[PROVIDENT INVESTMENT COUNSEL MUTUAL FUNDS LOGO]
TECHNOLOGY FUND A
PROSPECTUS
September 29, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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.
CONTENTS
KEY FACTS RISK/RETURN SUMMARY
THE PRINCIPAL GOAL, STRATEGIES AND RISKS
OF THE FUND
WHO MAY WANT TO INVEST
PERFORMANCE
FEES AND EXPENSES
STRUCTURE OF THE FUND AND THE PORTFOLIO
MORE INFORMATION ABOUT THE FUND'S
INVESTMENTS, STRATEGIES AND RISKS
MANAGEMENT
WAYS TO SET UP YOUR ACCOUNT
YOUR ACCOUNT CALCULATION OF NET ASSET VALUE
DISTRIBUTION INFORMATION
DISTRIBUTION (12b-1) PLAN
SHAREHOLDER SERVICES PLAN
HOW TO BUY SHARES
HOW TO SELL SHARES
IMPORTANT REDEMPTION INFORMATION
INVESTOR SERVICES
SHAREHOLDER ACCOUNT POLICIES DIVIDENDS, CAPITAL GAINS AND TAXES
DISTRIBUTION OPTIONS
UNDERSTANDING DISTRIBUTIONS
TRANSACTION DETAILS
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KEY FACTS
MANAGEMENT: Provident Investment Counsel (PIC), located in Pasadena, California
since 1951, is the Fund's Advisor. At December 31, 1999, total assets under
PIC's management were over $23 billion.
STRUCTURE: Unlike most mutual funds, the Fund's investment in portfolio
securities is indirect. The Fund first invests all of its assets in the PIC
Technology Portfolio (the "Portfolio"). The Portfolio, in turn, acquires and
manages individual securities. The Fund has the same investment objective as the
Portfolio. This is often referred to as a master-feeder fund structure. Fund
shareholders bear the expenses of both the Fund and the Portfolio, which may be
greater than other structures. Investors should carefully consider this
investment approach.
For reasons relating to costs or a change in investment goal, among others, the
Fund could switch to another pooled investment company or decide to manage its
assets itself. The Fund is currently not contemplating such a move.
RISK/RETURN SUMMARY
THE PRINCIPAL GOAL, STRATEGIES AND RISKS OF THE FUND
GOAL: Long term growth of capital.
STRATEGY: The Fund invests in the PIC Technology Portfolio. The Portfolio
invests at least 65% of its assets in the common stock of companies in the
information technology sector of all sizes - ranging from companies with market
capitalizations (total market price of publicly traded shares) of $200 million
to more than $200 billion. For this purpose, the "information technology sector"
means companies that PIC considers to be principally engaged in the development,
production, or distribution of products or services related to the processing,
storage, transmission or presentation of information or data (such as, for
example, computer hardware and software, and telecommunications products and
services). PIC considers a company to be principally engaged in the information
technology sector if at the time of investment PIC determines that (i) a
significant portion of the company's assets, gross income, net profits or growth
rate are committed to or derived from the sector, or (ii) the company has the
potential for capital appreciation primarily as a result of particular products,
technology, patents or other market advantages in the sector.
In selecting investments, PIC does an analysis of individual companies and
invests in those companies which it believes are currently experiencing earnings
and revenue growth above the average of their sector peers and the equity market
in general (as represented by the Standard & Poor's 500 Stock Price Index). PIC
may also, to a limited degree, analyze new or unseasoned companies, including
companies making initial public offerings. The Portfolio invests primarily in
securities of U.S. issuers, but may invest up to 25% of its total assets in
securities of foreign issuers. The Portfolio is "non-diversified" and may invest
more of its assets in fewer issuers than a "diversified" investment company.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
By itself, the Fund is not a complete, balanced investment plan. And the Fund
cannot guarantee that it will reach its goal. As with all mutual funds, there is
the risk that you could lose money on your investment in the Fund. For example,
the following risks could affect the value of your investment:
MARKET RISK: The value of the Fund's investments will vary from day to day. The
value of the Fund's investments generally reflect market conditions, interest
rates and other company, political and economic news. Stock prices can rise and
fall in response to these factors for short or extended periods of time.
Therefore, when you sell your shares, you may receive more or less money than
you originally invested.
TECHNOLOGY SECTOR RISK: The Portfolio will concentrate its investments in the
information technology sector. Market or economic factors impacting that sector
sector could have a major effect on the value of the Portfolio's investments.
Stock prices of technology companies are particularly vulnerable to rapid
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changes in technology product cycles, government regulation, high personnel
turnover and shortages of skilled employees, product development problems, and
aggressive pricing and other forms of competition. In addition, technology
stocks, especially those of smaller, less-seasoned companies, tend to have high
price/earnings ratios and to be more volatile than the overall market.
IPO RISK: The Portfolio may invest in companies making initial public offerings
("IPOs"). These involve a high degree of risk not normally associated with more
seasoned companies. They generally have limited operating histories, and their
prospects for future profitability are uncertain. They often are engaged in new
and evolving businesses, may be dependent on certain key managers and third
parties, need more personnel and other resources to manage grown, and require
significant additional capital. Investors in IPOs can be affected by substantial
dilution in the value of their shares, by sales of additional shares and by
concentration of control in existing management and principal shareholders.
Stock prices of IPOs can also be highly unstable due to the absence of a prior
public market, the small number of shares available for trading, and limited
investor information.
NON-DIVERSIFIED RISK. The Portfolio may invest more of its assets in fewer
issuers than many other funds. It will be more susceptible to adverse
developments affecting any single issuer than other funds, which could result in
greater losses than a diversified fund.
SMALL COMPANY RISK: The securities of small, less well-known companies may be
more volatile than those of larger companies. Small companies may have limited
product lines, markets or financial resources and their management be dependent
on a limited number of key individuals. Securities of these companies may have
limited market liquidity.
