As filed with the Securities and Exchange Commission on December 28, 2000
File No. 811-10149
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 2
PIC TECHNOLOGY PORTFOLIO
(Exact name of registrant as specified in charter)
300 North Lake Avenue
Pasadena, CA 91101-4106
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (626) 449-8500
William T. Warnick
Provident Investment Counsel
300 North Lake Avenue
Pasadena, CA 91101-4106
(Name and address of agent for service of process)
copy to:
Michael Glazer
Paul, Hastings, Janofsky & Walker LLP
555 S. Flower Street
Los Angeles, CA 90071
================================================================================
<PAGE>
PART A
PIC TECHNOLOGY PORTFOLIO
ITEM 1. FRONT AND BACK COVER PAGES
Not applicable.
ITEM 2. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE
GOAL: Long term growth of capital.
STRATEGY: The PIC Technology Portfolio (the "Portfolio") invests at least 65% of
its assets in the common stock of companies in the information technology sector
of all sizes - ranging from companies with market capitalizations (total market
price of publicly traded shares) of $200 million to more than $200 billion. For
this purpose, the "information technology sector" means companies that the
Portfolio's investment advisor, Provident Investment Counsel ("PIC" or the
"Advisor"), considers to be principally engaged in the development, production,
or distribution of products or services related to the processing, storage,
transmission or presentation of information or data (such as, for example,
computer hardware and software, and telecommunications products and services).
PIC considers a company to be principally engaged in the information technology
sector if at the time of investment PIC determines that (i) a significant
portion of the company's assets, gross income, net profits or growth rate are
committed to or derived from the sector, or (ii) the company has the potential
for capital appreciation primarily as a result of particular products,
technology, patents or other market advantages in the sector.
In selecting investments, PIC does an analysis of individual companies and
invests in those companies which it believes are currently experiencing earnings
and revenue growth above the average of their industry peers and the equity
market in general (as represented by the Standard & Poor's 500 Stock Price
Index). PIC may also, to a limited degree, analyze new or unseasoned companies,
including companies making initial public offerings. The Portfolio invests
primarily in securities of U.S. issuers, but may invest up to 25% of its total
assets in securities of foreign issuers. The Portfolio is "non-diversified" and
may invest more of its assets in fewer issuers than a "diversified" investment
company.
The Board of Trustees of the Portfolio has approved deletion of the Portfolio's
current fundamental investment restriction limiting short sales of securities to
5% of the Portfolio's net assets, subject to approval of such change by the
shareholders of the Portfolio. The Board has approved an operating restriction
(which can be changed by the Board without shareholder approval) limiting short
sales of securities to 15% of the Portfolio's net assets, effective when the
proposed change in the fundamental policy is approved by the shareholders. The
Board of Trustees of the Trust has approved similar changes with respect to the
Fund, and has called a special shareholder meeting for __________, 2001 to
approve the fundamental policy change.
<PAGE>
Although PIC does not intend that short sales of securities will be a consistent
investment strategy, it believes that this greater short sale flexibility is
desirable in view of the volatile markets in the technology sector. In a short
sale, the Portfolio sells stocks which it does not own, making delivery with
securities borrowed from a broker. The Portfolio must replace the borrowed
security by purchasing it at the market price at the time of replacement (which
can range from one day to more than a year). Until the security is replaced, the
Portfolio pays the broker a negotiated portion of any dividends or interest
which accrue during the period of the loan, and segregates assets sufficient to
cover the repurchase price.
The Portfolio will incur a loss as a result of a short sale if the price of the
security increases between the date of the short sale and the date the borrowed
security is replaced. The Portfolio will realize a gain if the security declines
in price during the period. Any such gain will be decreased, and any such loss
will be increased, by the dividends or interest the Portfolio is required to pay
the broker in connection with the short sale. Under adverse market conditions,
the Portfolio might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
necessary capital at a time when fundamental investment considerations would not
favor such sales.
PRINCIPAL RISKS
MARKET RISK: The value of the Portfolio's investments will vary from day to day.
The value of the Portfolio's investments generally reflect market conditions,
interest rates and other company, political and economic news. Stock prices can
rise and fall in response to these factors for short or extended periods of
time. Therefore, when you sell your shares, you may receive more or less money
than you originally invested.
TECHNOLOGY SECTOR RISK: The Portfolio will concentrate its investments in the
information technology sector. Market or economic factors impacting that
industry sector could have a major effect on the value of the Portfolio's
investments. Stock prices of technology companies are particularly vulnerable to
rapid changes in technology product cycles, government regulation, high
personnel turnover and shortages of skilled employees, product development
problems, and aggressive pricing and other forms of competition. In addition,
technology stocks, especially those of smaller, less-seasoned companies, tend to
have high price/earnings ratios and to be more volatile than the overall market.
IPO RISK: The Portfolio may invest in companies making initial public offerings
("IPOs"). These involve a high degree of risk not normally associated with more
seasoned companies. They generally have limited operating histories, and their
prospects for future profitability are uncertain.
They often are engaged in new and evolving businesses, may be dependent on
certain key managers and third parties, need more personnel and other resources
to manage grown, and require significant additional capital. Investors in IPOs
can be affected by substantial dilution in the value of their shares, by sales
of additional shares and by concentration of control in existing management and
principal shareholders. Stock prices of IPOs can also be highly unstable due to
the absence of a prior public market, the small number of shares available for
trading, and limited investor information.
2
<PAGE>
NON-DIVERSIFIED RISK: The Portfolio may invest more of its assets in fewer
issuers than many other funds. It will be more susceptible to adverse
developments affecting any single issuer than other funds, which could result in
greater losses than a diversified fund.
SMALL COMPANY RISK: The securities of small, less well-known companies may be
more volatile than those of larger companies. Small companies may have limited
product lines, markets or financial resources and their management be dependent
on a limited number of key individuals. Securities of these companies may have
limited market liquidity.
FOREIGN SECURITIES: Investments in foreign securities involve risks that are not
typically associated with domestic securities. The performance of foreign
securities depends on different political and economic environments and other
overall economic conditions than domestic securities. Changes in foreign
currency exchange rates will affect the values of investments quoted in
currencies other than the U.S. dollar. Less information may be publicly
available about foreign issuers. Foreign stock markets have different clearance
and settlement procedures, and higher commissions and transaction costs, than
U.S. markets. Certain other adverse developments could occur, such as
expropriation or confiscatory taxation, political or social instability, or
other developments that could adversely affect the Portfolio's investments and
its ability to enforce contracts.
