[PROVIDENT INVESTMENT COUNSEL LOGO]
PROVIDENT
INVESTMENT COUNSEL
FUNDS A AND B
BALANCED FUND
GROWTH FUND
MID CAP FUND
SMALL COMPANY
GROWTH FUND
PROVIDENT
INVESTMENT COUNSEL
FUNDS C
MID CAP FUND
SMALL COMPANY
GROWTH FUND
PROSPECTUS
MARCH 1, 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 Funds invest and
the services available to shareholders.
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CONTENTS
KEY FACTS 3 AN OVERVIEW OF THE FUNDS
3 RISK/RETURN SUMMARY
3 THE PRINCIPAL GOALS, STRATEGIES AND
RISKS OF THE FUNDS
6 WHO MAY WANT TO INVEST
6 PERFORMANCE
10 FEES AND EXPENSES
13 STRUCTURE OF THE FUNDS AND THE PORTFOLIOS
14 MORE INFORMATION ABOUT THE FUNDS'
INVESTMENTS, STRATEGIES AND RISKS
16 MANAGEMENT
17 THE ADVISOR'S HISTORICAL PERFORMANCE DATA
YOUR ACCOUNT 19 WAYS TO SET UP YOUR ACCOUNT
20 CALCULATION OF NET ASSET VALUE
20 DECIDING WHICH FEE STRUCTURE
IS BEST FOR YOU
22 DISTRIBUTION (12b-1) PLANS
22 SHAREHOLDER SERVICES PLAN
23 HOW TO BUY SHARES
23 HOW TO SELL SHARES
25 IMPORTANT REDEMPTION INFORMATION
26 INVESTOR SERVICES
SHAREHOLDER ACCOUNT POLICIES 27 DIVIDENDS, CAPITAL GAINS AND TAXES
27 DISTRIBUTION OPTIONS
27 UNDERSTANDING DISTRIBUTIONS
27 TRANSACTION DETAILS
29 FINANCIAL HIGHLIGHTS
PROSPECTUS 2
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KEY FACTS
AN OVERVIEW OF THE FUNDS
MANAGEMENT: Provident Investment Counsel (PIC), located in Pasadena, California
since 1951, is the Funds' Advisor. At December 31, 1999, total assets under
PIC's management were over $23 billion.
STRUCTURE: Unlike most mutual funds, each Fund's investment in portfolio
securities is indirect. A Fund first invests all of its assets in a PIC
Portfolio. The PIC Portfolio, in turn, acquires and manages individual
securities. Each Fund has the same investment objective as the PIC Portfolio in
which it invests. This is often referred to as a master-feeder fund structure.
Investors should carefully consider this investment approach.
The Balanced Fund A and Balanced Fund B (the "Balanced Funds") have the same
investment objective and invest in the PIC Balanced Portfolio. The Growth Fund A
and Growth Fund B (the "Growth Funds") have the same investment objective and
invest in the PIC Growth Portfolio. The Mid Cap Fund A, Mid Cap Fund B and Mid
Cap Fund C (the "Mid Cap Funds") have the same investment objective and invest
in PIC Mid Cap Portfolio. The Small Company Growth Fund A, Small Company Growth
Fund B and Small Company Growth Fund C (the "Small Company Growth Funds") have
the same investment objective and invest in the PIC Small Cap Portfolio.
For reasons relating to costs or a change in investment goal, among others, each
Fund could switch to another pooled investment company or decide to manage its
assets itself. None of the Funds in the Prospectus is currently contemplating
such a move.
RISK/RETURN SUMMARY
THE PRINCIPAL GOALS, STRATEGIES AND RISKS OF THE FUNDS
BALANCED FUNDS
GOAL: Total return -- that is, a combination of income and capital growth, while
preserving capital.
STRATEGY: Invest, through the PIC Balanced Portfolio, in a combination of growth
stocks and high quality bonds. Although the percentage of assets allocated
between equity and fixed-income securities is flexible, depending on market
conditions, PIC expects that between 25% and 75% of the Portfolio's assets will
be invested in either equity securities or fixed-income securities. In selecting
common stocks, PIC does an analysis of, and invests in, individual companies
which are currently experiencing a growth of earnings and revenue which is above
the average relative to its industry peers and the equity market in general.
Although PIC may invest in companies of any size, it may choose to invest a
significant portion of the Balanced Portfolio's assets in small, medium and
large companies. The Balanced Portfolio will invest only in fixed-income
securities that have been rated investment grade by a nationally recognized
statistical rating agency, or are the unrated equivalent. The Balanced Portfolio
does not stress investments in fixed-income securities of any particular
maturity. In selecting fixed-income securities, PIC examines the relationship
between long-term and short-term interest rates and the current economic
environment.
3 PROSPECTUS
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KEY FACTS -- CONTINUED
RISKS: These primary investment risks apply to the Funds: market, bond, small
and medium company and high portfolio turnover. See page 5 for these risks and
primary investment risks common to all the Funds.
GROWTH FUNDS
GOAL: Long term growth of capital.
STRATEGY: The Growth Funds invest in the PIC Growth Portfolio. The Growth
Portfolio invests at least 65% of its assets in growth stocks. PIC defines
growth stocks as the stocks of those companies with high rates of growth in
sales and earnings, strong financial characteristics, a proprietary product,
industry leadership, significant management ownership and well thought out
management goals, plans and controls. Although PIC may invest in companies of
any size, it may choose to invest a significant portion of the Growth
Portfolio's assets in small and medium companies. In selecting common stocks,
PIC does an analysis of, and invests in, individual companies which are
currently experiencing a growth of earnings and revenue which is above the
average relative to its industry peers and the domestic equity market in
general.
RISKS: These primary investments risks apply to the Funds: market and small and
medium company. See page 5 for these risks and primary investment risks common
to all of the Funds.
MID CAP FUNDS
GOAL: Long term growth of capital.
STRATEGY: The Mid Cap Funds invest in the PIC Mid Cap Portfolio. The Mid Cap
Portfolio invests at least 65% of its assets primarily in the common stock of
medium-sized companies at time of initial purchase. Medium-sized companies are
those whose market capitalizations at the time of initial purchase are $1
billion to $10 billion and/or those securities included in the Russell Midcap
Growth Index. In selecting investments, PIC does an analysis of individual
companies and invests in those medium-capitalization companies which it believes
have the best prospects for future growth of earnings and revenue.
RISKS: These primary investment risks apply to the Funds: market, small and
medium company and high portfolio turnover. See page 5 for these risks and
primary investment risks common to all of the Funds.
SMALL COMPANY GROWTH FUNDS
GOAL: Long term growth of capital.
STRATEGY: The Small Company Growth Funds invest in the PIC Small Cap Portfolio.
The Small Cap Portfolio invests at least 65% of its assets primarily in the
common stock of small-capitalization companies. Small-capitalization companies
are those whose market capitalization or annual revenues at the time of initial
purchase are $50 million to $2 billion. In selecting investments, PIC does an
analysis of individual companies and invests in those small-capitalization
companies which it believes have the best prospects for future growth of
earnings and revenue.
RISKS: These primary investment risks apply to the Funds: market, small and
medium company and high portfolio turnover. See page 5 for these risks and
primary investment risks common to all of the Funds.
PROSPECTUS 4
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THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS
By itself, no Fund is a complete, balanced investment plan. And no Fund can
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 any of the Funds. For
example, the following risks could affect the value of your investment:
MARKET RISK: The value of each Fund's investments will vary from day to day. The
value of the Funds' investment generally reflects 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.
SMALL AND MEDIUM COMPANY RISK: Each Fund may invest in the securities of small
and medium- sized companies. However, the Mid Cap Funds primarily invest in the
securities of medium-sized companies and the Small Company Growth Funds
primarily invest in the securities of small-sized companies. The securities of
medium and small, less well-known companies may be more volatile than those of
larger companies. Such companies may have limited product lines, markets or
financial resources and their securities may have limited market liquidity.
These risks are greater for small-sized companies.
BOND RISK: The Balanced Funds invest in bonds. A bond's market value is affected
significantly by changes in interest rates. Generally, when interest rates rise,
the bond's market value declines and when interest rates decline, its market
value rises. Generally, the longer a bond's maturity, the greater the risk and
the higher its yield. Conversely, the shorter a bond's maturity, the lower the
risk and the lower its yield. A bond's value can also be affected by changes in
the bond's credit quality rating or its issuer's financial condition. To the
extent the Funds invest in mortgage-backed securities, they will be subject to
prepayment risk. When interest rates decline, mortgagees often prepay the
principal on these securities which may significantly lower their yield.
PORTFOLIO TURNOVER RISK: With the exception of the Growth Funds, the Funds may
experience high portfolio turnover. A high portfolio turnover rate (100% or
more) 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
transactions costs, which could negatively affect a Fund's performance.