FOREIGN SECURITIES: Investments in foreign securities involve risks that are not
typically associated with domestic securities. The performance of foreign
securities depends on different political and economic environments and other
overall economic conditions than domestic securities. Changes in foreign
currency exchange rates will affect the values of investments quoted in
currencies other than the U.S. dollar. Less information may be publicly
available about foreign issuers. Foreign stock markets have different clearance
and settlement procedures, and higher commissions and transaction costs, than
U.S. markets. Certain other adverse developments could occur, such as
expropriation or confiscatory taxation, political or social instability, or
other developments that could adversely affect the Fund's investments and its
ability to enforce contracts.
PORTFOLIO TURNOVER RISK: The Portfolio may from time to time have a high annual
portfolio turnover rate (100% or more). This has the potential to result in the
realization and distribution to shareholders of higher capital gains. This may
mean that you would be likely to have a higher tax liability. A high portfolio
turnover rate also leads to higher transaction costs, which could negatively
affect the Fund's performance.
WHO MAY WANT TO INVEST: The Fund may be appropriate for investors who are
seeking capital appreciation through a portfolio of technology companies and are
willing to accept the greater risk of investing in such companies.
Investments in the Fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE
Because the Fund does not have one full calendar year of operation, no bar chart
or performance table are provided.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.75%
Maximum deferred sales (load) charge (as a percentage
of purchase or sale price whichever is less) None
Redemption fee None*
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund and/or Portfolio assets)+
Management Fee (paid by the Portfolio) 0.80%
Distribution and Service (12b-1) Fees (paid by the Fund) 0.25%
Other Expenses** (paid by the Fund and the Portfolio) 1.60%
Administration Fees to PIC (paid by the Fund) 0.20%
Shareholder Service Fee (paid by the Fund) 0.15%
-----
Total Annual Fund Operating Expenses 3.00%
Expense Reimbursements*** (1.40%)
-----
Net Expenses 1.60%
=====
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+ The expenses in this table include both expenses of the Fund and the
Portfolio in which the Fund's assets are invested.
* Shareholders who buy $1 million of Fund shares without paying a sales
charge will be charged a 1% fee on redemptions made within one year of
purchase.
** Other Expenses are based on estimated amounts for the current fiscal year.
*** Pursuant to a contract with the Funds, PIC has agreed to reimburse the Fund
and Portfolio for investment advisory fees and other expenses for ten years
ending March 1, 2010. PIC 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
PIC. Any reimbursements to PIC are subject to approval by the Board of
Trustees.
EXAMPLE: This Example will help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. These examples are only
illustrations, and your actual costs may be higher or lower. Let's say,
hypothetically, that the Fund's annual return is 5%, that all dividends and
distributions are reinvested and that its operating expenses remain the same.
For every $10,000 you invest, here's how much you would pay in total expenses
for the time periods shown if you redeemed your shares at the end of the period:
After 1 year $ 728
After 3 years $1,051
STRUCTURE OF THE FUND AND THE PORTFOLIO
The Fund is a series of PIC Investment Trust (the "Trust"). The Fund seeks to
achieve its investment objective by investing all of its assets in the PIC
Technology 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 PIC Technology Portfolio, investors
in the Fund will acquire only an indirect interest in the Portfolio. The Fund's
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and Portfolio's investment objective cannot be changed without shareholder
approval.
The Portfolio may sell its shares to other funds and institutions as well as to
the Fund. All who invest in the Portfolio do so on the same terms and conditions
and pay a proportionate share of the Portfolio's expenses. However, these other
funds may sell their shares to the public at prices different from the Fund's
prices. This would be due to different sales charges or operating expenses, and
it might result in different investment returns to these other funds'
shareholders.
MORE INFORMATION ABOUT THE FUND'S INVESTMENTS, STRATEGIES AND RISKS
As described earlier, the Fund invests all of its assets in PIC Technology
Portfolio. This section gives more information about how the PIC Technology
Portfolio invests.
PIC supports its selection of individual securities through intensive research
and uses qualitative and quantitative disciplines to determine when securities
should be sold. PIC's research professionals meet personally with the majority
of the senior officers of the companies in the Portfolio to discuss their
abilities to generate strong revenue and earnings growth in the future.
PIC's investment professionals focus on individual companies rather than trying
to identify the best market sectors going forward. They not only analyze
information made publicly available by companies in which the Portfolio has
invested or is considering for investment, but also gather information through
visits with company management and review of information available from others
in the company's sector. This is often referred to as a "bottom-up" approach to
investing. PIC seeks companies that have displayed strong market share, return
on equity, reinvestment rates and sales and dividend growth. Companies with
significant management ownership of stock, strong management goals, plans and
controls; and leading proprietary positions in given market niches are
especially attractive. Finally, the valuation of each company is assessed
relative to its sector, earnings growth and the market in general (as
represented by the S&P 500 Index).
The Fund seeks long term growth of capital by investing in the PIC Technology
Portfolio, which in turn invests primarily in the common stock of companies in
the information technology sector of all sizes-- ranging from companies with
market capitalizations (total market price of publicly traded shares) of $200
million to more than $200 billion. For this purpose, the "information technology
sector" means companies that PIC considers to be principally engaged in the
development, production, or distribution of products or services related to the
processing, storage, transmission or presentation of information or data. This
includes a wide range of products and services, such as:
* computer hardware and software of any kind, including semiconductors,
minicomputers, and peripheral equipment
* telecommunications products and services
* multimedia products and services, including goods and services used in the
broadcast and media industries
* data processing products and services, and
* internet companies and other companies engaged in or providing products or
services for e-commerce.
PIC considers a company to be principally engaged in the information technology
sector if at the time of investment PIC determines that (i) a significant
portion of the company's assets, gross income, net profits or growth rate are
committed to or derived from the sector, or (ii) the company has the potential
for capital appreciation primarily as a result of particular products,
technology, patents or other market advantages in the sector. PIC will invest at
least 65%, and normally at least 95%, of the Portfolio's total assets in these
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securities. The Fund is "non-diversified" and may invest more of its assets in
fewer issuers than many other funds.
