank wire payment properly
drawn and collectable. Orders received from dealers are invested at the net
asset value next calculated after the order is received. The net asset value is
calculated at the close of regular trading of the NYSE, normally 4:00 p.m.,
Eastern time. A check or wire received after the NYSE closes is invested at the
next-calculated net asset value of the Portfolio, normally the following
business day.
OTHER INFORMATION
The Funds and its distributor reserve the right to reject any investment,
in whole or in part. Federal tax law requires that you provide a certified
taxpayer identification number and other certifications upon opening an account.
This is necessary to avoid backup withholding of taxes. The Funds do not issue
share certificates unless you specifically request them in writing to the
Transfer Agent. All shares are normally held in a non-certificated form on the
books of the Portfolios, for your account. The Advisor may close and reopen a
Portfolio to new accounts or investments from time to time.
SELLING SHARES (REDEMPTIONS)
Shareholders may sell (redeem) Portfolio shares on any day the Portfolio is
open for business either directly to the Portfolio or through certain brokers
(or agents).
SELLING BY MAIL
You may sell your shares by simply sending a written request to the
Transfer Agent. Specify the name of the Portfolio, the number of shares or
dollar amount you want redeemed and your name and account number. Also enclose
any certificated shares that you wish to redeem. The letter should be signed by
all of the shareholders whose names appear on the account registration. In
addition, a signature guarantee is required if a redemption is requested by a
corporation, partnership, trust or fiduciary. Send your redemption request to:
Rainier Investment Management Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight courier deliveries should be sent to:
Rainier Investment Management Mutual Funds
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202
18
<PAGE>
SIGNATURE GUARANTEES
Certain redemption requests require that the signature or signatures on the
account be guaranteed. Signature guarantees are required if the proceeds of the
redemption: (1) exceed $100,000; (2) are to be paid to a person other than the
record owner; (3) are to be sent to an address other than the address on the
Transfer Agent's records; or (4) are to be paid to a corporation, partnership,
trust or fiduciary. The signature(s) on the redemption request and on the
certificates, if any, or stock powers, must be guaranteed by an "eligible
guarantor." An eligible guarantor includes certain banks, brokers, dealers,
credit unions, securities exchanges, clearing agencies and savings associations.
A notary public is not an eligible guarantor.
SELLING BY TELEPHONE
You may establish telephone redemption privileges by checking the
appropriate box and supplying the necessary information on the Account
Application. You may then redeem shares of a Portfolio by telephoning the
Transfer Agent at (800) 248-6314, between the hours of 9:00 a.m. and 4:00 p.m.
(Eastern time) on a day when the NYSE is open for normal trading. Redemptions by
telephone must be at least $1,000. Proceeds will be mailed to the shareholder
the following business day after the sale is executed. Upon request, redemption
proceeds will be wired to the bank account designated on your Account
Application. Telephone redemptions cannot be made if you notify the Transfer
Agent of an account change within 30 days before the redemption request.
Telephone redemption is not available for retirement plan accounts.
When establishing telephone privileges, you are authorizing a Portfolio and
its Transfer Agent to act upon the telephone instructions of the person or
persons you have designated in your Account Application. Such persons may
request that the shares in your account be either exchanged or redeemed. Before
executing an instruction received by telephone, the Funds and the Transfer Agent
will use procedures to confirm that the telephone instructions are genuine.
These procedures will include recording the telephone call and asking the caller
for a form of personal identification. If the Funds and the Transfer agent
follow these procedures, they will not be liable for any loss, expense or cost
arising out of any telephone redemption or exchange request that is reasonably
believed to be genuine. This includes any fraudulent or unauthorized request.
You may have difficulty making a telephone redemption during periods of
abnormal market activity. If this occurs, please submit your redemption request
in writing.
AUTOMATIC WITHDRAWAL PLAN
Automatic withdrawals may be made from a Portfolio in an amount of $100 or
more, either monthly or quarterly. Your Portfolio account must have a value of
at least $10,000 to participate in this plan. This plan may be terminated at any
time by the Funds. Please call the Transfer Agent for further information.
19
<PAGE>
REDEMPTION OF SMALL ACCOUNTS
In order to reduce expenses, the Funds may redeem shares in any account if
the total value of your account is less than $10,000 as a result of redemptions.
This does not apply to retirement plan or Uniform Gift to Minors Act accounts.
Shareholders will be notified and given 30 days in which to make an additional
investment to bring the value of their account to at least $10,000 before an
involuntary redemption occurs.
ADDITIONAL INFORMATION
If shares are purchased by personal check, a Portfolio may delay payment of
the redemption proceeds for up to 15 days from purchase or until the check has
cleared, whichever occurs first. This payment delay also applies to redemptions
by telephone. If shares are sold through the Automated Clearing House (ACH), a
Portfolio may delay payment of redemption proceeds for up to 15 days from
purchase or until the payment clears, whichever occurs first. If you stop
payment on a redemption check, the Portfolios may charge a fee of $20.
Each Portfolio has the right to pay redemption proceeds in whole or in part
with a distribution by the Portfolio of securities in its portfolio equal in
value to the sales price. It is not expected that a Portfolio would do so except
in unusual circumstances.
EXCHANGING SHARES
Shareholders may exchange shares of any Portfolio for shares of any other
Portfolio on any day the Funds are open for business.
You may also exchange shares of any Portfolio for shares of the Firstar
Institutional Money Market Fund, the Firstar Money Market Fund or the Firstar
U.S. Government Money Market Fund, if such shares are offered in your state of
residence. Prior to making such an exchange, you should obtain and carefully
read the prospectus for these Funds. The exchange privilege does not constitute
an offering or recommendation on the part of the Funds or Advisor of an
investment in the Firstar Funds. The Firstar Funds are not affiliated with the
Funds or the Advisor.
Excessive exchanges can disrupt management of the Portfolios and raise
their expenses. The Funds have established a policy which limits exchanges to
four during any one twelve-month period. The Funds reserve the right to reject
any exchange order and may modify the exchange privilege by giving 60 days'
written notice to shareholders.
20
<PAGE>
EXCHANGING BY MAIL
Shareholders may exchange shares by sending a written request to the Funds'
Transfer Agent. You should specify the names of the Portfolios, the number of
shares or dollar amount to be exchanged and your name and account number(s). The
letter should be signed by all of the shareholders whose names appear in the
account registration. Please send your exchange request to:
Rainier Investment Management Mutual Funds
P.O. Box 701
Milwaukee, WI 53201-0701
EXCHANGING BY TELEPHONE
If your account has telephone privileges, you may also exchange Portfolio
shares by calling the Transfer Agent at (800) 248-6314 between the hours of 9:00
a.m. and 4:00 p.m. (Eastern time) on a day when the NYSE is open for normal
trading. If you exchange shares by telephone, you will be subject to certain
identification procedures which are listed above under "Selling Shares."
EXCHANGE PROCESSING
All exchanges will be made on the basis of the relative net asset values of
the Portfolios next determined after a completed request is received. Requests
for exchanges received before 4:00 p.m. (Eastern time) on a day the NYSE is open
for normal trading will be processed as of the close of trading on that day.
Otherwise, processing will occur on the next business day.
PRICING OF PORTFOLIO SHARES
The price of a Portfolio's shares is based on the Portfolio's net asset
value. The net asset value is calculated by dividing the Portfolio's assets,
minus its liabilities, by the number of shares outstanding. A Portfolio's assets
are the market value of securities held in its portfolio, plus any cash and
other assets. A Portfolio's liabilities are fees and expenses owed by the
Portfolio. The number of Portfolio shares outstanding is the amount of shares
which have been issued to shareholders. The price an investor pays to purchase
Portfolio shares, or the amount an investor receives when selling Portfolio
shares, is based on the net asset value next calculated after the order is
received in proper form. An order in proper form must include all correct and
complete information, documents and signatures required to process the purchase
or redemption, as well as a check or bank wire payment properly drawn and
collectable. The net asset value of shares of each Portfolio is determined as of
the close of regular trading on the NYSE, normally 4:00 p.m. (Eastern time).
Portfolio shares will not be priced on days that the NYSE is closed for trading
(including certain U.S. holidays).
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Small/Mid Cap Equity and Core Equity Portfolios intend to pay dividends
annually. The Balanced Portfolio intends to pay dividends quarterly. The
Intermediate Fixed Income Portfolio intends to pay dividends monthly. Each
21
<PAGE>
Portfolio makes distributions of its net capital gains, if any, at least
annually. The Board of Trustees may determine to declare dividends and make
distributions more or less frequently.
It is expected that distributions from the Small/Mid Cap Equity and Core
Equity Portfolios will primarily consist of capital gains. It is expected that
distributions from the Balanced Portfolio will consist of dividends and capital
gains. It is expected that distributions from the Intermediate Fixed Income
Portfolio will primarily consist of dividends.
Dividends and capital gain distributions are automatically reinvested in
additional shares of the Portfolio at the net asset value per share on the
reinvestment date unless you have previously requested in writing to the
Transfer Agent or on the new Account Application that payment be made in cash.
TAX CONSEQUENCES
Each Portfolio intends to make distributions of dividends and capital
gains. Dividends are taxable to shareholders as ordinary income. The rates a
shareholder pays on capital gain distributions will depend on how long the
Portfolio held the securities that generated the gains, not on how long the
shareholder owned the Portfolio shares. Shareholders will be taxed in the same
manner whether they receive dividends and capital gain distributions in cash or
reinvest them in additional Portfolio shares.
Selling or exchanging Portfolio shares is considered a taxable event for
shareholders. Depending on the purchase price and the sale price of the shares
exchanges or sold, a gain or a loss may result on the transaction. Shareholders
are responsible for any tax liabilities generated by their transactions.
