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PROVIDENT INVESTMENT COUNSEL
GROWTH FUND
SMALL COMPANY GROWTH FUND
Prospectus
March 2, 1998,
As Supplemented September 30, 1998
Provident Investment Counsel
300 North Lake Avenue
Pasadena, CA 91101
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Funds invest and
the services available to shareholders. To learn more about each Fund and its
investments, you can obtain a copy of the Funds' most recent financial reports,
including performance information and portfolio listing, or a copy of the
Statement of Additional Information (SAI). The SAI is dated March 2, 1998, as
supplemented September 30, 1998, may be supplemented from time to time, has been
filed with the Securities and Exchange Commission (SEC) and is incorporated
herein by reference (legally forms a part of this prospectus). For a free copy
of either document, call (800) 618-7643. The SEC maintains an internet site
(http://www.sec.gov) that contains the SAI, other material incorporated by
reference and other information about companies that file electronically with
the SEC.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the U.S. Government, the FDIC,
the Federal Reserve Board, or any other U.S. Government agency, and are subject
to investment risk including the possible loss of principal.
The Funds, unlike many other mutual funds which directly acquire and manage
their own portfolios of securities, seek to achieve their investment objectives
by investing all of their assets in a PIC Portfolio. Investors should carefully
consider this investment approach.
Like all mutual funds, these securities have not approved or disapproved by the
SEC or any state securities commission nor has the SEC or any state securities
commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Key Facts __ The Funds at a Glance
__ Who May Want to Invest
__ Expenses
__ Structure of the Funds and
the Portfolios
__ Financial Highlights
The Funds in Detail __ Charter
How the Fund is organized,
__ Information About the Funds'
__ Investments The Funds' overall approach
to investing.
__ Securities and Investment
__ Practices More information about how the
Funds invest.
__ Breakdown of Expenses How
operating costs are calculated and what
they include.
__ Performance
Your Account __ Ways to Set Up Your Account
__ How to Buy Shares
__ How to Sell Shares
__ Investor Services
Services to help you
manage your account.
Shareholder __ Dividends, Capital Gains
Account Policies and Taxes
__ Transaction Details Share price
calculations and the timing of purchases
and redemptions.
__ Exchange Restrictions
General Information __
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The Funds at a Glance
Management: Provident Investment Counsel (PIC), located in Pasadena, California
since 1951, is the Funds' Advisor. At December 31, 1997, total assets under
PIC's management were over $20 billion.
Growth Fund
Goal: Long term growth of capital.
Strategy: Invests, through the PIC Growth Portfolio, in high quality growth
stocks.
Small Company Growth Fund
Goal: Long term growth of capital.
Strategy: Invests, through the PIC Small Cap Portfolio, mainly in equity
securities of small companies.
Who May Want to Invest
The Growth Fund may be appropriate for investors who seek potentially high long
term returns, but are willing to accept the risk of investing in growth stocks.
The Fund is designed for those seeking capital appreciation through a
diversified portfolio of equity securities of issuers of all sizes.
The Small Company Growth Fund may be appropriate for investors who are willing
to ride out stock market fluctuations in pursuit of potentially above average
long-term returns. The Small Company Growth Fund is designed for those who want
to focus on stocks of small capitalization companies in search of above average
returns. A company's market capitalization is the total market value of its
outstanding common stock. A small company is one with market capitalization or
annual revenues at the time of purchase of $250 million or less. The securities
of smaller, less well-known companies may be more volatile than those of larger
companies. Over time, however, small capitalization stocks have shown greater
growth potential than those of larger capitalization companies.
The value of each Fund's investments will vary from day to day, and generally
reflects market conditions, interest rates, and other company, political or
economic news. In the short term, stock prices can fluctuate dramatically in
response to these factors. When you sell your shares, they may be worth more or
less than what you paid for them. By itself, no Fund constitutes a balanced
investment plan. There is no assurance that either Fund will meet its objective.
Expenses
Shareholder Transaction Expenses are charges you pay when you buy, sell or hold
shares in a Fund.
Maximum sales charge None
Maximum sales charge on reinvested
dividends None
Deferred sales charge None
Redemption fee None
Exchange fee $ 5
Annual Operating Expenses are paid out of each Fund's and each Portfolio's
assets. The Funds each indirectly pay an investment advisory fee equal to 0.80%
of the Fund's average net assets. Each Fund also incurs other expenses for
services such
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as administrative services, maintaining shareholder records and furnishing
shareholder statements and financial reports. A Fund's expenses are factored
into its share price or dividends and are not charged directly to shareholder
accounts.
The following are based on expenses incurred during the most recent fiscal
year, and are calculated as a percentage of average net assets.
Growth Fund
Management fee (paid by the Portfolio) 0.80%
Other expenses of the Portfolio, after
reimbursement by PIC 0.20%
----
Total Operating Expenses of the Portfolio 1.00%
Administrative fee paid by the Fund to
PIC 0.20%
12b-1 fee None
Other expenses of the Fund, after
reimbursement by PIC 0.05%
----
Total Fund Operating Expenses 1.25%
====
PIC reimburses the Growth Fund for any expenses in excess of 1.25% of average
net assets. Without this reimbursement, Total Fund Operating Expenses would have
been 1.35% of average net assets for the fiscal year ended October 31, 1997.
Small Company Growth Fund
Management fee (paid by the Portfolio) .80%
Other expenses of the Portfolio .20%
----
Total Operating Expenses of the Portfolio 1.00%
Administrative fee paid by the Fund
to PIC .20%
12b-1 fee None
Other expenses of the Fund, after
reimbursement by PIC .25%
----
Total Fund Operating Expenses 1.45%
====
PIC reimburses the Small Company Growth Fund for any expenses in excess of 1.45%
of average net assets. Without this reimbursement, Total Fund Operating Expenses
would have been 1.61% for the fiscal year ended October 31, 1997.
PIC retains the ability to be repaid by either Fund if expenses subsequently
fall below the specified limit within the next three years.
Examples: Let's say, hypothetically, that each Fund's annual return is 5% and
that its operating expenses are exactly as just described. For every $1,000 you
invest, here's how much you would pay in total expenses if you close your
account after the number of years indicated:
Growth Fund
After 1 year $ 13
After 3 years $ 40
After 5 years $ 69
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After 10 years $151
Small Company Growth Fund
After 1 year $ 15
After 3 years $ 46
After 5 years $ 79
After 10 years $174
These examples illustrate the effect of expenses, but they are not meant to
suggest actual or expected costs or returns, all of which may vary. For a more
complete description of the various costs and expenses, see "Breakdown of
Expenses." The tables above summarize the expenses of both the Portfolios and
the Funds. The Trustees expect that the combined per share expenses of the
Funds and the Portfolios will be equal to, or may be less than, the expenses
that would be incurred by a Fund if it retained an investment manager and
invested directly in the types of securities held by a Portfolio.
Structure of the Funds and the Portfolios
Unlike many other mutual funds which directly acquire and manage their own
portfolio securities, each Fund seeks to achieve its investment objective by
investing all of its assets in a PIC Portfolio. Each Portfolio is a separate
registered investment company with the same investment objective as the Fund.
Since a Fund will not invest in any securities other than shares of a
Portfolio, investors in the Fund will acquire only an indirect interest in the
Portfolio. Each Fund's and Portfolio's investment objective cannot be changed
without shareholder approval.
In addition to selling its shares to a Fund, a Portfolio may sell its shares to
other mutual funds or institutional investors. All investors in a Portfolio
invest on the same terms and conditions and pay a proportionate share of the
Portfolio's expenses. However, other investors in a Portfolio may sell their
shares to the public at prices different from those of a 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 a Portfolio. Information concerning other holders
of interests in a Portfolio is available by calling (800) 618-7643.
The Trustees of PIC Investment Trust (the "Trust") believe that this structure
may enable a Fund to benefit from certain economies of scale, based on the
premise that certain of the expenses of managing an investment portfolio are
relatively fixed and that a larger investment portfolio may therefore achieve a
lower ratio of operating expenses to net assets. Investing a Fund's assets in a
Portfolio may produce other benefits resulting from increased asset size, such
as the ability to participate in transactions in securities which may be offered
in larger denominations than could be purchased by the Fund alone. A Fund's
investment in a Portfolio may be withdrawn by the Trustees at any time if the
Board determines that it is in the best interests of a Fund to do so. If any
such withdrawal were made, the Trustees would consider what action might be
taken, including the investment of all of the assets of the Fund in another
pooled investment company or the retaining of an investment advisor to manage
the Fund's assets directly.
Whenever a Fund is requested to vote on matters pertaining to a Portfolio, the
Fund will hold a meeting of its shareholders, and the Fund's votes with respect
to the Portfolio will be cast in the same proportion as the shares of the Fund
for which voting instructions are received. For further information, see "The
Funds in Detail," "Information about the Funds' Investments" and "Securities
and Investment Practices."
Financial Highlights
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The tables that follow are included in each Fund's Annual Report and have been
audited by McGladrey & Pullen, LLP, Independent Certified Public Accountants.
Their reports on the financial statements and financial highlights are included
in the Annual Reports. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the Funds' SAI.
Provident Investment Counsel Growth Fund
<TABLE>
<CAPTION>
Selected Per-Share Data and Ratios
Years ended October 31 1997 1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.25 $ 14.25 $ 11.70 $ 11.60 $ 10.81 $ 10.00
Income from Investment Operations:
Net investment income (.15) (.06) (.02) .00 .00 .01
Net realized and unrealized gain on
investments 3.98 2.06 2.57 .10 .80 .80
Total from investment operations 3.83 2.00 2.55 .10 .80 .81
Less: capital gain distributions (1.94) .00 .00 .00 .00 .00
Return of capital dividend .00 .00 .00 .00 (.01) .00
Net asset value, end of period $18.14 $ 16.25 $ 14.25 $ 11.70 $ 11.60 $ 10.81
Total return 26.44% 14.04% 21.79% .86% 7.40% 20.88%+
- - ---------------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
Net assets, end of period (000) omitted $80.0 $ 116.1 $ 131.1 $ 102.3 $ 88.9 $ 5.7
Ratio of expenses to average net assets 1.35% 1.30% 1.30% 1.53% 1.54% 4.12%+
Ratio of expenses to average net assets
after expense reductions** 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%+
Ratio of net investment income (loss)
to average net assets (.38%) (.28%) (.17%) (.15%) (.11%) .25%+
Portfolio turnover rate++
67.54% 64.09% 54.89% 68.26% 43.20% 7.42%
Average commission rate paid by Portfolio $ 0.0416 $ 0.0440 -- -- -- --
</TABLE>
* June 11, 1992 (commencement of operations) to October 31, 1992.
+ Annualized.
** Includes the Fund's share of expenses allocated from PIC Growth Portfolio.
++ Portfolio turnover rate of PIC Growth Portfolio, in which all of the Fund's
assets are invested.
Provident Investment Counsel Small Company Growth Fund
<TABLE>
<CAPTION>
Selected Per-Share Data and Ratios
Year ended October 31 1997 1996
<S> <C> <C>
Net asset value, beginning of period $ 9.48 $ 10.00
Income from Investment Operations:
Net investment (loss) (.05) (.03)
Net realized and unrealized (loss) on investments .48 (.49)
Total from investment operations .43 (.52)
Net asset value, end of period $ 9.91 $ 9.48
Total return 4.54% (5.20%)
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Ratios and Supplemental Data
Net assets, end of period (000) omitted $ 31.0 $ 5.2
Ratio of expenses to average net assets 1.61% 4.03%+
Ratio of expenses to average net assets after expense reductions** 1.45% 1.43%+
Ratio of net investment income to average net assets (0.96%) (0.91%)+
Portfolio turnover rate++ 151.52% 53.11%
Average commission rate paid by Portfolio $ 0.0326 $ 0.0307
</TABLE>
* June 28, 1996 (commencement of operations) to October 31, 1996.
+ Annualized.
** Includes the Fund's share of expenses allocated from PIC Small Cap
Portfolio.
++ Portfolio turnover rate of PIC Small Cap Portfolio, in which all of the
Fund's assets are invested.
The Funds in Detail
Charter
Each Fund is a Mutual Fund: an investment that pools shareholders' money and
invests it toward a specified goal. In technical terms, each Fund is a
diversified series of the Trust, which is an open-end management
investment company, organized as a Delaware business trust on December 11,
1991.
The Funds and the Portfolios are each governed by a Board of Trustees,
responsible for protecting the interests of shareholders. The Trustees are
experienced executives who meet throughout the year to oversee the activities of
the Funds and the Portfolios, review contractual arrangements with companies
that provide services to the Funds and the Portfolios, and review performance.
The majority of Trustees are not otherwise affiliated with PIC. Information
about the Trustees and officers is contained in the SAI.
The Funds may hold special meetings and mail proxy materials. These meetings may
be called to elect or remove Trustees, change fundamental policies, approve an
investment advisory contract, or for other purposes. Shareholders not attending
these meetings are encouraged to vote by proxy. The Funds will mail proxy
materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based on
the number of shares you own.
PIC is the advisor to the PIC Portfolios, in which the respective Funds invest.
An investment committee of PIC formulates and implements an investment program
for each of the Portfolios, including determining which securities should be
bought and sold. PIC's research professionals meet personally with the majority
of the senior officers of the companies in the Portfolios 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 seek out companies with
significant management ownership of stock, strong management goals, plans and
controls; leading proprietary positions in given market niches; and finally
companies that may currently be under-researched by Wall Street analysts.
The value of a Portfolio's domestic and foreign investments varies in response
to many factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. Investments in
foreign securities may involve risks in addition to those of U.S. investments,
including increased political and economic risk, as well as exposure to
currency fluctuations.
Each Portfolio seeks to spread investment risk by diversifying its holdings
among many companies and industries. Of course, when you sell your shares of a
Fund, they may be worth more or less than what you paid for them. PIC
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normally invests each Portfolio's assets according to its investment strategy.