Investing in technology companies may involve greater risk than investing in
other industries. Stock prices of such companies are particularly vulnerable to
rapid changes in product cycles, government regulation, high personnel turnover
and shortages of skilled employees, product development problems, and aggressive
pricing and other forms of competition. Technology stocks, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. The value of the Fund's shares will also be more susceptible to adverse
developments affecting any single portfolio investment than more diversified
funds.
Most companies making initial public offerings involve a high degree of risk not
normally associated with more seasoned companies. They generally have limited
operating histories, and their prospects for future profitability are uncertain.
They often are engaged in new and evolving businesses, and are particularly
vulnerable to the technology sector risks described above. They may be dependent
on certain key managers and third parties, need more personnel and other
resources to manage grown, and require significant additional capital. Investors
in IPOs can be affected by substantial dilution in the value of their shares, by
sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable due to the absence of a prior public market, the small number of shares
available for trading, and limited investor information. The Portfolio may be
unable to purchase such shares directly from the underwriters at the offering
price, and may be required to purchase the shares in the aftermarket at
substantially higher prices, making it more difficult for the Portfolio to make
a profit. The Portfolio may be required to agree to contractual restrictions on
its resale of certain IPOs for periods ranging from 30 to 180 days after the
initial public offering, during which the Portfolio may not be able to sell the
shares even if their value declines as a result of adverse market movements.
The Portfolio invests primarily in securities of U.S. issuers, but may invest up
to 25% of its total assets in foreign securities. Foreign investments involve
additional risks including currency fluctuations, political and economic
instability, differences in financial reporting standards, and less stringent
regulation of securities markets.
In determining whether to sell a security, PIC considers the following: (a) a
fundamental change in the future outlook of the company based on PIC's research
into matters such as the market for its products, technological developments,
and competitive developments; (b) the company's performance compared to other
companies in its peer group; and (c) whether the security has reached the target
price set by PIC. These considerations are based on PIC's research, including
analytical procedures, market research and, although not always possible,
meetings or discussions with management of the company.
Although the annual portfolio turnover rate of the Portfolio will generally not
exceed 100%, it may from time to time be as high as 200%. As described above,
this has the potential to result in higher capital gains and tax liability for
shareholders, and higher transaction costs which could negatively affect the
Fund's performance.
PIC normally invests the Portfolio's assets according to its investment
strategy. However, the Portfolio may depart from its principal investment
strategies by making short-term investments in high-quality cash equivalents for
temporary, defensive purposes. At those times, the Fund would not be seeking its
investment objective.
MANAGEMENT
PIC is the advisor to the PIC Technology Portfolio, in which the Fund invests.
PIC's address is 300 North Lake Avenue, Pasadena, CA 91101. PIC traces its
origins to an investment partnership formed in 1951. It is now an indirect,
wholly owned subsidiary of 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. An investment committee of PIC
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formulates and implements an investment program for the Portfolio, including
determining which securities should be bought and sold.
On June 9, 2000, UAM announced that it has agreed to be acquired by Old Mutual,
plc. Old Mutual is a United Kingdom-based financial services group with
substantial asset management, insurance and banking businesses. The closing of
the transaction is expected to take place during the fourth quarter of 2000 and
is subject to a number of conditions. As required by the Investment Company Act
of 1940, the current shareholders of the Portfolio are being asked to approve a
new investment advisory agreement with PIC, to take effect upon the closing of
the transaction. The new agreement will be identical to the current agreement
except for the effective and termination dates.
The Portfolio pays an annual investment advisory fee to PIC for managing the
Portfolio's investments. As a percentage of net assets the fee is 0.80%.
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 $2,000 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
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
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.
CALCULATION OF NET ASSET VALUE
Once each business day, the Fund calculates its net asset value (NAV). NAV is
calculated at the close of regular trading on the New York Stock Exchange
(NYSE), which is normally 4 p.m., Eastern time. NAV will not be calculated on
days that the NYSE is closed for trading.
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. Some of the portfolio
securities held by the Portfolio may be primarily listed on foreign exchanges
that are open for trading on weekends or other days when the Fund does not price
its shares, and the net asset value of the Fund's shares therefore may change on
days when shareholders will not be able to purchase or redeem the Fund's shares.
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 in December.
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FUND SHARES
Fund shares are sold at the public offering price, which includes a front-end
sales charge. Shares are purchased at the next NAV calculated after your
investment is received by the Transfer Agent with complete information and
meeting all the requirements discussed in this Prospectus, including the shares
charge. The sales charge declines with the size of your purchase, as shown
below:
As a % of As a % of
offering your
Your investment price investment
--------------- ----- ----------
Up to $49,999 5.75% 6.10%
$50,000 to $99,999 4.50% 4.71%
$100,000 to $249,999 3.50% 3.63%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 and over None* None*
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* Shareholders who buy $1 million of Fund shares without paying a sales
charge will be charged a 1% fee on redemptions made within one year of
purchase.
FUND A SALES CHARGE WAIVERS
Shares of Fund may be sold at net asset value (free of any sales charge) to:
(1) shareholders investing $1 million or more; (2) current shareholders of the
Balanced, Growth and Small Company Growth Funds A as of June 30, 1998 and the
Mid Cap Fund A as of September 30, 1998;(3) current or retired directors,
trustees, partners, officers and employees of the Trust, the Distributor, PIC
and its affiliates, certain family members of the above persons, and trusts or
plans primarily for such persons; (4) 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; (5) investors who redeem shares from an unaffiliated investment company
which has a sales charge and use the redemption proceeds to purchase Fund shares
within 60 days of the redemption; (6) trustees or other fiduciaries purchasing
shares for certain retirement plans or organizations with 60 or more eligible
employees; (7) investment advisors 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; (8) 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; (9) "fee based 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 Fund shares; and (10) 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 Fund shares
under circumstances not involving any sales expense to the Trust or the
Distributor.
