PIC INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 28, 2000
AS REVISED JULY 13, 2000
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 I dated February 28, 2000 as revised May 1, 2000, a series
of PIC Investment Trust (the "Trust"). There are ten other series of the Trust:
the Provident Investment Counsel Balanced Fund A, Provident Investment Counsel
Growth Fund A, Provident Investment Counsel Mid Cap Fund A, Provident Investment
Counsel Small Company Growth Fund A, Provident Investment Counsel Growth Fund B,
Provident Investment Counsel Mid Cap Fund B, Provident Investment Counsel Small
Company Growth Fund B, Provident Investment Counsel Mid Cap Fund C, Provident
Investment Counsel Small Company Growth Fund C, and Provident Investment Counsel
Small Cap Growth Fund I. The Provident Investment Counsel Growth Fund I (the
"Growth Fund") invests in the PIC Growth Portfolio. (In this SAI, the Growth
Fund may be referred to as the "Fund", and the PIC Growth Portfolio may be
referred to as the "Portfolio.") Provident Investment Counsel (the "Advisor") is
the Advisor to the Portfolio. A copy of the prospectus may be obtained from the
Trust at 300 North Lake Avenue, Pasadena, CA 91101-4106, telephone (818)
449-8500.
TABLE OF CONTENTS
Investment Objectives and Policies......................................... B-2
Investment Restrictions.................................................... B-8
Management................................................................. B-9
Custodian and Auditors..................................................... B-15
Portfolio Transactions and Brokerage....................................... B-16
Portfolio Turnover......................................................... B-17
Additional Purchase and Redemption Information............................. B-17
Net Asset Value............................................................ B-18
Taxation................................................................... B-18
Dividends and Distributions................................................ B-19
Performance Information.................................................... B-19
General Information........................................................ B-21
Financial Statements....................................................... B-22
Appendix .................................................................. B-23
B-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INTRODUCTION. The Fund seeks to achieve its investment objective by
investing all of its assets in a PIC Portfolio. The Portfolio is a separate
registered investment company with the same investment objective as the Fund.
Since neither Fund will invest in any securities other than shares of a
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 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 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 a 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.
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"). 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.
B-2
<PAGE>
SECURITIES AND INVESTMENT PRACTICES
The discussion below supplements information contained in the
prospectus as to investment policies of the Portfolio. 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.
EQUITY SECURITIES. Equity securities are common stocks and other kinds
of securities that have the characteristics of common stocks. These other
securities include bonds, debentures and preferred stocks which can be converted
into common stocks. They also include warrants and options to purchase common
stocks.
SHORT-TERM INVESTMENTS. Short-Term Investments are debt securities that
mature within a year of the date they are purchased by a Portfolio. Some
specific examples of short-term investments are commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements. A Portfolio will
only purchase short-term investments which are "high quality," meaning the
investments have been rated A-1 by Standard & Poor's Rating Group ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or have an issue of debt
securities outstanding rated at least A by S&P or Moody's. The term also applies
to short-term investments that PIC believes are comparable in quality to those
with an A-1 or Prime-1 rating. U.S. Government securities are always considered
to be high quality.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which
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 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 any of 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 a 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 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
B-4
<PAGE>
ADR may incur higher costs and receive less information about the foreign issuer
than the holder of a sponsored ADR. Neither Portfolio may invest 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.
Foreign securities and securities issued by U.S. entities with
substantial foreign operations may involve additional risks and considerations.
These include risks relating to political or economic conditions in foreign
countries, fluctuations in foreign currencies, withholding or other taxes,
operational risks, increased regulatory burdens and the potentially less
stringent investor protection and disclosure standards of foreign markets. All
of these factors can make foreign investments, especially those in developing
countries, more volatile.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio may enter
into forward contracts with respect to specific transactions. For example, when
a 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 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 a
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 a 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 a 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 a
Portfolio will be served.
B-5
<PAGE>
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 a 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 a 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 a 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 a 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 payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
B-6
<PAGE>
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 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. Except with respect to borrowing, changes in values of assets of a
particular Fund or Portfolio will not cause a violation of the investment
restrictions so long as percentage restrictions are observed by such Fund or
Portfolio at the time it purchases any security.
As a matter of fundamental policy, the Portfolio 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 Fund invest all of their assets in
shares of the Portfolio. The Fund's and the Portfolio's investment objective is
fundamental.
In addition, neither 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
the value of its total assets are outstanding;
2. Make short sales of securities or maintain a short position;
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
4. Write put or call options, except 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 either of the Fund may invest more than 25%
of their assets in shares of a Portfolio;
B-7
<PAGE>
7. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although either 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 either 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 Fund and the Portfolio and except for repurchase
agreements); or
11. Make investments for the purpose of exercising control or
management.
The Portfolio observe the following restrictions as a matter of
operating but not fundamental policy.
The Portfolio may not:
1. Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment company's
voting securities or make any other investment in other investment companies
except as permitted by federal and state law; or
2. Invest more than 15% of its net assets in securities which are
restricted as to disposition or otherwise are illiquid or have no readily
available market (except for securities issued under Rule 144A which are
determined by the Board of Trustees to be liquid).