Each Portfolio also reserves the right to invest without limitation in short
term instruments for temporary, defensive purposes.
PIC may use broker-dealers that sell shares of the Funds to carry out
transactions for the Portfolios, provided that the Portfolios receive brokerage
services and commission rates comparable to those of other broker-dealers.
PIC traces its origins to an investment partnership formed in 1951. It is now an
indirect, wholly-owned subsidiary of United Asset Management Corporation (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.
Information About the Funds' Investments
Because the investment characteristics of each Fund will correspond directly to
those of the Portfolio in which it invests, the following is a discussion of the
various investments of, and techniques employed by, the Portfolios.
Provident Investment Counsel Growth Fund
The Provident Investment Counsel Growth Fund seeks long term growth of capital
by investing in the PIC Growth Portfolio, which in turn invests primarily in
equity securities. Under normal circumstances, the Growth Portfolio will invest
at least 80% of its assets in such equity securities. In selecting investments
for the Growth Portfolio, PIC will include equity securities of companies of
various sizes which are currently experiencing an above-average rate of earnings
growth. PIC uses "bottom-up" fundamental research to identify companies which
have a five-year average performance record of sales, earnings, pretax margins,
return on equity and reinvestment rate, all of which, in the aggregate, are 1.5
times the average performance of the Standard & Poor's Index of 500 Common
Stocks for the same period. The Growth Portfolio will invest in a range of
small, medium and large companies; the minimum market capitalization of a
portfolio security is expected to be $250 million, and the average market
capitalization is currently approximately $15 billion. Equity securities in
which the Growth Portfolio invests typically average less than a 1% dividend.
Currently, approximately 70% of the equity securities in which the Growth
Portfolio invests are listed on the New York or American Stock Exchanges, and
the remainder are traded on the NASDAQ system or are otherwise traded
over-the-counter. PIC supports its selection of individual securities through
intensive research and uses qualitative and quantitative disciplines to
determine when securities should be sold.
In unusual circumstances, economic, monetary, technical and other factors may
cause PIC to assume a temporary, defensive position during which all or a
substantial portion of the Growth Portfolio's assets may be invested in short-
term instruments. Under normal market conditions, it is expected that
investments in such short-term instruments may range from zero (fully invested)
to 20% of the Portfolio's assets.
The Growth Portfolio may also invest up to 20% of its assets in foreign
securities.
Provident Investment Counsel Small Company Growth Fund
The Provident Investment Counsel Small Company Growth Fund seeks long term
growth of capital by investing in the PIC Small Cap Portfolio, which in turn
invests primarily in equity securities of small companies.
PIC will invest at least 65%, and normally at least 95%, of the Portfolio's
total assets in these securities. The Small Cap Portfolio has flexibility,
however, to invest the balance in other market capitalizations and security
types. Small capitalization companies are those whose market capitalization or
annual revenues are $250 million or less at the time of the Portfolio's
investment. Companies whose capitalization or revenues increase beyond this
range after purchase continue to be considered small capitalization for the
purposes of the Portfolio's investment policy. Investing in small
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capitalization stocks may involve greater risk than investing in large or
medium capitalization stocks, since they can be subject to more abrupt or
erratic movements in value.
The Small Cap Portfolio may also invest up to 20% of its assets in foreign
securities.
Securities and
Investment Practices
The following pages contain more detailed information about the types of
instruments in which the Portfolios may invest, and strategies PIC may employ
in pursuit of the Portfolios' investment objectives. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well. A complete listing of each Fund's policies and limitations
and more detailed information about each Portfolio's investments is contained
in the SAI. Policies and limitations are considered at the time of purchase;
the sale of instruments is not required in the event of a subsequent change in
circumstances.
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 a Portfolio
achieve its goals. Current holdings and recent investment strategies are
described in the Funds' financial reports which are sent to shareholders twice
a year. For a free SAI or financial report, call (800) 618-7643.
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.
Restriction: With respect to 75% of total assets, a Portfolio may not own more
than 10% of the outstanding voting securities of a single issuer.
Short-Term Investments are debt securities that mature within a year of the date
they are purchased by a Portfolio. Some specific examples of short-term
investments are commercial paper, bankers' acceptances, certificates of deposit
and repurchase agreements.
Restriction: A Portfolio will only purchase short-term investments which are
"high quality." High quality means the investments have been rated A-1 by
Standard & Poor's Ratings 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. In a repurchase agreement, a Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Exposure to Foreign Markets. A Portfolio may invest in foreign securities.
Restriction: A Portfolio may invest no more than 20% of its total assets in
foreign securities, and it will only purchase foreign securities or American
Depositary Receipts which are listed on a national securities exchange or
included in the NASDAQ system.
Options and Futures. A Portfolio has the right to use options and futures to
hedge its investments in securities, but PIC does not expect to use these
instruments during this fiscal year. A Fund will advise shareholders before any
investment in options or futures commences. See the SAI for details.
Risk Factors. 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,
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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.
Options and futures, which are sometimes called derivative securities, also
entail certain risks, which are described in detail in the SAI.
Fundamental Investment Policies and Restrictions
Some of the policies and restrictions discussed on this and the preceding pages
are fundamental; that is, subject to change only by shareholder approval. The
following paragraph states all those that are fundamental. All policies stated
throughout the prospectus, other than those identified in the following
paragraph, can be changed without shareholder approval.
Each Fund seeks long term growth of capital. Each Portfolio, with respect to 75%
of total assets, may not invest more than 5% of its total assets in any one
issuer and may not own more than 10% of the outstanding voting securities of a
single issuer. Each Portfolio may not invest more than 25% of its total assets
in any one industry.
Breakdown of Expenses
Like all mutual funds, each Fund pays fees related to its daily operations.
Expenses paid out of a Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Portfolios pay an investment advisory fee to PIC each month for managing its
investments at the annual rate of 0.80% of the Portfolio's average net assets.
While the investment advisory fee is a significant component of a Portfolio's
(and thus a Fund's) annual operating costs, each Fund also pays other expenses.
The Funds pay a fee to PIC for certain administrative services PIC provides. The
Funds and the Portfolios each pay a monthly administration fee to Investment
Company Administration Corporation (the "Administrator") for managing some of
their business affairs. Each Portfolio pays an administration fee at the annual
rate of 0.10% of average net assets, subject to an annual minimum of $45,000,
and each Fund pays an annual administration fee of $15,000. The Funds and the
Portfolios also pay other expenses, such as legal, auditing, custodian and
transfer agency fees, as well as the compensation of Trustees who are not
affiliated with PIC.
PIC has agreed to reimburse each Fund for investment advisory fees and other
expenses if they exceed a certain percentage of the Fund's average net assets.
In the case of the Growth Fund, the limit is 1.25% and in the case of the Small
Company Growth Fund the limit is 1.45%. PIC retains the ability to be repaid by
a Fund if expenses subsequently fall below the specified limit within the next
three years. This reimbursement arrangement, which may be terminated at any time
without notice, will decrease a Fund's expenses and boost its performance.
Performance
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects a Fund's performance
over a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance; it is not the same as
actual year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of income
taxes paid by shareholders. A Fund may sometimes show its performance compared
to certain performance rankings, averages or stock indices (described more fully
in the SAI).
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Your Account
Ways to Set Up Your Account
Individual or Joint Tenant
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
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Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible. Retirement accounts require special applications.
* Individual Retirement Accounts (IRAs) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2000 per tax year. Individuals
can also invest in a spouse's IRA if the spouse has earned income of less
than $250.
* Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
* Keogh or Corporate Profit Sharing and Money Purchase Pension Plans allow
self-employed individuals or small business owners (and their employees) to
make tax-deductible contributions for themselves and any eligible employees
up to $30,000 per year.
* Simplified Employee Pension Plans (SEP-IRAs) provide small business owners or
those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
* 403(b) Custodial Accounts are available to employees of most tax-exempt
institutions, including schools, hospitals and other charitable
organizations.
* 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the trustee of the plan.
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Gifts or Transfers to Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying a
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
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Trust For money being invested by a trust
The trust must be established before an account can be opened.
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Business or Organization
For investment needs of corporations, associations, partnerships or other
groups
Does not require a special application.
How to Buy Shares
Once each business day, each fund calculates its share price: The share price
is the Fund's net asset value (NAV). Shares are purchased at the next share
price calculated after your investment is received and accepted. Share price is
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normally calculated at 4 p.m. Eastern time.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. Call (800) 618-7643 for more
information and a retirement application.
If you buy shares by check and then sell those shares within two weeks, the
payment may be delayed for up to seven business days to ensure that your
purchase check has cleared.
If you are investing by wire, please be sure to call (800) 618-7643 before
sending each wire.
Provident Financial Processing Corp. (PFPC) is each Fund's Transfer Agent; its
address is 400 Bellevue Parkway, Wilmington, Delaware 19809, and its mailing
address is P.O. Box 8943, Wilmington, DE 19899.
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix AZ
85018, an affiliate of the Administrator, is the Trust's principal underwriter.
Minimum Investments
To Open an Account $1 million
The Funds may, at their discretion, waive
the minimum investment for employees and
affiliates of PIC or any other person or
organization deemed appropriate.
To Add to an Account $250
For retirement plans $250
Through automatic investment plans $100
Minimum Balance $1,000
For retirement accounts $500
For Information: (800) 618-7643
To Invest
By Mail: Provident Investment Counsel Funds
c/o PFPC Inc.
P.O. Box 8943
Wilmington, DE 19899
By Overnight Delivery: Provident Investment Counsel Funds
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
By Telephone: Call (800) 618-7643 and then wire
federal funds to:
PNC Bank
Philadelphia, PA
ABA# 031-0000-53
DDA# 86-0172-6604
For Credit to Provident Investment
Counsel (Fund Name)
Shareholder Name
Shareholder Account Name
How to Sell Shares
12
<PAGE>
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
share price calculated after your order is received and accepted. Share price is
normally calculated at 4 p.m. Eastern time.
To sell shares in a non-retirement account, you may use any of the methods
described on these two pages.
If you are selling some but not all of your shares, leave at least $1,000 worth
of shares in the account to keep it open ($500 for retirement accounts).
Certain requests must include a signature guarantee. It is designed to protect
you and the Funds from fraud. Your request must be made in writing and include a
signature guarantee if any of the following situations apply:
* You wish to redeem more than $100,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address from the one on your account
(record address), or
* The check is being made payable to someone other than the account owner. You
should be able to obtain a signature guarantee from a bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. A notary public cannot
provide a signature guarantee.
Selling Shares in Writing
Write a "letter of instruction" with:
* Your name,
* Your Fund account number,
* The dollar amount or number of shares to be redeemed, and
* Any other applicable requirements listed in the table at right.
* Unless otherwise instructed, PIC will send a check to the record address.
Mail your letter to:
Provident Investment Counsel Funds
c/o PFPC Inc.
P.O. Box 8943
Wilmington, DE 19899
Account Type Special Requirements
Phone All account types * Your telephone call must be
(800) 618-7643 except retirement received by 4 p.m. Eastern time to
be redeemed on that day.
- - -----------------------------------------------------------------------------
Mail or in Individual, Joint * The letter of instructions must
Person Tenant, Sole Propri- be signed by all persons required
etorship, UGMA, UTMA to sign for transactions, exactly as
their names appear on the account.
Retirement Account * The account owner should complete
a retirement distribution form. Call
(800) 618-7643 to request one.
Trust * The trustee must sign the letter
indicating capacity as trustee. If
the trustee's name is not in the
account registration, provide a copy
of the trust document certified
within the last 60 days.
13
<PAGE>
Business or * At least one person authorized by
Organization corporate resolutions to act on the
account must sign the letter.
* Include a corporate resolution
with corporate seal or a signature
guarantee.
Executor, * Call (800) 618-7643 for
Administrator, instructions.
Conservator, Guardian
- - -----------------------------------------------------------------------------
Wire All account types * You must sign up for the wire
except retirement feature before using it. To verify
that it is in place, call (800)
618-7643. Minimum wire: $5,000.
* Your wire redemption request must
be received by the Fund before
4 p.m. Eastern time for money to
be wired the next business day.
Investor Services
PIC provides a variety of services to help you manage your account.
Information Services
PIC'S telephone representatives can be reached at (800) 618-7643.
Statements and reports that PIC sends to you include the following:
* Confirmation statements (after every transaction that affects your account
balance or your account registration)
* Financial reports (every six months)
Transaction Services
Exchange Privilege. You may sell your Fund shares and buy shares of the other
Provident Investment Counsel Fund by telephone or in writing. Note that
exchanges into each Fund are limited to four per calendar year, and that they
may have tax consequences for you. PFPC charges a $5 fee for each exchange,
which is automatically deducted when the exchange is made. Also see "Exchange
Restrictions" on page __.
Systematic withdrawal plans let you set up periodic redemptions from your
account. These redemptions take place on the 25th day of each month or, if that
day is a weekend or holiday, on the prior business day.
Regular Investment Plans
One easy way to pursue your financial goals is to invest money regularly. PIC
offers convenient services that let you transfer money into your Fund account
automatically. Automatic investments are made on the 20th day of each month or,
if that day is a weekend or holiday, on the prior business day. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long term financial goals.
Certain restrictions apply for retirement accounts. Call (800) 618-7643 for
more information.
Shareholder Account Policies
Dividends, Capital Gains, and Taxes
The Funds distribute substantially all of their net income and capital gains,
if any, to shareholders each year in December.
Distribution Options
When you open an account, specify on your application how you want to receive
your distributions. If the option you prefer is not listed on the application,
14
<PAGE>
call (800) 618-7643 for instructions. The Funds offer three options:
1. Reinvestment Option. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of your Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gain
distributions.
For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
When a Fund deducts a distribution from its NAV, the reinvestment price is the
Fund's NAV at the close of business that day. Cash distribution checks will be
mailed within seven days.