RULE 12b-1 FEES
The Funds have a distribution plan under Rule 12b-1 that allows each
Portfolio to pay distribution fees for the sale and distribution of its shares
and for services provided to its shareholders. The plan provides for the payment
of a distribution and service fee of up to 0.25% of the Portfolio's average
daily net assets. This fee is payable to the Advisor, as Distribution
Coordinator. These fees may be used to pay certain brokers, transfer agents and
financial intermediaries for providing shareholder services. The Advisor may
also retain a portion of these fees to reimburse itself for marketing and
servicing expenses, including a portion of its overhead and staff devoted to
marketing the shares of the Portfolios. Because these fees are paid out of the
Portfolio's assets on an on-going basis, over time these fees will increase the
cost of your investment in shares of the Portfolio and may cost you more than
paying other types of sales charges.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance of each Portfolio for up to the past five years. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rates that an investor would have earned (or
lost) on an investment in each Portfolio (assuming reinvestment of all dividends
and distributions). The information has been audited by KPMG LLP, independent
auditors, whose report, along with the Portfolios' financial statements, are
included in the Annual Report, which is available upon request.
Rainier Investment Management Mutual Funds
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
SMALL/MID CAP EQUITY PORTFOLIO
------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDING ENDING ENDING ENDING ENDING
03/31/00 03/31/99 03/31/98 03/31/97 03/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.81 $ 24.92 $ 18.54 $ 17.89 $ 13.89
Income from investment operations
Net investment income (loss) (0.06) (0.01) (0.01) 0.05 0.05
Net realized and unrealized gain
(loss) on investments 9.05 (4.24) 8.71 2.43 5.17
-------- -------- -------- -------- -------
Total from investment operations 8.99 (4.25) 8.70 2.48 5.22
-------- -------- -------- -------- -------
Distributions
From net investment income -- (0.01) (0.01) (0.06) (0.06)
From net realized gain -- (0.85)(1) (2.31) (1.77) (1.16)
-------- -------- -------- -------- -------
Total distributions -- (0.86) (2.32) (1.83) (1.22)
-------- -------- -------- -------- -------
Net asset value, end of period $ 28.80 $ 19.81 $ 24.92 $ 18.54 $ 17.89
======== ======== ======== ======== =======
Total return 45.38% (17.18%) 48.68% 14.57% 38.38%
======== ======== ======== ======== =======
Net assets, end of period (in 000's) $468,238 $430,028 $515,682 $136,341 $79,495
======== ======== ======== ======== =======
Ratio of expenses to average net assets
Before fees waived and expenses absorbed 1.25% 1.25% 1.26% 1.33% 1.46%
After fees waived and expenses absorbed n/a n/a n/a 1.40% 1.48%
Ratio of net investment income (loss) to
average net assets, after fees waived
and expenses absorbed (0.24%) (0.04%) (0.06%) 0.27% 0.66%
-------- -------- -------- -------- -------
Portfolio turnover rate 199.04% 143.70% 107.17% 130.54% 151.37%
======== ======== ======== ======== =======
</TABLE>
----------
1. OF THIS AMOUNT, THE FUND DESIGNATES $0.17 AS A CAPITAL GAIN DIVIDEND PER IRC
SECTION 852(B) (3).
23
<PAGE>
<TABLE>
<CAPTION>
CORE EQUITY PORTFOLIO
---------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDING ENDING ENDING ENDING ENDING
03/31/00 03/31/99 03/31/98 03/31/97 03/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.34 $ 24.67 $ 18.97 $ 17.53 $ 13.84
Income from investment operations
Net investment income (loss) (0.03) 0.05 0.07 0.13 0.11
Net realized and unrealized gain
(loss) on investments 7.93 1.95 8.86 2.86 5.13
---------- -------- -------- -------- --------
Total from investment operations 7.90 2.00 8.93 2.99 5.24
---------- -------- -------- -------- --------
Distributions
From net investment income -- (0.07) (0.07) (0.13) (0.11)
From net realized gain (1.68) (1.26)(2) (3.16) (1.42) (1.44)
---------- -------- -------- -------- --------
Total distributions (1.68) (1.33) (3.23) (1.55) (1.55)
---------- -------- -------- -------- --------
Net asset value, end of period $ 31.56 $ 25.34 $ 24.67 $ 18.97 $ 17.53
========== ======== ======== ======== ========
Total return 32.06% 8.64% 49.64% 17.88% 38.64%
========== ======== ======== ======== ========
Net assets, end of period (in 000's) $1,006,048 $910,587 $698,665 $260,629 $107,665
========== ======== ======== ======== ========
Ratio of expenses to average net assets
Before fees waived and expenses absorbed 1.11% 1.13% 1.14% 1.18% 1.30%
After fees waived and expenses absorbed n/a n/a n/a 1.22% 1.29%
Ratio of net investment income (loss) to
average net assets, after fees waived
and expenses absorbed (0.12%) 0.23% 0.37% 0.74% 1.07%
---------- -------- -------- -------- --------
Portfolio turnover rate 82.98% 132.91% 119.88% 146.12% 138.02%
========== ======== ======== ======== ========
</TABLE>
----------
2 OF THIS AMOUNT, THE FUND DESIGNATES $0.68 AS A CAPITAL GAIN DIVIDEND PER IRC
SECTION 852(b) (3).
24
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
---------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDING ENDING ENDING ENDING ENDING
03/31/00 03/31/99 03/31/98 03/31/97 03/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.70 $ 16.78 $ 14.76 $ 14.53 $ 12.96
Income from investment operations
Net investment income 0.28 0.28 0.35 0.37 0.38
Net realized and unrealized gain
(loss) on investments 2.90 0.85 4.46 1.28 2.82
-------- ------- ------- ------- -------
Total from investment operations 3.18 1.13 4.81 1.65 3.20
-------- ------- ------- ------- -------
Distributions
From net investment income (0.28) (0.28) (0.35) (0.37) (0.37)
From net realized gain (0.80) (0.93)(1) (2.44) (1.05) (1.26)
-------- ------- ------- ------- -------
Total distributions (1.08) (1.21) (2.79) (1.42) (1.63)
-------- ------- ------- ------- -------
Net asset value, end of period $ 18.80 $ 16.70 $ 16.78 $ 14.76 $ 14.53
======== ======= ======= ======= =======
Total return 19.59% 7.22% 34.57% 11.83% 25.58%
======== ======= ======= ======= =======
Net assets, end of period (in 000's) $128,612 $96,844 $72,724 $40,630 $32,080
======== ======= ======= ======= =======
Ratio of expenses to average net assets
Before fees waived and expenses absorbed 1.21% 1.22% 1.28% 1.31% 1.50%
After fees waived and expenses absorbed 1.19% 1.19% 1.19% 1.19% 1.19%
Ratio of net investment income to average
net assets, after fees waived and
expenses absorbed 1.63% 1.78% 2.09% 2.50% 2.76%
-------- ------- ------- ------- -------
Portfolio turnover rate 67.55% 108.28% 102.98% 133.68% 114.85%
======== ======= ======= ======= =======
</TABLE>
----------
1 OF THIS AMOUNT, THE FUND DESIGNATES $0.45 AS A CAPITAL GAIN DIVIDEND PER IRC
SECTION 852(b) (3).
25
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE FIXED INCOME PORTFOLIO
---------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDING ENDING ENDING ENDING ENDING
03/31/00 03/31/99 03/31/98 03/31/97 03/31/96
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.24 $ 12.45 $ 12.08 $ 12.33 $12.00
Income from investment operations
Net investment income 0.63 0.68 0.71 0.65 0.70
Net realized and unrealized gain
(loss) on investments (0.41) 0.11 0.37 (0.25) 0.34
------- ------- ------- ------- ------
Total from investment operations (0.22) 0.79 1.08 0.40 1.04
------- ------- ------- ------- ------
Distributions
From net investment income (0.63) (0.68) (0.71) (0.64) (0.70)
From net realized gain -- (0.32)(2) -- (0.01) (0.01)
------- ------- ------- ------- ------
Total distributions (0.63) (1.00) (0.71) (0.65) (0.71)
------- ------- ------- ------- ------
Net asset value, end of period $ 11.83 $ 12.24 $ 12.45 $ 12.08 $12.33
======= ======= ======= ======= ======
Total return 1.90% 6.49% 9.11% 3.35% 8.85%
======= ======= ======= ======= ======
Net assets, end of period (in 000's) $23,836 $20,405 $19,961 $19,303 $9,740
======= ======= ======= ======= ======
Ratio of expenses to average net assets
Before fees waived and expenses absorbed 0.94% 1.04% 1.19% 1.53% 2.17%
After fees waived and expenses absorbed 0.55% 0.55% 0.55% 0.95% 0.95%
Ratio of net investment income to average
net assets, after fees waived and
expenses absorbed 5.31% 5.39% 5.73% 5.42% 5.69%
------- ------- ------- ------- ------
Portfolio turnover rate 8.18% 54.59% 15.99% 8.37% 15.49%
======= ======= ======= ======= ======
</TABLE>
----------
2. OF THIS AMOUNT, THE FUND DESIGNATES $0.24 AS A CAPITAL GAIN DIVIDEND PER IRC
SECTION 852(b) (3).
26
<PAGE>
APPENDIX
INDEX DESCRIPTIONS
THE STANDARDS & 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, THE RUSSELL 2500(TM)
INDEX AND THE RUSSELL 2000(R) INDEX ARE UNMANAGED INDICES COMPOSED OF THE
EQUITIES OF COMPANIES RANGING IN VALUE FROM APPROXIMATELY $1.1 TO $517.8
BILLION, $1.1 BILLION TO $25.9 BILLION, $80.0 MILLION TO $6.7 BILLION, AND $80.0
MILLION TO $3.9 BILLION, RESPECTIVELY, AS OF JUNE 30, 2000.
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 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.
27
<PAGE>
SERIES OF
RAINIER INVESTMENT MANAGEMENT
MUTUAL FUNDS (THE "FUNDS")
SMALL/MID CAP EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO
BALANCED PORTFOLIO
INTERMEDIATE FIXED INCOME PORTFOLIO
FOR MORE INFORMATION ABOUT THE PORTFOLIOS, THE FOLLOWING DOCUMENTS ARE AVAILABLE
FREE UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORT: Additional information about the Portfolios'
investments is available in the Portfolios' Annual and Semi-Annual Report to
Shareholders. In the Annual Report, you will find a discussion of the market
conditions and investment strategies that significantly affected each
Portfolio's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Portfolios and is incorporated by reference into this
Prospectus.