PORTFOLIO TURNOVER RISK: The Portfolio may from time to time have a high annual
portfolio turnover rate (100% or more). This has the potential to result in the
realization and distribution to shareholders of higher capital gains. This may
mean that shareholders would be likely to have a higher tax liability. A high
portfolio turnover rate also leads to higher transaction costs, which could
negatively affect the Portfolio's performance.
ITEM 3. RISK/RETURN SUMMARY: FEE TABLE
Not applicable.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
This section gives more information about how the Portfolio invests.
PIC supports its selection of individual securities through intensive research
and uses qualitative and quantitative disciplines to determine when securities
should be sold. PIC's research professionals meet personally with the majority
of the senior officers of the companies in the Portfolio to discuss their
abilities to generate strong revenue and earnings growth in the future.
PIC's investment professionals focus on individual companies rather than trying
to identify the best market sectors going forward. They not only analyze
information made publicly available by companies in which the Portfolio has
invested or is considering for investment, but also gather information through
visits with company management and review of information available from others
in the company's industry. This is often referred to as a "bottom-up" approach
to investing. PIC seeks companies that have displayed strong market share,
return on equity, reinvestment rates and sales and dividend growth. Companies
with significant management ownership of stock, strong management goals, plans
and controls; and leading proprietary positions in given market niches are
especially attractive. Finally, the valuation of each company is assessed
relative to its industry, earnings growth and the market in general (as
represented by the S&P 500 Index).
3
<PAGE>
The Portfolio seeks long term growth of capital by investing primarily in the
common stock of companies in the information technology sector of all sizes--
ranging from companies with market capitalizations (total market price of
publicly traded shares) of $200 million to more than $200 billion. For this
purpose, the "information technology sector" means companies that PIC considers
to be principally engaged in the development, production, or distribution of
products or services related to the processing, storage, transmission or
presentation of information or data. This includes a wide range of products and
services, such as:
* computer hardware and software of any kind, including semiconductors,
minicomputers, and peripheral equipment
* telecommunications products and services
* multimedia products and services, including goods and services used in
the broadcast and media industries
* data processing products and services
* internet companies and other companies engaged in or providing
products or services for e- commerce.
PIC considers a company to be principally engaged in the information technology
sector if at the time of investment PIC determines that (i) a significant
portion of the company's assets, gross income, net profits or growth rate are
committed to or derived from the sector, or (ii) the company has the potential
for capital appreciation primarily as a result of particular products,
technology, patents or other market advantages in the sector. PIC will invest at
least 65%, and normally at least 95%, of the Portfolio's total assets in these
securities. The Portfolio is "non-diversified" and may invest more of its assets
in fewer issuers than many other funds.
Investing in technology companies may involve greater risk than investing in
other industries. Stock prices of such companies are particularly vulnerable to
rapid changes in product cycles, government regulation, high personnel turnover
and shortages of skilled employees, product development problems, and aggressive
pricing and other forms of competition. Technology stocks, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. The value of the Portfolio's shares will also be more susceptible to
adverse developments affecting any single portfolio investment than more
diversified funds.
4
<PAGE>
Most companies making initial public offerings involve a high degree of risk not
normally associated with more seasoned companies. They generally have limited
operating histories, and their prospects for future profitability are uncertain.
They often are engaged in new and evolving businesses, and are particularly
vulnerable to the technology sector risks described above. They may be dependent
on certain key managers and third parties, need more personnel and other
resources to manage grown, and require significant additional capital. Investors
in IPOs can be affected by substantial dilution in the value of their shares, by
sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable due to the absence of a prior public market, the small number of shares
available for trading, and limited investor information. The Portfolio may be
unable to purchase such shares directly from the underwriters at the offering
price, and may be required to purchase the shares in the aftermarket at
substantially higher prices, making it more difficult for the Portfolio to make
a profit. The Portfolio may be required to agree to contractual restrictions on
its resale of certain IPOs for periods ranging from 30 to 180 days after the
initial public offering, during which the Portfolio may not be able to sell the
shares even if their value declines as a result of adverse market movements.
The Portfolio invests primarily in securities of U.S. issuers, but may invest up
to 25% of its total assets in foreign securities. Foreign investments involve
additional risks including currency fluctuations, political and economic
instability, differences in financial reporting standards, and less stringent
regulation of securities markets.
In determining whether to sell a security, PIC considers the following: (a) a
fundamental change in the future outlook of the company based on PIC's research
into matters such as the market for its products, technological developments,
and competitive developments; (b) the company's performance compared to other
companies in its peer group; and (c) whether the security has reached the target
price set by PIC. These considerations are based on PIC's research, including
analytical procedures, market research and, although not always possible,
meetings or discussions with management of the company.
Although the annual portfolio turnover rate of the Portfolio will generally not
exceed 100%, it may from time to time be as high as 200%. As described above,
this has the potential to result in higher capital gains and tax liability for
shareholders, and higher transaction costs which could negatively affect the
Portfolio's performance.
PIC normally invests the Portfolio's assets according to its investment
strategy. However, the Portfolio may depart from its principal investment
strategies by making short-term investments in high-quality cash equivalents for
temporary, defensive purposes. At those times, the Portfolio would not be
seeking its investment objective.
5
<PAGE>
ITEM 5. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Not applicable
ITEM 6. MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
THE ADVISOR
PIC is the advisor to the Portfolio. PIC's address is 300 North Lake Avenue,
Pasadena, CA 91101. PIC traces its origins to an investment partnership formed
in 1951. It is now an indirect, wholly owned subsidiary of Old Mutual, plc. Old
Mutual is a United Kingdom-based financial services group with substantial asset
management, insurance and banking businesses. An investment committee of PIC
formulates and implements an investment program for the Portfolio, including
determining which securities should be bought and sold.
The Portfolio pays an annual investment advisory fee to PIC for managing the
Portfolio's investments. As a percentage of net assets the fee is 0.80%.