[GRAPHIC OMITTED] Understanding
Distributions
As a Fund shareholder, you are entitled to your share of the Fund's net
income and gains on its investments. A Fund passes its earnings along to
its investors as distributions.
A Fund earns dividends from stocks and interest from short term investments
held by a Portfolio. These are passed along as dividend distributions. A
Fund realizes capital gains whenever a Portfolio sells securities for a
higher price than it paid for them. These are passed along as capital gain
distributions.
Taxes
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of these tax implications.
Taxes on Distributions. Distributions are subject to federal income tax, and
may also be subject to state or local taxes. If you live outside the United
States, your distributions could also be taxed by the country in which you
reside. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them. However, distributions declared in December and
paid in January are taxable as if they were paid on December 31.
For federal tax purposes, each Fund's income and short term capital gain
distributions are taxed as dividends; long term capital gain distributions are
taxed as long term capital gains. Every January, PIC will send you and the IRS a
statement showing the taxable distributions.
Taxes on Transactions. Your redemptions--including exchanges to the other
Provident Investment Counsel Fund--are subject to capital gains tax. A capital
gain or loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a Fund, PIC will send you a confirmation statement
showing how many shares you sold and at what price. You will also receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether the sales resulted in a capital gain
and, if so, the amount of the tax to be paid. Be sure to keep your regular
account statements; the information they contain will be essential in
calculating the amount of your capital gains.
"Buying a dividend." If you buy shares just before a Fund deducts a
distribution from its NAV, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution.
There are tax requirements that all funds must follow in order to avoid federal
taxation. In its effort to adhere to these requirements, a Fund may have to
15
<PAGE>
Transaction Details
Each Fund is open for business each day the New York Stock Exchange (NYSE) is
open. PIC calculates each Fund's NAV as of the close of business of the NYSE,
normally 4 p.m. Eastern time.
Each Fund's NAV is the value of a single share. The NAV is computed by adding
the value of a Fund's share of investments held by the Portfolio in which it
invests, cash, and other assets, subtracting its liabilities and then dividing
the result by the number of shares outstanding. The NAV is also the redemption
price (price to sell one share).
Each Fund's assets are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Board of Trustees believes accurately reflects fair value.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31% withholding for failing to report income to the IRS. If you
violate IRS regulations, the IRS can require a Fund to withhold 31% of your
taxable distributions and redemptions.
You may initiate many transactions by telephone. PIC may only be liable for
losses resulting from unauthorized transactions if it does not follow reasonable
procedures designed to verify the identity of the caller. PIC will request
personalized security codes or other information, and may also record calls. You
should verify the accuracy of your confirmation statements immediately after you
receive them. If you do not want the liability to redeem or exchange by
telephone, call PIC for instructions.
Each Fund reserves the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions" on page
__. Purchase orders may be refused if, in PIC's opinion, they would disrupt
management of the Fund.
When you place an order to buy shares, your order will be processed at the next
NAV calculated after your order is received and accepted. Note the following:
* All of your purchases must be made in U.S. dollars, and checks must be drawn
on U.S. banks.
* PIC does not accept cash or third party checks.
* When making a purchase with more than one check, each check must have a value
of at least $50.
* Each Fund reserves the right to limit the number of checks processed at one
time.
* If your check does not clear, your purchase will be canceled and you could be
liable for any losses or fees a Fund or its transfer agent has incurred.
To avoid the collection period associated with check purchases, consider buying
shares by bank wire, U.S. Postal money order, U.S. Treasury check, Federal
Reserve check, or direct deposit instead.
You may buy shares of a Fund or sell them through a broker, who may charge you
a fee for this service. If you invest through a broker or other institution,
read its program materials for any additional service features or fees that may
apply.
Certain financial institutions that have entered into sales agreements with PIC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Funds are priced on the
following business day. If payment is not received by that time, the financial
institution could be held liable for resulting fees or losses.
16
<PAGE>
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received and accepted. Note the following:
* Normally, redemption proceeds will be mailed to you on the next business
day, but if making immediate payment could adversely affect a Fund, it may
take up to seven days to pay you.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* PIC reserves the right to deduct an annual maintenance fee of $12.00 from
accounts with a value of less than $1,000. It is expected that accounts
will be valued on the second Friday in November of each year. Accounts
opened after September 30 will not be subject to the fee for that year. The
fee, which is payable to the transfer agent, is designed to offset in part
the relatively higher cost of servicing smaller accounts.
* PIC also reserves the right to redeem the shares and close your account if
it has been reduced to a value of less than $1,000 as a result of a
redemption or transfer. PIC will give you 30 days' prior notice of its
intention to close your account.
Exchange Restrictions
As a shareholder, you have the privilege of exchanging shares of a Fund for
shares of the other Provident Investment Counsel Fund. However, you should note
the following:
* The Fund you are exchanging into must be registered for sale in your state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt Fund performance and shareholders, each
Fund reserves the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of a Fund per calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for the purposes of the four exchange limit.
* The exchange limit may be modified for accounts in certain institutional
retirement plans to conform to plan exchange limits and Department of Labor
regulations. See your plan materials for further information.
* Each Fund reserves the right to refuse exchange purchases by any person or
group if, in PIC's judgment, a Portfolio would be unable to invest the
money effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of a
Portfolio's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a Portfolio.
Although each Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
Funds reserve the right to terminate or modify the exchange privilege in the
future.
General Information
Each Fund is one of a series of shares, each having separate assets and
17
<PAGE>
liabilities, of the Trust. The Board of Trustees may at its own discretion,
create additional series of shares. The Declaration of Trust contains an
express disclaimer of shareholder liability for its acts or obligations and
provides for indemnification and reimbursement of expenses out of the Trust's
property for any shareholder held personally liable for its obligations.
The Declaration of Trust further provides the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against any liability to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held. Rule 18f-2 under the
Investment Company Act of 1940 provides that matters submitted to shareholders
be approved by a majority of the outstanding securities of each series, unless
it is clear that the interests of each series in the matter are identical or the
matter does not affect a series.
However, the rule exempts the selection of accountants and the election of
Trustees from the separate voting requirements. Income, direct liabilities and
direct operating expenses of each series will be allocated directly to each
series, and general liabilities and expenses of the Trust will be allocated
among the series in proportion to the total net assets of each series by the
Board of Trustees.
The Declaration of Trust provides that the shareholders have the right, upon the
declaration in writing or vote of more than two-thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of ten per cent of its shares. In addition, ten shareholders holding the lesser
of $25,000 worth or one per cent of the shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense the applicants' communication
to all other shareholders. Except for a change in the name of the Trust, no
amendment may be made to the Declaration of Trust without the affirmative vote
of the holders of more than 50% of its outstanding shares. The holders of shares
have no pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth above. The Trust may be terminated upon the
sale of its assets to another issuer, if such sale is approved by the vote of
the holders of more than 50% of its outstanding shares, or upon liquidation and
distribution of its assets, if approved by the vote of the holders of more than
50% of its outstanding shares. If not so terminated, the Trust will continue
indefinitely. As of January 31, 1998, the Growth Fund was controlled by the
Vanguard Fiduciary Trust Trustee FBO Memorial Health Services Plan 91582.
Year 2000 Risk. Like other business organizations around the world, the Funds
could be adversely affected if the computer systems used by their investment
advisor and other service providers do not properly process and calculate
information related to dates beginning January 1, 2000. This is commonly known
as the "Year 2000 Issue." The Funds' investment advisor is taking steps that it
believes are reasonably designed to address the Year 2000 Issue with respect to
its own computer systems, and it has obtained assurances from the Funds' other
service providers that they are taking comparable steps. However, there can be
no assurance that these actions will be sufficient to avoid any adverse impact
on the Funds.
18
<PAGE>
PIC INVESTMENT TRUST
Provident Investment Counsel Growth Fund
Provident Investment Counsel Small Company Growth Fund
Statement of Additional Information
Dated March 2, 1998,
As Supplemented September 30, 1998
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus of the Provident Investment
Counsel Growth Fund and Provident Investment Counsel Small Company Growth Fund,
series of PIC Investment Trust (the "Trust"), which share a common prospectus.
There are six other series of the Trust: the Provident Investment Counsel
Pinnacle Balanced Fund, Provident Investment Counsel Pinnacle Growth Fund,
Provident Investment Counsel Pinnacle Mid Cap Fund, Provident Investment Counsel
Pinnacle Small Company Growth Fund, Provident Investment Counsel Small Cap
Growth Fund and Provident Investment Counsel Tax Managed Growth Fund, which have
separate SAIs. The Provident Investment Counsel Growth Fund (the "Growth Fund")
invests in the PIC Growth Portfolio and the Provident Investment Counsel Small
Company Growth Fund (the "Small Company Growth Fund") invests in the PIC Small
Cap Portfolio. (In this SAI, the Growth Fund and the Small Company Growth Fund
may be referred to as the "Funds", and the PIC Growth Portfolio and PIC Small
Cap Portfolio may be referred to as the "Portfolios.") Provident Investment
Counsel (the "Advisor") is the Advisor to the Portfolios. A copy of the
applicable prospectus may be obtained from the Trust at 300 North Lake Avenue,
Pasadena, CA 91101-4106, telephone (818) 449-8500.
TABLE OF CONTENTS
Cross-reference to page
in the prospectus of the
Provident Investment
Counsel Funds
Investment Objective and Policies B-2
The Growth Fund ............... B-2
The Small Company Fund......... B-2
Investment Restrictions........ B-2
Repurchase Agreements.......... B-4
Options Activities............. B-4
Futures Contracts.............. B-5
Foreign Securities............. B-6
Forward Foreign Currency
Exchange Contracts......... B-6
Segregated Accounts............ B-7
Debt Securities and
Ratings.................... B-7
Management........................... B-9
Custodian and Auditors............... B-13
Portfolio Transactions and
Brokerage...................... B-13
Additional Purchase and Redemption
Information.................... B-14
Net Asset Value...................... B-14
Taxation............................. B-14
Dividends and Distributions.......... B-15
Performance Information.............. B-15
General Information.................. B-17
Financial Statements................. B-17
Appendix............................. B-17
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Growth Fund
The investment objective of the Growth Fund is to provide long-term growth
of capital. There is no assurance that the Growth Fund will achieve its
objective. The Growth Fund will attempt to achieve its objective by investing
all of its assets in shares of the PIC Growth Portfolio. The Growth Portfolio is
a diversified open-end management investment company having the same investment
objective as the Growth Fund. The discussion below supplements information
contained in the prospectus as to investment policies of the Growth Fund and the
Growth Portfolio. Because the investment characteristics of the Growth Fund will
correspond directly to those of the Growth Portfolio, the discussion refers to
those investments and techniques employed by the Growth Portfolio.
The Small Company Growth Fund
The investment objective of the Small Company Growth Fund is to provide
capital appreciation. There is no assurance that the Fund will achieve its
objective. The Small Company Growth Fund will attempt to achieve its objective
by investing all of its assets in shares of the PIC Small Cap Portfolio. The
Small Cap Portfolio is a diversified open-end management investment company
having the same investment objective as the Small Company Growth Fund. The
discussion below supplements information contained in the prospectus as to
investment policies of the Small Company Growth Fund and the Small Cap
Portfolio. Because the investment characteristics of the Small Company Growth
Fund will correspond directly to those of the Small Cap Portfolio, the
discussion refers to those investments and techniques employed by the Small Cap
Portfolio.
Investment Restrictions
The Trust (on behalf of the Funds) and the Portfolios have 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 a
Fund or a 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 shares of a Fund or a Portfolio represented at a
meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of a Fund or a
Portfolio.
As a matter of fundamental policy, the Portfolios are diversified; i.e., as
to 75% of the value of a Portfolio's total assets, no more than 5% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities). The Funds invest all of their assets in shares
of the Portfolios. Each Fund's and each Portfolio's investment objective is
fundamental.
In addition, no Fund or Portfolio may:
1. Issue senior securities, borrow money or pledge its assets, except that
a Fund or a Portfolio may borrow on an unsecured basis from banks for temporary
or emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed), provided
that it will not make investments while borrowings in excess of 5% of
B-2
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the value of its total assets are outstanding;
2. Make short sales of securities or maintain a short position, except for
short sales against the box;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options, except that the Small Cap Portfolio may write
covered call and cash secured put options and purchase call and put options on
stocks and stock indices;
5. Act as underwriter (except to the extent a Fund or Portfolio may be
deemed to be an underwriter in connection with the sale of securities in its
investment portfolio);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that any of the Funds may invest more than 25% of
their assets in shares of a Portfolio;
7. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although any Portfolio may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
8. Purchase or sell commodities or commodity futures contracts, except that
any Portfolio may purchase and sell stock index futures contracts;
9. Invest 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 Funds and the Portfolios and except for repurchase
agreements); or
11. Make investments for the purpose of exercising control or management.
The Portfolios observe the following restrictions as a matter of operating
but not fundamental policy, pursuant to positions taken by federal and state
regulatory authorities:
No Portfolio may:
1. Purchase any security if as a result the Portfolio would then hold more
than 10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class);
2. 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
3. Invest more than 15% of its 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
B-3
<PAGE>
determined by the Board of Trustees to be liquid).
Repurchase Agreements
Repurchase agreements are transactions in which a Fund or 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 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 Funds and the Portfolios intend to enter
into repurchase agreements only with banks and dealers believed by the Advisor
to present minimum credit risks in accordance with guidelines established by the
Boards of Trustees. The Advisor will review and monitor the creditworthiness of
such institutions under the Boards' 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 Funds and the Portfolios intend to comply with provisions under such
Code that would allow them immediately to resell the collateral.
Options Activities
The Small Cap 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 Small Cap
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 Small Cap 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 Small Cap Portfolio also may write and purchase put options ("puts").
When the Portfolio writes a put, it receives a premium and 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
B-4
<PAGE>
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
The Portfolios 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.
