LOGO
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
SMALL/MID CAP EQUITY PORTFOLIO
PROSPECTUS
JULY 31, 2000
PORTFOLIO OVERVIEW .......................................................... 1
This section introduces the Rainier Investment Management Small/Mid Cap Equity
Portfolio, explaining its goals, principal investment strategies and principal
risks. Expense and performance information are also displayed.
ADDITIONAL INFORMATION ON PRINCIPAL INVESTMENT STRATEGIES
Core Growth Equity Investment Philosophy .................................. 3
Short-term Investments .................................................... 3
Portfolio Turnover ........................................................ 3
ADDITIONAL INFORMATION ON PRINCIPAL RISKS ................................... 4
ORGANIZATION AND MANAGEMENT
Investment Advisor and Advisory Fees ...................................... 4
Portfolio Managers ........................................................ 4
Portfolio Expenses ........................................................ 4
PURCHASE AND REDEMPTION OF SHARES ........................................... 5
PRICING OF PORTFOLIO SHARES ................................................. 5
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions ............................................... 6
Tax Information ........................................................... 6
Rule 12b-1 Fees ........................................................... 6
FINANCIAL HIGHLIGHTS ........................................................ 7
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.
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AN OVERVIEW OF THE PORTFOLIO
THE PORTFOLIO'S GOAL
The Small/Mid Cap 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 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-size
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 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.
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 three
broad-based indices. A description of the indices follows the table. This past
performance will not necessarily continue in the future.
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PORTFOLIO OVERVIEW, CONTINUED
CALENDAR - YEAR TOTAL RETURNS
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
47.48% 22.56% 32.23% 2.97% 17.67%
THE YEAR-TO-DATE TOTAL RETURN AS OF JUNE 30, 2000 FOR THE PORTFOLIO 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% 19.43% 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.
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 $25.9 BILLION, $80.0 MILLION TO $6.7 BILLION,
AND $80.0 MILLION TO $3.9 BILLION, RESPECTIVELY, AS OF JUNE 30, 2000.
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
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ADDITIONAL INFORMATION ON
PRINCIPAL INVESTMENT STRATEGIES
CORE GROWTH EQUITY INVESTMENT
PHILOSOPHY
The Advisor refers to its investment philosophy 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 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 solid balance sheets 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.
SHORT-TERM INVESTMENTS
Cash equivalent securities, which may be held by the Portfolio, 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 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, the Portfolio will stay fully invested in
stocks and/or bonds. However, the 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, the 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 Portfolio 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 the Portfolio's performance. Active trading, however, can also
be defensive and actually add to the 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.
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ADDITIONAL INFORMATION ON PRINCIPAL RISKS
THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO THAT MAY ADVERSELY AFFECT THE
VALUE OF THE PORTFOLIO'S SHARES OR TOTAL RETURN ARE DISCUSSED IN THE "PORTFOLIO
OVERVIEW" SECTION. FURTHER ELEMENTS OF 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 Portfolio may invest in smaller companies that can
benefit from the development of new products and services. These smaller
companies may present greater opportunities for capital appreciation, but may
also involve greater risks than larger companies. Such smaller companies may
have limited product lines, markets or financial resources, and their securities
may trade less frequently and in more limited volume than the securities of
larger, more mature companies. As a result, the prices of the securities of such
smaller companies may fluctuate to a greater degree than the prices of the
securities of other issuers.
ORGANIZATION AND MANAGEMENT
INVESTMENT ADVISOR AND ADVISORY FEES
Rainier Investment Management, Inc.(R)(RIM), incorporated in 1989, serves
as investment advisor to the Portfolio. RIM's address is:
601 Union Street, Suite 2801
Seattle, Washington 98101
RIM currently manages $5.8 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 the
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 fee reductions and/or expense
reimbursements, the Advisor received advisory fees of 0.85% computed as a
percentage of the Portfolio's average daily net assets.
PORTFOLIO MANAGERS
The portfolio managers of the Small/Mid Cap Equity Portfolio are: James R.
Margard, CFA; David A. Veterane, CFA; Peter M. Musser, CFA; and Mark H. Dawson,
CFA. Each portfolio manager has been associated with the Advisor in the position
noted for more than the past five years except for 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 Portfolio is responsible for paying its own operating expenses. The
Advisor has agreed in an Operating Expense Agreement to reduce its advisory fee
or reimburse the expenses of the Portfolio to the extent necessary so that its
ratio of total operating expenses to average net assets will not exceed 1.48%.
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 Portfolio within the following three years, provided the Portfolio is able
to effect such reimbursement and remain in compliance with any applicable
expense limitations.