To receive free copies of the Portfolios' reports and SAI, request other
information or discuss your questions concerning the Portfolios, please contact
the Funds at the address below.
Rainier Investment Management
Mutual Funds
601 Union Street, Suite 2801
Seattle, Washington 98101
(800) 248-6314
www.rainierfunds.com
To review and copy information including the Portfolios' reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C., please contact the Public Reference Room by calling 1-202-942-8090. Text
only copies are available:
* For a duplicating fee, by writing to the Public Reference Room of the
Commission, Washington, DC 20549-0102 or by electronic request at the
following e-mail address: [email protected];
* Free of charge from the Commission's Internet website at http://www.sec.gov.
(The Funds' SEC Investment Company
Act File Number is 811-8270.)
<PAGE>
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 31, 2000
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the Prospectus dated July 31, 2000 of the
Small/Mid Cap Equity Portfolio, the Core Equity Portfolio, the Balanced
Portfolio and the Intermediate Fixed Income Portfolio. (In this SAI, all four
Portfolios may be referred to as the "Portfolios" and the Small/Mid Cap Equity
Portfolio, Core Equity Portfolio, and Balanced Portfolios may be referred to as
the "Equity Portfolios") series of the Rainier Investment Management Mutual
Funds (the "Trust"). The Trust consists of one other series, the Growth Equity
Portfolio which is in a separate SAI. Rainier Investment Management, Inc.(R)
("RIM" or the "Advisor") is the Advisor to the Trust and the Portfolios. A copy
of the Prospectus may be obtained from the Trust at 601 Union St., Ste. 2801,
Seattle, WA 98101 or by calling (800) 248-6314.
TABLE OF CONTENTS
THE TRUST................................................................. B-2
INVESTMENT OBJECTIVES AND POLICIES........................................ B-2
INVESTMENT RESTRICTIONS................................................... B-7
MANAGEMENT................................................................ B-9
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... B-16
PORTFOLIO TURNOVER ....................................................... B-17
NET ASSET VALUE .......................................................... B-18
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ B-19
TAXATION.................................................................. B-20
DIVIDENDS AND DISTRIBUTIONS .............................................. B-21
PERFORMANCE INFORMATION................................................... B-22
GENERAL INFORMATION....................................................... B-24
FINANCIAL STATEMENTS...................................................... B-24
APPENDIX.................................................................. B-25
B-1
<PAGE>
THE TRUST
Rainier Investment Management Mutual Funds (the "Trust") is an open-end
investment company organized as a Delaware business trust on December 15, 1993.
The Trust consists of five separate, diversified portfolios, each of which has
it own objective, assets, liabilities and net assets. This SAI relates only to
the Portfolios. Rainier Investment Management, Inc.(R) serves as investment
advisor to the Trust and the Portfolios.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Portfolios'
investment objectives and policies as forth in their Prospectus. There can be no
guarantee that the objective of any Portfolio will be attained.
The SMALL/MID CAP EQUITY PORTFOLIO seeks to maximize long-term capital
appreciation. The Portfolio invests primarily in a diversified portfolio of
common stocks of companies with small and medium-size capitalizations.
The CORE EQUITY PORTFOLIO seeks to maximize long-term capital appreciation. The
Portfolio invests primarily in a diversified portfolio of common stocks of U.S.
companies.
The BALANCED PORTFOLIO seeks to provide investors with a balance of long-term
capital appreciation and current income. The Portfolio invests primarily in a
diversified portfolio of common stocks of U.S. companies and investment grade,
intermediate-term debt securities and cash equivalent securities.
The INTERMEDIATE FIXED INCOME PORTFOLIO seeks to provide current income. The
Portfolio invests primarily in a diversified portfolio of investment grade,
intermediate-term debt securities issued by corporations and the U.S.
Government.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Portfolio purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon date and price reflecting
a market rate of interest unrelated to the coupon rate or maturity of the
purchased security. The majority of these transactions run from day to day and
not more than seven days from the original purchase. The purchaser maintains
custody of the underlying securities prior to their repurchase; thus the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such underlying securities. If the value of such
securities is less than the repurchase price, the other party to the agreement
will provide additional collateral so that at all times the collateral is at
least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Portfolios intend to enter into repurchase
agreements only with banks and dealers believed by the Advisor to present
minimum credit risks in accordance with guidelines established by the Board of
Trustees. The Advisor will review and monitor the creditworthiness of such
institutions under the Board's general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the purchaser would suffer a
loss. If the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the purchaser's ability to sell the collateral and the
purchaser could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, the Portfolios intend to comply with provisions under such Code that would
allow them immediately to resell the collateral.
WHEN-ISSUED SECURITIES
The Portfolios may from time to time purchase securities on a "when-issued" or
delayed delivery basis, generally in connection with an underwriting or other
offering. The price of such securities, which may be expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
B-2
<PAGE>
payment for the when-issued securities take place at a later date. Normally, the
settlement date occurs within one month of the purchase; during the period
between purchase and settlement, no payment is made by the Portfolio to the
issuer and no interest accrues to the Portfolio. To the extent that assets of a
Portfolio are held in cash pending the settlement of a purchase of securities,
the Portfolio would earn no income. While when-issued securities may be sold
prior to the settlement date, the Portfolios intend to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Portfolio makes the commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect the
value of the security in determining its net asset value. The market value of
the when-issued securities may be more or less than the purchase price. The
Advisor does not believe that the Portfolios' net asset value or income will be
adversely affected by the purchase of securities on a when-issued basis. The
Portfolios will segregate liquid assets with the Custodian equal in value to
commitments for when-issued securities. Such segregated assets either will
mature or, if necessary, be sold on or before the settlement date.
ILLIQUID SECURITIES; RULE 144A SECURITIES
There is no present intention for the Portfolios to hold any illiquid
securities. Each Portfolio has the right to invest in such securities but not to
the extent of more than 15% of its net assets. Illiquid securities include (a)
securities for which there is no available market, (b) securities that at the
time of purchase have legal or contractual restrictions on resale, (c)
repurchase agreements having more than seven days to maturity and (d) fixed time
deposits subject to withdrawal penalties (other than those with a term of less
than seven days).
Mutual funds do not typically hold a significant amount of restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a Portfolio might not be able to
dispose of such securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions. A Portfolio might also have to
register such restricted securities in order to dispose of them, resulting in
additional expense and delay.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accord with Rule 144A promulgated by the Securities and Exchange Commission,
the Trustees may determine that such securities are not illiquid notwithstanding
their legal or contractual restrictions on resale.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government securities include direct obligations issued by the United
States Treasury, such as Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years). They also include U.S.
Government agencies and instrumentalities that issue or guarantee securities,
such as the Federal Home Loan Banks, The Federal National Mortgage Association
and the Student Loan Marketing Association. Except for U.S. Treasury securities,
obligations of U.S. Government agencies and instrumentalities may or may not be
supported by the full faith and credit of the United States. Some, such as those
of the Federal Home Loan Banks, are backed by the right of the issuer to borrow
from the Treasury, others by discretionary authority of the U.S. Government to
purchase the agencies' obligations, while still others, such as the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
B-3
<PAGE>
In the case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment and may not be able to asset a claim
against the United States itself in the event the agency or instrumentality does
not meet its commitment.
MORTGAGE-RELATED SECURITIES
The Intermediate Fixed Income Portfolio and Balanced Portfolio reserve the right
to invest in mortgage-related securities. These securities include mortgage
pass-through securities, which represent interests in pools of mortgages in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to the sale of underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a Portfolio
to a lower rate of return upon reinvestment of principal. Also, if a security
subject to repayment has been purchased at a premium, in the event of prepayment
the value of the premium would be lost.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U. S. Government (in the case of securities guaranteed
by GNMA), or by agencies and instrumentalities of the U.S. Government (in the
case of securities guaranteed by FNMA or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities created by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance, and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers.
Collateralized mortgage obligations ("CMO's") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMO's may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMO's are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes receive principal only after the first class has been retired.
Other mortgage related securities include those that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans
on real property, such as CMO residuals or stripped mortgage-backed securities,
and may be structured in classes with rights to receive varying proportions of
principal and interest. Certain of these government interest-only and
principal-only fixed mortgage-backed securities may be considered liquid under
guidelines to be established by the Board of Trustees, if, under such
procedures, they can be disposed of promptly in the ordinary course of business
at a value reasonably close to that used in the calculation of net asset value
per share. Any interest-only and principal-only securities not determined to be
liquid under these guidelines will be subject to the Portfolios' limitations on
illiquid securities as set forth in the prospectus. The Portfolios have no
present intention to invest in such interest-only and principal-only securities.
ASSET-BACKED SECURITIES
Each Portfolio may invest in asset-backed receivables, which represent undivided
fractional interests in a trust with assets consisting of a pool of domestic
loans such as motor vehicle retail installment sales contracts or credit card
receivables. Asset-backed receivables are generally issued by governmental,
government-related and private organizations. Payments are typically made
monthly, consisting of both principal and interest payments. Asset-backed
securities may be prepaid prior to maturity and, hence, the actual life of the
B-4
<PAGE>
security cannot be accurately predicted. During periods of falling interest
rates, prepayments may accelerate, which would require a Portfolio to reinvest
the proceeds at a lower interest. Although generally rated investment grade, it
is possible that the securities could become illiquid or experience losses of
guarantors or insurers defaults.
SECURITIES LENDING
The Portfolios have the ability to lend securities, but have no present
intention to do so. The Portfolios may lend their securities in an amount not to
exceed 30% of their assets to financial institutions such as banks and brokers
if the loan is collateralized in accordance with applicable regulations. Under
the present regulatory requirements which govern loans of portfolio securities,
the loan collateral must, on each business day, at least equal the value of the
loaned securities and must consist of cash, letters of credit of domestic banks
or domestic branches of foreign banks or securities of the U.S. Government or
its agencies.