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. 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 may be used as a hedge by any of the
Portfolios 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
poorer overall performance for the Portfolio than if it had not entered into any
futures on 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
B-5
<PAGE>
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.
Foreign Securities
The Portfolios may invest in securities of foreign issuers in foreign
markets. In addition, the Portfolios 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.
Forward Foreign Currency Exchange Contracts
The Portfolios 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 it
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 in
the underlying transaction. The Portfolio will thereby be able 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)
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
Portfolios 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
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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 a
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, a
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.
Segregated Accounts
When a Portfolio writes an option, 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 call that has been written, the
securities 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 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. 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.
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
a 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
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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 conditions may be
better or worse than the rating indicates.
MANAGEMENT
The overall management of the business and affairs of the Trust is vested
with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
Likewise, the Portfolios each have a Board of Trustees which have comparable
responsibilities, including approving agreements with the Advisor. The day to
day operations of the Trust and the Portfolios are delegated to their officers,
subject to their investment objectives and policies and to general supervision
by their Boards of Trustees.
The Trustees and officers of the Trust, their business addresses and
principal occupations during the past five years are:
Jettie M. Edwards (age 52), Trustee Consulting principal of
76 Seaview Drive Syrus Associates (consulting firm)
Santa Barbara, CA 93108
Bernard J. Johnson (age 74), Retired; formerly Chairman Emeritus
Trustee Emeritus of the Advisor
300 North Lake Avenue
Pasadena, CA 91101
Jeffrey D. Lovell (age 46) Trustee Managing Director, President and co-
11150 Santa Monica Blvd., Ste 1650 founder of Putnam, Lovell & Thornton,
Los Angeles, CA 90025 Inc. (investment bankers)
Jeffrey J. Miller (age 48), President Managing Director and Secretary of
and Trustee* the Advisor; President and Trustee
300 North Lake Avenue of each of the Portfolios
Pasadena, CA 91101
Wayne H. Smith (age 57), Trustee Vice President and Treasurer of
150 N. Orange Grove Blvd. Avery Dennison Corporation (pressure
Pasadena, CA 91103 sensitive material and office
Products manufacturer)
Thad M. Brown (age 48) Vice Senior Vice President and Chief
President, Secretary and Financial Officer of the Advisor
Treasurer
300 North Lake Avenue
Pasadena, CA 9101
The Trustees and officers of each of the Portfolios, their business address
and their occupations during the past five years are:
Richard N. Frank (age 75), Trustee Chief Executive Officer, Lawry's
234 E. Colorado Blvd. Restaurants, Inc.; formerly Chairman
Pasadena, CA 91101 of Lawry's Foods, Inc.
Bernard J. Johnson (age 74), Retired; formerly Chairman Emeritus
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Trustee Emeritus of the Advisor
300 North Lake Avenue
Pasadena, CA 91101
James Clayburn LaForce (age 69), Dean Emeritus, John E. Anderson
Trustee Graduate School of Management,
P.O. Box 1585 University of California, Los
Pauma Valley, CA 92061 Angeles; Director of The BlackRock
Funds; Trustee of Payden & Rygel
Investment Trust; Director of the
Timken Co., Rockwell International,
Eli Lilly, Jacobs Engineering Group
and Imperial Industries
Jeffrey J. Miller (age 48), President Managing Director and Secretary of
and Trustee* the Advisor
300 North Lake Avenue
Pasadena, CA 91101
Angelo R. Mozilo (age 59), Trustee Vice Chairman and Executive Vice
155 N. Lake Avenue President of Countrywide Credit
Pasadena, CA 91101 Industries (mortgage banking)
Thad M. Brown (age 48), Vice Senior Vice President and Chief
President, Secretary and Financial Officer of the Advisor
Treasurer
300 North Lake Avenue
Pasadena, CA 91101
- - ---------------------------------
* denotes Trustees who are "interested persons" of the Trust or Portfolios under
the 1940 Act.
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."
Deferred
Compensation
Name of Trustee Total Compensation Accrued
--------------- ------------------ -------
Jettie M. Edwards $12,000(1) -0-
Bernard J. Johnson 11,500(1) -0-
Jeffrey D. Lovell 11,500(1) 22,093
Wayne H. Smith 12,000(1) 23,713
Richard N. Frank 12,000(2) 23,604
James Clayburn LaForce 12,000(2) -0-
Angelo R. Mozilo 12,000(2) 24,153
(1) Compensation was paid by the Registrant
(2) Compensation was paid by three other registered investment
companies in the "Fund Complex."
The following persons, to the knowledge of the Trust, owned more than
5%
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of the outstanding shares of the Growth Fund as of January 31, 1998:
Vanguard Fiduciary Trust Co. Trustee - 31.40%
FBO Memorial Health Services Plan 91582
DTD 12/31/97
Attn: Specialized Services
P.O. Box 2600 VM 421
Milbank Tweed Hadley & McCloy - 6.56%
Partners Retirement Plan
3 Chase Metrotech Center 5th Floor
Brooklyn, NY 11245
Harris Trust and Savings Bank Trustee - 5.11%
FBO Lower Bucks Hospital
Attn: Mark Rovel-6W
111 W. Monroe Street
Chicago, IL 60603
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Small Company Growth Fund as of January 31, 1998:
Wilmington Trust Trustee - 14.55%
for A/C 425417-5
FBO Integrated Device Technology 401K
DTD 9/1/97
c/o Mutual Funds
1100 N. Market Street
Wilmington, DE 19890
Pell Rudman Trust Co. NA - 14.39%
Nominee Account
Attn: Mutual Funds
100 Federal Street 37th Floor
Boston, MA 02110
UMBSC & Co. - 13.42%
FBO Interstate Brands Corp.
Aggressive Growth Acct.
A/C 340419159
P. O. Box 419260
Kansas City, MO 64141-6260
Charles Schwab & Co., Inc. - 13.15%
Special Custody Account for Ben of Cust
Cash Account
101 Montgomery Street
San Francisco, CA 94104-4122
Libco A Partnership - 9.74%
P.O. Box 25848
Oklahoma City, OK 73125
UMBSC & Co. - 8.74%
FBO Interstate Brands Corp.
Moderate Growth Acct.
A/C 340419142
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P. O. Box 419260
Kansas City, MO 64141-6260
As of January 31, 1998 shares of either of the Funds owned by the Trustees
and officers as a group were less than 1%.
The Advisor
The Trust does not have an investment advisor, although the Advisor
performs certain administrative services for it, including providing certain
officers and office space.
The following information is provided about the Advisor and the Portfolios.
Subject to the supervision of the Boards of Trustees of the Portfolios,
investment management and services will be provided to the Portfolios by the
Advisor, pursuant to separate Investment Advisory Agreements (the "Advisory
Agreements"). Under the Advisory Agreements, the Advisor will provide a
continuous investment program for the Portfolios and make decisions and place
orders to buy, sell or hold particular securities. In addition to the fees
payable to the Advisor and the Administrator, the Portfolios and the Trust are
responsible for their operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of Trustees other than those affiliated with the Advisor or the
Administrator; (v) legal and audit expenses; (vi) fees and expenses of the
custodian, shareholder service and transfer agents; (vii) fees and expenses for
registration or qualification of the Trust and its shares under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders; (ix) other expenses incidental to
holding any shareholder meetings; (x) dues or assessments of or contributions to
the Investment Company Institute or any successor; (xi) such non-recurring
expenses as may arise, including litigation affecting the Trust or the
Portfolios and the legal obligations with respect to which the Trust or the
Portfolios may have to indemnify their officers and Trustees; and (xii)
amortization of organization costs.
The Advisor is an indirect, wholly-owned subsidiary of United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services. On February 15, 1995, UAM acquired the assets of
the Advisor's predecessor, which had the same name as the Advisor; on that date
the Advisor entered into new Advisory Agreements having the same terms as the
previous Advisory Agreements with the Portfolios. The term "Advisor" also refers
to the Advisor's predecessor.
For its services, the Advisor receives a fee from the Portfolios at an
annual rate of 0.80% of their average net assets. During the three fiscal years
ended October 31, 1997, 1996, and 1995, the Advisor earned fees pursuant to the
Advisory Agreements as follows: from the Growth Portfolio, $838,058, $949,431
and $1,536,297, respectively; and from the Small Cap Portfolio, $1,525,768,
$1,395,748 and $771,499, respectively. However, the Advisor has agreed to limit
the aggregate expenses of the Portfolios to 1.00% of average net assets. As a
result, the Advisor waived all or a portion of its fee and/or reimbursed
expenses of the Growth Portfolio that exceeded these expense limits in the
amounts of $48,003, $64,401 and $21,828 during the fiscal years ended October
31, 1997, 1996 and 1995, respectively. The Advisor waived all or a portion of
its fee and/or reimbursed expenses of the Small Cap Portfolio that exceeded
these expense limits in the amounts of $24,879, $26,098 and
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respectively.
Under the Advisory Agreements, the Advisor will not be liable to the
Portfolios for any error of judgment by the Advisor or any loss sustained by the
Portfolios except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages will be
limited as provided in the 1940 Act) or of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisory Agreements will remain in effect for two years from their
execution. Thereafter, if not terminated, each Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
The Advisory Agreements are terminable by vote of the Board of Trustees or
by the holders of a majority of the outstanding voting securities of the
Portfolios at any time without penalty, on 60 days written notice to the
Advisor. The Advisory Agreements also may be terminated by the Advisor on 60
days written notice to the Portfolios. The Advisory Agreements terminate
automatically upon their assignment (as defined in the 1940 Act).
The Advisor also provides certain administrative services to the Trust
pursuant to Administration Agreements, including assisting shareholders of the
Trust, furnishing office space and permitting certain employees to serve as
officers and Trustees of the Trust. For its services, it earns a fee at the rate
of 0.20% of the average net assets of each series of the Trust. During the three
fiscal years ended October 31, 1997, 1996 and 1995, the Advisor earned fees
pursuant to the Administration Agreements from the Growth Fund (formerly the
Institutional Growth Fund) of $207,782, $236,786 and $219,070, respectively.
During the fiscal years ended October 31, 1997 and 1996, the Advisor earned fees
of $45,245 and $3,105, respectively, from the Small Company Growth Fund
(formerly the PIC Institutional Small Cap Growth Fund). (The Fund was not in
existence in prior years.) However, the Advisor has agreed to limit the
aggregate expenses of the Growth Fund to 1.25% of average net assets and the
expenses of the Small Company Growth Fund to 1.45%. As a result, the Advisor
waived all or a portion of its fee and/or reimbursed expenses of the Growth Fund
that exceeded these expense limits in the amounts of $110,144, $55,034 and
$56,326 during the fiscal years ended October 31, 1997, 1996 and 1995,
respectively. In addition, the Advisor waived all or a portion of its fee and/or
reimbursed expenses of the Small Company Growth Fund that exceeded these expense
limits in the amounts of $35,623 and $38,198 for the fiscal years ended October
31, 1997 and 1996, respectively.
The Advisor reserves the right to be reimbursed for any waiver of its fee
or expenses paid on behalf of the Funds if, within three subsequent years, a
Fund's expenses are less than the limit agreed to by the Advisor.
The Administrator
During each of the three years ended October 31, 1997, 1996 and 1995, the
Growth Fund paid the Administrator fees in the amount of $15,000. During the
fiscal year ended October 31, 1997 and 1996, the Small Company Growth Fund paid
the Administrator fees in the amount of $15,000 and $4,999, respectively.
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<PAGE>
During the fiscal years ended October 31, 1997, 1996 and 1995, the Growth
Portfolio paid the Administrator fees in the amounts of $103,757, $118,678 and
$192,037, respectively. During the fiscal years ended October 31, 1997, 1996 and
1995, the Small Cap Portfolio paid the Administrator fees in the amounts of
$190,721, $174,469 and $96,687, respectively.
CUSTODIAN AND AUDITORS
The Trust's custodian, Provident National Bank, 200 Stevens Drive, Lester,
PA 19113, is responsible for holding the Funds' assets, and Provident Financial
Processing Corporation, 400 Bellevue Parkway, Wilmington, DE 19809, acts as the
Trust's transfer agent. The Trust's independent accountants, McGladrey & Pullen,
LLP, 555 Fifth Avenue, New York, NY 10017, assist in the preparation of certain
reports to the Securities and Exchange Commission and the Funds' tax returns.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreements state that in connection with its duties to arrange
for the purchase and the sale of securities held by the Portfolios by placing
purchase and sale orders for the Portfolios, 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 Agreements to consider the reliability, integrity and financial
condition of the broker. The Advisor also is authorized by the Advisory
Agreements to consider whether the broker provides research or statistical
information to the Portfolios and/or other accounts of the Advisor.
The Advisory Agreements state 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 Agreements provide 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 Agreements;
(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.
During the fiscal years ended October 31, 1997, 1996 and 1995, the amount
of brokerage commissions paid by the PIC Growth Portfolio were $110,376,
$148,938 and $243,060, respectively. During the fiscal years ended October 31,
1997. 1996 and 1995, the amount of brokerage commissions paid by the PIC Small
Cap Portfolio were $218,087, $115,709 and $59,282, respectively.
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 Portfolios in the valuation of the Portfolios'
investments. The research which the Advisor receives for the Portfolios'
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<PAGE>
brokerage commissions, whether or not useful to the Portfolios, 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
Portfolios.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Reference is made to "Ways to Set Up Your Account - How to Buy Shares -How
To Sell Shares" in the prospectus for additional information about purchase and
redemption of shares. You may purchase and redeem shares of each Fund on each
day on which the New York Stock Exchange ("Exchange") is open for trading. 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.
If the Boards of Trustees should determine that it would be detrimental to
the best interests of the remaining shareholders of a Fund to make payment
wholly or partly in cash, the Fund may pay redemption proceeds in whole or in
part by a distribution in kind of securities from the portfolio of the
Portfolios, in compliance with the Trust's election to be governed by Rule 18f-1
under the 1940 Act. Pursuant to Rule 18f-1, the Portfolio is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Portfolio during any 90-day period for any one shareholder. If shares are
redeemed in kind, the redeeming shareholder will likely incur brokerage costs in
converting the assets into cash.