5 PROSPECTUS
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KEY FACTS - CONTINUED
WHO MAY WANT TO INVEST
The Balanced Funds may be appropriate for investors who seek long-term total
return, but hope to see less fluctuation in the value of their investment.
The Growth Funds may be appropriate for investors who are seeking capital
appreciation through a diversified portfolio of securities of companies of any
size, but are willing to accept the greater risk of investing in growth stocks.
The Mid Cap Funds may be appropriate for investors who are seeking capital
appreciation through a portfolio of medium-size companies and are willing to
accept the greater risk of investing in such companies.
The Small Company Growth Funds may be appropriate for investors who are seeking
capital appreciation through a portfolio of small-size companies and are willing
to accept the greater risk of investing in such companies.
Investments in the Funds are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE
The following performance information indicates some of the risks of investing
in the Funds A. The bar charts show how the Funds' total returns have varied
from year to year. The tables show the Funds' average returns over time compared
with broad-based market indexes. The bar charts do not reflect sales charges,
which would lower the returns shown. In prior years, the Mid Cap Fund compared
its performance to the Russell Midcap Index. It now compares its performance to
the Russell Midcap Growth Index because this Index more accurately reflects the
investment policies and strategies of the Fund. This past performance will not
necessarily continue in the future. Because the Funds B and Funds C have been in
operation for less than a full calendar year, their total return bar chart and
performance table have not been included.
PROSPECTUS 6
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Balanced Fund A
Calendar Year Total Returns (%)
1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
2.69 -3.13 22.31 15.56 22.32 31.12 21.39
Best quarter: up 19.31%, 4th quarter 1999
Worst quarter: down -5.09%, 3rd quarter 1998
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Since Inception
1 Year 5 Years June 11, 1992
------ ------- -------------
Balanced Fund A+ 14.41% 21.00% 15.06%
Lipper Balanced Fund Index* 8.98 16.33 12.80
S&P 500 Index** 21.14 28.66 21.05
Lehman Brothers Government/Corporate
Bond Index*** -2.15 7.61 6.79
S&P 500 Index and Lehman Brothers
Government/Corporate Bond Index**** 11.45 20.09 15.22
- ----------
+ Includes maximum sales charge.
* The Lipper Balanced Fund Index measures the performance of those mutual
funds that Lipper Analytical Services, Inc. has classified as "balanced."
Balanced funds maintain a portfolio of both stocks and bonds, typically
with a stock ratio of approximately 60% of assets and a bond ratio of of
approximately 40% of assets. The funds in this index have a similar
investment objective as the Balanced Funds.
** The S&P 500 Index is an unmanaged index generally representative of the
market for stocks of large-sized companies.
*** The Lehman Brothers Government/Corporate Bond Index is an unmanaged
market-weighted index which is generally regarded as representative of the
market for domestic bonds.
**** These figures represent a blend of the performance of both the S&P 500
Index (60%) and the Lehman Brothers Government/Corporate Bond Index (40%)
rebalanced monthly. This combined index was created by PIC because it
reflects the asset allocation between equity and fixed-income securities
that PIC intends to maintain.
7 PROSPECTUS
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KEY FACTS - CONTINUED
Growth Fund A
Calendar Year Total Returns (%)
1998 1999
---- ----
39.16 34.35
Best quarter: up 28.97%, 4th quarter 1999
Worst quarter: down -8.78%, 3rd quarter 1998
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Since Inception
1 Year February 3, 1997
------ ----------------
Growth Fund A+ 26.63% 28.34%
S&P 500 Index* 21.14 25.87
Russell 1000 Growth Index** 33.16 32.22
- ----------
+ Includes maximum sales charge.
* The S&P 500 Index is an unmanaged index generally representative of the
market for the stocks of large-sized U.S. companies.
** The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. The Russell 1000 Index is a recognized index of
large-capitalization companies.
PROSPECTUS 8
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Mid Cap Fund A
Calendar Year Total Returns (%)
1998 1999
---- ----
26.30 83.33
Best quarter: up 56.66%, 4th quarter 1999
Worst quarter: down -15.72%, 3rd quarter 1998
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Since Inception
1 Year December 31, 1997
------ -----------------
Mid Cap Fund A+ 72.79% 47.73%
Russell Midcap Growth Index* 51.29 33.54
- ----------
+ Includes maximum sales charge.
* The Russell Midcap Growth Index measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values.
9 PROSPECTUS
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KEY FACTS - CONTINUED
Small Company Growth Fund A
Calendar Year Total Returns (%)
1998 1999
---- ----
5.26 90.87
Best quarter: up 59.44%, 4th quarter 1999
Worst quarter: down -24.84%, 3rd quarter 1998
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
Since Inception
1 Year February 3, 1997
------ ----------------
Small Company Growth Fund A+ 79.89% 24.05%
Russell 2000 Growth Index* 43.09 17.54
- ----------
+ Includes maximum sales charge.
* The Russell 2000 Growth Index measures the performance of those companies
in the Russell 2000 Index with higher price-to-book ratios and lower
forecasted growth values. The Russell 2000 Index is a recognized index of
small-capitalization companies.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
Provident Provident Provident
Investment Investment Investment
Counsel Counsel Counsel
Funds A Funds B Funds C
------- ------- -------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 5.75% None None
Maximum deferred sales (load) charge
(as a percentage of purchase or sale
price whichever is less) None 5.00% 1.00%
Redemption fee None** None None
Exchange fee None None None
- ----------
** Shareholders who buy $1 million of Fund A shares without paying a sales
charge will be charged a 1% fee on redemptions made within one year of
purchase.
PROSPECTUS 10
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ANNUAL FUND OPERATING EXPENSES*
(expenses that are deducted from Fund assets)
Small
Company
Balanced Growth Mid Cap Growth
Fund A Fund A Fund A Fund A
------ ------ ------ ------
Management Fee (paid by the Portfolio) 0.60% 0.80% 0.70% 0.80%
Distribution and Service (12b-1) Fees
(paid by the Fund) 0.25% 0.25% 0.25% 0.25%
Other Expenses** (paid by the Fund
and the Portfolio) 0.60% 1.22% 1.11% 6.00%
Administration Fee to PIC
(paid by the Fund) 0.20% 0.20% 0.20% 0.20%
Shareholder Services Fee
(paid by the Fund) 0.15% 0.15% 0.15% 0.15%
------ ------ ------ -------
Total Annual Fund Operating Expenses 1.80% 2.62% 2.41% 7.40%
Expense Reimbursements *** (0.75%) (1.27%) (1.02%) (5.85%)
------ ------ ------ -------
Net Expenses 1.05% 1.35% 1.39% 1.55%
====== ====== ====== =======
Small
Company
Balanced Growth Mid Cap Growth
Fund B Fund B Fund B Fund B
------ ------ ------ ------
Management Fee (paid by the Portfolio) 0.60% 0.80% 0.70% 0.80%
Distribution and Service (12b-1) Fees
(paid by the Fund) 1.00% 1.00% 1.00% 1.00%
Other Expenses** (paid by the Fund
and the Portfolio) 44.43% 24.68% 94.39% 204.41%
Administration Fee to PIC
(paid by the Fund) 0.20% 0.20% 0.20% 0.20%
------ ------ ------ -------
Total Annual Fund Operating Expenses 46.23% 26.68% 96.29% 206.41%
Expense Reimbursements *** (44.33%) (24.58%) (94.15%) (204.11%)
------ ------ ------ -------
Net Expenses 1.90% 2.10% 2.14% 2.30%
====== ====== ====== =======
- ----------
* The tables above and the Examples below reflect the expenses of the Funds
and the Portfolios.
** Other Expenses are based on estimated amounts for the current fiscal year.
*** Pursuant to a contract with the Funds, PIC has agreed to reimburse each
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 Funds if, within three
subsequent years, a 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.
11 PROSPECTUS
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KEY FACTS - CONTINUED
ANNUAL FUND OPERATING EXPENSES* - CONTINUED
Small
Company
Mid Cap Growth
Fund C Fund C
------ ------
Management Fee (paid by the Portfolio) 0.70% 0.80%
Distribution and Service (12b-1) Fees
(paid by the Fund) 1.00% 1.00%
Other Expenses** (paid by the Fund
and the Portfolio) 1.86% 3.00%
Administration Fee to PIC
(paid by the Fund) 0.20% 0.20%
------ ------
Total Annual Fund Operating Expenses 3.76% 5.00%
Expense Reimbursements *** (1.62%) (2.70%)
------ ------
Net Expenses 2.14% 2.30%
====== ======
- ----------
* The tables above and the Examples below reflect the expenses of the Funds
and the Portfolios.
** Other Expenses are based on estimated amounts for the current fiscal year.
*** Pursuant to a contract with the Funds, PIC has agreed to reimburse each
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 Funds if, within three
subsequent years, a 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.