FOREIGN SECURITIES
Each Portfolio may invest up to 20% of its assets in foreign securities. These
include U.S. dollar denominated securities of foreign issuers and securities of
foreign issuers that are listed and traded on a domestic national securities
exchange. Currently, the Advisor intends to invest only U.S. dollar denominated
securities of foreign issuers or American Depositary Receipts ("ADRs"). ADRs are
receipts, usually issued by a U.S. bank or trust company, evidencing ownership
of the underlying securities. Generally, ADRs are issued in registered form,
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. A depositary may issue sponsored and unsponsored ADRs without the
consent of the foreign issuer of securities, in which case the holder of the ADR
may incur higher costs and receive less information about the foreign issuer
than the holder of a sponsored ADR.
There are risks associated with investing in foreign securities. There may be
less publicly available information about these issuers than is available about
companies in the U.S. and foreign auditing requirements may not be comparable to
those in the U.S. Interest or dividends on foreign securities may be subject to
foreign withholding taxes. Investments in foreign countries may be subject to
the possibility of expropriation or confiscatory taxation, exchange controls,
political or social instability or diplomatic developments that could aversely
affect the value of those investments. The value of foreign securities may be
adversely affected by movements in the exchange rates between foreign currencies
(including the "euro") and the U.S. dollar, as well as other political and
economic developments.
FUTURES
To the extent consistent with their investment objectives and policies, the
Portfolios may purchase and sell futures contracts with respect to interest
rates and securities indices. The Portfolios may use these techniques to hedge
against changes in interest rates or securities prices or as part of their
overall investment strategies.
An interest rate or index futures contract provides for the future sale by one
party and purchase by another party of a specified quantity of a financial
instrument or the cash value of an index at a specified price and time. A
futures contract on an index is an agreement pursuant to which two parties agree
to take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract and
the price at which the index contract was originally written. Although the value
of an index might be a function of the value of certain specified securities, no
physical delivery of these securities is made. A public market exists in futures
contracts covering a number of indices as well as financial instruments,
including: the S&P 500; the S&P 100; the S&P Midcap 400; the NYSE composite;
U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; and bank certificates of deposit.
B-5
<PAGE>
Each Portfolio will use futures contracts in accordance with the applicable
rules of the Commodity Futures Trading Commission under which the Trust and the
Portfolios avoid being deemed a "commodity pool" and the Advisor being deemed a
"commodity pool operator." Accordingly, each Portfolio intends generally to
limit its use of futures contracts as described below.
A Portfolio might use futures contracts to hedge against anticipated changes in
interest rates or securities prices that might adversely affect either the value
of the Portfolio's securities or the price of the securities that the Portfolio
intends to purchase. A Portfolio might also buy futures contracts on securities
indexes with respect to a large cash investment in a Portfolio pending full
investment of that cash in stocks.
A Portfolio will enter into only those futures contracts that are standardized
and traded on a U.S. exchange, board of trade, or similar entity, or quoted on
an automated quotation system.
When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of assets determined to be liquid by the Advisor
in accordance with procedures established by the Board of Trustees ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. Each day the Portfolio pays or receives cash, called "variation
margin," equal to the daily change in value of the futures contract. This
process is known as "marking to market." Variation margin does not represent a
borrowing or loan by a Portfolio but is instead a settlement between the
Portfolio and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Portfolio will mark
to market its open futures positions.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month).
The Portfolios will enter into positions in futures contracts for "bona fide
hedging" purposes and for other investment purposes. With respect to positions
in futures that do not constitute bona fide hedging positions, a Portfolio will
not enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
(plus premiums paid by it for open futures positions, less the amount by which
any such futures are "in-the-money") would exceed 5% of the Portfolio's net
assets.
When purchasing a futures contract, a Portfolio will designate (and
mark-to-market on a daily basis) assets determined to be liquid by the Advisor
in accordance with procedures established by the Board of Trustees, that, when
added to the amounts deposited with a futures commission merchant as margin, are
equal to the contract value of the futures contract.
There are several risks associated with the use of futures contracts. A purchase
or sale of a futures contract may result in losses substantially in excess of
the amount invested in the futures contract. There can be no guarantee that
there will be a correlation between price movements in the hedging vehicle and
in the Portfolio securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given futures transaction
not to achieve its objectives. A decision as to whether, when and how to use
futures involves the exercise of skill and judgment, and even a well-conceived
investment may be unsuccessful to some degree because of market behavior or
unexpected interest rate or securities price trends.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract, and that Portfolio would remain
obligated to meet margin requirements until the position is closed.
B-6
<PAGE>
SHORT-TERM INVESTMENTS
Each Portfolio may invest in any of the following securities and instruments:
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Each Portfolio
may hold certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by a Portfolio will be
dollar-denominated obligations of domestic banks, savings and loan associations
or financial institutions which, at the time of purchase, have capital, surplus
and undivided profits in excess of $100 million (including assets of both
domestic and foreign branches), based on latest published reports, or less than
$100 million if the principal amount of such bank obligations are fully insured
by the U.S. Government.
In addition to buying certificates of deposit and bankers' acceptances, a
Portfolio also may make interest-bearing time or other interest-bearing deposits
in commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
COMMERCIAL PAPER AND SHORT-TERM NOTES. Each Portfolio may invest a portion of
its assets in commercial paper and short-term notes. Commercial paper consists
of unsecured promissory notes issued by corporations. Commercial paper and
short-term notes will normally have maturities of less than nine months and
fixed rates of return, although such instruments may have maturities of up to
one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher by Standard & Poor's Ratings Group, "Prime-1" or
"Prime-2" by Moody's Investors Service, Inc., or similarly rated by another
nationally recognized statistical rating organization or, if unrated, will be
determined by the Advisor to be of comparable quality. These rating symbols are
described in the Appendix.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Portfolios, has adopted the following fundamental
investment policies and restrictions in addition to the policies and
restrictions discussed in the prospectus. With respect to each Portfolio, the
policies and restrictions listed below cannot be changed without approval by the
holders of a "majority of the outstanding voting securities" of that Portfolio,
which is defined in the Investment Company Act of 1940 (the "1940 Act") to mean
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares. As a matter of fundamental policy, the Portfolios are
diversified; i.e., as to 75% of the value of a Portfolio's total assets, no more
than 5% of the value of its total assets may be invested in the securities of
any one issuer (other than U.S. Government securities).
In addition, no Portfolio may:
1. Issue senior securities, borrow money or pledge its assets, except that a
Portfolio may borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not exceeding 10% of
its total assets (not including the amount borrowed), provided that it will not
make investments while borrowings in excess of 5% of the value of its total
assets are outstanding;
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2. Make short sales of securities or maintain a short position, except for short
sales against the box;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options, except that the Portfolios reserve the right to
write put or call options for hedging or other purposes as may subsequently be
described in their Prospectus and permitted under applicable federal and state
laws and regulations;
5. Act as underwriter (except to the extent a Portfolio may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
6. Invest 25% or more of its total assets, calculated at the time of purchase
and taken at market value, in any one industry, other than U.S. Government
securities (except that the Portfolios reserve the right to invest all of their
assets in shares of another investment company);
7. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although any Portfolio may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
8. Purchase or sell commodities or commodity futures contracts, except that the
Portfolios may purchase and sell stock index futures contracts and interest rate
futures contracts to the extent described in their Prospectus or in this
Statement of Additional Information and as permitted under applicable federal
and state laws and regulations;
9. Make loans (except for purchases of debt securities consistent with the
investment policies of the Portfolios and except for repurchase agreements);
10. Make investments for the purpose of exercising control or management; or
11. Invest in oil and gas limited partnerships or oil, gas or mineral leases.
The Portfolios observe the following restrictions as a matter of operating but
not fundamental policy, pursuant to positions taken by federal regulatory
authorities:
No Portfolio may:
1. Purchase any security if as a result the Portfolio would then hold more than
10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class) except that each Portfolio reserves the right to
invest all of its assets in a class of voting securities of an investment
company;
2. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
3. Invest, in the aggregate, more than 15% of its net assets in securities with
legal or contractual restrictions on resale, securities which are not readily
marketable and repurchase agreements with more than seven days to maturity.
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MANAGEMENT
The overall management of the business and affairs of the Trust is vested with
its Board of Trustees. The Board approves all significant agreements between the
Trust and persons or companies furnishing services to it, including the
agreements with the Advisor, Administrator, Custodian and Transfer Agent. The
day to day operations of the Trust and the Portfolios are delegated to their
officers, subject to their investment objectives and policies and to general
supervision by their Boards of Trustees.
The following table lists the Trustees and officers of the Trust, their ages,
business addresses and principal occupations during the past five years. Unless
otherwise noted, each individual has held the position listed for more than five
years.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with Trust During Past Five Years
---------------- ---------- ----------------------
<S> <C> <C>
J. Glenn Haber, 3/15/52 * Trustee, Principal of the Advisor.
601 Union St., Ste. 2801 President,
Seattle, WA 98101 Secretary, and
Treasurer
Patricia L. Frost 11/4/44* Trustee and Principal and Chief Executive Officer of
601 Union St., Ste. 2801 Vice President the Advisor
Seattle, WA 98101
James E. Diamond, Jr., 11/13/46 Trustee Retired. President and Chief Financial
3217 NW Yeon Ave. Officer of Paul O. Giesey Adcrafters,
Portland, OR 97210 Inc. (printing and typography) from 1991
to 1999.
John W. Ferris, 12/12/40 Trustee Partner of Peterson Sullivan & Co.
Peterson, Sullivan & Co. (certified public accountants).
2330 Two Union Square
Seattle, WA 98101
Gary L. Sundem, 11/8/44 Trustee Associate Dean and Professor of
University of Washington Accounting; University of Washington
School of Business Administration
James R. Margard, 9/25/52* Vice President Principal of the Advisor
601 Union St., Ste. 2801
Seattle, WA 98101
Michael E. Raney, 9/13/48* Vice President Principal of the Advisor
601 Union St. Ste. 2801
Seattle, WA 98101
David A. Veterane, 7/22/41* Vice President Principal of the Advisor
601 Union St., Ste. 2801
Seattle, WA 98101
</TABLE>
-----
* Denotes "interested person" as defined in the 1940 Act.