ITEMS 7 AND 8. SHAREHOLDER INFORMATION; DISTRIBUTION ARRANGEMENTS
Interests in the Portfolio are issued solely to institutional investors,
including regulated investment companies, group trusts governed by Section
501(a) of the Internal Revenue Code of 1986 (the "Code"), common trust funds
governed by Section 584 of the Code and similar collective investment
arrangements in transactions which do not involve any "public offering" within
the meaning of the Securities Act of 1933 (the "1933 Act"). This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.
There is no sales charge on Interests in the Portfolio, and the Portfolio does
not use its assets for distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940. There is no minimum investment in the Portfolio. The
Portfolio reserves the right to reject any investment.
The net asset value of the Portfolio is determined as of the close of regular
trading (currently 4:00 p.m., New York time) on each day that the New York Stock
Exchange is open for trading. The net asset value per Interest of the Portfolio
is the value of the Portfolio's assets, less its liabilities, divided by the
number of Interests outstanding.
The Portfolio values its investments on the basis of the market value of the
securities. Securities and other assets for which market prices are not readily
available are valued at fair value as determined in good faith by the Board of
Trustees of the Portfolio. The fair value of debt securities with remaining
maturities of 60 days or less is normally their amortized cost value, unless
conditions indicate otherwise. 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.
6
<PAGE>
A Holder wishing to redeem Interests may do so at any time by writing to the
Portfolio in care of its Custodian at P.O. Box 8950, Wilmington DE 19899, or by
delivering instructions to the Custodian at 103 Bellevue Parkway, Wilmington,
Delaware 19809. The redemption request should identify the Portfolio, specify
the number of Interests to be redeemed and be signed by an authorized person of
the Holder. If the request is not properly executed, the Interests specified
will be redeemed at the net asset value next determined after receipt of the
request. Payment for Interests tendered will be made within seven days after
receipt by the Portfolio of instructions properly executed. However, payment may
be delayed under unusual circumstances, as specified in the 1940 Act or as
determined by the Securities and Exchange Commission. Payment will be sent only
to Holders at the address of record.
REDEMPTION OF SMALL ACCOUNTS
In order to reduce the Portfolio's expenses, the Board of Trustees is authorized
to cause the redemption of all of the Interests of any Holder whose account has
declined to a net asset value of less than $500, as a result of a transfer or
redemption, at the net asset value determined as of the close of business on the
business day preceding the sending of proceeds of such redemption. The Portfolio
would give Holders whose Interests were being redeemed 60 days' prior written
notice in which to purchase sufficient Interests to avoid such redemption.
ITEM 9. FINANCIAL HIGHLIGHTS INFORMATION
Not applicable.
7
<PAGE>
PART B
PIC TECHNOLOGY PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE AND TABLE OF CONTENTS
This Statement of Additional Information of the PIC Technology Portfolio
(the "Portfolio") is not a prospectus, and it should be read only in conjunction
with Part A of this Registration Statement. The date of this Statement of
Additional Information is December 28, 2000.
Item 10. Cover Page and Table of Contents ............................... B-1
Item 11. Portfolio History .............................................. B-1
Item 12. Description of the Portfolio and its Investments and Risks ..... B-1
Item 13. Management of the Portfolio .................................... B-10
Item 14. Control Persons and Principal Holders of Securities ............ B-12
Item 15. Investment Advisory and Other Services ......................... B-12
Item 16. Brokerage Allocation and Other Practices ....................... B-13
Item 17. Capital Stock and Other Securities ............................. B-15
Item 18. Purchase, Redemption and Pricing of Share ...................... B-15
Item 19. Taxation of the Portfolio ...................................... B-16
Item 20. Underwriters ................................................... B-16
Item 21. Calculation of Performance Data ................................ B-16
Item 22. Financial Statements ........................................... B-16
Appendix B-17
ITEM 11. PORTFOLIO HISTORY
The Portfolio was organized as a trust under the laws of the State of New
York on July 13, 2000.
ITEM 12. DESCRIPTION OF THE PORTFOLIO AND INVESTMENTS AND RISKS.
The investment objective of the Portfolio is to provide capital
appreciation. There is no assurance that the Portfolio will achieve its
objective. The Portfolio's investment objective cannot be changed without
shareholder approval.
The Portfolio is an open-end, management, non-diversified investment
company.
In addition to selling its shares to the Provident Investment Counsel
Technology Fund A (the "Fund"), the Portfolio may sell its shares to other
mutual funds or institutional investors. All investors in the Portfolio invest
on the same terms and conditions and pay a proportionate share of the
Portfolio's expenses. However, other investors in the Portfolio may sell their
shares to the public at prices different from those of the Fund as a result of
the imposition of sales charges or different operating expenses. You should be
aware that these differences may result in different returns from those of
investors in other entities investing in the Portfolio. Information concerning
other holders of interests in the Portfolio is available by calling (800)
618-7643.
B-1
<PAGE>
The discussion below supplements information contained in the prospectus as
to policies of the Portfolio. Provident Investment Counsel, the investment
advisor to the Portfolio (the "Adviso" or "PIC"), may not buy all of these
instruments or use all of these techniques to the full extent permitted unless
it believes that doing so will help the Portfolio achieve its goals.
EQUITY SECURITIES. Equity securities are common stocks and other kinds of
securities that have the characteristics of common stocks. These other
securities include bonds, debentures and preferred stocks which can be converted
into common stocks. They also include warrants and options to purchase common
stocks.
SHORT-TERM INVESTMENTS. Short-term investments are debt securities that
mature within a year of the date they are purchased by the Portfolio. Some
specific examples of short-term investments are commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements. The Portfolio
will only purchase short-term investments which are "high quality," meaning the
investments have been rated A-1 by Standard & Poor's Rating Group ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or have an issue of debt
securities outstanding rated at least A by S&P or Moody's. The term also applies
to short-term investments that PIC believes are comparable in quality to those
with an A-1 or Prime-1 rating. U.S. Government securities are always considered
to be high quality.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which the
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 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 Portfolio intends 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 Portfolio intends to comply with provisions under such Code that would
allow it immediately to resell the collateral.