EXAMPLES: These examples will help you compare the cost of investing in the
Funds 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 each 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:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Balanced Fund A $676 $ 890 $1,121 $1,784
Balanced Fund B $693 $ 897 $1,226 $2,222
Growth Fund A $705 $ 978 $1,272 $2,105
Growth Fund B $713 $ 958 $1,329 $2,431
Mid Cap Fund A $708 $ 990 $1,292 $2,148
Mid Cap Fund B $717 $ 970 $1,349 $2,472
Mid Cap Fund C $317 $ 670 N/A N/A
Small Company Growth Fund A $724 $1,036 $1,371 $2,314
Small Company Growth Fund B $733 $1,018 $1,433 $2,636
Small Company Growth Fund C $333 $ 718 N/A N/A
PROSPECTUS 12
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You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Balanced Fund A $676 $ 890 $1,121 $1,784
Balanced Fund B $193 $ 597 $1,026 $2,222
Growth Fund A $705 $ 978 $1,272 $2,105
Growth Fund B $213 $ 658 $1,129 $2,431
Mid Cap Fund A $708 $ 990 $1,292 $2,148
Mid Cap Fund B $217 $ 670 $1,149 $2,472
Mid Cap Fund C $217 $ 670 N/A N/A
Small Company Growth Fund A $724 $1,036 $1,371 $2,314
Small Company Growth Fund B $233 $ 718 $1,230 $2,636
Small Company Growth Fund C $233 $ 718 N/A N/A
STRUCTURE OF THE FUNDS AND THE PORTFOLIOS
Each Fund seeks to achieve its investment objective by investing all of its
assets in a PIC Portfolio. Each Portfolio is a separate registered investment
company with the same investment objective as the Fund. Since a Fund will not
invest in any securities other than shares of a Portfolio, investors in the Fund
will acquire only an indirect interest in the Portfolio. Each Fund's and
Portfolio's investment objective cannot be changed without shareholder approval.
A Portfolio may sell its shares to other funds and institutions as well as to a
Fund. All who invest in a 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 Funds'
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.
13 PROSPECTUS
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MORE INFORMATION ABOUT THE FUNDS' INVESTMENTS, STRATEGIES AND RISKS
As described earlier, each Fund invests all of its assets in a PIC Portfolio.
This section gives more information about how the PIC Portfolios invest.
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 Portfolios to discuss their
abilities to generate strong revenue and earnings growth in the future.
PIC's investment professionals focus on individual companies rather than trying
to identify the best market sectors going forward. This is often referred to as
a "bottom-up" approach to investing. PIC seeks companies that have displayed
exceptional profitability, market share, return on equity, reinvestment rates
and sales and dividend growth. Companies with significant management ownership
of stock, strong management goals, plans and controls; and leading proprietary
positions in given market niches are especially attractive. Finally, the
valuation of each company is assessed relative to its industry, earnings growth
and the market in general.
Each Portfolio invests to a limited degree 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;
(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.
Each Portfolio seeks to spread investment risk by diversifying its holdings
among many companies and industries. PIC normally invests each Portfolio's
assets according to its investment strategy. However, each 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,
a Fund would not be seeking its investment objective.
PROSPECTUS 14
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PROVIDENT INVESTMENT COUNSEL
BALANCED FUNDS
The Balanced Funds seek total return while preserving capital by investing in
the PIC Balanced Portfolio. The Balanced Portfolio will attempt to achieve total
return through investments in equity and fixed-income securities. The
Portfolio's investments in equity securities will principally be in shares of
common stock. Although the Portfolio will invest a minimum of 25% of its total
assets in fixed-income securities, the percentage of assets allocated between
fixed-income and equity securities is flexible.
In selecting investments for the Balanced Portfolio, PIC will include the common
stock of companies of various sizes which are currently experiencing a growth of
earnings and revenue which is above the average relative to its industry peers
and the equity market general. The Balanced Portfolio will invest in a range of
small, medium and large companies.
The Balanced Portfolio will also invest at least 25%, and may invest up to 70%,
of its total assets in fixed-income securities, both to earn current income and
to achieve gains from an increase in the value of the fixed-income securities.
The types of fixed-income securities in which the Balanced Portfolio will invest
include U.S. dollar denominated corporate debt securities and U.S. Government
securities. The Balanced Portfolio will invest only in fixed-income securities
that are rated investment grade by a nationally recognized statistical rating
agency, or are the unrated equivalent. Lower-rated securities have higher credit
risks. In selecting fixed-income securities, PIC does not stress any particular
target maturity. Rather, the Balanced Portfolio will invest in any maturity PIC
deems the most favorable at the time.
Fixed-income securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term fixed-income securities
are generally more sensitive to interest rate changes than short-term
fixed-income securities. In general, prices of fixed-income securities rise when
interest rates fall, and vice versa.
In selecting fixed-income securities, PIC does not base its investment decisions
on forecasts of future interest rates or economic events. Rather, in selecting
fixed-income securities for the Balanced Portfolio, PIC examines the
relationship between long-term and short-term interest rates, taking into
account historical relationships and the current economic environment. PIC seeks
to identify sectors and individual securities within certain sectors, which it
has determined are undervalued. PIC's analysis takes into account historical
data and current market conditions.
PROVIDENT INVESTMENT COUNSEL
GROWTH FUNDS
The Growth Funds seek long term growth of capital by investing in the PIC Growth
Portfolio, which in turn invests primarily in shares of common stock. Under
normal circumstances, the Growth Portfolio will invest at least 65% of its
assets in shares of common stock. In selecting investments for the Growth
Portfolio, PIC will include companies of various sizes which are currently
experiencing a growth of earnings and revenue which is
15 PROSPECTUS
PROVIDENT INVESTMENT COUNSEL
MID CAP FUNDS
above the average relative to its industry peers and the stock market in
general.
The Mid Cap Funds seek long term growth of capital by investing in the PIC Mid
Cap Portfolio, which in turn invests primarily in the common stock of
medium-sized companies.
PIC will invest at least 65%, and normally at least 95%, of the Mid Cap
Portfolio's total assets in these securities. The Mid Cap Portfolio has
flexibility, however, to invest the balance in other market capitalizations and
security types. Investing in medium capitalization stocks may involve greater
risk than investing in large capitalization stocks, since they can be subject to
more abrupt or erratic movements in value. However they tend to involve less
risk than stocks of small companies.
PROVIDENT INVESTMENT COUNSEL
SMALL COMPANY GROWTH FUNDS
The Small Company Growth Funds seek long term growth of capital by investing in
the PIC Small Cap Portfolio, which in turn invests primarily in the common stock
of small companies.
PIC will invest at least 65%, and normally at least 95%, of the Portfolio's
total assets in these securities. The Small Cap Portfolio has flexibility,
however, to invest the balance in other market capitalizations and security
types. Investing in small capitalization stocks may involve greater risk than
investing in large or medium capitalization stocks, since they can be subject to
more abrupt or erratic movements in value. Small companies may have limited
product lines, markets or financial resources and their management may be
dependent on a limited number of key individuals. Securities of these companies
may have limited market liquidity and their prices tend to be more volatile.
MANAGEMENT
PIC is the advisor to the PIC Portfolios, in which the respective Funds invest.
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
formulates and implements an investment program for each of the Portfolios,
including determining which securities should be bought and sold.
Each Portfolio pays an investment advisory fee to PIC for managing the
Portfolio's investments. Last year, as a percentage of net assets, net of
waiver, the Balanced Portfolio paid PIC 0.32%; the Growth Portfolio paid 0.80%
and the Small Cap Portfolio paid 0.80%. For the same period, PIC waived all
investment advisory fees due from the Mid Cap Portfolio.
PROSPECTUS 16
<PAGE>
THE ADVISOR'S HISTORICAL
PERFORMANCE DATA
The investment results presented below are not the results of the Funds. They
are for composites of all accounts managed by PIC with substantially similar
investment objectives and strategies to the Funds.
Composite results have been prepared in accordance with the AIMR Performance
Presentation Standards for periods commencing January 1, 1993. Rates of return
for the periods prior to 1993 do not comply with the AIMR Standards as they are
calculated on an equal weighted basis rather than asset weighted basis. AIMR is
a non-profit membership and education organization with more than 60,000 members
worldwide that, among other things, has formulated a set for performance
presentation standards for investment advisers. These AIMR performance
presentation standards are intended to (i) promote full and fair presentations
by investment advisers of their performance results, and (ii) ensure uniformity
in reporting so that performance results of investments advisers are directly
comparable.