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.
B-8
<PAGE>
The following table lists the Trustees and officers of the Trust, their
business addresses and principal occupations during the past five years. Unless
otherwise noted, each individual has held the position listed for more than five
years.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Trust During Past 5 Years
------- -------------- -------------------
<S> <C> <C>
Douglass B. Allen* (age 37) Trustee and Vice President of the Advisor
300 North Lake Avenue President
Pasadena, CA 91101
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus Associates
76 Seaview Drive (consulting firm)
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's Restaurants,
234 E. Colorado Blvd. Inc.; formerly, Chairman of Lawry's Foods,
Pasadena, CA 91101 Inc.
James Clayburn LaForce Trustee Dean Emeritus, John E. Anderson Graduate
(age 76) School of Management, University of
P.O. Box 1585 California, Los Angeles. Director of The
Pauma Valley, CA 92061 BlackRock Funds. Trustee of Payden & Rygel
Investment Trust. Director of the Timken Co.,
Rockwell International, Eli Lily, Jacobs
Engineering Group and Imperial Credit
Industries.
Angelo R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice President of
155 N. Lake Avenue Countrywide Credit Industries (mortgage
Pasadena, CA 91101 banking)
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery
150 N. Orange Grove Blvd. Dennison Corporation (pressure sensitive
Pasadena, CA 91103 material and office products manufacturer)
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. Vice President Senior Vice President of the Advisor.
(age 37) and Secretary
300 North Lake Avenue
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
</TABLE>
B-9
<PAGE>
The following table lists the Trustees and officers of the Portfolio,
their business addresses and principal occupations during the past five years.
Unless otherwise noted, each individual has held the position listed for more
than five years.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Portfolio During Past 5 Years
------- ------------------ -------------------
<S> <C> <C>
Douglass B. Allen* (age 37) Trustee and Vice President of the Advisor
300 North Lake Avenue President
Pasadena, CA 91101
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus Associates
76 Seaview Drive (consulting firm)
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's Restaurants,
234 E. Colorado Blvd. Inc.; formerly, Chairman of Lawry's Foods,
Pasadena, CA 91101 Inc.
James Clayburn LaForce Trustee Dean Emeritus, John E. Anderson Graduate
(age 76) School of Management, University of
P.O. Box 1585 California, Los Angeles. Director of The
Pauma Valley, CA 92061 BlackRock Funds. Trustee of Payden & Rygel
Investment Trust. Director of the Timken Co.,
Rockwell International, Eli Lily, Jacobs
Engineering Group and Imperial Credit
Industries.
Angelo R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice President of
155 N. Lake Avenue Countrywide Credit Industries (mortgage
Pasadena, CA 91101 banking)
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery
150 N. Orange Grove Blvd. Dennison Corporation (pressure sensitive
Pasadena, CA 91103 material and office products manufacturer)
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. Vice President Senior Vice President of the Advisor.
(age 37) and Secretary
300 North Lake Avenue
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
</TABLE>
----------
* denotes Trustees who are "interested persons" of the Trust or Portfolio
under the 1940 Act.
B-10
<PAGE>
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."
<TABLE>
<CAPTION>
Deferred
Deferred Compensation Total
Compensation Accrued as Compensation
Aggregate Aggregate Accrued as Part Part of From Trust and
Compensation Compensation of Trust Portfolios Portfolios paid
Name of Trustee from Trust from Portfolios Expenses Expenses to Trustee
--------------- ---------- --------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jettie M. Edwards $10,000 $ -0- $ -0- $ -0- $10,000
Wayne H. Smith $ -0- $ -0- $15,500 $ 1,158 $16,658
Richard N. Frank $ -0- $ -0- $ 658 $12,000 $12,658
James Clayburn LaForce $ 2,500 $12,000 $ -0- $ -0- $14,500
Angelo R. Mozilo $ -0- $ -0- $ 1,158 $ -0- $ 1,158
</TABLE>
The following persons, to the knowledge of the Trust, owned more than
5% of the outstanding shares of the Growth Fund as of January 31, 2000:
Milbank Tweed Hadley & McCloy
Partners Retirement Plan - 7.20%
Brooklyn, NY 11245
Vanguard Fiduciary Trust Co., Trustee - 30.90%
Valley Forge, PA 19482
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As of January 31, 2000, shares of the Fund 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
Portfolio. Subject to the supervision of the Boards of Trustees of the
Portfolio, investment management and services will be provided to the Portfolio
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 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.
B-12
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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 Portfolio. The term "Advisor" also refers
to the Advisor's predecessor.
For its services, the Advisor receives a fee from the Growth Portfolio
at an annual rate of 0.80% of their average daily net assets.
For the fiscal year ended October 31, 1999, the Growth Portfolio paid
the Advisor fees of $1,329,942, net of a waiver of $7,147.