B-9
<PAGE>
The officers of the Trust, and the Trustees who are considered "interested
persons" of the Trust receive no compensation directly from the Trust for
performing the duties of their offices. However, those officers and Trustees who
are officers or principals of the Advisor may receive remuneration indirectly
because the Advisor receives a management fee from the Portfolios. The Trustees
who are not affiliated with the Advisor receive an annual retainer of $6,000
plus $1,500 per meeting. These unaffiliated Trustees also receive a fee of
$1,500 for any committee meetings held on dates other than a scheduled board
meeting date. Such Trustees also are reimbursed for any expenses incurred in
attending meetings. The aggregate compensation paid by each Portfolio of the
Trust to each of the Trustees during the fiscal year ended March 31, 2000 is set
forth below:
Aggregate Deferred Compensation
Compensation Paid Accrued as Part Total Compensation
Name of Trustee from Trust of Trust Expenses from Trust
--------------- ---------- ----------------- ----------
J. Glenn Haber $ 0 $ 0 $ 0
Patricia L. Frost $ 0 $ 0 $ 0
James E. Diamond, Jr. $12,000 $ 0 $12,000
Gary L. Sundem $ 0 $12,000 $12,000
John W. Ferris $ 0 $12,000 $12,000
The Portfolios do not maintain pension or retirement plans for Trustees.
PRINCIPAL SHAREHOLDERS
As of June 30, 2000, the current Trustees and officers of the Trust as a group
held of record and beneficially less than 1% of the outstanding shares of each
Portfolio. To the best knowledge of the Portfolios, shareholders owning 5% or
more of the outstanding shares of the Portfolio as of record are set forth
below:
Shareholder % held as of
Portfolio Name & Address June 30, 2000
--------- -------------- -------------
Small/Mid Cap Charles Schwab & Co. Inc. 27.74%
Equity Portfolio Special Custody Account for
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
National Financial Services 12.98%
For the Exclusive Benefit of
Our Customers
Attn Omnibus Reconciliation
1 World Financial Ctr
New York, NY 10281-1003
South California UFCW 8.16%
Unions & Drug Emp Pens Fnd
Los Feliz Station
P.O. Box 27920
Los Angeles, CA 90027-0920
Core Equity Portfolio Charles Schwab & Co. Inc. 37.68%
Special Custody Account for
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
B-10
<PAGE>
Shareholder % held as of
Portfolio Name & Address June 30, 2000
--------- -------------- -------------
National Financial Services 14.43%
For the Exclusive Benefit of
Our Customers
Attn Omnibus Reconciliation
1 World Financial Ctr
New York, NY 10281-1003
Balanced Portfolio Charles Schwab & Co. Inc. 23.56%
Special Custody Account for
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Wendel & Co 10.92%
A/C #195705
C/O The Bank of New York
Attn Mutual Funds/Reorg Dept
P.O. Box 1066 Wall Street Station
New York, NY 10286
Norwest Bank MN 8.71%
FBO Pacific Medical Center
A/C #18424200
P.O. Box 1533
Minneapolis, MN 55480-1533
National Financial Services 6.90%
For the Exclusive Benefit of
Our Customers
Attn Omnibus Reconciliation
1 World Financial Ctr
New York, NY 10281-1003
Int. Fixed Income Portfolio Key Trust Company of Alaska Cust 11.81%
Under Agreement DTD 10/20/95
With Koniag Inc.
PO Box 94871
Cleveland, OH 44101-4871
Northwest Roofers & Employers 24.73%
Health & Security Trust Fund
Michael S. Hendrickson TR
PO Box 34203
Seattle, WA 98124-1203
B-11
<PAGE>
Shareholder % held as of
Portfolio Name & Address June 30, 2000
--------- -------------- -------------
Machinist Health & Welfare Trust 10.02%
Welfare & Pension Admin
Attn Michael Hendrickson
PO Box 34203
Seattle, WA 98124-1203
Security Trust Company Cust 7.61%
FBO Foss Maritime Company
Conservative Balanced
Supplemental Retirement Plan
2390 E. Camelback Rd., Ste. 240
Phoenix, AZ 85016-3434
Security Trust Co Tr 5.19%
FBO Klukwan Inc. & Subsidiaries
Profit Sharing Plan
2390 E. Camelback Rd., Ste. 240
Phoenix, AZ 85016-3434
Western Building Materials 6.52%
Insurance Trust
FBO Casey Voorhees
PO Box 1699
Olympia, WA 98507-1699
Key Trust Company of Alaska Cust 6.60%
Under Agreement DTD 10/20/95
With Koniag Inc.
Collateral Holding
PO Box 94871
Cleveland, OH 44101-4871
THE ADVISOR
Subject to the supervision of the Board of Trustees, investment management and
services are provided to the Portfolios by the Advisor, pursuant to an
Investment Advisory Agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Advisor provides a continuous investment program for the
Portfolios and makes decisions and places orders to buy, sell or hold particular
securities. In addition to the fees payable to the Advisor and the
B-12
<PAGE>
Administrator, the Portfolios and the Trust are responsible for their operating
expenses, including: (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of Trustees other than those
affiliated with the Advisor or the Administrator; (v) legal and audit expenses;
(vi) fees and expenses of the custodian, shareholder service and transfer
agents; (vii) fees and expenses for registration or qualification of the Trust
and its shares under federal or state securities laws; (viii) expenses of
preparing, printing and mailing reports, notices and proxy material to
shareholders; (ix) other expenses incidental to holding any shareholder
meetings; (x) dues or assessments of or contributions to the Investment Company
Institute or any successor; (xi) such non-recurring expenses as may arise,
including litigation affecting the Trust or the Portfolios and the legal
obligations with respect to which the Trust or the Portfolios may have to
indemnify their officers and Trustees; and (xii) amortization of organization
costs.
Under the Advisory Agreement, the Advisor is not liable to the Portfolios for
any error of judgment by the Advisor or any loss sustained by the Trust or
Portfolios except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages will be
limited as provided in the 1940 Act) or of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisory Agreement continues automatically for successive annual periods,
provided that such continuance is specifically approved at least annually (i) by
a majority vote of the Independent Trustees cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board of Trustees or
by vote of a majority of the outstanding voting securities.
The Advisory Agreement is terminable by vote of the Board of Trustees or by the
holders of a majority of the outstanding voting securities of the Portfolios at
any time without penalty, on 60 days written notice to the Advisor. The Advisory
Agreement also may be terminated by the Advisor on 60 days written notice to the
Portfolios. The Advisory Agreement terminates automatically upon its assignment
(as defined in the 1940 Act).
Advisory fees, waiver and expense reimbursements/(recoupment)for the last three
fiscal years were as follows:
Expenses Waived
Gross or Reimbursed/
Advisory Fee (Recouped)
------------ ----------
FISCAL YEAR ENDING MARCH 31, 2000:
Small/Mid Cap Equity Portfolio $3,602,997 $ 0
Core Equity Portfolio 6,853,758 0
Balanced Portfolio 718,521 19,754
Intermediate Fixed Income Portfolio 96,445 84,019
FISCAL YEAR ENDING MARCH 31, 1999:
Small/Mid Cap Equity Portfolio $4,406,813 $ 0
Core Equity Portfolio 6,039,183 0
Balanced Portfolio 592,133 27,004
Intermediate Fixed Income Portfolio 92,971 90,188
B-13
<PAGE>
Expenses Waived
Gross or Reimbursed/
Advisory Fee (Recouped)
------------ ----------
FISCAL YEAR ENDING MARCH 31, 1998:
Small/Mid Cap Equity Portfolio $2,479,135 $ 0
Core Equity Portfolio 3,230,869 0
Balanced Portfolio 370,829 45,162
Intermediate Fixed Income Portfolio 102,469 135,484
THE ADMINISTRATOR
The Trust has an Administration Agreement with Investment Company
Administration, LLC (the "Administrator"), a corporation with offices at 4455 E.
Camelback Rd., Ste. 261-E, Phoenix, AZ 85018. The Administration Agreement
provides that the Administrator will prepare and coordinate reports and other
materials supplied to the Trustees; prepare and/or supervise the preparation and
filing of all securities filings, periodic financial reports, prospectuses,
statements of additional information, marketing materials, tax returns,
shareholder reports and other regulatory reports or filings required of the
Portfolios; prepare all required filings necessary to maintain the Portfolios'
qualification and/or registration to sell shares in all states where the
Portfolios currently do, or intends to do business; coordinate the preparation,
printing and mailing of all materials (e.g., annual reports) required to be sent
to shareholders; coordinate the preparation and payment of Portfolio-related
expenses; monitor and oversee the activities of the Portfolios' servicing agents
(i.e., transfer agent, custodian, fund accountants, etc.); review and adjust as
necessary the Portfolios' daily expense accruals; and perform such additional
services as may be agreed upon by the Trust and the Administrator. For its
services, the Administrator receives a monthly fee from each Portfolio at the
annual rate of 0.10% of the first $100 million of average daily net assets,
0.05% of the next $100 million, and 0.03% of assets over $200 million, subject
to an annual minimum of $40,000. For the fiscal year beginning April 1, 1998,
the Administrator has agreed to waive its annual minimum fee for the
Intermediate Fixed Income Portfolio. Each Portfolio paid the following
administration fees for the fiscal years ended March 31:
2000 1999 1998
---- ---- ----
Small/Mid Cap Equity Portfolio $217,411 $245,534 $176,247
Core Equity Portfolio 363,904 331,567 219,235
Balanced Portfolio 100,209 84,586 52,913
Intermediate Fixed Income Portfolio 21,432 18,598 40,000
B-14
<PAGE>
THE DISTRIBUTOR
First Fund Distributors, Inc. (the "Distributor"), an affiliate of the
Administrator, acts as the Portfolios' principal underwriter in a continuous
public offering of each Portfolio's shares. The Distribution Agreement between
the Trust and the Distributor continues in effect from year to year if approved
at least annually by (i) the Board of Trustees or the vote of a majority of the
outstanding shares of the Portfolios (as defined in the 1940 Act) and (ii) a
majority of the Trustees who are not interested persons of any such party, in
each case cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement may be terminated without penalty by the
parties thereto , upon sixty days' written notice, and is automatically
terminated in the event of its assignment as defined in the 1940 Act.