All returns presented were calculated on a total return basis and include all
dividends and interest, accrued income and realized and unrealized gains and
losses. All returns do not reflect investment management fees and other
operating expenses paid by the accounts in the composites. Securities
transactions are accounted for on the trade date and accrual accounting is
utilized. Cash and equivalents are included in performance returns. The
composites' returns are calculated on a time-weighted basis.
These composites are unaudited and are not intended to predict or suggest the
returns that might be expected for the Funds. Figures reflect average annual
returns. Average annual total returns show that cumulative total returns for a
stated time period (i.e., 3, 7 or 10 years) have been averaged over the period.
You should note that the Funds will compute and disclose average annual return
using the standard formula set forth in SEC rules, which differs in certain
respects from the methodology used below to calculate PIC's performance. The SEC
total return calculation method calls for computation and disclosure of an
average annual compounded rate of return for one, five and ten year periods or
shorter periods, from inception. The calculation provides a rate of return that
equates a hypothetical initial investment of $1,000 to an ending redeemable
value. The formula requires that returns to be shown for the Funds will be net
of advisory fees as well as any maximum applicable sales charges and all other
Fund operating expenses.
The accounts included in the composites are not mutual funds and are not subject
to the same rules and regulations imposed by the 1940 Act and the Internal
Revenue Code (for example, diversification and liquidity requirements and
restrictions on transactions with affiliates) as the Funds or to the same types
of expenses that the Funds pay. These differences might have adversely affected
the performance figures shown below. The Indices are not managed and do not pay
any fees or expenses.
17 PROSPECTUS
<PAGE>
PERFORMANCE ENDED DECEMBER 31, 1999
1 3 7 10
Year Years Years Years
---- ----- ----- -----
PIC Balanced Composite 21.11% 25.86% 17.07% 17.80%
Lipper Balanced Fund Index(1) 8.98 14.69 12.89 12.26
S&P 500 Index(2) 21.14 27.66 21.59 18.25
Lehman Brothers Government/
Corporate Bond Index(3) (2.15) 5.55 6.42 7.65
S&P 500 Index/Lehman Brothers
Government/Corporate Bond Index(4) 11.45 18.73 15.51 14.11
PIC Large Cap Growth Equity Composite 35.53% 34.91% 21.72% 22.40%
S&P 500 Index(2) 21.14 27.66 21.59 18.25
Russell 1000 Growth Index(5) 33.16 34.07 23.17 20.32
PIC Mid Cap Growth Equity Composite 86.92% 37.52% 23.41% 24.18%
Russell Midcap Growth Index(6) 51.29 29.77 20.74 18.95
PIC Small Cap Growth Commingled Fund 86.41% 26.00% 24.63% 24.51%
Russell 2000 Growth Index(7) 43.09 17.83 14.87 13.51
- ----------
(1) The Lipper Balanced Fund Index measures the performance of those mutual
funds that Lipper Analytical Services, Inc. has classified as "balanced."
Balanced funds maintain a portfolio of both stocks and bonds, typically
with a stock ratio of approximately 60% of assets and a bond ratio of
approximately 40% of assets. The funds in this index have a similar
investment objective as the Balanced Funds.
(2) The S&P 500 Index is an unmanaged index generally representative of the
market for stocks of large-sized companies.
(3) The Lehman Brothers Government/Corporate Bond Index is an unmanaged
market-weighted index which is generally regarded as representative of the
market for domestic bonds.
(4) These figures represent a blend of the performance of both the S&P 500
Index (60%) and the Lehman Brothers Government/Corporate Bond Index (40%)
rebalanced monthly. This combined index mirrors the composition of the PIC
Balanced Composite.
(5) The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. The Russell 1000 Index is a recognized index of larger
capitalization companies.
(6) The Russell Midcap Growth Index measures the performance of those companies
in the Russell 1000 Growth Index with higher price-to-book ratios and
higher forecasted growth values. The Russell 1000 Growth Index is a
recognized index of larger capitalization companies.
(7) The Russell 2000 Growth Index measures the performance of those companies
in the Russell 2000 Index with higher price-to-book ratios and lower
forecasted growth values. The Russell 2000 Index is a recognized index of
small-capitalization companies.
PROSPECTUS 18
<PAGE>
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.
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.
19 PROSPECTUS
<PAGE>
YOUR ACCOUNT - CONTINUED
CALCULATION OF NET ASSET VALUE
Once each business day, each 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.
Each Fund's assets are valued primarily on the basis of market quotations. If
quotations are not readily available, assets are valued by a method that the
Board of Trustees believes accurately reflects fair value. The NAV for Fund A,
Fund B and Fund C shares will generally differ because they have different
expenses.
DECIDING WHICH FEE STRUCTURE IS BEST FOR YOU
As mentioned earlier, there are Funds A, Funds B and Funds C. While all the
Funds invest in the same PIC Portfolio (for example, Mid Cap Fund A, Mid Cap
Fund B and Mid Cap Fund C invest in the PIC Mid Cap Portfolio), each Fund has
separate sales charge and expense structures. Because of the different expense
structures, Fund A, Fund B and Fund C will have different NAVs and dividends.
The principal advantages of Fund A shares are the lower overall expenses, the
availability of quantity discounts on volume purchases and certain account
privileges that are available only on Fund A shares. The principal advantage of
Fund B and Fund C shares is that all of your money is put to work from the
outset. The difference between Fund B and Fund C depends on how long you
anticipate having your money invested. Generally, if you have a short investment
horizon, you might consider purchasing Fund C shares as opposed to Fund B
shares.
FUND A SHARES
Fund A 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*
- ----------
* Shareholders who buy $1 million of Fund A 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 A 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;
PROSPECTUS 20
<PAGE>
(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 A 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 A 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 A
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 A 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.
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.
FUND B AND FUND C SHARES
The price you will pay to buy Fund B or Fund C shares is based on the Fund's
NAV. 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.
21 PROSPECTUS
<PAGE>
YOUR ACCOUNT - CONTINUED
You may be charged a contingent deferred sales charge ("CDSC") if you sell your
Fund B or Fund C shares within a certain time after you purchased them. There is
no CDSC imposed on shares which you acquire by reinvesting your dividends. The
CDSC is based on the original cost of your shares or the market value of them
when you sell, whichever is less. When you place an order to sell your shares,
we will first sell any shares in your account which are not subject to a CDSC.
Next we will sell shares subject to the lowest CDSC.
If you sell your Fund C shares within one full year of purchase, you may be
charged a 1.00% CDSC.
The CDSC for Fund B shares are as follows:
Years after
Purchase CDSC
-------- ----
1 5.00%
2 4.00%
3 3.00%
4 3.00%
5 2.00%
6 1.00%
Within the 7th Year None
After seven years, your Fund B shares automatically will convert to a class of
shares with the same investment objective and policies as your Fund. For
example, if you own shares of Mid Cap Fund B, they will be converted to a new
class of Mid Cap Fund shares to be established. The new class of shares will
have lower distribution fees. This will mean that your Fund account will be
subject to lower overall charges. The conversion will be a non-taxable event for
you.
The CDSC for Fund B and Fund C shares may be reduced or waived under certain
circumstances and for certain groups. Call (800) 618-7643 for details.
DISTRIBUTION (12b-1) PLANS
The Trust has adopted plans pursuant to Rule 12b-1 that allows each Fund to pay
distribution fees for the sale and distribution of its shares. The plan with
respect to Fund A shares provides for the payment of a distribution fee at the
annual rate of up to 0.25% of each Fund's average daily net assets. The plans
with respect to Fund B and Fund C shares provides for the payment of a
distribution fee at the annual rate of up to 0.75% of each Fund's average daily
net assets and a service fee at the annual rate of up to 0.25% of each Fund's
average daily net assets. Because these fees are paid out of a 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 each Fund A, 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 each Fund A. The Shareholder Services Plan provides for the
payment to the Advisor of a service fee at the annual rate of 0.15% of each Fund
A's average daily net assets.
PROSPECTUS 22
<PAGE>
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
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. You
may be charged a CDSC on the sale of your Fund B or Fund C shares.
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).
23 PROSPECTUS
<PAGE>
YOUR ACCOUNT - CONTINUED
Certain requests must include a signature guarantee. It is designed to protect
you and the Funds from fraud. Your request must be made in writing and include a
signature guarantee if any of the following situations apply:
* You wish to redeem more than $100,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address from the one on your
account (record address), or
* The check is being made payable to someone other than the account owner.
Shareholders redeeming their shares by mail should submit written instructions
with a guarantee of their signature(s) by an eligible institution acceptable to
the Funds' 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."
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
PROSPECTUS 24
<PAGE>
IMPORTANT REDEMPTION INFORMATION
Account Type Special Requirements
------------ --------------------
PHONE (800) 618-7643 All account types * Your telephone call must be
except retirement received by 4 p.m. Eastern time
to be redeemed on that day
(maximum check request
$100,000).