FUND A SALES CHARGE REDUCTIONS
There are several ways you can combine multiples purchases of Fund A shares to
take advantage of the breakpoints in the sales charge schedule. These can be
combined in any manner.
ACCUMULATION PRIVILEGE -- This lets you add the value of shares of any of the
Funds A you and your family already own to the amount of your next purchase of
Fund A shares for purposes of calculating the sales charge.
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LETTER OF INTENT -- This lets you purchase shares of one or more Funds A over a
13-month period and receive the same sales charge as if all the shares had been
purchased at one time. COMBINATION PRIVILEGE -- This lets you combine shares of
one or more Funds A for the purpose of reducing the sales charge on the purchase
of Fund A shares.
DISTRIBUTION (12b-1) PLAN
The Trust has adopted a plan pursuant to Rule 12b-1 that allows the Fund to pay
distribution fees for the sale and distribution of its shares. The plan provides
for the payment of a distribution fee at the annual rate of up to 0.25% of the
Fund's average daily net assets. Because these fees are paid out of the Fund's
assets, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
SHAREHOLDER SERVICES PLAN
In addition, the Trust, on behalf of the Fund, has entered into a Shareholder
Services Plan with the Advisor. Under the Shareholder Services Plan, the Advisor
will provide, or arrange for others to provide, certain shareholder services to
shareholders of the Fund. The Shareholder Services Plan provides for the payment
to the Advisor of a service fee at the annual rate of 0.15% of the Fund's
average daily net assets.
HOW TO BUY SHARES
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.
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 Funds
P.O. Box 8943
Wilmington, DE 19899
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BY WIRE:
Call: (800) 618-7643 to set up an
account and arrange a wire transfer
BY OVERNIGHT DELIVERY:
Provident Investment Counsel Funds
400 Bellevue Parkway
Wilmington, DE 19809
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 NAV
calculated after your order is received by the Transfer Agent with complete
information and meeting all the requirements discussed in this Prospectus.
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, you must leave at least $1,000 worth of shares in the account to keep it
open ($500 for retirement accounts).
YOUR ACCOUNT - CONTINUED
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.
Shareholders redeeming their shares by mail should submit written instructions
with a guarantee of their signature(s) by an eligible institution acceptable to
the Fund's Transfer Agent, such as a domestic bank or trust company, broker,
dealer, clearing agency or savings association, who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (MSP). Signature guarantees that are not part
of these programs will not be accepted. 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 under "Important Redemption
Information."
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Unless otherwise instructed, PIC will send a check to the record address.
MAIL YOUR LETTER TO:
Provident Investment Counsel Funds
P.O. Box 8943
Wilmington, DE 19899
IMPORTANT REDEMPTION INFORMATION
<TABLE>
<CAPTION>
Account Type Special Requirements
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<S> <C> <C> <C>
PHONE (800) 618-7643 All account types except * Your telephone call must be received
retirement by 4 p.m. Eastern time to be
redeemed on that day (maximum check
request $100,000).
MAIL OR IN PERSON Individual, Joint Sole * The letter of instructions must be
Proprietorship, UGMA, UTMA signed by all persons 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 Organization * At least one person 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, Administrator, * Call (800) 618-7643 for instructions.
Conservator, Guardian
WIRE All account types except * You must sign up for the wire
retirement feature before using it. To verify
that it is in place, call (800)
618-7643. Minimum redemption 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.
</TABLE>
12
<PAGE>
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)
* Annual and semi-annual shareholder reports (every six months)
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your Fund shares and buy shares of other Funds
A 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. Also
see "Shareholder Account Policies."
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.
REINVESTMENT AFTER REDEMPTION
If you redeem shares in your Fund account, you can reinvest within 90 days from
the date of redemption all or any part of the proceeds in shares of the Fund or
any other Fund A, at net asset value, on the date the Transfer Agent receives
your purchase request. To take advantage of this option, send your reinvestment
check along with a written request to the Transfer Agent within ninety days from
the date of your redemption. Include your account number and a statement that
you are taking advantage of the "Reinvestment Privilege." If your reinvestment
is into a new account, it must meet the minimum investment and other
requirements of the fund into which the reinvestment is being made.
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 in December.
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<PAGE>
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.
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 net income along to investors
as distributions which are taxed as dividends; long term capital gain
distributions are taxed as long term capital gains regardless of how long you
have held your Fund shares. Every January, PIC will send you and the IRS a
statement showing the taxable distributions.
TAXES ON TRANSACTIONS. Your redemptions -- including exchanges -- 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 or exchange 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 sale 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.
TRANSACTION DETAILS
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.
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 Privilege." Purchase
14
<PAGE>
orders may be refused if, in PIC's opinion, they would disrupt management of the
Fund. Please note this about purchases:
* 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 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. These
institutions may charge you fees for their services.
Please note this about redemptions:
* 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.
* Redemptions may be suspended or payment dates postponed beyond seven days
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.
Please note this about exchanges
As a shareholder, you have the privilege of exchanging shares of the Fund for
shares of other Funds A. 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.
15
<PAGE>
* Before exchanging into a Fund, read its prospectus.
* Exchanges are considered a sale and purchase of Fund shares for tax
purposes and may result in a capital gain or loss.
* You may exchange Fund A shares only for other Fund A shares.
* Because excessive trading can hurt fund performance and shareholders, the
Fund reserves the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of the 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 Fund reserves the right to refuse exchange purchases by any person or
group if, in PIC's judgment, the Portfolio would be unable to invest the
money effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected.
16
<PAGE>
PROVIDENT INVESTMENT COUNSEL
TECHNOLOGY FUND A
For investors who want more information about the Fund, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
Prospectus.