B-2
<PAGE>
OPTIONS ACTIVITIES. The Portfolio may write call options on stocks and
stock indices, if the calls are "covered" throughout the life of the option. A
call is "covered" if the Portfolio owns the optioned securities. When the
Portfolio writes a call, it receives a premium and gives the purchaser the right
to buy the underlying security at any time during the call period at a fixed
exercise price regardless of market price changes during the call period. If the
call is exercised, the Portfolio will forgo any gain from an increase in the
market price of the underlying security over the exercise price.
The Portfolio may purchase a call on securities to effect a "closing
purchase transaction," which is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as a
call previously written by the Portfolio on which it wishes to terminate its
obligation. If the Portfolio is unable to effect a closing purchase transaction,
it will not be able to sell the underlying security until the call previously
written by the Portfolio expires (or until the call is exercised and the
Portfolio delivers the underlying security).
The Portfolio also may write and purchase put options ("puts"). When the
Portfolio writes a put, it gives the purchaser of the put the right to sell the
underlying security to the Portfolio at the exercise price at any time during
the option period. When the Portfolio purchases a put, it pays a premium in
return for the right to sell the underlying security at the exercise price at
any time during the option period. If any put is not exercised or sold, it will
become worthless on its expiration date.
The Portfolio's option positions may be closed out only on an exchange
which provides a secondary market for options of the same series, but there can
be no assurance that a liquid secondary market will exist at a given time for
any particular option.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio may buy and sell stock
index futures contracts and options on futures contracts. The Portfolio will not
engage in transactions in futures contracts or related options for speculation,
but may enter into futures contracts and related options for hedging purposes,
for the purpose of remaining fully invested or maintaining liquidity to meet
shareholder redemptions, to minimize trading costs, or to invest cash balances.
A futures contract is an agreement between two parties to buy and sell a
security or an index for a set price on a future date. Futures contracts are
traded on designated "contract markets" which, through their clearing
corporations, guarantee performance of the contracts. Entering into a futures
contract for the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
B-3
<PAGE>
easily and quickly. Entering into futures contracts for the purchase of
securities has an effect similar to the actual purchase of the underlying
securities, but permits the continued holding of securities other than the
underlying securities.
A stock index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date, a final cash settlement occurs. Changes in the
market value of a particular stock index futures contract reflects changes in
the specified index of equity securities on which the future is based.
A futures option gives the holder, in return for the premium paid, the
right to buy (call) or sell (put) to the writer of the option a futures contract
at a specified price at any time during the term of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the desired protection may
not be obtained and the Portfolio may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the Portfolio than if it had not entered into any
futures on stock indices.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time.
Investments in futures options involve some of the same risks as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option, and an option may be more r than ownership
of the futures contract. In general, the market prices of options are more v
than the market prices of the underlying futures contracts. However, the
purchase of options on futures contracts may involve less potential risk to the
Portfolio because the maximum amount at risk is limited to the premium paid for
the option plus transaction costs.
B-4
<PAGE>
The Portfolio will not purchase or sell futures contracts or options on
futures contracts if, as a result, the sum of the amount of margin deposit on
the Portfolio's futures positions and premiums paid for such options would
exceed 5% of the market value of the Portfolio's net assets.
FOREIGN SECURITIES. The Portfolio may invest in foreign issuers in foreign
markets. In addition, the Portfolio may invest in American Depositary Receipts
("ADRs"), which 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 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. The Portfolio may invest no more than 20% of
its total assets in foreign securities, and it will only purchase foreign
securities or ADRs that are listed on a national securities exchange or included
in the NASDAQ system.
Foreign securities and securities issued by U.S. entities with substantial
foreign operations may involve additional risks and considerations. These
include risks relating to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens and the potentially less stringent investor
protection and disclosure standards of foreign markets. All of these factors can
make foreign investments, especially those in developing countries, more
volatile.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio may enter into
forward contracts with respect to specific transactions. For example, when the
Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when i anticipates the receipt in a
foreign currency of dividend or interest payments on a security that it holds,
the Portfolio may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of the payment, by entering into a forward contract
for the purchase or sale, for a fixed amount of U.S. dollars or foreign
currency, of the amount of foreign currency involved i the underlying
transaction. The Portfolio will thereby be to protect itself against a possible
loss resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security is
purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Portfolio to purchase additional foreign currency on the spot (i.e., cash)
B-5
<PAGE>
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Portfolio is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Portfolio to sustain losses on these contracts and transaction costs. The
Portfolio may enter into forward contracts or maintain a net exposure to such
contracts only if (1) the consummation of the contracts would not obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities or other assets denominated in that currency or (2) the
Portfolio maintains a segregated account as described below. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Advisor believes it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Portfolio will be served.
At or before the maturity date of a forward contract that requires the
Portfolio to sell a currency, the Portfolio may either sell a security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, the
Portfolio may close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. The Portfolio
would realize a gain or loss as a result of entering into such an offsetting
forward contract under either circumstance to the extent the exchange rate
between the currencies involved moved between the execution dates of the first
and second contracts.
The cost to the Portfolio of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of forward contracts does not eliminate fluctuations in the prices of the
underlying securities the Portfolio owns or intends to acquire, but it does fix
a rate of exchange in advance. In addition, although forward contracts limit the
risk of loss due to a decline in the value of the hedged currencies, at the same
time they limit any potential gain that might result should the value of the
currencies increase.
SHORT SALES. The Portfolio is authorized to make short sales of securities
in an amount not exceeding 5% of the Portfolio's net assets.
B-6
<PAGE>
The Board of Trustees of the Portfolio has approved deletion of the
Portfolio's current fundamental investment restriction limiting short sales of
securities to 5% of the Portfolio's net assets, subject to approval of such
change by the shareholders of the Portfolio. The Board has approved an operating
restriction (which can be changed by the Board without shareholder approval)
limiting short sales of securities to 15% of the Portfolio's net assets,
effective when the proposed change in the fundamental policy is approved by the
shareholders. The Board of Trustees of the Trust has approved similar changes
with respect to the Fund, and has called a special shareholder meeting for
__________, 2001 to approve the fundamental policy change. Although PIC does not
intend that short sales of securities will be a consistent investment strategy,
it believes that this greater short sale flexibility is desirable in view of the
volatile markets in the technology sector.
In a short sale, the Portfolio sells a security which it does not own, in
anticipation of a decline in the market value of the security. To complete the
sale, the Portfolio must borrow the security (generally from the broker through
which the short sale is made) in order to make delivery to the buyer. The
Portfolio is then obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The Portfolio is said to have a
"short position" in the securities sold until it delivers them to the broker.