NET ASSET VALUE
The net asset value of the Portfolios' shares will fluctuate and is
determined as of the close of trading on the Exchange (generally 4:00 p.m.
Eastern time) each business day. Each Portfolio's net asset value is calculated
separately.
The net asset value per share is computed by dividing the value of the
securities held by each 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.
TAXATION
The Funds will each be taxed as separate entities under the Internal
Revenue Code of 1986 (the "Code") and each intends to elect to qualify for
treatment as a regulated investment company ("RIC") under Subchapter M of the
Code. In each taxable year that the Funds qualify, the Funds (but not their
shareholders) will be relieved of federal income tax on that part of their
investment company taxable income (consisting generally of interest and
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<PAGE>
dividend income, net short term capital gain and net realized gains from
currency transactions) and net capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, the Funds must distribute
annually to shareholders at least 90% of their investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of each Fund's gross income each taxable year must
be derived from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or currencies; (2) at the close of each quarter of each Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, limited in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund and that does not represent more than 10%
of the outstanding voting securities of such issuer; and (3) at the close of
each quarter of each Fund's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Fund's investment company taxable income (whether paid in
cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of a Fund's net capital gain (whether paid in cash or invested in additional
shares) will be taxable to shareholders as long-term capital gain, regardless of
how long they have held their Fund shares.
Dividends declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Fund and received by the shareholders on the
record date if the dividends are paid by a Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Each Fund also is required to withhold 31% of
all dividends and capital gain distributions paid to such shareholders who
otherwise are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in a Fund's advertising and
promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
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where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.
Yield
Annualized yield quotations used in a Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2 [(a-b + 1){6} - 1]
---
cd
where a equals dividends and interest earned during the period; b equals
expenses accrued for the period, net of reimbursements; c equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and d equals the maximum offering price per share on the last
day of the period.
Except as noted below, in determining net investment income earned during
the period ("a" in the above formula), a Fund calculates interest earned on each
debt obligation held by it during the period by (1) computing the obligation's
yield to maturity, based on the market value of the obligation (including actual
accrued interest) on the last business day of the period or, if the obligation
was purchased during the period, the purchase price plus accrued interest; (2)
dividing the yield to maturity by 360 and multiplying the resulting quotient by
the market value of the obligation (including actual accrued interest). Once
interest earned is calculated in this fashion for each debt obligation held by a
Fund, net investment income is then determined by totaling all such interest
earned.
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
Other information
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials a Fund may
compare its performance with data published by Lipper Analytical Services, Inc.
B-16
<PAGE>
("Lipper") or CDA Investment Technologies, Inc. ("CDA"). A Fund also may refer
in such materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper or CDA.
Advertising and promotional materials also may refer to discussions of a Fund
and comparative mutual fund data and ratings reported in independent periodicals
including, but not limited to, The Wall Street Journal, Money Magazine, Forbes,
Business Week, Financial World and Barron's.
GENERAL INFORMATION
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interest in a Fund. Each share represents an
interest in a Fund proportionately equal to the interest of each other share.
Upon the Trust's liquidation, all shareholders would share pro rata in the net
assets of the Fund in question available for distribution to shareholders. If
they deem it advisable and in the best interest of shareholders, the Board of
Trustees may create additional series of shares which differ from each other
only as to dividends. The Board of Trustees has created eight series of shares,
and may create additional series in the future, which have separate assets and
liabilities. Income and operating expenses not specifically attributable to a
particular Fund are allocated fairly among the Funds by the Trustees, generally
on the basis of the relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
FINANCIAL STATEMENTS
The annual reports to shareholders for the Funds for the fiscal year ended
October 31, 1997 are separate documents supplied with this SAI and the financial
statements, accompanying notes and report of independent accountants appearing
therein are incorporated by reference into this SAI.
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
B-17
<PAGE>
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
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
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<PAGE>
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-19
<PAGE>
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the Fund invests and
the services available to shareholders.
To learn more about the Fund and its investments, you can obtain a copy of the
Fund's most recent financial reports, including portfolio listing, or a copy of
the Statement of Additional Information (SAI). The SAI is dated March 2, 1998,
as supplemented September 30, 1998, may be supplemented from time to time, has
been filed with the Securities and Exchange Commission (SEC) and is incorporated
herein by reference (legally forms a part of this prospectus). For a free copy
of either document, call (800) 618-7643. The SEC maintains an internet site
(http://www.sec.gov) that contains the SAI, other material incorporated by
reference and other information about companies that file electronically with
the SEC.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the U.S. Government, the FDIC,
the Federal Reserve Board, or any other U.S. Government agency, and are subject
to investment risk, including the possible loss of principal.
The Fund, unlike many other mutual funds which directly acquire and manage their
own portfolio of securities, seeks to achieve its investment objective by
investing all of its assets in the PIC Mid Cap Portfolio (the "Portfolio").
Investors should carefully consider this investment approach. For additional
information, see "Structure of the Fund and the Portfolio" in this prospectus
and "Investment Objective and Policies" in the SAI.
Like all mutual funds, these securities have not been approved or disapproved by
the SEC or any state securities commission nor has the SEC or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
PROVIDENT INVESTMENT COUNSEL
PINNACLE MID CAP FUND
Prospectus
March 2, 1998,
As Supplemented September 30, 1998
Provident Investment Counsel
300 North Lake Avenue
Pasadena, CA 91101
<PAGE>
Contents
Key Facts 2 The Fund at a Glance
2 Who May Want to Invest
2 Expenses
3 Structure of the Fund and the Portfolio
5 Financial Highlights
The Fund in Detail 5 Charter
How the Fund is organized.
6 Information About the Fund's Investments
The Fund's overall approach to investing.
7 Securities and Investment Practices
More information about how the Fund
invests.
8 Breakdown of Expenses
How operating costs are calculated and
what they include.
8 Performance
9 How Sales Charges are Calculated
Sales Charge Waivers
10 Sales Charge Reductions
Your Account 11 Ways to Set Up Your Account
12 How to Buy Shares
13 How to Sell Shares
14 Investor Services
Services to help you manage your account.
14 Transaction Services
14 Exchange Privilege
Shareholder Account 14 Dividends, Capital Gains and Taxes
Policies
15 Transaction Details
Share price calculations and the timing
of purchases and redemptions.
General Information 17
<PAGE>
Key Facts
The Fund at a Glance
Management: Provident Investment Counsel ("PIC"), located in Pasadena,
California since 1951, is the Fund's Advisor. At December 31, 1997, total assets
under PIC's management were over $20 billion.
Goal: Long term growth of capital.
Strategy: Invests, through the Portfolio, mainly in equity securities of
companies with medium market capitalization.
Who May Want to Invest
The Fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially above average long-term returns.
The Fund is designed for those who want to focus on medium capitalization stocks
in search of above average returns.
A company's market capitalization is the total market value of its outstanding
common stock. A medium capitalization company is one with $500 million to $5
billion in market capitalization. The securities of medium capitalization
companies may be more volatile than those of larger companies. Over time,
however, medium capitalization stocks have shown greater growth potential than
those of larger capitalization companies.
The value of the Fund's investments will vary from day to day, and generally
reflects market conditions, interest rates, and other company, political or
economic news. In the short term, stock prices can fluctuate dramatically in
response to these factors. When you sell your shares, they may be worth more or
less than what you paid for them. By itself, the Fund does not constitute a
balanced investment plan. There is no assurance that the Fund will meet its
objective.
Expenses
Shareholder transaction expenses are charges you pay when you buy, sell or hold
shares in the Fund:
Maximum sales charge 5.75%
Maximum sales charge on reinvested
dividends None
Deferred sales charge None
Redemption fee None(1)
Exchange fee $5.00
Annual operating expenses are paid out of the Fund's and Portfolio's assets. The
Fund indirectly pay an investment advisory fee, and also incurs other expenses
for services such as administrative services, maintaining shareholder records
and furnishing shareholder statements and financial reports. The Fund's expenses
are factored into its share price or dividends and are not charged directly to
shareholder accounts.
On September 3, 1998, the Board of Trustees of PIC Investment Trust (the
"Trust") approved the addition of a front-end sales charge to the Fund. The
Board of Trustees also approved the implementation of a Shareholder Services
Plan (the "Services Plan") under which PIC will provide, or arrange for others
to provide, certain specified shareholder services. As compensation for the
provision of shareholder services, the Fund will pay PIC a monthly fee at an
annual rate of up to 0.15% of the Fund's average net assets. PIC will pay
certain banks, trust companies, broker-dealers, and other financial
intermediaries (each a "Participating Organization") out of the fees PIC
receives from the Fund under the Services Plan to the extent that the
Participating Organization performs shareholder
2
<PAGE>
servicing functions for Fund shares owned by its customers. On September 30,
1998, shareholders of the Fund approved the adoption of a distribution plan (the
"Plan") under Rule 12b-1 of the Investment Company Act of 1940 ("1940 Act").
Under the Plan, the Fund may pay an amount up to 0.25% of its annual average net
assets in shareholder servicing fees to financial services firms that sell sales
of the Fund. For additional information, see "Distribution Plan" in the SAI.
The Fund's new fee structure, including the Services Plan fee, is made up of the
following components, each based on average annual net assets. PIC has agreed
not to increase its limit on the Fund's expense ratios to average net assets
with the addition of the Services Plan fee2. The expense limitation may be
terminated or revised at any time without notice.
PIC retains the ability to be repaid by the Fund if expenses subsequently fall
below the specified limit within the next three years.
The following are expenses expected to be incurred by the Fund and are
calculated as a percentage of average net assets.
Management fee (paid by the Portfolio) 0.70%
Other expenses of the Portfolio, after
reimbursement by PIC 0.20%
---
Total operating expenses
of the Portfolio 0.90%
Administrative fee paid by the
Fund to PIC(2) 0.00%
Shareholder Services Plan fee(2) 0.15%
12b-1 fee 0.25%
Other expenses of the Fund, after
reimbursement by PIC 0.09%
---
Total Fund operating expenses 1.39%
(1) Shareholders who buy $1 million in shares without paying a sales charge
will be charged a 1% fee on redemptions made within one year of purchase.
(2) PIC has agreed to reimburse the Fund and the Portfolio for investment
advisory fees and other expenses so that the Fund's ratio of total
operating expenses to average net assets will not exceed 1.39%. Without
this reimbursement, total fund operating expenses are estimated to be 1.75%
of average net assets.
Example: Let's say, hypothetically, that the Fund's annual return is 5% and that
its operating expenses are exactly as just described. For every $1,000 you
invest, here's how much you would pay in total expenses if you close your
account after the number of years indicated:
After 1 year $71
After 3 years $99
This example illustrates the effect of expenses, but it is not meant to suggest
actual or expected costs or returns, all of which may vary. For a more complete
description of the various costs and expenses, see "Breakdown of Expenses." The
table above summarizes the expenses of both the Portfolio and the Fund. The
Trustees expect that the combined per share expenses of the Fund and the
Portfolio will be equal to, or may be less than, the expenses that would be
incurred by the Fund if it retained an investment manager and invested directly
in the types of securities held by the Portfolio.
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<PAGE>
Structure of the Fund and the Portfolio
Unlike many other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its assets in the Portfolio. The Portfolio is a separate
registered investment company with the same investment objective as the Fund.
Since the Fund will not invest in any securities other than shares of the
Portfolio, investors in the Fund will acquire only an indirect interest in the
Portfolio. The Fund's and Portfolio's investment objective cannot be changed
without shareholder approval.
In addition to selling its shares to 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.
The Trustees of the Trust believe that this structure may enable the Fund to
benefit from certain economies of scale, based on the premise that certain of
the expenses of managing an investment portfolio are relatively fixed and that a
larger investment portfolio may therefore achieve a lower ratio of operating
expenses to net assets. Investing the Fund's assets in the Portfolio may produce
other benefits resulting from increased asset size, such as the ability to
participate in transactions in securities which may be offered in larger
denominations than could be purchased by the Fund alone. The Fund's investment
in the Portfolio may be withdrawn by the Trustees at any time if the Board
determines that it is in the best interests of the Fund to do so. If any such
withdrawal were made, the Trustees would consider what action might be taken,
including the investment of all of the assets of the Fund in another pooled
investment company or the retaining of an investment advisor to manage the
Fund's assets directly.
Whenever the Fund is requested to vote on matters pertaining to the Portfolio,
the Fund will hold a meeting of its shareholders, and the Fund's votes with
respect to the Portfolio will be cast in the same proportion as the shares of
the Fund for which voting instructions are received. For further information,
see "The Fund in Detail," "Information about the Fund's Investments" and
"Securities and Investment Practices."
4
<PAGE>
Financial Highlights
The table that follows is included in the Fund's Semi-Annual Report, which has
not been audited. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the Fund's SAI.
Dec. 31, 1997*
through
April 30, 1998
- -------------------------------------------------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain
on investments 1.96
- -------------------------------------------------------
Total from investment operations 1.95
Net asset value, end of period $ 11.95
- -------------------------------------------------------
Total return 19.50%+++
=======================================================
Ratios/supplemental data:
Net assets, end of period (millions) $ 4.6
- -------------------------------------------------------
Ratios to average net assets:+**
Expenses after exp. reimbursements 0.99%
Expenses before exp. reimbursements 6.32%
Net investment loss after exp.
reimbursements -0.38%
Portfolio turnover rate ++ 55.12%
Average commission rate paid
by Portfolio $ 0.0327
* Commencement of operations
+ Annualized.
** Includes the Fund's share of expenses allocated from PIC Mid Cap Portfolio.
++ Portfolio turnover rate of PIC Mid Cap Portfolio, in which all of the Fund's
assets are invested.