MAIL OR IN PERSON Individual, Joint * The letter of instructions must
Sole Proprietorship, be signed by all Tenant, persons
UGMA, UTMA required to sign for
transactions, exactly as their
names appear on the account.
Retirement Account * The account owner should
complete a retirement
distribution form. Call (800)
618-7643 to request one.
Trust * The trustee must sign the letter
indicating capacity as trustee.
If the trustee's name is not in
the account registration,
provide a copy of the trust
document certified within the
last 60 days.
Business or * At least one person authorized
Organization by corporate resolutions to act
on the account must sign the
letter.
* Include a corporate resolution
with corporate seal or a
signature guarantee.
Executor, * Call (800) 618-7643 for
Administrator, instructions.
Conservator, Guardian
WIRE All account types * You must sign up for the wire
except 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.
25 PROSPECTUS
<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 A shares and buy shares of other
Funds A, sell your Fund B shares and buy shares of other Funds B or sell your
Fund C shares and buy shares of the other Fund C 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. This service is
available to Fund A account holders only.
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 A account, you can reinvest within 90 days
from the date of redemption all or any part of the proceeds in shares of the
same 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.
PROSPECTUS 26
<PAGE>
SHAREHOLDER ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS AND TAXES
The Funds distribute substantially all of their net income and capital gains, if
any, to shareholders each year in December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to receive
your distributions. If the option you prefer is not listed on the application,
call (800) 618-7643 for instructions. The Funds offer three options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will be
automatically reinvested in additional shares of 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 a Fund deducts a distribution from its NAV, the reinvestment price is the
Fund's NAV at the close of business that day. Cash distribution checks will be
mailed within seven days.
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 a Fund, PIC will send you a confirmation statement
showing how many shares you sold and at what price. You will also receive a
consolidated transaction statement every January. However, it is up to you or
your tax preparer to determine whether the 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.
27 PROSPECTUS
<PAGE>
SHAREHOLDER ACCOUNT POLICIES - CONTINUED
If you violate IRS regulations, the IRS can require a Fund to withhold 31% of
your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. PIC may only be liable for
losses resulting from unauthorized transactions if it does not follow reasonable
procedures designed to verify the identity of the caller. PIC will request
personalized security codes or other information, and may also record calls. You
should verify the accuracy of your confirmation statements immediately after you
receive them. If you do not want the liability to redeem or exchange by
telephone, call PIC for instructions.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period of
time. Each Fund also reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Privilege." Purchase
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.
* Each Fund reserves the right to limit the number of checks processed at one
time.
* If your check does not clear, your purchase will be canceled and you could
be liable for any losses or fees 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 A FUND OR SELL THEM THROUGH A BROKER, who may charge you a
fee for this service. If you invest through a broker or other institution, read
its program materials for any additional service features or fees that may
apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with PIC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Funds are priced on the
following business day. If payment is not received by that time, the financial
institution could be held liable for resulting fees or losses.
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
PROSPECTUS 28
<PAGE>
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. You will not be charged a CDSC for a low
balance redemption from a Fund B or a Fund C.
Please note this about exchanges
As a shareholder, you have the privilege of exchanging shares of Fund A for
shares of other Funds A, shares of Fund B for shares of other Funds B and shares
of Fund C for shares of the other Fund C. However, you should note the
following:
* The Fund you are exchanging into must be registered for sale in your state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* Exchanges 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.
* You may exchange Fund B shares only for other Fund B shares.
* You may exchange Fund C shares only for the other Fund C shares.
* Because excessive trading can hurt fund performance and shareholders, each
Fund reserves the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of a Fund per calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for the purposes of the four exchange limit.
* Each Fund reserves the right to refuse exchange purchases by any person or
group if, in PIC's judgment, a Portfolio would be unable to invest the
money effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected.
FINANCIAL HIGHLIGHTS
These tables show the financial performance for Funds A and Funds B for up to
the periods shown. The Funds C are new series of the Trust for which financial
highlights are not available. Certain information reflects financial results for
a single Fund share. "Total return" shows how much your investment in a Fund
would have increased or decreased during each period, assuming you had
reinvested all dividends and distributions. The information for the year ended
October 31, 1999 has been audited by PricewaterhouseCoopers LLP, Independent
Certified Public Accountants. Their reports and the Funds' financial statements
are included in the Annual Reports. The information for periods prior to the
year ended October 31, 1999 has been audited by other accountants.
29 PROSPECTUS
<PAGE>
PROVIDENT INVESTMENT COUNSEL FUNDS
<TABLE>
<CAPTION>
Balanced Fund A
---------------------------------------------------
Year Year Year Year Year
Ended Ended Ended Ended Ended
10/31/99 10/31/98 10/31/97 10/31/96 10/31/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.95 $ 15.51 $ 13.91 $ 13.24 $ 11.24
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.22 0.16 0.16 0.14 0.15
Net realized and unrealized gain
(loss) on investments 2.88 2.44 2.64 1.34 2.00
------- ------- ------- ------- -------
Total from investment operations 3.10 2.60 2.80 1.48 2.15
------- ------- ------- ------- -------
Less distributions:
From net investment income (0.22) (0.15) (0.16) (0.14) (0.15)
From net realized capital gains (1.18) (1.01) (1.04) (0.67) 0.00
------- ------- ------- ------- -------
Total distributions (1.40) (1.16) (1.20) (0.81) (0.15)
------- ------- ------- ------- -------
Net asset value, end of period $ 18.65 $ 16.95 $ 15.51 $ 13.91 $ 13.24
------- ------- ------- ------- -------
TOTAL RETURN 19.20% 17.85% 21.76% 11.96% 19.35%
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (millions) $ 32.3 $ 42.0 $ 35.3 $ 12.9 $ 12.5
Ratios to average net assets:**
Expenses after exp. reimbursements 1.05% 1.05% 1.05% 1.05% 1.05%
Expenses before exp. reimbursements 1.80% 1.41% 1.43% 1.72% 2.32%
Net investment income 1.21% 0.97% 1.10% 1.05% 1.32%
Portfolio turnover rate++ 174.19% 111.47% 104.50% 54.24% 106.50%
</TABLE>
- ----------
** Includes the Fund's share of expenses allocated from PIC Balanced
Portfolio.
++ Portfolio turnover rate of PIC Balanced Portfolio, in which all of the
Fund's assets are invested.
PROSPECTUS 30
<PAGE>
PROVIDENT INVESTMENT COUNSEL FUNDS
<TABLE>
<CAPTION>
Growth Fund A Mid Cap Fund A
--------------------------------- ---------------------
Year Year 2/3/97* Year 12/31/97*
ended ended through ended through
10/31/99 10/31/98 10/31/97 10/31/99 10/31/98
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.67 $ 11.44 $ 10.00 $ 10.53 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment loss (0.12) (0.07) (0.03) (0.11) (0.03)
Net realized and unrealized gain
on investments 4.37 2.30 1.47 5.45 0.56
------- ------- ------- ------- -------
Total from investment operations 4.25 2.23 1.44 5.34 0.53
------- ------- ------- ------- -------
Less distributions:
From net investment income 0.00 0.00 0.00 0.00 0.00
From net realized capital gains 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Total distributions 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Net asset value, end of period $ 17.92 $ 13.67 $ 11.44 $ 15.87 $ 10.53
------- ------- ------- ------- -------
TOTAL RETURN 31.09% 19.49% 14.40%++ 50.71% 5.30%++
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (millions) $ 6.8 $ 3.7 $ 2.2 $ 11.9 $ 5.7
Ratios to average net assets:
Expenses after exp. reimbursements 1.35%o 1.35%o 1.35%o+ 1.39%^ 1.04%^+
Expenses before exp. reimbursements 2.62%o 4.06%o 9.97%o+ 2.41%^ 3.08%^+
Net investment loss (0.85%) (0.68%) (0.62%)+ (1.03%) (0.43%)+
Portfolio turnover rate 80.34%@ 81.06%@ 67.54%@ 144.64%# 166.89%#
</TABLE>
- ----------
* Commencement of Operations
+ Annualized.
++ Not annualized
o Includes the Fund's share of expenses allocated from PIC Growth Portfolio.
^ Includes the Fund's share of expenses allocated from PIC Mid Cap Portfolio.
@ Portfolio turnover rate of PIC Growth Portfolio, in which all of the fund's
assets are invested.
# Portfolio turnover rate of PIC Mid Cap Portfolio, in which all of the
Fund's assets are invested.