The period during which the Portfolio has a short position can range from one
day to more than a year. Until the security is replaced, the proceeds of the
short sale are retained by the broker, and the Portfolio is required to pay to
the broker a negotiated portion of any dividends or interest which accrue during
the period of the loan. To meet current margin requirements, the Portfolio is
also required to deposit with the broker additional cash or securities so that
the total deposit with the broker is maintained daily at 150% of the current
market value of the securities sold short (100% of the current market value if a
security is held in the account that is convertible or exchangeable into the
security sold short within 90 days without restriction other than the payment of
money).
Short sales by the Portfolio create opportunities to increase the
Portfolio's return but, at the same time, involve specific risk considerations
and may be considered a speculative technique. Since the Portfolio in effect
profits from a decline in the price of the securities sold short without the
need to invest the full purchase price of the securities on the date of the
short sale, the Portfolio's net asset value per share will tend to increase more
when the securities it has sold short decrease in value, and to decrease more
when the securities it has sold short increase in value, than would otherwise be
the case if it had not engaged in such short sales. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, dividends or interest the Portfolio may be required to pay in
connection with the short sale. Furthermore, under adverse market conditions,
the Portfolio might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements, which involve the sale of a security by the Portfolio and
its agreement to repurchase the security at a specified time and price. The
Portfolio will maintain in a segregated account with the Custodian cash, U.S.
Government securities or other appropriate liquid securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(no such collateral is required on such agreements with banks). Under the 1940
Act, these agreements are considered borrowings by the Portfolio and are subject
to the percentage limitations on borrowings described below. The agreements are
subject to the same types of risks as borrowings.
BORROWING. The Portfolio may borrow up to 10% of its total assets from
banks for temporary or emergency purposes, and may increase its borrowings to up
to one-third of its total assets (less its liabilities other than borrowings) to
meet redemption requests.
B-7
<PAGE>
The use of borrowing by the Portfolio involves special risk considerations.
Since substantially all of the Portfolio's assets fluctuate in value, whereas
the interest obligation resulting from a borrowing remains fixed by the terms of
the Portfolio's agreement with its lender, the asset value per share of the
Portfolio tends to increase more when its portfolio securities increase in value
and to decrease more when its portfolio assets decrease in value than would
otherwise be the case if the Portfolio did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds.
Under adverse market conditions, the Portfolio might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
LENDING PORTFOLIO SECURITIES. To increase its income, the Portfolio may
lend its portfolio securities to financial institutions such as banks and
brokers if the loan is collateralized in accordance with applicable regulatory
requirements. The Portfolio has adopted an operating policy that limits the
amount of loans to not more than 25% of the value of its total assets. During
the time portfolio securities are on loan, the borrower pays the Portfolio an
amount equivalent to any dividends or interest paid on such securities, and the
Portfolio may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or secured a letter of credit. The amounts
received by the Portfolio will be reduced by any fees and administrative
expenses associated with such loans. In addition, such loans involve risks of
delay in receiving additional collateral or in recovering the securities loaned
or even loss of rights in the collateral should the borrower of the securities
fail financially However, such securities lending will be made only when, in
PIC's judgment, the income to be earned from the loans justifies the attendant
risks. Loans are subject to termination at the option of the Portfolio or the
borrower.
SEGREGATED ACCOUNTS. When the Portfolio writes an option on securities or
futures, sells a futures contract or enters into a forward foreign currency
exchange contract, it will establish a segregated account with its custodian
bank, or a securities depository acting for it, to hold assets of the Portfolio
in order to insure that the Portfolio will be able to meet its obligations. In
the case of a futures contract, liquid securities will be maintained in the
segregated account equal in value to the current value of the underlying
contract, less the margin deposits. The margin deposits are also held, in cash
or U.S. Government securities, in the segregated account. In the case of a call
that has been written on securities or futures contracts, the securities or
futures contracts covering the option will be maintained in the segregated
account and cannot be sold by the Portfolio until released. In the case of a put
that has been written on securities or futures contracts or a forward foreign
currency contract that has been entered into, liquid securities will be
maintained in the segregated account in an amount sufficient to meet the
Portfolio's obligations pursuant to the put or forward contract.
DEBT SECURITIES AND RATINGS. Ratings of debt securities represent the
rating agencies' opinions regarding their quality, are not a guarantee of
quality and may be reduced after the Portfolio has acquired the security. The
Advisor will consider whether the Portfolio should continue to hold the security
but is not required to dispose of it. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
B-8
<PAGE>
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following restrictions as fundamental
policies, which may not be changed without the favorable vote of the holders of
a "majority," as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the outstanding voting securities of the Portfolio. Under the 1940 Act, the
"vote of the holders of a majority of the outstanding voting securities" means
the vote of the holders of the lesser of (i) 67% of the Interests of the
Portfolio represented at a meeting at which the holders of more than 50% of its
outstanding Interests are represented or (ii) more than 50% of the outstanding
Interests of the Portfolio. Except with respect to borrowing, changes in values
of assets of the Portfolio will not cause a violation of the investment
restrictions so long as percentage restrictions are observed by the Portfolio at
the time it purchases any security.
The Portfolio is classified as a "non-diversified" fund. As provided in the
1940 Act, a diversified fund has, with respect to at least 75% of its total
assets, no more than 5% of its total assets invested in the securities of one
issuer, plus cash, U.S. Government securities and securities of other investment
companies.