Each Portfolio has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act. Each Plan provides that a Portfolio may pay a fee to the
Advisor, as Distribution Coordinator, at an annual rate of up to 0.25% of the
average daily net assets of each Portfolio. The fee is paid to the Advisor, as
Distribution Coordinator, as reimbursement for or in anticipation of, expenses
incurred for distribution related activities. The Advisor has voluntarily
limited the distribution fee for the Intermediate Fixed Income Portfolio to
0.10% of the Portfolio's average annual net assets. Expenses permitted to be
paid by each Portfolio under its Plan include: preparation, printing and mailing
or prospectuses, shareholder reports such as semi-annual and annual reports,
performance reports and newsletters; sales literature and other promotional
material to prospective investors; direct mail solicitation; advertising; public
relations; compensation of sales personnel, advisors or other third parties for
their assistance with respect to the distribution of the Portfolio's shares;
payments to financial intermediaries, including ERISA third-party retirement
plan administrators, for shareholder support; administrative and accounting
services with respect to the shareholders of the Portfolio; the Advisor's
internal distribution and shareholder servicing expenses; and such other
expenses as may be approved from time to time by the Board of Trustees.
The Advisor, out of its own funds, also may pay these expenses and may
compensate broker-dealers who have signed dealer agreements for the distribution
of a Portfolio's shares as well as other service providers who provide
shareholder and administrative services.
Each Portfolio paid the following 12b-1 fees for the fiscal year ended March 31,
2000:
<TABLE>
<CAPTION>
Advertising & Travel & Wages & Total
Marketing Entertainment Benefits Other* 12b-1 fees
--------- ------------- -------- ------ ----------
<S> <C> <C> <C> <C> <C>
Small/Mid Cap Equity Portfolio $ 916,241 $ 7,688 $117,270 $18,506 $1,059,705
Core Equity Portfolio 1,975,703 16,670 252,489 39,724 2,284,586
Balanced Portfolio 222,239 1,815 28,272 4,289 256,615
Int. Fixed Income Portfolio 18,366 163 2,341 562 21,432
</TABLE>
----------
* Other expenses include: dues and subscriptions, license and registration
fees, postage, telephone, supplies and equipment.
B-15
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
In all purchases and sales of securities for the Portfolios, the primary
consideration is to obtain the most favorable price and execution available.
Pursuant to the Advisory Agreement, the Advisor determines which securities are
to be purchased and sold by the Portfolios and which broker-dealers are eligible
to execute portfolio transactions, subject to the instructions of and review by
the Trust's Board of Trustees.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolios will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principals for their own
accounts. Purchases from underwriters will include a commission paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the asked price. If the execution and price offered by more
than one dealer or underwriter are substantially the same, the Advisor will also
consider whether that Broker/Dealer has provided research or other services as
discussed below.
In placing portfolio transactions, the Advisor will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available and the transaction involves a brokerage commission,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Advisor that it may lawfully and
appropriately use in its investment advisory capacity for the Portfolios and for
other accounts, as well as provide other services in addition to execution
services. The Advisor considers such information, which is in addition to, and
not in lieu of, the services required to be performed by it under the Agreement,
to be useful in varying degrees, but of indeterminable value. The Board of
Trustees reviews all brokerage allocations where services other than best
price/execution capabilities are a factor to ensure that the other services
provided meet the tests outlined above and produce a benefit to the Portfolios.
The placement of portfolio transactions with broker-dealers who sell shares of
the Portfolios is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD"). Provided the Trust's officers are satisfied
that the Portfolio is receiving the most favorable price and execution
available, the Advisor may also consider the sale of the Portfolios' shares as a
factor in the selection of broker-dealers to execute its portfolio transactions.
Investment decisions for the Portfolios are made independently from those of
other client accounts of the Advisor. Nevertheless, it is possible that at times
the same securities will be acceptable for the Portfolios and for one or more of
such client accounts. To the extent any of these client accounts and a Portfolio
seek to acquire the same security at the same time, the Portfolio may not be
able to acquire as large a portion of such security as it desires, or it may
have to pay a higher price to obtain a lower yield for such security. Similarly,
a Portfolio may not be able to obtain as high a price for, or as large an
execution of, an order to sell any particular security at the same time. If one
or more of such client accounts simultaneously purchases or sells the same
security that a Portfolio is purchasing or selling, each day's transactions in
such security will be allocated between the Portfolio and all such client
accounts in a manner deemed equitable by the Advisor, taking into account the
respective sizes of the accounts, the amount being purchased or sold and other
factors deemed relevant by the Advisor. It is recognized that in some cases this
system could have a detrimental effect on the price or value of the security
insofar as the Portfolio is concerned. In other cases, however, it is believed
that the ability of the Portfolio to participate in volume transactions may
produce better executions for the Portfolio.
B-16
<PAGE>
Depending on the Advisor's view of market conditions, a Portfolio may or may not
purchase debt securities with the expectation of holding them to maturity,
although its general policy is to hold securities to maturity. A Portfolio may,
however, sell securities prior to maturity to meet redemptions or as a result of
a revised management evaluation of the issuer.
The Portfolios do not effect securities transactions through broker-dealers in
accordance with any formula, nor do they effect securities transactions through
such broker-dealers solely for selling shares of the Portfolios. However, as
stated above, broker-dealers who execute transactions for the Portfolios may
from time to time effect purchase of shares of the Portfolios for their
customers.
For the fiscal year ended March 31, 2000, the Small/Mid Cap Equity Portfolio
paid $1,503,372 in brokerage commissions, of which $223,511 was paid to brokers
who furnished research services. For the fiscal year ended March 31, 1999, the
Small/Mid Cap Equity Portfolio paid $1,809,812 in brokerage commissions, of
which $1,790,569 was paid to brokers who furnished research services. For the
fiscal years ended March 31, 1998 and 1997, the Small/Mid Cap Equity Portfolio
paid $897,422 and $357,414, respectively, in brokerage commissions. For the
fiscal year ended March 31, 2000, the Core Equity Portfolio paid $1,469,184 in
brokerage commissions, of which $197,817 was paid to brokers who furnished
research services. For the fiscal year ended March 31, 1999, the Core Equity
Portfolio paid $2,315,169 in brokerage commissions, of which $2,303,479 was paid
to brokers who furnished research services. For the fiscal years ended March 31,
1998 and 1997, the Core Equity Portfolio paid $1,190,049 and $659,957,
respectively, in brokerage commissions. For the fiscal year ended March 31,
2000, the Balanced Portfolio paid $104,664 in brokerage commissions, of which
$16,220 was paid to brokers who furnished research services. For the fiscal year
ended March 31, 1999, the Balanced Portfolio paid $181,674 in brokerage
commissions, of which $180,337 was paid to brokers who furnished research
services. For the fiscal years ended March 31, 1998 and 1997, the Balanced
Portfolio paid $109,055 and $90,613, respectively, in brokerage commissions. The
Intermediate Fixed Income Portfolio paid no brokerage commissions for the
periods indicated herein.
PORTFOLIO TURNOVER
Although the Portfolios generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to transaction costs and may result in a
greater number of taxable transactions. See "Portfolio Transactions and
Brokerage." Each Portfolio's rate of portfolio turnover for the fiscal years
ended March 31 is as follows:
2000 1999 1998
---- ---- ----
Small/Mid Cap Equity Portfolio 199.04% 143.70% 107.17%
Core Equity Portfolio 82.98% 132.91% 119.88%
Balanced Portfolio 67.55% 108.28% 102.98%
Intermediate Fixed Income Portfolio 8.18% 54.59% 15.99%
As a result of volatility in the equity markets during the fiscal year ended
March 31, 2000, the Small/Mid Cap Equity Portfolio had a higher rate of
portfolio turnover than in the prior fiscal year.
B-17
<PAGE>
NET ASSET VALUE
As noted in the Prospectus, the net asset value and offering price of shares of
the Portfolios will be determined once daily as of the close of public trading
on the NYSE (normally 4:00 p.m., Eastern time) on each day that the NYSE is open
for trading. The Portfolios do not expect to determine the net asset value of
their shares on any day when the NYSE is not open for trading even if there is
sufficient trading in its portfolio securities on such days to materially affect
the net asset value per share. However, the net asset value of a Portfolio's
shares may be determined on days the NYSE is closed or at times other than 4:00
p.m. if the Board of Trustees decides it is necessary.
In valuing the Portfolios' assets for calculating net asset value, readily
marketable portfolio securities listed on a national securities exchange or on
NASDAQ are valued at the last sale price on the business day as of which such
value is being determined. If there has been no sale on such exchange or on
NASDAQ on such day, the security is valued at the closing bid price on such day.
Readily marketable securities traded only in the over-the-counter market and not
on NASDAQ are valued at the current or last bid price. If no bid is quoted on
such day, the security is valued by such method as the Board of Trustees of the
Trust shall determine in good faith to reflect the security's fair value. Debt
securities with remaining maturities of 60 days or less are normally valued at
amortized cost, unless the Board of Trustees determined that amortized cost does
not represent fair value. Cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued, and dividends will be recorded on
their ex-dividend date. All other assets of the Portfolios are valued in such
manner as the Board of Trustees in good faith deems appropriate to reflect their
fair value.