You can get free copies of the Fund's reports and SAI, request other information
and discuss your questions about the Fund by contacting the Fund at:
Provident Investment Counsel
P.O. Box 8943
Wilmington, DE 19899 Telephone:
1-800-618-7643
You can review and copy information including the Fund's reports and SAI at the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. You can obtain information on the operation of the Public Reference Room by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available:
Free of charge from the Commission's EDGAR database on the Commission's Internet
website at http://www.sec.gov
For a fee, by writing to the Public Reference Room of the Commission,
Washington, DC 20549-0102 or by electronic request at the following e-mail
address: [email protected].
(The Trust's SEC Investment Company Act
File No. is 811-06498)
<PAGE>
PIC INVESTMENT TRUST
PROVIDENT INVESTMENT COUNSEL
TECHNOLOGY FUND A
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 29, 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 Technology Fund A, a series of PIC Investment Trust (the "Trust"). There
are eleven other series of the Trust: Provident Investment Counsel Growth Fund
I, 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 and Provident
Investment Counsel Small Company Growth Fund C. The Provident Investment Counsel
Small Cap Growth Fund I (the "Fund") invests in the PIC Small Cap Portfolio (the
"Portfolio"). Provident Investment Counsel (the "Advisor") 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 (626) 449-8500.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES........................................... 2
INVESTMENT RESTRICTIONS..................................................... 9
MANAGEMENT.................................................................. 10
CUSTODIAN AND AUDITORS...................................................... 15
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 15
PORTFOLIO TURNOVER.......................................................... 16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 16
NET ASSET VALUE............................................................. 16
TAXATION.................................................................... 17
DIVIDENDS AND DISTRIBUTIONS................................................. 17
PERFORMANCE INFORMATION..................................................... 18
GENERAL INFORMATION......................................................... 19
APPENDIX.................................................................... 21
B-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION. The investment objective of the Fund is to provide
capital appreciation. 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 non-diversified
open-end management investment company having 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 the 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.
SECURITIES AND INVESTMENT PRACTICES
The discussion below supplements information contained in the
prospectus as to 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. PIC may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Portfolio achieve its goals.
EQUITY SECURITIES. Equity securities are common stocks and other kinds
of securities that have the characteristics of common stocks. These other
securities include bonds, debentures and preferred stocks which can be converted
into common stocks. They also include warrants and options to purchase common
stocks.
SHORT-TERM INVESTMENTS. Short-term investments are debt securities that
mature within a year of the date they are purchased by the Portfolio. Some
specific examples of short-term investments are commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements. The Portfolio
will only purchase short-term investments which are "high quality," meaning the
investments have been rated A-1 by Standard & Poor's Rating Group ("S&P") or
B-2
<PAGE>
Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or have an issue of debt
securities outstanding rated at least A by S&P or Moody's. The term also applies
to short-term investments that PIC believes are comparable in quality to those
with an A-1 or Prime-1 rating. U.S. Government securities are always considered
to be high quality.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which
the Portfolio purchases a security from a bank or recognized securities dealer
and simultaneously commits to resell that security to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased security. The purchaser maintains
custody of the underlying securities prior to their repurchase; thus the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such underlying securities. If the value of such
securities is less than the repurchase price, the other party to the agreement
will provide additional collateral so that at all times the collateral is at
least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, the Portfolio intends to enter into repurchase
agreements only with banks and dealers believed by the Advisor to present
minimum credit risks in accordance with guidelines established by the 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 Portfolio intends to comply with provisions under such Code that would
allow them immediately to resell the collateral.
OPTIONS ACTIVITIES. The Portfolio may write call options on stocks and
stock indices, if the calls are "covered" throughout the life of the option. A
call is "covered" if the Portfolio owns the optioned securities. When the
Portfolio writes a call, it receives a premium and gives the purchaser the right
to buy the underlying security at any time during the call period at a fixed
exercise price regardless of market price changes during the call period. If the
call is exercised, the Portfolio will forgo any gain from an increase in the
market price of the underlying security over the exercise price.
The Portfolio may purchase a call on securities to effect a "closing
purchase transaction," which is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as a
call previously written by the Portfolio on which it wishes to terminate its
obligation. If the Portfolio is unable to effect a closing purchase transaction,
it will not be able to sell the underlying security until the call previously
written by the Portfolio expires (or until the call is exercised and the
Portfolio delivers the underlying security).
The Portfolio also may write and purchase put options ("puts"). When
the Portfolio writes a put, it gives the purchaser of the put the right to sell
the underlying security to the Portfolio at the exercise price at any time
during the option period. When the Portfolio purchases a put, it pays a premium
in return for the right to sell the underlying security at the exercise price at
any time during the option period. If any put is not exercised or sold, it will
become worthless on its expiration date.
B-3
<PAGE>
The Portfolio's option positions may be closed out only on an exchange
which provides a secondary market for options of the same series, but there can
be no assurance that a liquid secondary market will exist at a given time for
any particular option.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolio may buy and sell
stock index futures contracts and options on futures contracts. The Portfolio
will not engage in transactions in futures contracts or related options for
speculation, but may enter into futures contracts and related options for
hedging purposes, for the purpose of remaining fully invested or maintaining
liquidity to meet shareholder redemptions, to minimize trading costs, or to
invest cash balances.
A futures contract is an agreement between two parties to buy and sell
a security or an index for a set price on a future date. Futures contracts are
traded on designated "contract markets" which, through their clearing
corporations, guarantee performance of the contracts. Entering into a futures
contract for the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. Entering into futures contracts for the purchase of
securities has an effect similar to the actual purchase of the underlying
securities, but permits the continued holding of securities other than the
underlying securities.
A stock index futures contract does not require the physical delivery
of securities, but merely provides for profits and losses resulting from changes
in the market value of the contract to be credited or debited at the close of
each trading day to the respective accounts of the parties to the contract. On
the contract's expiration date, a final cash settlement occurs. Changes in the
market value of a particular stock index futures contract reflects changes in
the specified index of equity securities on which the future is based.