31 PROSPECTUS
<PAGE>
PROVIDENT INVESTMENT COUNSEL FUNDS
Small Company Growth Fund A
----------------------------------
Year Year 2/3/97*
ended ended through
10/31/99 10/31/98 10/31/97
------- ------- -------
Net asset value, beginning of period $ 8.50 $ 10.42 $ 10.00
------- ------- -------
Income from investment operations:
Net investment loss (0.30) (0.12) (0.03)
Net realized and unrealized gain
(loss) on investments 5.35 (1.80) 0.45
------- ------- -------
Total from investment operations 5.05 (1.92) 0.42
------- ------- -------
Less distributions:
From net investment income 0.00 0.00 0.00
From net realized capital gains 0.00 0.00 0.00
------- ------- -------
Total distributions 0.00 0.00 0.00
------- ------- -------
Net asset value, end of period $ 13.55 $ 8.50 $ 10.42
------- ------- -------
TOTAL RETURN 59.41% (18.43%) 4.20%++
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (millions) $ 0.9 $ 2.7 $ 3.1
Ratios to average net assets:#
Expenses after exp. reimbursements 1.55% 1.55% 1.55%+
Expenses before exp. reimbursements 7.40% 4.32% 11.55%+
Net investment loss (1.35%) (1.23%) (1.14%)+
Portfolio turnover rate@ 133.24% 81.75% 151.52%
- ----------
* Commencement of operations
+ annualized.
# Includes the Fund's share of expenses allocated from PIC Small Cap
Portfolio.
@ Portfolio turnover rate of PIC Small Cap Portfolio, in which all of the
Fund's assets are invested.
++ Not annualized
PROSPECTUS 32
<PAGE>
PROVIDENT INVESTMENT COUNSEL FUNDS
<TABLE>
<CAPTION>
Balanced Growth Mid Cap Small Company
Fund B Fund B Fund B Fund B
------- ------- ------- -------
March 31, 1999* through October 31, 1999
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.89 $ 17.65 $ 13.03 $ 9.64
------- ------- ------- -------
Income from investment operations:
Net investment income (loss) 0.04 (0.07) (0.02) (0.06)
Net realized and unrealized gain (loss)
on investments (0.08) 0.47 2.59 3.69
------- ------- ------- -------
Total from investment operations (0.04) 0.40 2.57 3.63
------- ------- ------- -------
Less distributions:
From net investment income (0.03) 0.00 0.00 0.00
From net realized capital gains 0.00 0.00 0.00 0.00
------- ------- ------- -------
Total distributions (0.03) 0.00 0.00 0.00
------- ------- ------- -------
Net asset value, end of period $ 18.82 $ 18.05 $ 15.60 $ 13.27
------- ------- ------- -------
TOTAL RETURN^ (0.20%) 2.27% 19.72% 37.66%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (in 000s) $ 448.2 $ 981.7 $ 731.7 $ 129.6
Ratios to average net assets:**
Expenses after exp. reimbursements+ 1.90% 2.10% 2.14% 2.30%
Expenses before exp. reimbursements+ 46.23% 26.68% 96.29% 206.41%
Net investment income (loss) after exp.
reimbursements+ 0.66% (1.70%) (1.69%) (2.07%)
Portfolio turnover rate++ 174.19% 80.34% 144.64% 133.24%
</TABLE>
- ----------
* Commencement of operations
^ Not annualized
+ Annualized.
** Includes the Fund's share of expenses allocated from the related portfolio.
++ Portfolio turnover rate of the Fund's related portfolio, in which all of
the Fund's assets are invested.
33 PROSPECTUS
<PAGE>
PROVIDENT INVESTMENT COUNSEL
FUNDS A AND B
BALANCED FUND
GROWTH FUND
MID CAP FUND
SMALL COMPANY GROWTH FUND
PROVIDENT INVESTMENT COUNSEL FUNDS C
MID CAP FUND
SMALL COMPANY GROWTH FUND
For investors who want more information about the Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the Funds A and B
investments is available in the Funds' annual and semi-annual reports to
shareholders. In each 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 Funds and is incorporated by reference into this
Prospectus. You can get free copies of the Funds' reports and SAI, request other
information and discuss your questions about the Funds by contacting the Funds
at:
Provident Investment Counsel
P.O. Box 8943
Wilmington, DE 19899
Telephone: 1-800-618-7643
You can review and copy information including the Funds' 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 Funds 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)
PROSPECTUS 34
<PAGE>
PIC INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 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 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 Balanced Fund B, 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, series of PIC Investment Trust (the "Trust"), which share a common
prospectus. There are three other series of the Trust: Provident Investment
Counsel Growth Fund I, Provident Investment Counsel Small Company Growth Fund I
and Provident Investment Counsel Small Cap Growth Fund I. The Provident
Investment Counsel Balanced Fund A and the Provident Investment Counsel Balanced
Fund B (the "Balanced Funds") invest in the PIC Balanced Portfolio; the
Provident Investment Counsel Growth Fund A and the Provident Investment Counsel
Growth Fund B (the "Growth Funds") invest in the PIC Growth Portfolio; the
Provident Investment Counsel Mid Cap Fund A, the Provident Investment Counsel
Mid Cap Fund B and the Provident Investment Counsel Mid Cap Fund C (the "Mid Cap
Funds") invest in the PIC Mid Cap Portfolio; the Provident Investment Counsel
Small Company Growth Fund A, the Provident Investment Counsel Small Company
Growth Fund B and the Provident Investment Counsel Small Company Growth Fund C
(the "Small Company Growth Funds") invest in the PIC Small Cap Portfolio. (In
this SAI, the Balanced Funds, the Growth Funds, the Mid Cap Funds and the Small
Company Growth Funds may be referred to as the "Funds," and the PIC Balanced
Portfolio, PIC Growth Portfolio, PIC Mid Cap Portfolio and PIC Small Cap
Portfolio may be referred to as the "Portfolios.") Provident Investment Counsel
(the "Advisor") is the Advisor to the Portfolios. A copy of the Funds'
prospectus may be obtained from the Trust at 300 North Lake Avenue, Pasadena, CA
91101-4106, telephone (818) 449-8500.
B-1
<PAGE>
TABLE OF CONTENTS
Investment Objectives and Policies B-3
Investment Restrictions B-9
Management B-11
Custodian and Auditors B-21
Portfolio Transactions and Brokerage B-21
Portfolio Turnover B-23
Additional Purchase and Redemption Information B-23
Net Asset Value B-24
Taxation B-24
Dividends and Distributions B-25
Performance Information B-26
General Information B-28
Financial Statements B-29
Appendix B-30
B-2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INTRODUCTION
Each Fund seeks to achieve its investment objective by investing all of its
assets in a PIC Portfolio. Each Portfolio is a separate registered investment
company with the same investment objective as the Fund. Since a Fund will not
invest in any securities other than shares of a Portfolio, investors in the Fund
will acquire only an indirect interest in the Portfolio. Each Fund's and
Portfolio's investment objective cannot be changed without shareholder approval.
In addition to selling its shares to a Fund, a Portfolio may sell its
shares to other mutual funds or institutional investors. All investors in a
Portfolio invest on the same terms and conditions and pay a proportionate share
of the Portfolio's expenses. However, other investors in a Portfolio may sell
their shares to the public at prices different from those of a Fund as a result
of the imposition of sales charges or different operating expenses. You should
be aware that these differences may result in different returns from those of
investors in other entities investing in a Portfolio. Information concerning
other holders of interests in a Portfolio is available by calling (800)
618-7643.
The Trustees of the Trust believe that this structure may enable a Fund to
benefit from certain economies of scale, based on the premise that certain of
the expenses of managing an investment portfolio are relatively fixed and that a
larger investment portfolio may therefore achieve a lower ratio of operating
expenses to net assets. Investing a Fund's assets in a Portfolio may produce
other benefits resulting from increased asset size, such as the ability to
participate in transactions in securities which may be offered in larger
denominations than could be purchased by the Fund alone. A Fund's investment in
a Portfolio may be withdrawn by the Trustees at any time if the Board determines
that it is in the best interests of a Fund to do so. If any such withdrawal were
made, the Trustees would consider what action might be taken, including the
investment of all of the assets of a Fund in another pooled investment company
or the retaining of an investment advisor to manage the Fund's assets directly.
Whenever a Fund is requested to vote on matters pertaining to a Portfolio,
the Fund will hold a meeting of its shareholders, and the Fund's votes with
respect to the Portfolio will be cast in the same proportion as the shares of
the Fund for which voting instructions are received.
THE BALANCED FUNDS. The investment objective of the Balanced Funds is to
provide high total return while reducing risk. The Balanced Funds may also
attempt to earn current income and reduce the variability of the net asset value
of their shares by investing a portion of their assets in short-term
investments. Normally, these investments will range from 0 to 20% of their
assets. There is no assurance that the Balanced Funds will achieve their
objective. The Balanced Funds will attempt to achieve their objective by
investing all of their assets in shares of the PIC Balanced Portfolio (the
"Balanced Portfolio"). The Balanced Portfolio is a diversified open-end
management investment company having the same investment objective as the
Balanced Funds. The discussion below supplements information contained in the
prospectus as to investment policies of the Balanced Funds and the Balanced
B-3
<PAGE>
Portfolio. Because the investment characteristics of the Balanced Funds will
correspond directly to those of the Balanced Portfolio, the discussion refers to
those investments and techniques employed by the Balanced Portfolio.