The net asset value per share of each Portfolio is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Portfolio outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
The net asset value of the Portfolios' shares will fluctuate and is determined
as of the close of trading on the New York Stock Exchange ("NYSE"), normally
4:00 p.m., Eastern time, each business day. The NYSE annually announces the days
on which it will not be open for trading. The most recent announcement indicates
that it will not be open on the following days: New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, the NYSE may close on
days not included in that announcement. The Portfolios do not expect to
determine the net asset value of shares on any day when the NYSE is not open for
trading even if there is sufficient trading in their portfolio securities on
such dates to materially affect the net asset value per share. However, the net
asset value of Portfolio shares may be determined on days the NYSE is closed or
at times other than 4:00 p.m. if the Board of Trustees decides it is necessary.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The information provided below supplements the information contained in the
Portfolios' Prospectus regarding the purchase and redemption of Portfolio
shares.
HOW TO BUY SHARES
You may purchase shares of a Portfolio from the Transfer Agent or from selected
securities brokers, dealers or financial intermediaries. Investors should
contact these agents directly for appropriate instructions, as well as
information pertaining to accounts and any service or transaction fees that may
be charged by those agents. Purchase orders through securities brokers, dealers
and other financial intermediaries are effected at the next-determined net asset
value after receipt of the order by such agent before the Portfolio's daily
cutoff time. Orders received after that time will be purchased at the
next-determined net asset value.
B-18
<PAGE>
The Trust reserves the right in its sole discretion (i) to suspend the continued
offering of a Portfolio's shares, (ii) to reject purchase orders in whole or in
part when in the judgment of the Advisor or the Distributor such rejection is in
the best interest of a Portfolio, and (iii) to reduce or waive the minimum for
initial and subsequent investments for certain retirement and other employee
benefit plans, for the Advisor's employees, clients or their affiliates, for
advisors or financial institutions offering investors a program of services or
any other person or organization deemed appropriate by the Trust.
The U.S. Postal Service or other independent delivery services are not agents of
the Trust. Therefore, a deposit in the mail or with such services, or receipt at
Firstar Trust Company's post office box of purchase applications does not
constitute receipt by Firstar Trust Company or the Trust. The Trust and the
Transfer Agent are not responsible for the consequences of delays resulting from
the banking or Federal Reserve Wire system, or from incomplete wiring
instructions.
HOW TO SELL SHARES
Payments to shareholders for Portfolio shares redeemed directly from the
Portfolio will be made as promptly as possible but no later than seven days
after receipt by the Transfer Agent of the written request in proper form, with
the appropriate documentation as stated in the Portfolios' Prospectus, except
that a Portfolio may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the NYSE is restricted as
determined by the SEC or the NYSE is closed for other than weekends and
holidays; (b) an emergency exists as determined by the SEC making disposal of
portfolio securities or valuation of net assets of the Portfolios not reasonably
practicable; or (c) for such other period as the SEC may permit for the
protection of the Portfolios' shareholders. At various times, a Portfolio may be
requested to redeem shares for which it has not yet received confirmation of
good payment. In this circumstance, the Portfolio may delay the redemption until
payment for the purchase of such shares has been collected and confirmed to the
Portfolio.
SELLING SHARES DIRECTLY TO THE PORTFOLIO
Send a signed letter of instruction to the Transfer Agent. The price you will
receive is the next net asset value calculated after the Transfer Agent receives
your request in proper form. In order to receive that day's net asset value, the
Transfer Agent must receive your request before the close of regular trading on
the NYSE.
SELLING SHARES THROUGH YOUR INVESTMENT REPRESENTATIVE
Your investment representative must receive your request before the close of
regular trading on the NYSE to receive that day's net asset value. Your
investment representative will be responsible for furnishing all necessary
documentation to the Transfer Agent, and may charge you for its services.
B-19
<PAGE>
DELIVERY OF PROCEEDS
Each Portfolio generally sends you payment for your shares the business day
after your request is received in proper form, assuming the Portfolio has
collected payment of the purchase price of your shares. Under unusual
circumstances, a Portfolio may suspend redemptions, or postpone payment for more
than seven days, but only as authorized by SEC rules.
TELEPHONE REDEMPTIONS
Upon receipt of any instructions or inquiries by telephone from a shareholder
or, if held in a joint account, from either party, or from any person claiming
to be the shareholder, each Portfolio or its agent is authorized, without
notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest Account
Application or other written request for services, including purchasing,
exchanging or redeeming shares of a Portfolio and depositing and withdrawing
monies from the bank account specified in the shareholder's latest Account
Application or as otherwise properly specified to the Portfolio in writing. The
Trust reserves the right to refuse a telephone redemption request if it believes
that the person making the request is neither the record owner of the shares
being redeemed nor otherwise authorized by the shareholder to request the
redemption.
The Transfer Agent will employ these and other reasonable procedures to confirm
that instructions communicated by telephone are genuine; if it fails to employ
reasonable procedures, the Trust may be liable for any losses due to
unauthorized or fraudulent instructions. An investor agrees, however, that if
such procedures are used, neither the Trust nor any Portfolio or its agents will
be liable for any loss, liability, cost or expense arising out of any redemption
request, including any fraudulent or unauthorized request. For information,
consult the Transfer Agent.
During periods of unusual market changes and shareholder activity, you may
experience delays in contacting the Transfer Agent by telephone. In this event,
you may wish to submit a written redemption request, as described in the
Prospectus, or contact your investment representative. The Telephone Redemption
Privilege is not available if you were issued certificates for shares that
remain outstanding. The Telephone Redemption Privilege may be modified or
terminated without notice.
REDEMPTIONS-IN-KIND
Subject to compliance with applicable regulations, the Portfolios have reserved
the right to pay the redemption price of their shares, either totally or
partially, by a distribution in kind of readily marketable portfolio securities
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder receives a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000).
TAXATION
The Portfolios are each taxed as separate entities under the Internal Revenue
Code (the "Code"), and each intends to continue to qualify for treatment as a
regulated investment company ("RIC") under Subchapter M of the Code. In each
taxable year that the Portfolios qualify, the Portfolios (but not their
shareholders) will not be subject to federal income tax on that part of their
investment company taxable income (consisting generally of interest and dividend
income, net short-term capital gain and net realized gains from currency
transactions) and net capital gain that is distributed to shareholders.
B-20
<PAGE>
In order to qualify for treatment as a RIC, the Portfolios must distribute
annually to shareholders at least 90% of their investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of each Portfolio's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or currencies; (2) at the close of each quarter of each Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, limited in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Portfolio and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (3) at the
close of each quarter of each Portfolio's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
Each Portfolio will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Under the Code, each Portfolio will be required to report to the Internal
Revenue Service all distributions of taxable income and capital gains as well as
gross proceeds from the redemption of Portfolio shares, except in the case of
exempt shareholders, which includes most corporations. Pursuant to the backup
withholding provisions of the Code, distributions of any taxable income and
capital gains and proceeds from the redemption of Portfolio shares may be
subject to withholding of federal income tax at the rate of 31 percent in the
case of non-exempt shareholders who fail to furnish the Portfolio with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. Corporate and other exempt shareholders should provide the Portfolio
with their taxpayer identification numbers or certify their exempt status in
order to avoid possible erroneous application of backup withholding. The Trust
reserves the right to refuse to open a Portfolio account for any person failing
to provide a certified taxpayer identification number.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Portfolio's investment company taxable income (whether paid in
cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Portfolio's earnings and profits.
Distributions of a Portfolio's net capital gain (whether paid in cash or
invested in additional shares) will be taxable to shareholders as long-term
capital gain, regardless of how long they have held their Portfolio shares.
Any dividend or distribution paid by a Portfolio has the effect of reducing the
net asset value per share on the reinvestment date by the amount of the dividend
or distribution. Investors should note that a dividend or distribution paid on
shares purchased shortly before such dividend or distribution was declared will
be subject to income taxes as discussed above, even though the dividend or
distribution represents, in substance, a partial return of capital to the
shareholder.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Portfolio and received by the shareholders on
the record date if the dividends are paid by a Portfolio during the following
January. Accordingly, such dividends will be taxed to shareholders for the year
in which the record date falls.
B-21
<PAGE>
PERFORMANCE INFORMATION
TOTAL RETURN
From time to time, the Portfolios may state their total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return will be accompanied by information on the Portfolios' average annual
compounded rate of return for the most recent one, five and ten year periods, or
shorter periods from inception, through the most recent calendar quarter. The
Portfolios may also advertise aggregate and average total return information
over different periods of time.
Average annual total return quotations used in a Portfolio's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where "P" equals a hypothetical initial payment of $1,000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1,000 payment made
at the beginning of the period. Average annual total return, or "T" in the above
formula, is computed by finding the average annual compounded rates of return
over the period that would equate the initial amount invested to the ending
redeemable value. Average annual total return assumes the reinvestment of all
dividends and distributions.
The Funds' average annual compounded rate of total return as of March 31, 2000
are as follows:
Since
One Year Five Years Inception
-------- ---------- ---------
Small/Mid Cap Equity Portfolio 45.38% 23.20% 22.99%
Core Equity Portfolio 32.06% 28.54% 27.23%
Balanced Portfolio 19.59% 19.37% 18.49%
Intermediate Fixed Income Portfolio 1.90% 5.90% 5.84%
YIELD
Annualized yield quotations used in a Portfolio's advertising and promotional
materials are calculated by dividing the Portfolio's interest income for a
specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2 [(a-b + 1) - 1]
---
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period. Except as noted below, in determining net investment
income earned during the period ("a" in the above formula), a Portfolio
calculates interest earned on the debt obligations held by it during the period
by (1) computing the obligation's yield to maturity, based on the market value
of the obligation (including actual accrued interest) on the last business day
of the period or, if the obligation was purchased during the period, the
B-22
<PAGE>
purchase price plus accrued interest; (2) dividing the yield to maturity by 360
and multiplying the resulting quotient by the market value of the obligation
(including actual accrued interest) and; (3) totaling the interest earned on all
debt obligations and all dividends accrued on all equity securities during the
period.
Yield for Intermediate Fixed Income Portfolio for the 30-day period ended March
31, 2000 was 5.72%.
For purposes of these calculations, the maturity of an obligation with one or
more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
OTHER PERFORMANCE INFORMATION
In addition to standardized return, performance advertisements and sales
literature may also include other total return performance data
("non-standardized return"). Non standardized return may be quoted for the same
or different periods as those for which standardized return is quoted and may
consist of aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof.