+++ Not annualized
The Fund in Detail
Charter
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. In technical terms, the Fund is a
diversified series of the Trust, which is an open-end management investment
company, organized as a Delaware business trust on December 11, 1991.
The Fund and the Portfolio are each governed by a Board of Trustees, responsible
for protecting the interests of shareholders. The Trustees are experienced
executives who meet throughout the year to oversee the activities of the Fund
and the Portfolio, review contractual arrangements with companies that provide
services to the Fund and the Portfolio, and review performance. The majority of
Trustees are not otherwise affiliated with PIC. Information about the Trustees
and officers is contained in the SAI.
The Fund may hold special meetings and mail proxy materials. These meetings may
be called to elect or remove Trustees, change fundamental policies, approve an
investment advisory contract, or for other purposes. Shareholders not attending
these meetings are encouraged to vote by proxy. The Fund will mail proxy
materials in
5
<PAGE>
advance, including a voting card and information about the proposals to be voted
on. The number of votes you are entitled to is based on the number of shares you
own.
PIC is the advisor to the Portfolio. Its address is 300 North Lake Avenue,
Pasadena, CA 91101. An investment committee of PIC formulates and implements an
investment program for the Portfolio, including determining which securities
should be bought and 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 seek out companies with
significant management ownership of stock, strong management goals, plans and
controls; leading proprietary positions in given market niches; and finally
companies that may currently be under-researched by Wall Street analysts.
The value of the Portfolio's domestic and foreign investments varies in response
to many factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. Investments in
foreign securities may involve risks in addition to those of U.S. investments,
including increased political and economic risk, as well as exposure to currency
fluctuations.
The Portfolio seeks to spread investment risk by diversifying its holdings among
many companies and industries. Of course, when you sell your shares of the Fund,
they may be worth more or less than what you paid for them. PIC normally invests
the Portfolio's assets according to its investment strategy. The Portfolio also
reserves the right to invest without limitation in short term instruments for
temporary, defensive purposes.
PIC may use broker-dealers that sell shares of the Fund to carry out
transactions for the Portfolio, provided that the Portfolio receives brokerage
services and commission rates comparable to those of other broker-dealers.
PIC traces its origins to an investment partnership formed in 1951. It is now an
indirect, wholly-owned subsidiary of United Asset Management Corporation (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.
Information About the Fund's Investments
Because the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of, and techniques employed by, the Portfolio.
The Fund seeks long term growth of capital by investing in the Portfolio, which
in turn invests primarily in equity securities of companies with medium market
capitalizations.
PIC will invest at least 65%, and normally at least 95%, of the Portfolio's
total assets in these securities. The Portfolio has flexibility, however, to
invest the balance in other market capitalizations and security types.
Medium market capitalization companies are those whose market capitalization
falls within the range of $500 million to $5 billion at the time of the
Portfolio's investment. Companies whose capitalization falls outside this range
after purchase continue to be considered medium capitalization for the purposes
of the Portfolio's investment policy. Investing in medium capitalization stocks
may involve greater risk than investing in large capitalization stocks, since
they can be subject to more abrupt or erratic movements in value.
The value of the Portfolio's domestic and foreign investments varies in response
to many factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. Investments in
foreign securities may involve risks in addition to those of U.S. investments,
including increased political and economic risk, as well as exposure to currency
fluctuations.
6
<PAGE>
Securities and
Investment Practices
The following pages contain more detailed information about the types of
instruments in which the Portfolio may invest, and strategies PIC may employ in
pursuit of the Portfolio's investment objective. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well. A complete listing of the Fund's policies and limitations and
more detailed information about the Portfolio's investments is contained in the
SAI. Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
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 thr Portfolio
achieve its goals. Current holdings and recent investment strategies are
described in the Fund's financial reports which are sent to shareholders twice a
year. For a free SAI or financial report, call (800) 618-7643.
Equity Securities are common stocks and other kinds of securities that have the
characteristics of common stocks. These other securities include warrants and
bonds, debentures and preferred stocks which can be converted into common
stocks.
Restriction: With respect to 75% of total assets, the Portfolio may not own more
than 10% of the outstanding voting securities of a single issuer.
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.
Restriction: The Portfolio will only purchase short term investments which are
"high quality." High quality means the investments have been rated A-1 by
Standard & Poor's Ratings 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 Agreement. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Exposure to Foreign Markets. The Portfolio may invest in foreign securities.
Restriction: The Portfolio may invest no more than 20% of its total assets in
foreign securities, and it will only purchase foreign securities or American
Depository Receipts which are listed on a national securities exchange or
included in the NASDAQ system.
Futures. The Portfolio has the right to use futures to hedge its investments in
securities, but PIC does not expect to use these instruments during this fiscal
year. The Fund will advise shareholders before any investment in futures
commences. See the SAI for details.
Risk Factors. 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.
7
<PAGE>
Futures, which are sometimes called derivative securities, also entail certain
risks, which are described in detail in the SAI.
Fundamental Investment Policies and Restrictions
Some of the policies and restrictions discussed on this and the preceding pages
are fundamental; that is, subject to change only by shareholder approval. The
following paragraph states all those that are fundamental. All policies stated
throughout the prospectus, other than those identified in the following
paragraph, can be changed without shareholder approval.
The Fund's investment objective is a fundamental investment policy. The
Portfolio, with respect to 75% of total assets, may not invest more than 5% of
its total assets in any one issuer and may not own more than 10% of the
outstanding voting securities of a single issuer. The Portfolio may not invest
more than 25% of its total assets in any one industry.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Portfolio pays an investment advisory fee to PIC each month for managing its
investments at the annual rate of 0.70% of its average net assets.
While the investment advisory fee is a significant component of the Portfolio's
(and thus the Fund's) annual operating costs, the Fund also pays other expenses.
The Fund pays shareholder servicing fees to financial services firms that sell
shares of the Fund, and these firms typically pass along a portion of these fees
to your financial representative for helping you with your investment in the
Fund. The maximum amount that the Fund may pay is 0.25% of its annual average
net assets (12b-1 fees). For additional information, see "Distribution Plan" in
the SAI. The Fund pays PIC a monthly fee at an annual rate of 0.15% of its
average net assets for providing, or arranging for others to provide, certain
specified shareholder services (shareholder services fees). For additional
information, see "Shareholder Services Plan" in the SAI. The Fund and the
Portfolio each pay a monthly administration fee to Investment Company
Administration Corporation (the "Administrator") for managing some of their
business affairs. The Portfolio pays an administration fee at the annual rate of
0.10% of its average net assets subject to an annual minimum of $45,000, and the
Fund pays an annual administration fee of $15,000. The Fund and the Portfolio
also pay other expenses, such as legal, auditing, custodian and transfer agency
fees, as well as the compensation of Trustees who are not affiliated with PIC.
PIC has agreed to reimburse the Fund and Portfolio for investment advisory fees
and other expenses if they exceed 1.39% of the Fund's average net assets. This
reimbursement arrangement, which may be terminated at any time without notice,
will decrease the Fund's expenses and boost its performance. PIC retains the
ability to be repaid by the Fund if expenses subsequently fall below the
specified limit within the next three years.
Performance
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment over a given period, assuming reinvestment
of any dividends and capital gains. Total return reflects the Fund's performance
over a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total return smooths out variations in performance; it is not the same as actual
year-by-year results.
Total return and average annual total return are based on past results and are
not a prediction of future performance. They do not include the effect of income
taxes paid by shareholders. The Fund may sometimes show
8
<PAGE>
its performance compared to certain performance rankings, averages or stock
indices (described more fully in the SAI).
How Sales Charges are Calculated
Sales charges are as follows:
Dealer Commission
As a % of As a % of your as a % of
Your investment offering price investment offering price
Up to $49,999 5.75% 6.10% 5.00%
$50,0900-$99,999 4.50% 4.71% 3.75%
$100,000-$249,999 3.50% 3.63% 2.75%
$250,000-$499,999 2.50% 2.56% 2.00%
$500,000-$999,999 2.00% 2.04% 1.60%
$1,000,000 and over None None 1.00%
Investments of $1 million or more have no sales charge. The Distributor pays a
commission of 1% to financial institutions that initiate purchases of $1 million
or more.
Sales Charge Waivers
Shares of the Fund may be sold at net asset value (free of any sales charge) to:
(1) current shareholders of the Fund as of June 30, 1998; (2) current or retired
directors, trustees, partners, officers and employees of the Trust, the
Distributor, PIC and affiliates, certain family members of the above persons,
and trusts or plans primarily for such persons; (3) current or retired
registered representatives of broker-dealers having sales agreements with the
Distributor or full-time employees and their spouses and minor children and
plans of such persons; (4) investors who exchange their shares from an
unaffiliated investment company which has a sales charge, so long as shares are
purchased within 60 days of the redemption; (5) trustees or other fiduciaries
purchasing shares for certain retirement plans of organizations with 50 or more
eligible employees; (6) investment advisers and financial planners who place
trades for their own accounts or the accounts of their clients either
individually or through a master account and who charge a management, consulting
or other fee for their services; (7) employee-sponsored benefit plans in
connection with purchases of Fund shares made as a result of
participant-directed exchanges between options in such a plan; (8) wrap
accounts" for the benefit of clients of broker-dealers, financial institutions
or financial planners having sales or service agreements with the Distributor or
another broker-dealer or financial institution with respect to sales of shares
of the Fund; and (9) such other persons as are determined by the Board of
Trustees (or by the Distributor pursuant to guidelines established by the Board)
to have acquired shares under circumstances not involving any sales expense to
the Trust or the Distributor.
Sales Charge Reductions
There are several ways you can combine multiple purchases of shares of the Fund
to take advantage of the breakpoints in sales charge schedule. These can be
combined in any manner.
Accumulation Privilege - lets you add the value of shares of any of the
Provident Investment Counsel Pinnacle Funds ("Pinnacle Funds") you and your
family already own to the amount of your next investment in the Fund for
purposes of calculating the sales charge.
Letter of Intent - lets you purchase shares of the Fund and any Pinnacle Funds
over a 13-month period and receive the same sales charge as if all shares had
been purchased at once.
Combination Privilege - lets you combine shares of multiple Pinnacle Funds for
purposes of reducing the sales charge on the purchase of Fund shares.
9
<PAGE>
For more information, contact your financial representative or the Pinnacle
Funds.
Your Account
Ways to Set Up Your Account
Individual or Joint Tenant
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or more
owners (tenants).
- - ------------------------------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible. Retirement accounts require special applications and typically
have lower minimums.
* Individual Retirement Accounts (IRAs) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2000 per tax year. Individuals
can also invest in a spouse's IRA if the spouse has earned income of less
than $250.
* Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
* Keogh or Corporate Profit Sharing and Money Purchase Pension Plans allow
self-employed individuals or small business owners (and their employees) to
make tax-deductible contributions for themselves and any eligible employees
up to $30,000 per year.
* Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
* 403(b) Custodial Accounts are available to employees of most tax-exempt
institutions, including schools, hospitals and other charitable
organizations.
* 401(k) Programs allow employees of corporations of all sizes to contribute
a percentage of their wages on a tax-deferred basis. These accounts need to
be established by the trustee of the plan.
- - ------------------------------------------------------------------------------
Gifts or Transfers to Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying a
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
- - ------------------------------------------------------------------------------
Trust
For money being invested by a trust
10
<PAGE>
The trust must be established before an account can be opened.
- - ------------------------------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships or other groups
Does not require a special application.
How to Buy Shares
Once each business day, the Fund calculates its share price: The share price is
the Fund's net asset value (NAV) plus the sales charge. Shares are purchased at
the next share price calculated after your investment is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
If you are investing through a tax-sheltered retirement plan, such as an IRA,
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. Call (800) 618-7643 for more
information and a retirement application.
If you buy shares by check and then sell those shares within two weeks, the
payment may be delayed for up to seven business days to ensure that your
purchase check has cleared.
If you are investing by wire, please be sure to call (800) 618-7643 before
sending each wire.
Provident Financial Processing Corp. (PFPC) is the Fund's Transfer Agent; its
address is 400 Bellevue Parkway, Wilmington, Delaware 19809, and its mailing
address is P.O. Box 8943, Wilmington, DE 19899.
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix AZ
85018, is the Trust's principal underwriter.
Minimum Investments
To Open an Account $2,000
For retirement accounts $500
For automatic investment plans $250
To Add to an Account $250
For retirement plans $250
Through automatic investment plans $100
Minimum Balance $1,000
For retirement accounts $500
For Information: (800) 618-7643
To Invest
By Mail: Provident Investment Counsel Pinnacle Funds
C/o PFPC Inc.
11
<PAGE>
P.O. Box 8943
Wilmington, DE 19899
By Overnight Delivery: Provident Investment Counsel Pinnacle Funds
c/o PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
By Telephone: Call (800) 618-7643 and then wire
federal funds to:
PNC Bank
Philadelphia, PA
ABA# 031-0000-53
DDA# 86-0172-6604
For Credit to Provident Investment
Counsel Pinnacle Mid Cap Fund
Shareholder Name
Shareholder Account Name
How to Sell Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
share price calculated after your order is received and accepted. Share price is
normally calculated at 4 p.m. Eastern time.
To sell shares in a non-retirement account, you may use any of the methods
described on these two pages.
If you are selling some but not all of your shares, leave at least $1,000 worth
of shares in the account to keep it open ($500 for retirement accounts).
Certain requests must include a signature guarantee. It is designed to protect
you and the Fund from fraud. Your request must be made in writing and include a
signature guarantee if any of the following situations apply:
* You wish to redeem more than $100,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address from the one on your
account (record address), or
* The check is being made payable to someone other than the account owner.
You should be able to obtain a signature guarantee from a bank,
broker-dealer, credit union (if authorized under state law), securities
exchange or association, clearing agency or savings association. A notary
public cannot provide a signature guarantee.
Selling Shares in Writing
Write a "letter of instruction" with:
* Your name,
* Your Fund account number,
* The dollar amount or number of shares to be redeemed, and
* Any other applicable requirements listed in the table at right.