THE GROWTH FUNDS. The investment objective of the Growth Funds is to
provide long-term growth of capital. There is no assurance that the Growth Funds
will achieve their objective. The Growth Funds will attempt to achieve their
objective by investing all of their assets in shares of the PIC Growth Portfolio
(the "Growth Portfolio"). The Growth Portfolio is a diversified open-end
management investment company having the same investment objective as the Growth
Funds. The discussion below supplements information contained in the prospectus
as to investment policies of the Growth Funds and the Growth Portfolio. Because
the investment characteristics of the Growth Funds will correspond directly to
those of the Growth Portfolio, the discussion refers to those investments and
techniques employed by the Growth Portfolio.
THE MID CAP FUNDS. The investment objective of the Mid Cap Funds is to
provide long-term growth of capital. There is no assurance that the Mid Cap
Funds will achieve their objective. The Mid Cap Funds will attempt to achieve
their objective by investing all of their assets in shares of the PIC Mid Cap
Portfolio (the "Mid Cap Portfolio"). The Mid Cap Portfolio is a diversified
open-end management investment company having the same investment objective as
the Mid Cap Funds. The discussion below supplements information contained in the
prospectus as to investment policies of the Mid Cap Funds and the Mid Cap
Portfolio. Because the investment characteristics of the Mid Cap Funds will
correspond directly to those of the Mid Cap Portfolio, the discussion refers to
those investments and techniques employed by the Mid Cap Portfolio.
THE SMALL COMPANY GROWTH FUNDS. The investment objective of the Small
Company Growth Funds is to provide capital appreciation. There is no assurance
that the Small Company Growth Funds will achieve their objective. The Small
Company Growth Funds will attempt to achieve their objective by investing all of
their assets in shares of the PIC Small Cap Portfolio (the "Small Cap
Portfolio"). The Small Cap Portfolio is a diversified open-end management
investment company having the same investment objective as the Small Company
Growth Funds. The discussion below supplements information contained in the
prospectus as to investment policies of the Small Company Growth Funds and the
Small Cap Portfolio. Because the investment characteristics of the Small Company
Growth Funds will correspond directly to those of the Small Cap Portfolio, the
discussion refers to those investments and techniques employed by the Small Cap
Portfolio.
SECURITIES AND INVESTMENT PRACTICES
The discussion below supplements information contained in the prospectus as
to investment policies of the Portfolios. PIC may not buy all of these
instruments or use all of these techniques to the full extent permitted unless
it believes that doing so will help a Portfolio achieve its goals.
EQUITY SECURITIES. Equity securities are common stocks and other kinds of
securities that have the characteristics of common stocks. These other
B-4
<PAGE>
securities include bonds, debentures and preferred stocks which can be converted
into common stocks. They also include warrants and options to purchase common
stocks.
SHORT-TERM INVESTMENTS. Short-term investments are debt securities that
mature within a year of the date they are purchased by a Portfolio. Some
specific examples of short-term investments are commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements. A Portfolio will
only purchase short-term investments which are "high quality," meaning the
investments have been rated A-1 by Standard & Poor's Ratings Group ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or have an issue of debt
securities outstanding rated at least A by S&P or Moody's. The term also applies
to short-term investments that PIC believes are comparable in quality to those
with an A-1 or Prime-1 rating. U.S. Government securities are always considered
to be high quality.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund or a Portfolio purchases a security from a bank or recognized securities
dealer and simultaneously commits to resell that security to the bank or dealer
at an agreed-upon date and price reflecting a market rate of interest unrelated
to the coupon rate or maturity of the purchased security. The purchaser
maintains custody of the underlying securities prior to their repurchase; thus
the obligation of the bank or dealer to pay the repurchase price on the date
agreed to is, in effect, secured by such underlying securities. If the value of
such securities is less than the repurchase price, the other party to the
agreement will provide additional collateral so that at all times the collateral
is at least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, the Funds and the Portfolios intend to enter
into repurchase agreements only with banks and dealers believed by the Advisor
to present minimum credit risks in accordance with guidelines established by the
Boards of Trustees. The Advisor will review and monitor the creditworthiness of
such institutions under the Boards' general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the purchaser would suffer a
loss. If the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the purchaser's ability to sell the collateral and the
purchaser could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, the Funds and the Portfolios intend to comply with provisions under such
Code that would allow them immediately to resell the collateral.
OPTIONS ACTIVITIES. The Balanced Portfolio may write (i.e., sell) call
options ("calls") on debt securities, and the Small Cap Portfolio may write call
options on stocks and stock indices, if the calls are "covered" throughout the
life of the option. A call is "covered" if the Portfolio owns the optioned
securities. When the Balanced or Small Cap Portfolio writes a call, it receives
a premium and gives the purchaser the right to buy the underlying security at
any time during the call period at a fixed exercise price regardless of market
price changes during the call period. If the call is exercised, the Portfolio
B-5
<PAGE>
will forgo any gain from an increase in the market price of the underlying
security over the exercise price.
The Balanced and Small Cap Portfolios 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 Balanced and Small Cap Portfolios also may write and purchase put
options ("puts"). When the Portfolio writes a put, it receives a premium and
gives the purchaser of the put the right to sell the underlying security to the
Portfolio at the exercise price at any time during the option period. When the
Portfolio 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.
A Portfolio's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at a given time for any
particular option.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
FUTURES CONTRACTS. The Balanced Portfolio may buy and sell interest rate
futures contracts, and all the Portfolios may buy and sell stock index futures
contracts. A futures contract is an agreement between two parties to buy and
sell a security or an index for a set price on a future date. Futures contracts
are traded on designated "contract markets" which, through their clearing
corporations, guarantee performance of the contracts.
Entering into a futures contract for the sale of securities has an effect
similar to the actual sale of securities, although sale of the futures contract
might be accomplished more easily and quickly. Entering into futures contracts
for the purchase of securities has an effect similar to the actual purchase of
the underlying securities, but permits the continued holding of securities other
than the underlying securities.
A stock index futures contract may be used as a hedge by any of the
Portfolios with regard to market risk as distinguished from risk relating to a
specific security. A stock index futures contract does not require the physical
B-6
<PAGE>
delivery of securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date, a final cash settlement occurs.
Changes in the market value of a particular stock index futures contract
reflects changes in the specified index of equity securities on which the future
is based.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the desired protection may
not be obtained and a Portfolio may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for a Portfolio than if it had not entered into any
futures on stock indices.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
There is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular time.
FOREIGN SECURITIES. The Portfolios may invest in securities of foreign
issuers in foreign markets. In addition, the Portfolios may invest in American
Depositary Receipts ("ADRs"), which are receipts, usually issued by a U.S. bank
or trust company, evidencing ownership of the underlying securities. Generally,
ADRs are issued in registered form, denominated in U.S. dollars, and are
designed for use in the U.S. securities markets. A depositary may issue
unsponsored ADRs without the consent of the foreign issuer of securities, in
which case the holder of the ADR may incur higher costs and receive less
information about the foreign issuer than the holder of a sponsored ADR. A
Portfolio may invest no more than 20% of its total assets in foreign securities,
and it will only purchase foreign securities or ADRs 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.
B-7
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolios may enter into
forward contracts with respect to specific transactions. For example, when a
Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when it anticipates the receipt in a
foreign currency of dividend or interest payments on a security that it holds,
the Portfolio may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of the payment, by entering into a forward contract
for the purchase or sale, for a fixed amount of U.S. dollars or foreign
currency, of the amount of foreign currency involved in the underlying
transaction. The Portfolio will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Portfolio to purchase additional foreign currency on the spot (i.e., cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency a Portfolio is obligated
to deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing a Portfolio to sustain
losses on these contracts and transaction costs. The Portfolios may enter into
forward contracts or maintain a net exposure to such contracts only if (1) the
consummation of the contracts would not obligate the Portfolio to deliver an
amount of foreign currency in excess of the value of the Portfolio's securities
or other assets denominated in that currency or (2) the Portfolio maintains a
segregated account as described below. Under normal circumstances, consideration
of the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Advisor believes it is important to have the flexibility to enter
into such forward contracts when it determines that the best interests of a
Portfolio will be served.
At or before the maturity date of a forward contract that requires a
Portfolio to sell a currency, the Portfolio may either sell a security and use
the sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Portfolio will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Portfolio may close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. The Portfolio
would realize a gain or loss as a result of entering into such an offsetting
forward contract under either circumstance to the extent the exchange rate
between the currencies involved moved between the execution dates of the first
and second contracts.