A futures option gives the holder, in return for the premium paid, the
right to buy (call) or sell (put) to the writer of the option a futures contract
at a specified price at any time during the term of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price.
There are several risks in connection with the use of futures
contracts. In the event of an imperfect correlation between the futures contract
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Portfolio may be exposed to risk of loss.
Further, unanticipated changes in interest rates or stock price movements may
result in a poorer overall performance for the Portfolio than if it had not
entered into any futures on stock indices.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
B-4
<PAGE>
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time.
Investments in futures options involve some of the same risks as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option, and an option may be more risky than
ownership of the futures contract. In general, the market prices of options are
more volatile than the market prices of the underlying futures contracts.
However, the purchase of options on futures contracts may involve less potential
risk to the Portfolio because the maximum amount at risk is limited to the
premium paid for the option plus transaction costs.
The Fund will not purchase or sell futures contracts or options on
futures contracts if, as a result, the sum of the amount of margin deposit on
the Portfolio's futures positions and premiums paid for such options would
exceed 5% of the market value of the Portfolio's net assets.
FOREIGN SECURITIES. The Portfolio may invest in foreign issuers in
foreign markets. In addition, the Portfolio may invest in American Depositary
Receipts ("ADRs"), which are receipts, usually issued by a U.S. bank or trust
company, evidencing ownership of the underlying securities. Generally, ADRs are
issued in registered form, denominated in U.S. dollars, and are designed for use
in the U.S. securities markets. A depositary may issue unsponsored ADRs without
the consent of the foreign issuer of securities, in which case the holder of the
ADR may incur higher costs and receive less information about the foreign issuer
than the holder of a sponsored ADR. The Portfolio may invest no more than 25% 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
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 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.
B-5
<PAGE>
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.
Short Sales. The Portfolio is authorized to make short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (referred to as short sales
"against the box") and to make short sales of securities which it does not
currently own or have the right to acquire, in an amount not exceeding 5% of the
Portfolio's net assets.
In a short sale that is not "against the box," the Portfolio sells a
security which it does not own, in anticipation of a decline in the market value
of the security. To complete the sale, the Portfolio must borrow the security
(generally from the broker through which the short sale is made) in order to
B-6
<PAGE>
make delivery to the buyer. The Portfolio is then obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. The Portfolio is said to have a "short position" in the securities
sold until it delivers them to the broker. The period during which the Portfolio
has a short position can range from one day to more than a year. Until the
security is replaced, the proceeds of the short sale are retained by the broker,
and the Portfolio is required to pay to the broker a negotiated portion of any
dividends or interest which accrue during the period of the loan. To meet
current margin requirements, the Portfolio is also required to deposit with the
broker additional cash or securities so that the total deposit with the broker
is maintained daily at 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by the Portfolio that are not made "against the box" create
opportunities to increase the Portfolio's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Portfolio in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Portfolio's net asset value per
share will tend to increase more when the securities it has sold short decrease
in value, and to decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in such short
sales. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium, dividends or interest the Portfolio may
be required to pay in connection with the short sale. Furthermore, under adverse
market conditions, the Portfolio might have difficulty purchasing securities to
meet its short sale delivery obligations, and might have to sell portfolio
securities to raise the capital necessary to meet its short sale obligations at
a time when fundamental investment considerations would not favor such sales.
If the Portfolio makes a short sale "against the box," the Portfolio
would not immediately deliver the securities sold and would not immediately
receive the proceeds from the sale. The seller is said to have a short position
in the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. To secure its obligation to deliver
securities sold short, the Portfolio will deposit in escrow in a separate
account with the Custodian an equal amount of the securities sold short or
securities convertible into or exchangeable for such securities. The Portfolio
can close out its short position by purchasing and delivering an equal amount of
the securities sold short, rather than by delivering securities already held by
the Portfolio, because the Portfolio might want to continue to receive interest
and dividend payments on securities in its portfolio that are convertible into
the securities sold short.
The Portfolio's decision to make a short sale "against the box" may be
a technique to hedge against market risks when the Adviser believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Portfolio or a security convertible into or exchangeable for such
security. In such case, any future losses in the Portfolio's long position would
be reduced by a gain in the short position. The extent to which such gains or
losses in the long position are reduced will depend upon the amount of
securities sold short relative to the amount of the securities the Portfolio
owns, either directly or indirectly, and, in the case where the Portfolio owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
B-7
<PAGE>
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements, which involve the sale of a security by the Portfolio and
its agreement to repurchase the security at a specified time and price. The
Portfolio will maintain in a segregated account with the Custodian cash, U.S.
Government securities or other appropriate liquid securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(no such collateral is required on such agreements with banks). Under the 1940
Act, these agreements are considered borrowings by the Portfolio and are subject
to the percentage limitations on borrowings described below. The agreements are
subject to the same types of risks as borrowings.
Borrowing. The Fund and the Portfolio each may borrow up to 10% of its
total assets from banks for temporary or emergency purposes, and may increase
its borrowings to up to one-third of its total assets (less its liabilities
other than borrowings) to meet redemption requests.
The use of borrowing by the Fund or Portfolio involves special risk
considerations. Since substantially all of the Fund's or Portfolio's assets
fluctuate in value, whereas the interest obligation resulting from a borrowing
remains fixed by the terms of the Fund's or Portfolio's agreement with its
lender, the asset value per share of the Fund or Portfolio tends to increase
more when its portfolio securities increase in value and to decrease more when
its portfolio assets decrease in value than would otherwise be the case if the
Fund or Portfolio did not borrow funds. In addition, interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the Fund or Portfolio might have to sell portfolio securities
to meet interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
LENDING FUND SECURITIES. To increase its income, the Portfolio may lend
its portfolio securities to financial institutions such as banks and brokers if
the loan is collateralized in accordance with applicable regulatory
requirements. The Portfolio has adopted an operating policy that limits the
amount of loans to not more than 25% of the value of the total assets of the
Portfolio. During the time portfolio securities are on loan, the borrower pays
the Portfolio an amount equivalent to any dividends or interest paid on such
securities, and the Portfolio may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or secured a letter of credit.
The amounts received by the Portfolio will be reduced by any fees and
administrative expenses associated with such loans. In addition, such loans
involve risks of delay in receiving additional collateral or in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially However, such securities lending will be made
only when, in PIC's judgment, the income to be earned from the loans justifies
the attendant risks. Loans are subject to termination at the option of the
Portfolio or the borrower.
SEGREGATED ACCOUNTS. When the Portfolio writes an option on securities
or futures, sells a futures contract or enters into a forward foreign currency
exchange contract, it will establish a segregated account with its custodian
bank, or a securities depository acting for it, to hold assets of the Portfolio
in order to insure that the Portfolio will be able to meet its obligations. In
the case of a futures contract, liquid securities will be maintained in the
segregated account equal in value to the current value of the underlying
contract, less the margin deposits. The margin deposits are also held, in cash
or U.S. Government securities, in the segregated account. In the case of a call
that has been written on securities or futures contracts, the securities or
futures contracts covering the option will be maintained in the segregated
account and cannot be sold by the Portfolio until released. In the case of a put
B-8
<PAGE>
that has been written on securities or futures contracts or a forward foreign
currency contract that has been entered into, liquid securities will be
maintained in the segregated account in an amount sufficient to meet the
Portfolio's obligations pursuant to the put or forward contract.
DEBT SECURITIES AND RATINGS. Ratings of debt securities represent the
rating agencies' opinions regarding their quality, are not a guarantee of
quality and may be reduced after the Portfolio has acquired the security. The
Advisor will consider whether the Portfolio should continue to hold the security
but is not required to dispose of it. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
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. Except with respect to borrowing, changes in values of assets of the
Fund or Portfolio will not cause a violation of the investment restrictions so
long as percentage restrictions are observed by the Fund or Portfolio at the
time it purchases any security.
ALTHOUGH THE FUND IS CLASSIFIED AS A "DIVERSIFIED" FUND, THE PORTFOLIO
is classified as a "non-diversified" fund. As provided in the 1940 Act, a
diversified fund has, with respect to at least 75% of its total assets, no more
than 5% of its total assets invested in the securities of one issuer, plus cash,
U.S. Government securities and securities of other investment companies.
However, the Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code, and therefore is subject to diversification
limits requiring that, as of the close of each fiscal quarter, (i) no more than
25% of the Portfolio's total assets may be invested in the securities of a
single issuer (other than U.S. Government securities), and (ii) with respect to
50% of the Portfolio's total assets, no more than 5% of such assets may be
invested in the securities of a single issuer (other than U.S. Government
securities) or invested in more than 10% of the outstanding voting securities of
a single issuer.
In addition, neither the Fund nor the Portfolio may:
1. Issue senior securities, borrow money or pledge its assets, except
that (a) 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); (b) the Fund or the Portfolio may borrow on an unsecured basis from
banks to meet redemption requests, provided that such borrowings will be made
only to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings (including borrowings pursuant to item (a) or
otherwise), is equal at all times to at least 300% of all borrowings (including
the proposed borrowing); and (c) the Fund will not make investments while
borrowings in excess of 5% of the value of its total assets are outstanding;
B-9
<PAGE>
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. 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);
5. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that the Fund may invest more than 25% of its
assets in shares of the Portfolio;
6. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Portfolio may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate);
7. Purchase or sell commodities or commodity futures contracts, except
that the Portfolio may purchase and sell stock index futures contracts and
options on such futures contracts;
8. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
9. Make loans (except for purchases of debt securities consistent with
the investment policies of the Fund and the Portfolio, repurchase agreements and
loans of portfolio securities); or
10. Make investments for the purpose of exercising control or
management.
The Fund and the Portfolio observe the following restrictions as a
matter of operating but not fundamental policy. Neither the Fund nor the
Portfolio may:
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 has 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-10
<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>
Position(s) Held
Name, Address and Age With the Trust Principal Occupation(s) During Past 5 Years
--------------------- -------------- -------------------------------------------
<S> <C> <C>
Thomas M. Mitchell (age 56)* Trustee and Managing Director of the Advisor since May 1995.
300 North Lake Avenue President Executive Vice President of the Advisor from May 1983
Pasadena, CA 91101 to May 1999.
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus Associates (consulting
76 Seaview Drive firm).
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's Restaurants, Inc.
234 E. Colorado Blvd. (restaurant company); formerly, Chairman of Lawry's
Pasadena, CA 91101 Foods, Inc. (restaurants and food seasoning).
James Clayburn LaForce (age 76) Trustee Dean Emeritus, John E. Anderson Graduate School of
P.O. Box 1585 Management, University of California, Los Angeles.
Pauma Valley, CA 92061 Director of The BlackRock Funds and Trustee of The
Payden & Rygel Investment Group and Trust for
Investment Managers (registered investment companies).
Director of the Timken Co. (bearings and alloy steel
manufacturing firm), Rockwell International (defense
contractor), Eli Lily (pharmaceuticals company), Jacobs
Engineering Group (engineering firm).
Angelo R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice President of
155 N. Lake Avenue Countrywide Credit Industries (mortgage banking).
Pasadena, CA 91101
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery Dennison
150 N. Orange Grove Blvd. Corporation (pressure sensitive material and office
Pasadena, CA 91103 products manufacturer).
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. (age 37) Vice President Senior Vice President of the Advisor.
300 North Lake Avenue and Secretary
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
</TABLE>
B-11
<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>
Position(s) Held
Name, Address and Age With the Trust Principal Occupation(s) During Past 5 Years
--------------------- -------------- -------------------------------------------
<S> <C> <C>
Thomas M. Mitchell (age 56)* Trustee and Managing Director of the Advisor since May 1995.
300 North Lake Avenue President Executive Vice President of the Advisor from May 1983
Pasadena, CA 91101 to May 1999.
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus Associates (consulting
76 Seaview Drive firm).
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's Restaurants, Inc.
234 E. Colorado Blvd. (restaurant company); formerly, Chairman of Lawry's
Pasadena, CA 91101 Foods, Inc. (restaurants and food seasoning).
James Clayburn LaForce (age 76) Trustee Dean Emeritus, John E. Anderson Graduate School of
P.O. Box 1585 Management, University of California, Los Angeles.
Pauma Valley, CA 92061 Director of The BlackRock Funds and Trustee of The
Payden & Rygel Investment Group and Trust for
Investment Managers (registered investment companies).
Director of the Timken Co. (bearings and alloy steel
manufacturing firm), Rockwell International (defense
contractor), Eli Lily (pharmaceuticals company), Jacobs
Engineering Group (engineering firm).
Angelo R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice President of
155 N. Lake Avenue Countrywide Credit Industries (mortgage banking).
Pasadena, CA 91101
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of Avery Dennison
150 N. Orange Grove Blvd. Corporation (pressure sensitive material and office
Pasadena, CA 91103 products manufacturer).
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. (age 37) Vice President Senior Vice President of the Advisor.
300 North Lake Avenue and Secretary
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
</TABLE>
----------
* denotes Trustees who are "interested persons" of the Trust or Portfolio
under the 1940 Act.
B-12
<PAGE>
The following compensation was paid to each of the following Trustees
during the Trust's last fiscal year. 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
Compensation Total
Deferred Accrued as Compensation
Aggregate Aggregate Compensation Part of From Trust and
Compensation Compensation Accrued as Part Portfolios Portfolios paid
Name of Trustee from Trust from Portfolios of Trust Expenses Expenses to Trustee
--------------- ---------- --------------- -------- -------- ----------
<S> <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>
All of the outstanding shares of the Fund as of September 29, 2000 are
owned by Larry D Tashjiam, La Canada, CA 91011, an affiliate of the Advisor.
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
B-13
<PAGE>
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 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 0.80% of its average net assets. However, the Advisor has agreed
to limit the aggregate expenses of the Portfolio to 1.60% of its 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 an Administration Agreement, 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 the Fund. However, the Advisor has agreed
to limit the aggregate expenses of the Fund to 1.60% of its average daily net
assets.
B-14
<PAGE>
THE ADMINISTRATOR
The Fund and the Portfolio each pay a monthly administration fee to
Investment Company Administration, LLC for managing some of their business
affairs.
THE DISTRIBUTOR
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E,
Phoenix AZ 85018, is the Trust's principal underwriter.
CUSTODIAN AND AUDITORS
The Trust's custodian, Provident National Bank, 200 Stevens Drive,
Lester, PA 19113 is responsible for holding the Fund's 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'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 Advisor
may select brokers who sell shares of the Portfolio or the Fund.
The Advisory Agreement states that the commissions paid to brokers may
be higher than another broker would have charged if a good faith determination
is made by the Advisor that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities as to the accounts as to which it exercises
investment discretion and that the Advisor shall use its judgment in determining
that the amount of commissions paid are reasonable in relation to the value of
brokerage and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of commission rates
reflecting such services. The Advisory Agreement provides that to demonstrate
that such determinations were in good faith, and to show the overall
reasonableness of commissions paid, the Advisor shall be prepared to show that
commissions paid (i) were for purposes contemplated by the Advisory Agreement;
(ii) were for products or services which provide lawful and appropriate
assistance to its decision-making process; and (iii) were within a reasonable
range as compared to the rates charged by brokers to other institutional
investors as such rates may become known from available information.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Portfolio in the valuation of its investments. The
research which the Advisor receives for the Portfolio's brokerage commissions,
B-15
<PAGE>
whether or not useful to the Portfolio, may be useful to it in managing the
accounts of its other advisory clients. Similarly, the research received for the
commissions may be useful to the Portfolio.
The debt securities are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission although
the price of the security usually includes a profit to the dealer. Money market
instruments usually trade on a "net" basis as well. On occasion, certain money
market instruments may be purchased by the Portfolio directly from an issuer in
which case no commissions or discounts are paid. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
PORTFOLIO TURNOVER
Although the Portfolio generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they 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 the Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Portfolio Transactions
and Brokerage." The Portfolio's portfolio turnover rate is not expected to
exceed 200%.
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.
NET ASSET VALUE
The net asset value of the Fund'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 net asset value per share is computed by dividing the value of the
securities held by the FUND, plus any cash or other assets HELD BY THE FUND,
minus all liabilities (including accrued expenses), by the total number of
SHARES OF the FUND outstanding at such time. SUBSTANTIALLY ALL OF THE ASSETS OF
THE FUND ARE INVESTED IN SHARES OF THE PIC TECHNOLOGY PORTFOLIO, AND THE VALUE
OF THE SECURITIES HELD BY THE FUND WILL BE THE FUND'S PROPORTIONATE SHARE OF THE
VALUE OF THE SECURITIES HELD BY THE PORTFOLIO, PLUS ANY CASH OR OTHER ASSETS
HELD BY THE PORTFOLIO (INCLUDING INTEREST AND DIVIDENDS ACCRUED BUT NOT YET
RECEIVED), MINUS ANY LIABILITIES OF THE PORTFOLIO (INCLUDING ACCRUED EXPENSES).
B-16
<PAGE>
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 a separate entity 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 qualifies, the Fund (but not its shareholders) will be relieved of
federal income tax on its 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 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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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:
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.
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
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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.
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 Trust 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 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 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 twelve 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 Funds by the Trustees, generally on the
basis of the relative net assets of each Fund.
The Fund is one of a series of shares, each having separate assets and
liabilities, 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
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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,
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.
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APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
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
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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.
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.