* Unless otherwise instructed, PIC will send a check to the record address.
12
<PAGE>
Mail your letter to:
Provident Investment Counsel Pinnacle Funds
c/o PFPC Inc.
P.O. Box 8943
Wilmington, DE 19899
How to Sell Shares:
Account Type Special Requirements
Phone All account types * Your telephone call must be
(800) 618-7643 except retirement received by 4 p.m. Eastern time
to be redeemed on that day.
- - -----------------------------------------------------------------------------
Mail or in Individual, Joint * The letter of instructions
Person Tenant, Sole Propri- must be signed by all persons
etorship, UGMA, UTMA required to sign for
transactions,exactly as their
names appear on the account.
Retirement Account * The account owner should
complete a retirement
distribution form. Call
(800) 618-7643 to request one.
Trust * The trustee must sign the
letter indicating capacity as
trustee. If the trustee's name
is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
Business or * At least one person
Organization authorized by corporate
resolutions to act on the
account must sign the letter.
* Include a corporate
resolution with corporate seal
or a signature guarantee.
Executor, * Call (800) 618-7643 for
Administrator, instructions.
Conservator, Guardian
- - -----------------------------------------------------------------------------
Wire All account types * You must sign up for the
except retirement wire feature before using it.
To verify that it is in place,
call (800) 618-7643. Minimum
wire: $5,000.
* Your wire redemption request
must be received by the Fund
before 4 p.m. Eastern time for
money to be wired the next
business day.
Investor Services
PIC provides a variety of services to help you manage your account.
Information Services
PIC's telephone representatives can be reached at (800) 618-7643.
Statements and reports that PIC sends to you include the following:
13
<PAGE>
* Confirmation statements (after every transaction that affects your account
balance or your account registration)
* Financial reports (every six months)
Transaction Services
Regular investment plans. One easy way to pursue your financial goals is to
invest money regularly. PIC offers convenient services that let you transfer
money into your Fund account automatically and conveniently. Automatic
investments are made on the 20th day of each month or, if that day is a weekend
or holiday, on the prior business day. While regular investment plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses, and other long term financial goals. Certain restrictions apply for
retirement accounts. Call (800) 618-7643 for more information.
Systematic withdrawal plans let you set up periodic redemptions from your
account. These redemptions take place on the 25th day of each month or, if that
day is a weekend or holiday, on the prior business day.
Exchange Privilege. You may sell your Fund shares and buy shares of other
Pinnacle Funds by telephone or in writing.
Exchange Restrictions. You should note the following:
* The Fund you are exchanging into must be registered for sale in your state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* Exchanges may have tax consequences for you.
* Exchanges into the Fund and other Pinnacle Funds are limited to five per
calendar year.
The Fund reserves the right to terminate or modify the exchange privilege in the
future.
Shareholder Account Policies
Dividends, Capital Gains, and Taxes
The Fund distributes substantially all of its net income and capital gains, if
any, to shareholders each year. The Fund pays dividends, normally, in December.
Capital gains are also normally distributed in December.
Distribution Options
When you open an account, specify on your application how you want to receive
your distributions. If the option you prefer is not listed on the application,
call (800) 618-7643 for instructions. The Fund offers three options:
1. Reinvestment Option. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gain distributions will be automatically
reinvested, but you will be sent a check for each dividend distribution.
14
<PAGE>
3. Cash Option. You will be sent a check for your dividend and capital gain
distributions.
For retirement accounts, all distributions are automatically reinvested. When
you are over 59 1/2 years old, you can receive distributions in cash.
When the Fund deducts a distribution from its NAV, the reinvestment price is the
Fund's NAV at the close of business that day. Cash distribution checks will be
mailed within seven days.
Understanding Distributions
As a Fund shareholder, you are entitled to your share of the Fund's net income
and gains on its investments. The Fund passes its earnings along to its
investors as distributions.
The Fund earns dividends from stocks and interest from short term investments
held by the Portfolio. These are passed along as dividend distributions. The
Fund realizes capital gains whenever the Portfolio sells securities for a higher
price than it paid for them. These are passed along as capital gain
distributions.
Taxes
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of these tax implications.
Taxes on distributions. Distributions are subject to federal income tax, and may
also be subject to state or local taxes. If you live outside the United States,
your distributions could also be taxed by the country in which you reside. Your
distributions are taxable when they are paid, whether you take them in cash or
reinvest them. However, distributions declared in December and paid in January
are taxable as if they were paid on December 31.
For federal tax purposes, the Fund's income and short term capital gain
distributions are taxed as dividends; long term capital gain distributions are
taxed as long term capital gains. Every January, PIC will send you and the IRS a
statement showing the taxable distributions.
Taxes on transactions. Your redemptions--including exchanges to other Pinnacle
Funds--are subject to capital gains tax. A capital gain or loss is the
difference between the cost of your shares and the price you receive when you
sell them.
Whenever you sell shares of the Fund, PIC will send you a confirmation statement
showing how many shares you sold and at what price. You will also receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether the sales resulted in a capital gain and,
if so, the amount of the tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in calculating the
amount of your capital gains.
"Buying a dividend." If you buy shares just before the Fund deducts a
distribution from its NAV, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable distribution.
There are tax requirements that all funds must follow in order to avoid federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
Transaction Details
The Fund is open for business each day the New York Stock Exchange (NYSE) is
open. PIC calculates the Fund's NAV as of the close of business of the NYSE,
normally 4 p.m. Eastern time.
The Fund's NAV plus the sales charge is the value of a single share. The NAV is
computed by adding the value of the Fund's share of investments held by the
Portfolio, cash, and other assets, subtracting its liabilities and then
15
<PAGE>
dividing the result by the number of shares outstanding. The NAV is the
redemption price (price to sell one share).
The Fund's assets are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Board of Trustees believes accurately reflects fair value.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31% withholding for failing to report income to the IRS. If you
violate IRS regulations, the IRS can require the Fund to withhold 31% of your
taxable distributions and redemptions.
You may initiate many transactions by telephone. PIC may only be liable for
losses resulting from unauthorized transactions if it does not follow reasonable
procedures designed to verify the identity of the caller. PIC will request
personalized security codes or other information, and may also record calls. You
should verify the accuracy of your confirmation statements immediately after you
receive them. If you do not want the liability to redeem or exchange by
telephone, call PIC for instructions.
The Fund reserves the right to suspend the offering of shares for a period of
time. The Fund also reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions" on page
___. Purchase orders may be refused if, in PIC's opinion, they would disrupt
management of the Fund.
When you place an order to buy shares, your order will be processed at the next
NAV calculated after your order is received and accepted plus the sales charge.
Note the following:
* All of your purchases must be made in U.S. dollars, and checks must be
drawn on U.S. banks.
* PIC does not accept cash or third party checks.
* When making a purchase with more than one check, each check must have a
value of at least $50.
* The Fund reserves the right to limit the number of checks processed at one
time.
* If your check does not clear, your purchase will be canceled and you could
be liable for any losses or fees the Fund or its transfer agent has
incurred.
To avoid the collection period associated with check purchases, consider buying
shares by bank wire, U.S. Postal money order, U.S. Treasury check, Federal
Reserve check, or direct deposit instead.
You may buy shares of the Fund or sell them through a broker, who may charge you
a fee for this service. If you invest through a broker or other institution,
read its program materials for any additional service features or fees that may
apply.
Certain financial institutions that have entered into sales agreements with PIC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the financial
institution could be held liable for resulting fees or losses.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted. Note the following:
* Normally, redemption proceeds will be mailed to you on the next business
day, but if making immediate payment could adversely affect the Fund, it
may take up to seven days to pay you.
16
<PAGE>
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* PIC reserves the right to deduct an annual maintenance fee of $12.00 from
accounts with a value of less than $1,000. It is expected that accounts
will be valued on the second Friday in November of each year. Accounts
opened after September 30 will not be subject to the fee for that year. The
fee, which is payable to the transfer agent, is designed to offset in part
the relatively higher cost of servicing smaller accounts.
* PIC also reserves the right to redeem the shares and close your account if
it has been reduced to a value of less than $1,000 as a result of a
redemption or transfer, PIC will give you 30 days prior notice of its
intention to close your account.
General Information
The Fund is one of a series of shares, each having separate assets and
liabilities, of the Trust. The Board of Trustees may at its own discretion,
create additional series of shares. The Declaration of Trust contains an express
disclaimer of shareholder liability for its acts or obligations and provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for its obligations.
The Declaration of Trust further provides the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares) and may vote in the election of Trustees and on
other matters submitted to meetings of shareholders. It is not contemplated that
regular annual meetings of shareholders will be held. Rule 18f-2 under the 1940
Act provides that matters submitted to shareholders be approved by a majority of
the outstanding securities of each series, unless it is clear that the interests
of each series in the matter are identical or the matter does not affect a
series. However, the rule exempts the selection of accountants and the election
of Trustees from the separate voting requirements. Income, direct liabilities
and direct operating expenses of each series will be allocated directly to each
series, and general liabilities and expenses of the Trust will be allocated
among the series in proportion to the total net assets of each series by the
Board of Trustees.
The Declaration of Trust provides that the shareholders have the right, upon the
declaration in writing or vote of more than two-thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of ten per cent of its shares. In addition, ten shareholders holding the lesser
of $25,000 worth or one per cent of the shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense the applicants' communication
to all other shareholders. Except for a change in the name of the Trust, no
amendment may be made to the Declaration of Trust without the affirmative vote
of the holders of more than 50% of its outstanding shares. The holders of shares
have no pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable, except as set forth above. The Trust may be terminated upon the
sale of its assets to another issuer, if such sale is approved by the vote of
the holders of more than 50% of its outstanding shares, or upon liquidation and
distribution of its assets, if approved by the vote of the holders of more than
50% of its outstanding shares. If not so terminated, the Trust will continue
indefinitely.
Year 2000 Risk. Like other business organizations around the world, the Fund
could be adversely affected if the computer systems used by its investment
advisor and other service providers do not properly process and calculate
information related to dates beginning January 1, 2000. This is commonly known
as the "Year 2000 Issue." The Fund's investment advisor is taking steps that it
believes are reasonably designed to address the Year 2000 Issue with respect to
its own computer systems, and it has obtained assurances from the Fund's other
service providers that they are taking comparable steps. However, assurance that
these actions will be sufficient to avoid any adverse impact on the Fund.
17
<PAGE>
PIC INVESTMENT TRUST
Provident Investment Counsel Pinnacle Mid Cap Fund
Statement of Additional Information
Dated March 2, 1998,
As Supplemented September 30, 1998
This Statement of Additional Information ("SAI") is not a prospectus, and it
should be read in conjunction with the prospectus of the Provident Investment
Counsel Pinnacle Mid Cap Fund (the "Fund"), a series of PIC Investment Trust
(the "Trust"). There are seven other series of the Trust: the Provident
Investment Counsel Pinnacle Balanced Fund, Provident Investment Counsel Pinnacle
Growth Fund, Provident Investment Counsel Pinnacle Small Company Growth Fund,
Provident Investment Counsel Growth Fund, Provident Investment Counsel Small
Company Growth Fund, Provident Investment Counsel Small Cap Growth Fund and
Provident Investment Counsel Tax Managed Growth Fund, which have separate SAIs.
The Fund invests in the PIC Mid Cap Portfolio (the "Portfolio"). Provident
Investment Counsel (the "Advisor" or "PIC") is the Advisor to the Portfolio. A
copy of the Fund's prospectus may be obtained from the Trust at 300 North Lake
Avenue, Pasadena, CA 91101-4106, telephone (818) 449-8500.
TABLE OF CONTENTS
Cross-reference to page
in the prospectus of the
Provident Investment Counsel
Pinnacle Mid Cap Fund:
--------------
Investment Objective and Policies B-2
Investment Restrictions B-2
Repurchase Agreements B-3
Futures Contracts B-4
Foreign Securities B-4
Forward Foreign Currency
Exchange Contracts B-4
Segregated Accounts B-5
Debt Securities and Ratings B-6
Management B-6
Custodian and Auditors B-10
Portfolio Transactions and Brokerage B-10
Additional Purchase and
Redemption Information B-10
Net Asset Value B-11
Taxation B-11
Dividends and Distributions B-11
Performance Information B-12
General Information B-13
Financial Statements B-13
Appendix B-13
B-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long-term growth of
capital. There is no assurance that the Fund will achieve its objective. The
Fund will attempt to achieve its objective by investing all of its assets in
shares of the Portfolio. The Portfolio is a diversified open-end management
investment company having the same investment objective as the Fund. The
discussion below supplements information contained in the Fund's prospectus as
to investment policies of the Fund and the Portfolio. Because the investment
characteristics of the Fund will correspond directly to those of the Portfolio,
the discussion refers to those investments and techniques employed by the
Portfolio.
Investment Restrictions
The Trust (on behalf of the Fund) and the Portfolio have 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 Fund or 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 shares of the Fund or the Portfolio represented at
a meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of the Fund or the
Portfolio.
As a matter of fundamental policy, the Portfolio is diversified; i.e., as
to 75% of the value of the Portfolio's total assets, no more than 5% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. Government securities). The Fund invests all of its assets in
shares of the Portfolio. The Fund's and the Portfolio's investment objective is
fundamental.
In addition, neither the Fund nor the Portfolio may:
1. Issue senior securities, borrow money or pledge its assets, except that
the Fund or 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, except for
short sales against the box;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options;
5. Act as underwriter (except to the extent the Fund or Portfolio may be
deemed to be an underwriter in connection with the sale of securities in its
investment portfolio);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that the Fund may invest more than 25% of its
assets in shares of the Portfolio;
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 contracts;
9. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
B-2
<PAGE>
10. Make loans (except for purchases of debt securities consistent with the
investment policies of the Fund and 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. Purchase any security if as a result the Portfolio would then hold more
than 10% of any class of voting securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class, and all
debt issues as a single class);
2. 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
3. Invest more than 15% of its 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).
Repurchase Agreements
Repurchase agreements are transactions in which the Fund or 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 Fund and the Portfolio intend to enter
into repurchase agreements only with banks and dealers believed by the Advisor
to present minimum credit risks in accordance with guidelines established by the
Boards of Trustees. The Advisor will review and monitor the creditworthiness of
such institutions under the Boards' 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 Fund and the Portfolio intend to comply with provisions under such
Code that would allow them immediately to resell the collateral.