The Portfolio may not:
1. Issue senior securities, borrow money or pledge its assets, except that
(a) the 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); (b) the Portfolio
may borrow on an unsecured basis from banks to meet r requests, provided that
such borrowings will be made only to the extent that the value of the
Portfolio's total assets, less its liabilities other than borrowings (including
borrowings pursuant to item (a) or otherwise), is equal at all times to at least
300% of all borrowings (including the proposed borrowing); and (c) the Portfolio
will not make investments while borrowings in excess of 5% of the value of its
total assets are outstanding;
2. Make short sales of securities or maintain a short position in excess of
5% of its net assets;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Act as underwriter (except to the extent the Portfolio may be deemed to
be an underwriter in connection with the sale of securities in its investment
portfolio);
B-9
<PAGE>
5. 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);
6. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Portfolio may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
7. Purchase or sell commodities or commodity futures contracts, except that
the Portfolio may purchase and sell stock index futures contracts and options on
8. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
9. Make loans (except for purchases of debt securities consistent with the
investment policies of the Portfolio, repurchase agreements and loans of
portfolio securities); or
10. Make investments for the purpose of exercising control or management.
The Portfolio observes the following restrictions as a matter of operating
but not fundamental policy. The Portfolio may not:
1. Invest more than 10% of its assets in the securities of other investment
companies or purchase more than 3% of any other investment company's voting
securities or make any other investment in other investment companies except as
permitted by federal and state law; or
2. Invest more than 15% of its net assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities issued under Rule 144A which are
determined by the Board of Trustees to be liquid).
ITEM 13. MANAGEMENT OF THE PORTFOLIO
The Portfolio's Board of Trustees decides on matters of general policy and
reviews the activities of the Advisor and the Administrator. The Board approves
all significant agreements between the Portfolio and persons or companies
furnishing services to it, including the agreements with the Advisor,
Administrator and Custodian. The Portfolio's officers conduct and supervise the
daily business operations of the Portfolio, subject to the general supervision
of the Board of Trustees.
The following table lists the Trustees and officers of the Portfolio, their
business addresses and principal occupations during the past five years. Unless
otherwise noted, each individual has held the position listed for more than five
B-10
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held
Name, Address and Age With the Portfolio Principal Occupation(s) During Past 5 Years
--------------------- ------------------ -------------------------------------------
<S> <C> <C>
Thomas M. Mitchell* (age 56) Trustee and Managing Director of the Advisor since May 1995.
300 North Lake Avenue President Executive Vice President of the Advisor from May 1983
Pasadena, CA 91101 to May 1999
Jettie M. Edwards (age 54) Trustee Consulting principal of Syrus Associates (consulting
76 Seaview Drive firm); Director of the PBHG Funds, Inc.; Director of
Santa Barbara, CA 93108 PBHG Insurance Series Fund, Inc.; Trustee of EQ
Advisors Trust
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's Restaurants, Inc.
234 E. Colorado Blvd. (restaurant company); formerly, Chairman of Lawry's
Pasadena, CA 91101 Foods, Inc. (restaurants and food seasoning)
James Clayburn LaForce (age 76) Trustee Dean Emeritus, John E. Anderson Graduate School of
P.O. Box 1585 Management, University of California, Los Angeles.
Pauma Valley, CA 92061 Director of The BlackRock Funds and Trustee of The
Payden & Rygel Investment Trust and Trust for
Investment Managers (registered investment companies).
Director of the Timken Co. (bearings and alloy steel
manufacturing firm) and Jacobs Engineering Group
(engineering firm).
Angelo R. Mozilo (age 61) Trustee Chairman, CEO and President of Countrywide Credit
155 N. Lake Avenue Industries (mortgage banking)
Pasadena, CA 91101
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery Dennison
150 N. Orange Grove Blvd. Corporation (pressure sensitive material and office
Pasadena, CA 91103 products manufacturer)
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. (age 37) Vice President Chief Operating Officer of the Advisor since August
300 North Lake Avenue and Secretary 1999; formerly, Director of Operations of the Advisor
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Chief Financial Officer of the Advisor since August
300 North Lake Avenue and Treasurer 1999; formerly, Controller of the Advisor
Pasadena, CA 91101
</TABLE>
----------
* Denotes Trustees who are "interested persons" of the Portfolio under the
1940 Act.
B-11
<PAGE>
The Portfolio will compensate each independent Trustee an annual retainer
of $10,000 plus $500 for each meeting attended. The Trustees are also reimbursed
for any expenses incurred in attending meetings. For its initial year of
operations, the Portfolio estimates that it will pay the following compensation
to its independent Trustees:
<TABLE>
<CAPTION>
Total Compensation
From Registrant
Cash Compensation Deferred Compensation and Portfolio
Name of Trustee From Registrant From Registrant Fund Complex*
--------------- ---------- ---------- --------
<S> <C> <C> <C>
Jettie M. Edwards $1,000 0 $10,000
Wayne H. Smith $1,000 0 10,000
James Clayburn LaForce 0 $1,000 10,000
Richard N. Frank 0 $1,000 10,000
Angelo R. Mozilo 0 $1,000 10,000
</TABLE>
The "Fund Complex" consists of the Registrant, the PIC Balanced Portfolio, the
PIC Growth Portfolio, the PIC Mid Cap Portfolio, and the PIC Small Cap
Portfolio.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
None
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
Subject to the supervision of the Board of Trustees of the Portfolio,
investment management and services are provided to the Portfolio 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 Portfolio and makes decisions and places orders to buy, sell or
hold particular securities. In conjunction with Investment Company
Administration L.L.C. (the "Administrator"), the Advisor also supervises all
matters relating to the operation of the Portfolio and obtains for it officers,
clerical staff, office space, equipment and services. As compensation for its
services, the Advisor receives a monthly fee at an annual rate of 0.80 of 1% of
the Portfolio's average net assets. However, the Advisor has agreed to limit the
aggregate expenses of the Portfolio to 1.60% of its average net assets. In
addition to the fees payable to the Advisor and the Administrator, the Portfolio
is responsible for its 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 and transfer agent; (vii) fees and expenses for registration or
qualification of the Portfolio and its Interests under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to Holders; (ix) other expenses incidental to holding
any meetings of Holders; (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 Portfolio and the legal
obligations with respect to which the Portfolio may have to indemnify its
officers and Trustees; and (xii) amortization of organization costs.
Under the Advisory Agreement, the Advisor will not be liable to the
Portfolio for any error of judgment by the Advisor or any loss sustained by the
Portfolio 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.
B-12
<PAGE>
The Advisory Agreement will remain in effect for two years from its
execution. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for s 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 of the Portfolio.
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 Portfolio
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 Portfolio. The Advisory Agreement terminates automatically upon
its assignment (as defined in the 1940 Act).