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<PAGE>
PURCHASE AND REDEMPTION OF SHARES
You may invest in the Portfolio only by purchasing in a combination fixed
and variable, qualified variable annuity contract (a "Contract") issued by Horce
Mann Life Insurance Company ("HMLIC"). The Portfolio continuously offers its
shares to HMLIC's separate subaccounts at the net asset value per share next
determined after a proper purchase application has been received by HMLIC Home
Office at P.O. Box 4657, Springfield, Illinois 62708-4657. HMLIC offers to
owners of the Contracts ("Contract Owners") units in its separate subaccount
which directly correspond to shares in a Portfolio. HMLIC submits purchase and
redemption orders to the Portfolio based on allocation instructions for premium
payments, transfer instructions and surrencer or partial withdrawal requests
which are furnished to HMLIC by such Contract Owners. The Portfolio redeems
shares from HMLIC's separate subaccounts at the net asset value per share next
determined after receipt of a redemption order from HMLIC.
THE ACCOMPANYING PROSPECTUS FOR HMLIC QUALIFED VARIABLE ANNUITY CONTRACTS
DESCRIBES THE ALLOCATION, TRANSFER AND WITHDRAWAL PROVISIONS OF SUCH ANNUITY
CONTRACT.
PRICING OF PORTFOLIO SHARES
The price of the 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. The Portfolio's
assets are the market value of securities held in its portfolio, plus any cash
and other assets. The 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 the 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).
5
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Small/Mid Cap Equity Portfolio intends to pay dividends annually. The
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 Portfolio
will primarily consist of capital gains.
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 INFORMATION
We expect that the Portfolio's distributions will consist primarily of net
investment income and capital gains, which may be taxable at different rates
depending on the length of time the Portfolio holds its assets.
Federal tax regulations require that mutual funds that are offered through
insurance company separate accounts must meet certain diversification
requirements to preserve the tax-deferral benefits provided by the variable
contacts which are offered in connection with such separate accounts. The
Advisor intends to diversify the Portfolio's investments in accordance with
those requirements. The prospectuses for HMLIC's variable annuities describe the
federal income tax treatment of distributions from such contracts to Contract
Owners.
RULE 12b-1 FEES
A distribution plan under Rule 12b-1 allows the Small/Mid Cap Equity
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 ongoing 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.
6
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FINANCIAL HIGHLIGHTS
THIS FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FINANCIAL
PERFORMANCE OF THE PORTFOLIO FOR UP TO THE PAST FIVE YEARS. CERTAIN INFORMATION
REFLECTS FINANCIAL RESULTS FOR A SINGLE PORTFOLIO SHARE. THE TOTAL RETURNS IN
THE TABLE REPRESENT THE RATES THAT AN INVESTOR WOULD HAVE EARNED (OR LOST) ON AN
INVESTMENT IN THE PORTFOLIO (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS). THIS INFORMATION HAS BEEN AUDITED BY KPMG LLP, INDEPENDENT
AUDITORS, WHOSE REPORT ALONG WITH THE PORTFOLIO'S FINANCIAL STATEMENTS ARE
INCLUDED IN THE RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS ANNUAL REPORT, WHICH
IS AVAILABLE UPON REQUEST.
RAINIER INVESTMENT MANAGEMENT MUTUAL FUNDS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
SMALL/MID CAP EQUITY PORTFOLIO
<TABLE>
<CAPTION>
For the fiscal For the fiscal For the fiscal For the fiscal For the fiscal
year ending year ending year ending year ending year 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 gains -- (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 at 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 designated $0.17 As a capital gain dividend per
IRC Section 852(b)(3).
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RAINIER INVESTMENT MANAGEMENT
MUTUAL FUNDS (THE "FUNDS")
LOGO
SMALL/MID CAP
EQUITY PORTFOLIO
FOR MORE INFORMATION ABOUT THE PORTFOLIO, THE FOLLOWING DOCUMENTS ARE AVAILABLE
FREE UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORT: Additional information about the Portfolio's
investments is available in the Rainier Investment Management Mutual Funds'
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 the Portfolio's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Portfolio and is incorporated by reference into this
Prospectus.
To receive free copies of the Portfolio's reports and SAI, request other
information or discuss your questions concerning the Portfolio, please contact
the Funds at the address below.
To review and copy information including the Portfolio's 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.
To reduce the volume of mail you receive, the Funds may mail only one copy
of the Annual and Semi-Annual Reports, Prospectus and other regulatory materials
to your household. You can contact the Funds at the address below to request (1)
additional copies of these reports, or (2) that we discontinue householding of
regulatory materials.
LOGO
RAINIER INVESTMENT MANAGEMENT
MUTUAL FUNDS
601 Union Street, Suite 2801
Seattle, Washington 98101
(800) 248-6314
www.rainierfunds.com
(The Funds' SEC Investment Company
Act file number is 811-8270.)