Performance data of a Portfolio quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Portfolio
will fluctuate, and an investor's redemption proceeds may be more or less than
the original investment amount. In advertising and promotional materials a
Portfolio may compare its performance with data published by Lipper Inc.
("Lipper"), Morningstar, Inc. ("Morningstar") or CDA Investment Technologies,
Inc. ("CDA"). A Portfolio also may refer in such materials to mutual fund
performance rankings and other data, such as comparative asset, expense and fee
levels, published by Lipper, CDA or Morningstar. Advertising and promotional
materials also may refer to discussions of a Portfolio and comparative mutual
fund data and ratings reported in independent periodicals including, but not
limited to, THE WALL STREET JOURNAL, MONEY, FORBES, BUSINESS WEEK, FINANCIAL
WORLD and BARRON'S.
The Advisor, in advertising and sales material, may also refer to its investment
philosophy with respect to the Equity Portfolios or components of the Portfolios
as the Core Growth investment philosophy. Such references connote the Advisor's
structuring of the Portfolios to provide an opportunity to invest in companies
with superior earnings growth, and whose equity securities are selling at
attractive valuations. The result is expected to be equity portfolios whose
average earnings growth is normally greater than the market averages and whose
price-to-earnings ratio is often below the market averages. In this regard, the
Advisor believes the appropriate market average reference points are the Russell
2500TM Index, Russell MidcapTM Index and the Russell 2000(R) Index for the
Small/Mid Cap Equity Portfolio and the Standard & Poor's 500 Stock Index and the
Russell 1000(R) Index for the Core Equity Portfolio and equity portion of the
Balanced Portfolio.
A primary benefit of the Core Growth strategy in the view of the Advisor is the
ability to generate competitive investment returns in many different market
environments. The Advisor believes that earnings growth is the primary factor
influencing capital appreciation of equity investments. At the same time, many
companies with good earnings growth prospects can be purchased at attractive
valuations. The Advisor believes that this disciplined analysis of both earnings
growth and valuations is one of the primary factors influencing the ability to
generate competitive investment returns in a variety of market conditions.
GENERAL INFORMATION
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest and to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in a Portfolio. Each share represents an
interest in a Portfolio proportionately equal to the interest of each other
B-23
<PAGE>
share. Upon the Trust's liquidation, all shareholders would share pro rata in
the net assets of the Portfolio in question available for distribution to
shareholders. If they deem it advisable and in the best interest of
shareholders, the Board of Trustees may create additional series of shares which
differ from each other only as to dividends. The Board of Trustees has created
four series of shares, and may create additional series in the future, which
have separate assets and liabilities. Income and operating expenses not
specifically attributable to a particular Portfolio are allocated fairly among
the Portfolios by the Trustees, generally on the basis of the relative net
assets of each Portfolio.
Shareholders are entitled to one vote for each full share (and fractional votes
for fractional shares) and may vote in the election of Trustees and on other
matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held. The Declaration of Trust
provides that the shareholders have the right, upon the declaration in writing
or vote of more than two-thirds of its outstanding shares, to remove a Trustee.
The Trustees will call a meeting of shareholders to vote on the removal of a
Trustee upon the written request of the record holders of 10% of its shares. In
addition, ten shareholders holding the lesser of $25,000 worth or 1% of the
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
Rule 18f-2 under the 1940 Act provides that as to any investment company which
has two or more series outstanding and as to any matter required to be submitted
to shareholder vote, such matter is not deemed to have been effectively acted
upon unless approved by the holders of a "majority" (as defined in the Rule) of
the voting securities of each series affected by the matter. Such separate
voting requirements do not apply to the election of Trustees or the ratification
of the selection of accountants. The Rule contains special provisions for cases
in which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
Investors will be informed of the Portfolios' progress through periodic reports.
Financial statements certified by independent public accountants will be
submitted to shareholders at least annually.
The Boards of the Trust, the Advisor and the Distributor have adopted Codes of
Ethics under Rule 17j-1 of the 1940 Act. These Codes permit, subject to certain
conditions, personnel of the Advisor and Distributor to invest in securities
that may be purchased or held by the Funds.
The Trust's custodian, Firstar Trust Company, is responsible for holding the
Portfolios' assets, and also acts as the Trust's transfer and accounting
services agent. KPMG LLP has been selected as the independent auditor for the
Trust. KPMG LLP provides audit services, tax return preparation and assistance
and consultation in connection with review of certain Securities and Exchange
Commission filings.
FINANCIAL STATEMENTS
Incorporated by reference herein are portions of the Trust's Annual Report to
shareholders for the fiscal year ending March 31, 2000 under the headings:
"Independent Auditor's Report," "Schedule of Investments." "Statement of Assets
and Liabilities," "Statement of Operations," "Statement of Changes in Net
Assets," "Financial Highlights," and "Notes to Financial Statements." A copy of
the Trust's Annual Report accompanies this SAI and also can be obtained at no
charge by calling the toll free number on page 1 or writing the Trust on the
front page of this SAI.
B-24
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP: CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
B-25
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are assessments of the issuer's ability to
repay punctually promissory obligations. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
B-26
<PAGE>
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FORM N-1A
PART C
ITEM 23. EXHIBITS.
(1) Declaration of Trust*
(2) By-Laws*
(3) Specimen Share Certificate**
(4) Management Agreement**
(5) Distribution Agreement**
(6) Not applicable
(7) Form of Custodian Agreement**
(8a) Fund Accounting Servicing Agreement**
(8b) Transfer Agent Agreement**
(i) Transfer Agent Agreement with ICA Fund Services +
(8c) Administration Agreement**
(8d) Services Agreement**
(9) Consent and Opinion of Counsel+
(10) Consent of Auditors - Filed herewith
(11) Not applicable
(12) Letter of Understanding relating to initial capital***
(13) Plan pursuant to Rule 12b-1**
(14) Not applicable
(15) Not applicable
(16) Codes of Ethics
(a) Rainier Investment Management Mutual Funds +
(b) Rainier Investment Management +
(c) First Fund Distributors, Inc. +
----------
* Filed with the Registrant's initial Registration Statement, File No.
33-73792 on January 5, 1994.
** Filed with Pre-Effective Amendment No. 1 to the Registrant's Registration
Statement, File No. 33- 73792 on February 23, 1994.
*** Filed with Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement, File No. 33- 73792 on April 6, 1994.
+ Filed with Post-Effective Amendment No. 9 to the Registrant's Registration
Statement, File No. 33- 73792 on June 5, 2000.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
As of the date of this amendment to this Registration Statement, there are
no persons controlled or under common control with the Registrant.
ITEM 25. INDEMNIFICATION
Article VII, Section 2 of the Registrant's Declaration of Trust provides as
follows:
"Section 2. Indemnification and Limitation of Liability. The Trustees shall
not be responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, Manager or Principal Underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
and the Trust out of its assets shall indemnify and hold harmless each and every
Trustee from and against any and all claims and demands whatsoever arising out
of or related to each Trustee's performance of his duties as a Trustee of the
Trust; provided that nothing herein contained shall indemnify, hold harmless or
protect any Trustee from or against any liability to the Trust or any
<PAGE>
Shareholder to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The response to this item is incorporated by reference to its Form ADV as
amended (File No. 801-35638).
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) First Fund Distributors, Inc. (the "Distributor") acts as principal
underwriter for the following other investment companies:
Advisors Series Trust
Allegiance Investment Trust
Brandes Investment Trust
Builders Fixed Income Fund, Inc.
Dessauer & McIntyre Asset Management, Inc.
FFTW Funds, Inc.
Fleming Mutual Fund Group, Inc.
Fremont Mutual Funds, Inc.
Guinness Flight Investment Funds
Harding, Loevner Funds, Inc.
Investors Research Fund, Inc.
Jurika & Voyles Fund Group
Kayne Anderson Mutual Funds
Masters' Select Funds Trust
Hennessy Funds
PIC Investment Trust
Professionally Managed Portfolios
Purisima Funds
Rainier Investment Management Mutual Funds
RNC Mutual Fund Group, Inc.
SAMCO Funds, Inc.
TIFF Investment Program, Inc.
Trust for Investment Managers
<PAGE>
b. The officers of the Distributor are:
Robert H. Wadsworth President and Treasurer
Eric Banhazl Vice President
Steven J. Paggioli Vice President and Secretary
Each officer's business address with the Distributor is 4455 E. Camelback
Rd., Ste. 261-E, Phoenix, AZ 85018.
c. Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession the Registrant's
custodian and transfer agent, except those records relating to portfolio
transactions and the basic organizational and Trust documents of the Registrant
(see Subsections (2) (iii). (4), (5), (6), (7), (9), (10) and (11) of Rule
31a-1(b)), which are kept by the Trust at 601 Union St., Ste. 2810, Seattle WA
98101.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A
and B.
ITEM 30. UNDERTAKINGS
Registrant undertakes that if requested to do so by the holders of at least
10% of the registrant's outstanding shares, it will call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of the Amendment under Rule 485(b) of the
Securities Act of 1933 and that the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Seattle in the State of Washington on
the 28th day of July, 2000.
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
By: /s/ J. Glenn Haber
--------------------------------------
J. Glenn Haber, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to this Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
/s/ J. Glenn Haber President, Treasurer July 28, 2000
------------------------------ Chief Financial Officer
J. Glenn Haber and Trustee
/s/ Patricia Louise Frost Vice President and July 28, 2000
------------------------------ Trustee
Patricia Louise Frost
*Gary L. Sundem Trustee July 28, 2000
------------------------------
Gary L. Sundem
*James E. Diamond, Jr. Trustee July 28, 2000
------------------------------
James E. Diamond, Jr.
*John W. Ferris Trustee July 28, 2000
------------------------------
John W. Ferris
* By /s/ J. Glenn Haber
------------------------
J. Glenn Haber, Attorney-in-Fact
under powers of attorney as filed
with Post-Effective Amendment No. 1
to the Registration Statement.