THE ADMINISTRATOR
Pursuant to an Administration Agreement, the Administrator supervises the
overall administration of the Portfolio, including, among other
responsibilities, the preparation and filing of all documents required for
compliance by the Portfolio with applicable laws and regulations, arranging for
the maintenance of books and records and the Portfolio, and supervision of other
organizations that provides services to the Portfolio. Certain officers of the
Portfolio are also provided by the Administrator. The Portfolio is responsible
for paying legal and auditing fees, the fees and expenses of its custodian,
accounting services and transfer agents, trustees' fees and registration fees,
as well as its other operating expenses. For the services it provides, the
Administrator receives a fee from the Portfolio at an annual rate of 0.10% of
the average daily net assets of the Portfolio; the fee is accrued daily and paid
monthly.
CUSTODIAN AND AUDITORS
The Portfolio's custodian, Provident National Bank, 200 Stevens Drive,
Lester, PA 19113 is responsible for holding the Portfolio's assets. The
Portfolio's independent accountants, PricewaterhouseCoopers LLP, 1177 Avenue of
the Americas, New York, NY 10036, assist in the preparation of certain reports
to the Securities and Exchange Commission and prepares its tax returns.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Advisory Agreement states that in connection with its duties to arrange
for the purchase and the sale of securities held by the Portfolio by placing
purchase and sale orders for the Portfolio, the Advisor shall select such
broker-dealers ("brokers") as shall, in its judgment, achieve the policy of
"best execution," i.e., prompt and efficient execution at the most favorable
securities price. In making such selection, the Advisor is authorized in the
Advisory Agreement to consider the reliability, integrity and financial
condition of the broker. The Advisor also is authorized by the Advisory
Agreement to consider whether the broker provides research or statistical
information to the Portfolio and/or other accounts of the Advisor. The Advisor
may select brokers who sell shares of the Portfolio or the Fund.
B-13
<PAGE>
The Advisory Agreement states that the commissions paid to brokers may be
higher than another broker would have charged if a good faith determination is
made by the Advisor that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities as to the accounts as to which it exercises
investment discretion and that the Advisor shall use its judgment in determining
that the amount of commissions paid are reasonable in relation to the value of
brokerage and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of commission rates
reflecting such services. The Advisory Agreement provides that to demonstrate
that such determinations were in good faith, and to show the overall
reasonableness of commissions paid, the Advisor shall be prepared to show that
commissions paid (i) were for purposes contemplated by the Advisory Agreement;
(ii) were for products or services which provide lawful and appropriate
assistance to its decision-making process; and (iii) were within a reasonable
range as compared to the rates charged by brokers to other institutional
investors as such rates may become known from available information.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Portfolio in the valuation of its investments. The
research which the Advisor receives for the Portfolio's brokerage commissions,
whether or not useful to the Portfolio, may be useful to it in managing the
accounts of its other advisory clients. Similarly, the research received for the
commissions may be useful to the Portfolio.
The debt securities are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission although
the price of the security usually includes a profit to the dealer. Money market
instruments usually trade on a "net" basis as well. On occasion, certain money
market instruments may be purchased by the Portfolio directly from an issuer in
which case no commissions or discounts are paid. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
PORTFOLIO TURNOVER. Although the Portfolio generally will not invest for
short-term trading purposes, portfolio securities may be sold without regard to
the length of time they h 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 the 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 higher transaction costs
and may result in a greater number of taxable transactions. The Portfolio's
portfolio turnover rate is not expected to exceed 200%.
B-14
<PAGE>
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
Holders of Interests in the Portfolio are entitled to one vote for each
full Interest held (and fractional votes for fractions of Interests) and may
vote in the election of Trustees and on other matters submitted to meetings of
Holders. It is not contemplated that regular annual meetings of Holders will be
held.
The Declaration of Trust provides that the Holders have the right, upon the
declaration in writing or vote of the Holders of a majority of Interests, to
remove a Trustee. The Trustees will call a meeting of Holders to vote on the
removal of a Trustee upon the written request of the Holders of ten per cent of
its Interests. In addition, ten Holders holding the lesser of $25,000 worth or
one per cent of the Interests may advise the Trustees in writing that they wish
to communicate with other Holders for the purpose of requesting a meeting to
remove a Trustee. The Trustees will then, if requested by the applicants, mail
at the applicants' expense the applicants' communication to all other Holders.
Holders of Interests have no preemptive or other right to subscribe for
additional securities. Interests are non-transferable.
Holders may be liable for obligations of the Portfolio, but the risk of a
Holder incurring financial loss on account of such liability is limited to
circumstances in which the Portfolio was unable to meet its obligations.
The Book Capital Account balances of Holders are determined at such time or
times, at such frequency and pursuant to such method as the Trustees may from
time to time determine. The power and duty to make such calculations may be
delegated by the Trustees to such person as the Trustees may determine. It is
expected that such calculations will be made on such days as necessary to comply
with Rule 22c-1 under the 1940 Act.
The Trustees shall, in compliance with applicable provisions of the
Internal Revenue Code (the "Code") or regulations thereunder, agree to (a) the
daily allocation of income or loss to each Holder, (b) the payment of
distributions to Holders and (c) upon liquidation of the Portfolio, the final
distribution of items of taxable income and expense. Any such agreement may be
amended from time to time to comply with the Code or regulations thereunder. The
Trustees may retain from net profits such amount as they may deem necessary to
pay the debts or expenses of the Portfolio or to meet obligations of the
Portfolio, or as they may deem desirable to use in the conduct of the affairs of
the Portfolio or to retain for future requirements or extension of the business
of the Portfolio.
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SHARES
The net asset value of the Portfolio's Interests will fluctuate and is
determined as of the close of regular trading on the New York Stock Exchange
("NYSE") (currently 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.
B-15
<PAGE>
The net asset value per Interest is computed by dividing the value of the
securities held by the Portfolio plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of Interests in the Portfolio
outstanding at such time.
Equity securities listed on a national securities exchange or traded on the
NASDAQ system are valued on their last sale price. Other equity securities and
debt securities for which market quotations are readily available are valued at
the mean between their bid and asked price, except that debt securities maturing
within 60 days are valued on an amortized cost basis. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
ITEM 19. TAXATION OF THE PORTFOLIO
The Portfolio does not expect to be subject to any income taxes. However,
each investor in the Portfolio will be taxable on its share of the Portfolio's
ordinary income and capital gain.
ITEM 20. UNDERWRITERS
Not applicable.
ITEM 21. CALCULATION OF PERFORMANCE DATA
Not applicable
ITEM 22. FINANCIAL STATEMENTS
Not applicable.
B-16
<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.
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 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.
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-17
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(1) Declaration of Trust (1)
(2) Not applicable
(3) Not applicable
(4) Form of Management Agreement (1)
(5) Not applicable
(6) Not applicable
(7) Custodian Agreement (2)
(8) Form of Administration Agreement (1)
(9) Not applicable
(10) Not applicable
(11) Not applicable
(12) Not applicable
(13 Not applicable
(14) Not applicable
(15) Not applicable
(16) (a) Code of Ethics-Provident Investment Counsel (1)
(b) Form of Code of Ethics-PIC Technology Portfolio (1)
----------
(1) Previously filed with the Registration Statement on Form N-1A of PIC
Technology Portfolio, File No. 811-10149, on August 26, 2000 and
incorporated herein by reference.
(2) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, states as follows:
1. Definitions. As used in this Article, the following terms shall have the
meanings set forth below:
(a) the term "indemnitee" shall mean any present or former Trustee, officer
or employee of the Trust, any present or former Trustee or officer of another
trust or corporation whose securities are or were owned by the Trust or of which
the Trust is or was a creditor and who served or serves in such capacity at the
request of the Trust, any present or former investment adviser, sub-adviser or
principal underwriter of the Trust and the heirs, executors, administrators,
successors and assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred to, the conduct shall be that of
the original indemnitee rather than that of the heir, executor, administrator,
successor or assignee;
(b) the term "covered proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which an indemnitee is or was a party or is threatened to be
made a party by reason of the fact or facts under which he or it is an
indemnitee as defined above;
(c) the term "disabling conduct" shall mean willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the office in question;
(d) the term "covered expenses" shall mean expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by an indemnitee in connection with a covered proceeding; and
C-1
<PAGE>
(e) the term "adjudication of liability" shall mean, as to any covered
proceeding and as to any indemnitee, an adverse determination as to the
indemnitee whether by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent.
2. No Personal Liability of Trustees and Others. No indemnitee shall be
subject to any personal liability to any Person other than the Trust or its
Holders in connection with the property or affairs of the Trust, unless arising
from his bad faith, wilful misfeasance, gross negligence or reckless disregard
of his duty to such Person, and all such Persons shall look solely to the
property of the Trust for satisfaction of claims of any nature against an
indemnitee arising in connection with the affairs of the Trust.
3. Indemnification. The Trust shall indemnify any indemnitee for covered
expenses in any covered proceeding, whether or not there is an adjudication of
liability as to such indemnitee, to the maximum extent permitted by law.
However, the Trust shall not indemnify any indemnitee for any covered expenses
in any covered proceeding if there has been an adjudication of liability against
such indemnitee expressly based on a finding of disabling conduct. Nothing in
this Declaration of Trust shall protect a Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
4. Advance of Expenses. Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by the Trust to an
indemnitee prior to the final disposition of a covered proceeding upon the
request of the indemnitee for such advance and the undertaking by or on behalf
of the indemnitee to repay the advance unless it is ultimately determined that
the indemnitee is entitled to indemnification thereunder, but only if one or
more of the following is the case: (i) the indemnitee shall provide a security
for such undertaking; (ii) the Trust shall be insured against losses arising out
of any lawful advances; or (iii) there shall have been a determination, based on
a review of the readily available facts (as opposed to a full trial-type
inquiry) that there is a reason to believe that the indemnitee ultimately will
be found entitled to indemnification by either independent legal counsel in a
written opinion or by the vote of a majority of a quorum of trustees who are
neither "interested persons" as defined in the 1940 Act nor parties to the
covered proceeding. Nothing herein shall be deemed to affect the right of the
Trust and/or any indemnitee to acquire and pay for any insurance covering any or
all indemnitees to the extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be entitled to the extent
permitted by the 1940 Act.
5. Liability of Holders. Each Holder shall be jointly and severally liable
(with rights of contribution inter sese in proportion to their respective
Interests in the Trust) for the liabilities and obligations of the Trust in the
event that the Trust fails to satisfy such liabilities and obligation; provided,
however, that to the extent assets are available in the Trust the Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject by reason of his being or having been a
Holder to the extent that such claim or liability imposes on the Holder an
obligation or liability which, when compared to the obligations and liabilities
imposed on other Holders, is greater than its Interest, and shall reimburse such
Holder for all legal and other expenses reasonably incurred by it in connection
with any such claim or liability. The rights accruing to a Holder under this
section shall not exclude any other right to which such Holder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Holder in any appropriate situation even though not
specifically provided herein. Notwithstanding the indemnification procedure
described above, it is intended that each Holder shall remain jointly and
severally liable to the Trust's creditors as a legal matter.
C-2
<PAGE>
6. Reliance on Experts. The Trustees may take advice of counsel or other
experts w respect to the meaning and operations of this Declaration of Trust and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
7. No Duty of Investigation. No one dealing with the Trustees shall be
under any obligation to make any inquiry concerning the authority of the
Trustees, or to see to the application of any payments made or property
transferred by the Trustees or upon their order. The exercise by the Trustees of
their powers and discretion hereunder in good faith and with reasonable care
under the circumstances then prevailing, shall be binding upon everyone
interested. Subject to the provisions of paragraph 2 of this Article, the
Trustees shall not be liable for errors of judgment or mistakes of fact or law.
ITEM 16. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Provident Investment Counsel, Inc. is the investment advisor of the
Registrant. For information as to the business, profession, vocation or
employment of a substantial nature of Provident Investment Counsel, Inc.,
reference is made to the Form ADV filed under the Investment Advisers Act of
1940 by Provident Investment Counsel, Inc.
ITEM 27. PRINCIPAL UNDERWRITERS.
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 of Registrant and
Registrant's custodian, as follows: the documents required to be maintained by
paragraphs (4), (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be maintained
by the Registrant's Administrator, and all other records will be maintained by
the Custodian.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940 the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pasadena and
State of California on the 26th day of December, 2000.
PIC TECHNOLOGY PORTFOLIO
By /s/ Robert H. Wadsworth
-----------------------
Robert H. Wadsworth
Assistant Secretary
C-4