During the fiscal years ended October 31, 1998 and1997, the Advisor
earned fees pursuant to the Advisory Agreements as follows: from the Growth
Portfolio, $1,045,893 and $838,058, respectively. However, the Advisor has
agreed to limit the aggregate expenses of the Growth Portfolio to 1.00% of
average net assets. As a result, the Advisor paid expenses of the Growth
Portfolio that exceeded these expense limits in the amounts of $22,176 and
$48,003 during the fiscal years ended October 31, 1998 and 1997, respectively.
Under the Advisory Agreements, 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 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
Portfolio 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 Portfolio. The Advisory Agreements terminate automatically upon
their assignment (as defined in the 1940 Act).
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<PAGE>
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
fiscal years ended October 31, 1999, 1998 and 1997, the Advisor earned fees
pursuant to the Administration Agreements from the Growth Fund (formerly the
Institutional Growth Fund) of $322,505, $255,010 and $207,782, respectively.
However, the Advisor has agreed to limit the aggregate expenses of the Growth
Fund to 1.25% of its average daily net assets. 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 $184,616, $178,773 and $110,144
during the fiscal years ended October 31, 1999, 1998 and 1997, respectively.
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, a
Fund's expenses are less than the limit agreed to by the Advisor.
THE ADMINISTRATOR
The Fund and the Portfolio pays a monthly administration fee to
Investment Company Administration, LLC for managing some of their business
affairs. The Portfolio pays an annual administration fee of 0.10% of its average
net assets, subject to an annual minimum of $45,000. The Fund pays an annual fee
of $15,000.
During each of the three years ended October 31, 1999, 1998 and 1997,
the Growth Fund paid the Administrator fees in the amount of $15,000.
During the fiscal years ended October 31, 1999, 1998 and 1997, the
Growth Portfolio paid the Administrator fees in the amounts of $167,136,
$130,737 and $103,757, respectively.
CUSTODIAN AND AUDITORS
The Trust's custodian, Provident National Bank, 200 Stevens Drive,
Lester, PA 19113 is responsible for holding the Fund' assets. Provident
Financial Processing Corporation, 400 Bellevue Parkway, Wilmington, DE 19809,
acts as the Fund's transfer agent; its mailing address is P.O. Box 8943,
Wilmington, DE 19899. The Trust's independent accountants,
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036,
assist in the preparation of certain reports to the Securities and Exchange
Commission and the Fund' tax returns.
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<PAGE>
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 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 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 Portfolio and/or other accounts of the Advisor. The Advisor
may select brokers who sell shares of the Portfolio or the Fund which invest in
the Portfolio.
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 year ended October 31, 1997, the amount of brokerage commissions paid by
the Growth Portfolio was $110,376. During the fiscal year ended October 31,
1998, the Growth Portfolio paid $165,841 in brokerage commissions. Of that
amount, $1,050 was paid in brokerage commissions to brokers who furnished
research services. During the fiscal year ended October 31, 1999, the Growth
Portfolio paid $214,042 in brokerage commissions, of which $17,604 was paid to
brokers who furnished research services.
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<PAGE>
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 may be useful to the Portfolio.
The debt securities are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission although
the price of the security usually includes a profit to the dealer. Money market
instruments usually trade on a "net" basis as well. On occasion, certain money
market instruments may be purchased by the Portfolio directly from an issuer in
which case no commissions or discounts are paid. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
PORTFOLIO TURNOVER
Although the Fund generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Portfolio Transactions
and Brokerage." Growth Portfolio's portfolio turnover rate for the fiscal years
ended October 31, 1999 and 1998 was 80.34% and 81.06%, respectively.
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-16
<PAGE>
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 (normally 4:00 p.m.
Eastern time) each business day. The 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 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 be taxed as separate entities under the Internal Revenue
Code (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 qualify, the Fund (but not their shareholders) will be relieved of
federal income tax one 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 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.
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.
B-17
<PAGE>
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 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.
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 a Fund's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where P equals a hypothetical initial payment of $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.
The Fund's average annual total return for the periods ending October
31, 1999 are as follows*:
Growth Fund
-----------
One Year. 31.08%
Five Years 22.45%
Since Inception** 17.16%
----------
* Certain fees and expenses of the Fund have been reimbursed from inception
through October 31, 1999. Accordingly, return figures are higher than they
would have been had such fees and expenses not been reimbursed.
** The inception date for the Fund was July 31, 1992.
B-18
<PAGE>
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 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 a Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("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.
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<PAGE>
GENERAL INFORMATION
The Fund is a diversified trust, which is an open-end investment
management company, organized as a Delaware business trust on December 11, 1991.
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 eleven 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 Fund by the Trustees, generally
on the basis of the relative net assets of the Fund.
The Fund is one of a series of shares of the Trust. 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.
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,
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<PAGE>
or upon liquidation and distribution of its assets, if approved by the vote of
the holders of more than 50% of its shares. If not so terminated, the Trust will
continue indefinitely.
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 report to shareholders for the Fund for the fiscal year
ended October 31, 1999 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.
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<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP: CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P 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.
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<PAGE>
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
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