B-8
<PAGE>
The cost to a Portfolio of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. The use
of forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Portfolio owns or intends to acquire, but it does fix a
rate of exchange in advance. In addition, although forward contracts limit the
risk of loss due to a decline in the value of the hedged currencies, at the same
time they limit any potential gain that might result should the value of the
currencies increase.
SEGREGATED ACCOUNTS. When a Portfolio writes an option, sells a futures
contract or enters into a forward foreign currency exchange contract, it will
establish a segregated account with its custodian bank, or a securities
depository acting for it, to hold assets of the Portfolio in order to insure
that the Portfolio will be able to meet its obligations. In the case of a call
that has been written, the securities covering the option will be maintained in
the segregated account and cannot be sold by a Portfolio until released. In the
case of a put that has been written or a forward foreign currency contract that
has been entered into, liquid securities will be maintained in the segregated
account in an amount sufficient to meet a Portfolio's obligations pursuant to
the put or forward contract. In the case of a futures contract, liquid
securities will be maintained in the segregated account equal in value to the
current value of the underlying contract, less the margin deposits. The margin
deposits are also held, in cash or U.S. Government securities, in the segregated
account.
DEBT SECURITIES AND RATINGS. Ratings of debt securities represent the
rating agencies' opinions regarding their quality, are not a guarantee of
quality and may be reduced after a Portfolio has acquired the security. The
Advisor will consider whether the Portfolio should continue to hold the security
but is not required to dispose of it. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings in response to subsequent events, so that an issuer's
current financial condition may be better or worse than the rating indicates.
INVESTMENT RESTRICTIONS
The Trust (on behalf of the Funds) and the Portfolios have adopted the
following restrictions as fundamental policies, which may not be changed without
the favorable vote of the holders of a "majority," as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the outstanding voting securities of a
Fund or a Portfolio. Under the 1940 Act, the "vote of the holders of a majority
of the outstanding voting securities" means the vote of the holders of the
lesser of (i) 67% of the shares of a Fund or a Portfolio represented at a
meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of a Fund or a
Portfolio. Except with respect to borrowing, changes in values of assets of a
particular Fund or Portfolio will not cause a violation of the investment
restrictions so long as percentage restrictions are observed by such Fund or
Portfolio at the time it purchases any security.
B-9
<PAGE>
As a matter of fundamental policy, the Portfolios are diversified; i.e., as
to 75% of the value of a Portfolio's total assets, no more than 5% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities). The Funds invest all of their assets in shares
of the Portfolios. Each Fund's and each Portfolio's investment objective is
fundamental.
In addition, no Fund or Portfolio may:
1. Issue senior securities, borrow money or pledge its assets, except that
a Fund or a Portfolio may borrow on an unsecured basis from banks for temporary
or emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed), provided
that it will not make investments while borrowings in excess of 5% of the value
of its total assets are outstanding;
2. Make short sales of securities or maintain a short position;
3. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
4. Write put or call options, except that the Balanced Portfolio may write
covered call and cash secured put options on debt securities, and the Small Cap
Portfolio may write covered call and cash secured put options and purchase call
and put options on stocks and stock indices;
5. Act as underwriter (except to the extent a Fund or Portfolio may be
deemed to be an underwriter in connection with the sale of securities in its
investment portfolio);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities), except that any of the Funds may invest more than 25% of
their assets in shares of a Portfolio;
7. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although any Portfolio may purchase and sell securities
which are secured by real estate and securities of companies which invest or
deal in real estate);
8. Purchase or sell commodities or commodity futures contracts, except that
any Portfolio may purchase and sell stock index futures contracts and the
Balanced Portfolio may purchase and sell interest rate futures contracts;
9. Invest in oil and gas limited partnerships or oil, gas or mineral
leases;
10. Make loans (except for purchases of debt securities consistent with the
investment policies of the Funds and the Portfolios and except for repurchase
agreements); or
B-10
<PAGE>
11. Make investments for the purpose of exercising control or management.
The Portfolios observe the following restrictions as a matter of operating
but not fundamental policy.
No 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 Portfolios each have a Board of Trustees which have comparable
responsibilities, including approving agreements with the Advisor. The day to
day operations of the Trust and the Portfolios are delegated to their officers,
subject to their investment objectives and policies and to general supervision
by their Boards of Trustees.
The 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.
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Trust During Past 5 Years
-------------- ---------------- -----------------------
Douglass B. Allen* (age 37) Trustee and Vice President of the Advisor
300 North Lake Avenue President
Pasadena, CA 91101
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus
76 Seaview Drive Associates (consulting firm)
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's
234 E. Colorado Blvd. Restaurants, Inc.; formerly,
Pasadena, CA 91101 Chairman of Lawry's Foods, Inc.
B-11
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Trust During Past 5 Years
-------------- ---------------- -----------------------
James Clayburn LaForce Trustee Dean Emeritus, John E. Anderson
(age 76) Graduate School of Management,
P.O. Box 1585 University of California, Los
Pauma Valley, CA 92061 Angeles. Director of The BlackRock
Funds. Trustee of Payden & Rygel
Investment Trust. Director of the
Timken Co., Rockwell
International, Eli Lily, Jacobs
Engineering Group and Imperial
Credit Industries.
Anthony R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice
155 N. Lake Avenue President of Countrywide Credit
Pasadena, CA 91101 Industries (mortgage banking)
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of
150 N. Orange Grove Blvd. Avery Dennison Corporation
Pasadena, CA 91103 (pressure sensitive material and
office products manufacturer)
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. Vice President Senior Vice President of the
(age 37) and Secretary Advisor.
300 North Lake Avenue
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
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.
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Portfolios During Past 5 Years
------------- ------------------- ----------------------
Douglass B. Allen* (age 37) Trustee and Vice President of the Advisor
300 North Lake Avenue President
Pasadena, CA 91101
B-12
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Age With the Portfolios During Past 5 Years
------------- ------------------- ----------------------
Jettie M. Edwards (age 53) Trustee Consulting principal of Syrus
76 Seaview Drive Associates (consulting firm)
Santa Barbara, CA 93108
Richard N. Frank (age 76) Trustee Chief Executive Officer, Lawry's
234 E. Colorado Blvd. Restaurants, Inc.; formerly,
Pasadena, CA 91101 Chairman of Lawry's Foods, Inc.
James Clayburn LaForce Trustee Dean Emeritus, John E. Anderson
(age 76) Graduate School of Management,
P.O. Box 1585 University of California, Los
Pauma Valley, CA 92061 Angeles. Director of The BlackRock
Funds. Trustee of Payden & Rygel
Investment Trust. Director of the
Timken Co., Rockwell
International, Eli Lily, Jacobs
Engineering Group and Imperial
Credit Industries.
Anthony R. Mozilo (age 60) Trustee Vice Chairman and Executive Vice
155 N. Lake Avenue President of Countrywide Credit
Pasadena, CA 91101 Industries (mortgage banking)
Wayne H. Smith (age 58) Trustee Vice President and Treasurer of
150 N. Orange Grove Blvd. Avery Dennison Corporation
Pasadena, CA 91103 (pressure sensitive material and
office products manufacturer)
Thomas J. Condon* (age 61) Trustee Managing Director of the Advisor.
300 North Lake Avenue
Pasadena, CA 91101
Aaron W.L. Eubanks, Sr. Vice President Senior Vice President of the
(age 37) and Secretary Advisor.
300 North Lake Avenue
Pasadena, CA 91101
William T. Warnick (age 31) Vice President Vice President of the Advisor
300 North Lake Avenue and Treasurer
Pasadena, CA 91101
- ----------
* denotes Trustees who are "interested persons" of the Trust or Portfolios
under the 1940 Act.
B-13
<PAGE>
The following compensation was paid to each of the following Trustees. No
other compensation or retirement benefits were received by any Trustee or
officer from the Registrant or other registered investment company in the "Fund
Complex."
<TABLE>
<CAPTION>
Deferred Deferred Total
Compensation Compensation Compensation
Aggregate Aggregate Accrued as Part Accrued as Part From Trust and
Compensation Compensation of Trust of Portfolios Portfolios paid
Name of Trustee from Trust from Portfolios 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>
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Balanced Fund A as of January 31, 2000:
Gilbert Papazian - 14.48%
Hillsborough, CA 94010
Sanwa Bank California, Trustee - 5.44%
Los Angeles, CA 90060
Straffe & Co. FBO - 9.46%
Safelite Glass
Westerville, OH 43086
UMBSC & Co, Trustee - 49.34%
Kansas City, MO 64141
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Growth Fund A as of January 31, 2000:
Wilmington Trust Co. FBO
Mustang Employee 401K - 75.02%
Wilmington, DE 19899
William A Eddy and
Joan D. