File No. 811-6497
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.8 [X]
PIC BALANCED 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)
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PIC BALANCED PORTFOLIO
PART A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS.
The investment objective of the PIC Balanced Portfolio (the "Portfolio") is
to provide high total return while preserving capital. There is no assurance
that the Portfolio will achieve its objective.
In the opinion of Provident Investment Counsel, the Advisor to the
Portfolio, over time, stocks out perform bonds and investments that are
equivalent to cash. Consequently the Portfolio will attempt to achieve high
total return through investments in equity securities, consisting of common
stocks and securities having the characteristics of common stocks, such as
convertible preferred stocks, convertible debt securities and warrants.
In selecting equity securities for the Portfolio, the Advisor will select
securities of companies of various sizes which are currently experiencing an
above-average rate of earnings growth. In addition, the Advisor seeks companies
that have a five-year average performance record of sales, earnings, pretax
margins, return on equity and reinvestment rate at an aggregate average of 1.5
times the average performance of the Standard & Poor's 500 Index ("S&P 500") for
the same period. The Portfolio attempts to invest in a range of small, medium
and large companies. Equity securities will typically average less than a 1%
dividend. Currently, approximately 100% of the equity securities in which the
Portfolio will invest are listed and traded on the New York and American Stock
Exchanges, and the remainder are traded on the NASDAQ system or otherwise over
the counter. The Advisor supports its selection of individual securities through
intensive research and uses qualitative and quantitative disciplines to
determine when securities should be sold.
The Portfolio will invest at least 25%, and may invest up to 70%, of its
total assets in fixed income securities, both to earn current income and to
achieve gains from an increase in the value of the fixed income securities.
Fixed income securities can appreciate in value as a result of a decrease in
interest rates as well as a perception by investors that the credit quality of
the issuer has improved. Conversely, an increase in interest rates or a
deterioration in credit quality can lead to a decline in the value of the fixed
income security. In determining whether or not the Portfolio should invest in a
particular debt security, the Advisor considers factors such as the price,
coupon and yield to maturity; the credit quality of the issuer; the issuer's
cash flow and the related coverage ratios; the property, if any, securing the
obligation; and the terms of the debt instrument, including subordination,
default, sinking fund and early redemption provisions. The Advisor will also
review the ratings, if any, assigned to the securities by Standard & Poor's
Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's") or other
recognized rating agencies.
The Portfolio may invest up to 70% of its total assets in debt securities,
but it may not invest in debt securities that are not rated at least BBB by S&P
or Baa by Moody's, or if unrated by S&P and Moody's are of comparable quality in
the judgement of the Advisor.
The Portfolio may also attempt to earn current income and reduce the
variability of the net asset value of its shares by investing a portion of its
assets in short-term investments. The Portfolio also may invest part of its
assets temporarily in short-term investments pending the investment of the
proceeds of the sale of its shares or of its portfolio securities. Short-term
investments consist of high quality debt obligations maturing in one year or
less from the date of purchase, such as U.S. Government securities, repurchase
agreements, certificates of deposit, bankers' acceptances and commercial paper.
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FOREIGN SECURITIES. The Portfolio has the right to invest up to 20% of its
total assets in foreign securities. The Portfolio will only purchase foreign
securities which are listed on a national securities exchange or included in the
NASDAQ National Market System or which are represented by American Depositary
Receipts listed on a national securities exchange or included in the NASDAQ
National Market System.
Interest or dividend payments on foreign securities may be subject to
foreign withholding taxes. There are also risks in investing in foreign
securities. The value of an investment may be affected indirectly by changes in
currency rates and in exchange control regulations. Foreign companies are
frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information about
foreign issuers. In addition, investments in foreign countries are subject to
the possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect the value of
those investments.
PORTFOLIO TURNOVER. Under certain market conditions, the Portfolio may
experience a high rate of portfolio turnover. In general, the Advisor will not
consider the rate of portfolio turnover to be a limiting factor in determining
when or whether to purchase or sell securities in order to achieve the
Portfolio's objective. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
the Portfolio, and may increase realized capital gains which are taxable to
Holders when distributed.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
THE ADVISOR
The Advisor to the Portfolio is Provident Investment Counsel, Inc., 300
North Lake Avenue, Pasadena, California 91101-4106. Subject to the direction and
control of the Trustees of the Portfolio, an investment committee of the Advisor
formulates and implements an investment program for the Portfolio, including
determining which securities should be bought and sold. The Advisor also
provides certain of the officers of the Portfolio. For its services, The Advisor
receives a fee from the Portfolio, accrued daily and paid monthly, at the annual
rate of 0.60% of the average daily net assets of the Portfolio.
The Advisor is a corporation that traces its origins to an investment
partnership formed in 1951. On February 15, 1995, it became an indirect, wholly
owned subsidiary of United Asset Management ("UAM"), a publicly owned
corporation with headquarters located at One International Place, Boston, MA
02110. UAM is principally engaged, through affiliated firms, in providing
institutional investment management services.
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 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 (the "1940 Act"). 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.
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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.
A Holder wishing to redeem Interests may do so at any time by writing to
the Fund in care of its Custodian at P.O. Box 8943, Wilmington DE 19899, or by
delivering instructions to the Custodian at 400 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 Investment Company
Act of 1940 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.
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PART B.
PIC BALANCED PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE AND TABLE OF CONTENTS
This Statement of Additional Information of the PIC Balanced Portfolio (the
"Balanced Portfolio" or 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 August 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-5
Item 14. Control Persons and Principal Holders of Securities ....... B-6
Item 15. Investment Advisory and Other Services .................... B-6
Item 16. Brokerage Allocation and Other Practices .................. B-7
Item 17. Capital Stock and Other Securities ........................ B-8
Item 18. Purchase, Redemption and Pricing of Shares ................ B-8
Item 19. Taxation of the Fund ...................................... B-9
Item 20. Underwriters .............................................. B-9
Item 21. Calculation of Performance Data ........................... B-9
Appendix ........................................................... B-10
Item 22. Financial Statements ...................................... B-10
ITEM 11. PORTFOLIO HISTORY
The Balanced Portfolio was organized as a trust under the laws of the State
of New York on December 11, 1991.
ITEM 12. DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The Portfolio is an open-end, management, diversified investment company.
The Portfolio's short-term investments must be of high quality. High
quality means the obligations have been rated at least A-1 by S&P or Prime-1 by
Moody's, or 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.
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.
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The Portfolio may not:
1. Issue senior securities, borrow money or pledge its assets, except that
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), provided that it
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;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options, except it may write covered call and cash
secured put options on debt securities;
5. 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);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
7. 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);
8. Purchase or sell commodities or commodity futures contracts, except that
the Portfolio may purchase and sell stock index futures and interest rate
futures contracts;
9. Buy in oil and gas limited partnerships or oil, gas or mineral leases;
10. Make loans (except for purchases of debt securities consistent with the
investment policies of the Portfolio and except for repurchase agreements); or
11. 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, pursuant to positions taken by federal and state
regulatory authorities:
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 law.
2. Invest more than 15% of its net assets in illiquid securities. The
investments included in this 15% limit are (i) those which are restricted; i.e.,
those which cannot freely be sold for legal reasons (other than those which meet
the requirements of Securities Act Rule 144A); (ii) fixed time deposits subject
to withdrawal penalties (other than deposits with a term of less than seven
days); (iii) repurchase agreements having a maturity of more than seven days;
and (iv) investments for which market quotations are not readily available. The
15% limitation does not include obligations which are payable at principal
amount plus accrued interest within seven days after purchase.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Portfolio purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased security. The 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
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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 that Code that would
allow them immediately to resell the collateral.
U.S. GOVERNMENT SECURITIES. U.S. Government securities include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association and the Student Loan Marketing Association.
Except for U.S. Treasury securities, obligations of U.S. Government
agencies and instrumentalities may or may not be supported by the full faith and
credit of the United States. Some, such as those of the Federal Home Loan Banks,
are backed by the right of the issuer to borrow from the Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.
Among the U.S. Government securities that the Portfolio may purchase are
"mortgage-backed securities" of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Association ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage- backed
securities include "pass-through" securities and "participation certificates";
both are similar, representing pools of mortgages that are assembled, with
interests sold in the pool; the assembly is made by an "issuer" which assembles
the mortgages in the pool and passes through payments of principal and interest
for a fee payable to it. Payments of principal and interest by individual
mortgagors are "passed through" to the holders of the interest in the pool,
thus, the payments to holders include varying amounts of principal and interest.
Prepayment of the mortgages underlying these securities may result in a
Portfolio's inability to reinvest the principal at comparable yields.
Another type of mortgage-backed security is the "collateralized mortgage
obligation", which is similar to a conventional bond (in that it makes fixed
interest payments and has an established maturity date) and is secured by groups
of individual mortgages. Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States.
WHEN-ISSUED SECURITIES. The Portfolio may purchase securities on a
when-issued basis, for payment and delivery at a later date, generally within
one month. The price and yield are generally fixed on the date of commitment to
purchase, and the value of the security is thereafter reflected in the
Portfolio's net asset value. During the period between purchase and settlement,
no payment is made by the Portfolio and no interest accrues to the Portfolio. At
the time of settlement, the market value of the security may be more or less
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than the purchase price. The Portfolio will limit its investments in when-issued
securities to less than 5% of its total assets. When the Portfolio purchases
securities on a when-issued basis, it maintains liquid assets in a segregated
account with its Custodian in an amount equal to the purchase price as long as
the obligation to purchase continues.
OPTIONS TRANSACTIONS. The Portfolio may write (sell) covered call and cash
secured put options, and it may purchase call and put options, on debt
securities. The Portfolio will write options on its portfolio securities for the
purpose of increasing its return or to protect the value of its portfolio. If
the price of the underlying security moves adversely to the Portfolio's
position, the option may be exercised, and the Portfolio will be required to
purchase or sell the underlying security at a disadvantageous price, which may
only be partially offset by the amount of the premium, if at all. The Portfolio
may also write straddles, which are combinations of put and call options on the
same security, and which may generate additional premium income, but may also
present increased risk. The Portfolio may also purchase put or call options in
anticipation of changes in interest rates that would adversely affect the value
of its portfolio securities or the prices of securities the Portfolio wants to
purchase at a later date. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and unless the price of the underlying
security changes sufficiently, the option may expire without value to the
Portfolio
FUTURES CONTRACTS
The Portfolio may buy and sell interest rate futures contracts and may buy
and sell stock index futures contracts. 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.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). 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 easily and
quickly. For example, if the Portfolio held long-term U.S. Government securities
and the Advisor anticipated a rise in long-term interest rates, the Portfolio
could, in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased and
the value of the Portfolio's portfolio securities declined, the value of the
Portfolio's futures contracts would increase, thereby protecting the Portfolio
by preventing net asset value from declining as much as it otherwise would have.
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. For
example, if the Advisor expected long-term interest rates to decline, the
Portfolio might enter into futures contracts for the purchase of long-term
securities so that it could gain rapid market exposure that might offset
anticipated increases in the cost of securities it intended to purchase while
continuing to hold higher-yield short-term securities or waiting for the
long-term market to stabilize.
A stock index futures contract may be used as a hedge by the Portfolio with
regard to market risk as distinguished from risk relating to a specific
security. 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.
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
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poorer overall performance for the Portfolio than if it had not entered into any
futures on debt securities or stock indexes.
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.
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 Portfolio's
officers conduct and supervise the daily business operations of the Portfolio.
The Trustees and officers of the Portfolio, their business addresses and
principal occupations during the past five years are:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past 5 Years
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<S> <C> <C>
Douglass B. Allen* (age 37) Trustee and Vice President of the Advisor
300 North Lake Avenue President
Pasadena, CA 91101
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus Associates (consulting firm)
76 Seaview Drive
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chairman of Lawry's Foods, Inc.
234 E. Colorado Blvd.
Pasadena, CA 91101
James Clayburn LaForce (age 76) Trustee Dean Emeritus, John E. Anderson Graduate School of Management,
P.O. Box 1585 University of California, Los Angeles. Director of The BlackRock
Pauma Valley, CA 92061 Funds. Trustee of Payden & Rygel Investment Trust. Director of the
Timken Co., Rockwell International, Eli Lily, Jacobs Engineering
Group and Imperial Credit Industries.
Angelo R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice President of Countrywide
155 N. Lake Avenue Credit Industries (mortgage banking)
Pasadena, CA 91101
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery Dennison Corporation
150 N. Orange Grove Blvd (pressure sensitive material and office products manufacturer)
Pasadena, CA 91103
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 Senior Vice President of the Advisor
300 North Lake Avenue and Secretary
Pasadena, CA 91101
William T. Warnick* (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
</TABLE>
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* denotes Trustees who are "interested persons" of Portfolio under the 1940 Act.
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The following compensation was paid to each of the following Trustees. No
other compensation or retirement benefits were received by any Trustee or
officer from the Registrant or other registered investment company in the "Fund
Complex."
Total
Compensation
Deferred From Trust
Cash Compensation Compensation and Portfolio
Name of Trustee From Registrant From Registrant Fund Complex*
--------------- --------------- --------------- -------------
Jetti M. Edwards -0- -0- $10,000
Wayne H. Smith -0- $ 232 16,658
James Clayburn La Force $2,400 -0- 14,500
Richard N. Frank -0- 2,400 12,658
Angelo R. Mozilo -0- 2,400 13,158
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* The "Fund Complex" consists of the PIC Balanced Portfolio, the PIC Growth
Portfolio, the PIC MidCap Portfolio, the PIC Small Cap Portfolio and Pic
Investment Trust.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
At August 4, 2000, the Portfolio was controlled by PIC Balanced Fund A, 300
North Lake Avenue, Pasadena, CA 91101, a series of a Delaware business trust
which owned 99.83% of its outstanding Interests. Interests held by officers and
Trustees, as a group, amounted to less than 1%.
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 LLC (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 0.60 of 1% of
the Portfolio's 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. The total advisory fee for the fiscal year ended October 31, 1999 was
$191,721, but the Advisor waived $90,404 of the total fee because total expenses
of the Portfolio exceed 0.80% of the Portfolio's average net assets. The total
advisory fee for the fiscal year ended October 31, 1998 was $236,672; however,
the Advisor waived $71,076 of its total fee. The total advisory fee for the
fiscal year ended October 31, 1997 was $153,518; however, the Advisor waived
$91,689 of its total fee.
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THE ADMINISTRATOR
Pursuant to an Administration Agreement, Investment Company Administration,
L.L.C. (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 .10% of the average daily net assets of the
Portfolio; the fee is accrued daily and paid monthly.
THE CUSTODIAN AND AUDITORS
The Registrant's custodian is Provident National Bank, 200 Stevens Drive,
Lester, PA 19113, which holds its assets. The Registrant's auditors are
PricewaterhouseCoopers, LLP, 1177 Avenue of the Americas, New York, NY 10036,
which audits the Registrant's financial statements 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 in the portfolio of 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 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 the Portfolio's
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 of such accounts may be useful to the
Portfolio.
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The debt securities which will be a major component of the Portfolio's
portfolio 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.
The aggregate brokerage commissions paid by the Portfolio during the fiscal
year ended October 31, 1999, were $33,433 of which $2,372 was paid to brokers
who furnished research services. Commissions paid during the fiscal years ended
October 31, 1998 and 1997 were $34,286 and $24,471, respectively.
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
(currently 4:00 p.m. Eastern time) each business day. The Exchange 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 Exchange may close on days not included in that announcement.
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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.
ITEM 19. TAXATION OF THE FUND
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
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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 CORPORATION: 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.
ITEM 22. FINANCIAL STATEMENTS
The Financial Statements of Registrant are included in the Annual Report to
Shareholders of Provident Investment Counsel Balanced Fund for the fiscal year
ended October 31, 1999 and incorporated by reference herein.
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PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Declaration of Trust(1)
(b) Not applicable
(c) Not applicable
(d) Management Agreement(2)
(e) Not applicable
(f) Not applicable
(g) Custodian Agreement(2)
(h) Administration Agreement(2)
(i) Not applicable
(j) Consent of independent accountants - filed herewith
(k) Not applicable
(l) Investment letter(2)
(m) Not applicable
(n) Not applicable
(o) Not applicable
(1) Previously filed with the Registration Statement on Form N-1A of PIC
Balanced Portfolio, File No. 811-6497, on December 16, 1991 and incorporated
herein by reference.
(2) Previously filed with Amendment No. 1 to the Registration Statement on
Form N-1A of PIC Balanced Portfolio, File No. 811-6497, on April 1, 1993 and
incorporated herein by reference.
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
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(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. 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.
3. 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.
ITEM 26. 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.
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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 31st day of August, 2000.
PIC BALANCED PORTFOLIO
By /s/ Robert H. Wadsworth
-------------------------------------
Robert H. Wadsworth
Assistant Secretary
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EXHIBIT INDEX
ITEM NO. DESCRIPTION
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99.(j) Consent of Independent Accountants