B-3
<PAGE>
Futures Contracts
The Portfolio 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.
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. 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 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 a 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.
Foreign Securities
The Portfolio may invest in securities of 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.
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 it
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
B-4
<PAGE>
currency, of the amount of foreign currency involved in the underlying
transaction. The Portfolio will thereby be able 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)
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.
Segregated Accounts
When the Portfolio 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 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 forward
contract. 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.
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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 conditions may be
better or worse than the rating indicates.
MANAGEMENT
The overall management of the business and affairs of the Trust is vested
with its Board of Trustees. The Board approves all significant agreements
between the Trust and persons or companies furnishing services to it, including
the agreements with the Advisor, Administrator, Custodian and Transfer Agent.
Likewise, the Portfolio has a Board of Trustees which have comparable
responsibilities, including approving agreements with the Advisor. The day to
day operations of the Trust and the Portfolio are delegated to their officers,
subject to their investment objectives and policies and to general supervision
by their Boards of Trustees.
The Trustees and officers of the Trust, their business addresses and
principal occupations during the past five years are:
Jettie M. Edwards (age 52), Trustee Consulting principal of
76 Seaview Drive Syrus Associates (consulting
Santa Barbara, CA 93108 firm)
Bernard J. Johnson (age 74), Retired; formerly Chairman
Trustee Emeritus Emeritus of the Advisor
300 North Lake Avenue
Pasadena, CA 91101
Jeffrey D. Lovell (age 46), Trustee Managing Director, President
11150 Santa Monica Blvd., Ste 1650 and co-founder of Putnam,
Los Angeles, CA 90025 Lovell & Thornton, Inc.
(investment bankers)
Jeffrey J. Miller (age 48), President Managing Director and Secretary
and Trustee* of the Advisor; President and
300 North Lake Avenue Trustee of each of the
Pasadena, CA 91101 Portfolios
Wayne H. Smith (age 57), Trustee Vice President and Treasurer of
150 N. Orange Grove Blvd. Avery Dennison Corporation
Pasadena, CA 91103 (pressure sensitive material
and office products
manufacturer)
Thad M. Brown (age 48), Vice Senior Vice President and Chief
President, Secretary and Financial Officer of the
Treasurer Advisor
300 North Lake Avenue
Pasadena, CA 91101
The Trustees and officers of the Portfolio, their business address and
their occupations during the past five years are:
Richard N. Frank (age 75), Trustee Chief Executive Officer,
234 E. Colorado Blvd. Lawry's Restaurants, Inc.;
Pasadena, CA 91101 formerly Chairman
of Lawry's Foods, Inc.
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<PAGE>
Bernard J. Johnson (age 74), Retired; formerly Chairman
Trustee Emeritus Emeritus of the Advisor
300 North Lake Avenue
Pasadena, CA 91101
James Clayburn LaForce (age 69), Dean Emeritus, John E. Anderson
Trustee Graduate School of Management,
P.O. Box 1585 University of California, Los
Pauma Valley, CA 92061 Angeles;Director of The
BlackRock Funds; Trustee of
Payden & Rygel Investment
Trust; Director of the Timken
Co., Rockwell International,
Eli Lilly, Jacobs Engineering
Group and Imperial Credit
Industries
Jeffrey J. Miller (age 48), President Managing Director and Secretary
and Trustee* of the Advisor
300 North Lake Avenue
Pasadena, CA 91101
Angelo R. Mozilo (age 59), Trustee Vice Chairman and Executive
155 N. Lake Avenue Vice President of Countrywide
Pasadena, CA 91101 Credit Industries (mortgage
banking)
Thad M. Brown (age 48), Vice Senior Vice President and Chief
President, Secretary and Financial Officer of the Advisor
Treasurer
300 North Lake Avenue
Pasadena, CA 91101
- -----------------------------------
* denotes Trustees who are "interested persons" of the Trust or Portfolios
under the 1940 Act.
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."
Deferred
Total Compensation
Name of Trustee Compensation Accrued
Jettie M. Edwards $12,000(1) -0-
Bernard J. Johnson 11,500(1) -0-
Jeffrey D. Lovell 11,500(1) 22,093
Wayne H. Smith 12,000(1) 23,719
Richard N. Frank 12,000(2) 23,604
James Clayburn LaForce 12,000(2) -0-
Angelo R. Mozilo 12,000(2) 24,153
(1) Compensation was paid by the Registrant
(2) Compensation was paid by three other registered investment companies in the
"Fund Complex."
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Mid Cap Fund as of January 31, 1998:
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Larry D. Tashjian and Karen D. Tashjian Trustees - 14.21%
DTD 6/13/90
512 Bershire Avenue
La Canada, CA 91011
George Handtmann III Trustee - 14.21%
for Handtmann Family Trust
DTD 12/23/92
333 Lambert Road
Carpinteria, CA 93013
Jeffrey J. Miller and Paula J. Miller Trustees - 14.21%
for Miller Family Trust
DTD 4/9/92
1252 El Vaso Street
La Canada, CA 91011
Robert M. Kommerstad and Lila M. Kommerstad Trustee - 14.21%
for Kommerstad Family Trust
DTD 6/13/75
3100 Glenview Terrace
Altadena, CA 91001
Thomas J. & Julie H. Condon Trustee - 14.21%
for the Condon Family Trust
DTD 4/5/90
850 Holladay Road
San Marino, CA 91108
The Advisor
The Trust does not have an investment advisor, although the Advisor
performs certain administrative services for it, including providing certain
officers and office space.
The following information is provided about the Advisor and the Portfolio.
Subject to the supervision of the Board of Trustees of the Portfolio, investment
management and services will be provided to the Portfolio by the Advisor,
pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). Under
the Advisory Agreement, the Advisor will provide a continuous investment program
for the Portfolio and make decisions and place orders to buy, sell or hold
particular securities. In addition to the fees payable to the Advisor and the
Administrator, the Portfolio and the Trust are responsible for their operating
expenses, including: (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums; (iv) compensation and expenses of Trustees other than those
affiliated with the Advisor or the Administrator; (v) legal and audit expenses;
(vi) fees and expenses of the custodian, shareholder service and transfer
agents; (vii) fees and expenses for registration or qualification of the Trust
and its shares under federal or state securities laws; (viii) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders; (ix) other expenses incidental to holding any shareholder
meetings; (x) dues or assessments of or contributions to the Investment Company
Institute or any successor; (xi) such non-recurring expenses as may arise,
including litigation affecting the Trust or the Portfolio and the legal
obligations with respect to which the Trust or the Portfolio may have to
indemnify their officers and Trustees; and (xii) amortization of organization
costs.
The Advisor is an indirect, wholly owned subsidiary of United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services. On February 15, 1995, UAM acquired the assets of
the Advisor's predecessor, which had the same name as the Advisor; on that date
the Advisor entered into a new
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<PAGE>
Advisory Agreement having the same terms as the previous Advisory Agreement with
the Portfolio. The term "Advisor" also refers to the Advisor's predecessor.
For its services, the Advisor receives a fee from the Portfolio at an
annual rate of 0.70% of the Portfolio's average net assets.
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.
The Advisory Agreement will remain in effect for two years from its
execution. Thereafter, if not terminated, the Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities 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 Advisor also provides certain administrative services to the Trust
pursuant to Administration Agreements, including assisting shareholders of the
Trust, furnishing office space and permitting certain employees to serve as
officers and Trustees of the Trust. For its services, it earns a fee at the rate
of 0.20% of the average net assets of each series of the Trust. The Advisor has
agreed to limit aggregate expenses of the Fund to 1.39% of the Fund's average
net assets. The Advisor reserves the right to be reimbursed for any waiver of
its fees or expenses paid on behalf of the Fund if, within three subsequent
years, the Fund's expenses are less than the limit agreed to by the Advisor. The
Administrator
The Fund and the Portfolio each pay a monthly administration fee to
Investment Company Administration Corporation (the "Administrator") for managing
some of their business affairs. The Portfolio pays an administration fee at the
annual rate of 0.10% of its average net assets subject to an annual minimum of
$45,000, and the Fund pays an annual administration fee of $15,000.
Distribution Plan
The Trustees and/or shareholders of the Trust have adopted, on behalf of
each Fund, a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. The Plan provides that the Fund will pay a fee to the Distributor at
an annual rate of 0.25% of its average daily net assets for expenses incurred in
marketing its shares, including advertising, printing and compensation to
securities dealers or other industry professionals.
Shareholder Services Plan
On September 30, 1998, the Board of Trustees approved the implementation of
a Shareholder Services Plan (the "Services Plan") under which the Advisor will
provide, or arrange for others to provide, certain specified shareholder
services. As compensation for the provision of shareholder services, the Fund
will pay the Advisor a monthly fee at an annual rate of up to 0.15% of the
Fund's average daily net assets. The Advisor will pay certain banks, trust
companies, broker-dealers and other financial intermediaries (each, a
"Participating Organization") out of the fees the Advisor receives from the Fund
under the Services Plan to the extent that the Participating Organization
performs shareholder servicing functions for Fund shares owned by its customers.
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<PAGE>
CUSTODIAN AND AUDITORS
The Trust's custodian, Provident National Bank, 200 Stevens Drive, Lester,
PA 19113 is responsible for holding the Fund's assets, and Provident Financial
Processing Corporation, 400 Bellevue Parkway, Wilmington, DE 19809, acts as the
Trust's transfer agent. The Trust's independent accountants, McGladrey & Pullen,
LLP, 555 Fifth Avenue, New York, NY 10017, assist in the preparation of certain
reports to the Securities and Exchange Commission and the Fund's tax returns.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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 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.
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Reference is made to "Ways to Set Up Your Account - How to Buy Shares - How
To Sell Shares" in the prospectus for additional information about purchase and
redemption of shares. You may purchase and redeem shares of the Fund on each day
on which the New York Stock Exchange ("Exchange") is open for trading. 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.
B-10
<PAGE>
Reductions in the sales charge are available. For more information, see
"Sales Charge Waivers" and "Sales Charge Reductions" in the Prospectus.
Shareholders who buy $1 million in shares without paying a sales charge will be
charged a 1% fee on redemptions made within one year of purchase.
NET ASSET VALUE
The net asset value of the Portfolio's shares will fluctuate and is
determined as of the close of trading on the Exchange (generally 4:00 p.m.
Eastern time) each business day. The net asset value per share 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.
TAXATION
The Fund will each be taxed as a separate entity under the Internal Revenue
Code of 1986 (the "Code"), and intends to elect to qualify for treatment as a
regulated investment company ("RIC") under Subchapter M of the Code. In each
taxable year that the Fund qualifies, the Fund (but not its shareholders) will
be relieved of federal income tax on that part of their investment company
taxable income (consisting generally of interest and dividend income, net short
term capital gain and net realized gains from currency transactions) and net
capital gain that is distributed to shareholders.
In order to qualify for treatment as a RIC, the Fund must distribute
annually to shareholders at least 90% of its investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in securities or
currencies; (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, limited in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's investment company taxable income (whether paid
in cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of the Fund's net capital gain (whether paid in cash or invested in additional
shares) will be taxable to shareholders as long-term capital gain, regardless of
how long they have held their Fund shares.
Dividends declared by the Fund in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Fund and received by the shareholders on the
record date if the dividends are paid by the Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
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<PAGE>
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. The Fund also is required to withhold 31% of all
dividends and capital gain distributions paid to such shareholders who otherwise
are subject to backup withholding.
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.
Average annual total return may also be based on investment at reduced
sales charge levels or at net asset value. Any quotation of return not
reflecting the maximum sales charge will be greater than if the maximum sales
charge were used.
Yield
Annualized yield quotations used in the Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi- annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2 [(a-b + 1){6} - 1]
---
cd
where a equals dividends and interest earned during the period; b equals
expenses accrued for the period, net of reimbursements; c equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and d equals the maximum offering price per share on the last
day of the period.
Except as noted below, in determining net investment income earned during
the period ("a" in the above formula), the Fund calculates interest earned on
each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
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<PAGE>
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
Other information
Performance data of the Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in the Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials the Fund
may compare its performance with data published by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). The Fund also may
refer in such materials to mutual fund performance rankings and other data, such
as comparative asset, expense and fee levels, published by Lipper or CDA.
Advertising and promotional materials also may refer to discussions of the Fund
and comparative mutual fund data and ratings reported in independent periodicals
including, but not limited to, The Wall Street Journal, Money Magazine, Forbes,
Business Week, Financial World and Barron's.
GENERAL INFORMATION
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interest in the Fund. Each share represents an
interest in the Fund proportionately equal to the interest of each other share.
Upon the Trust's liquidation, all shareholders would share pro rata in the net
assets of the Fund available for distribution to shareholders. If they deem it
advisable and in the best interest of shareholders, the Board of Trustees may
create additional series of shares which differ from each other only as to
dividends. The Board of Trustees has created eight series of shares, and may
create additional series in the future, which have separate assets and
liabilities. Income and operating expenses not specifically attributable to the
Fund are allocated fairly among the Pinnacle Funds by the Trustees, generally on
the basis of the relative net assets of each Fund.
Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
FINANCIAL STATEMENTS
The semi-annual report to shareholders for Fund for the six-month period
ended April 30, 1998 are separate documents supplied with this SAI, and the
financial statements and accompanying notes appearing therein are incorporated
by reference into this SAI.
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
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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 iss ues.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
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
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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.
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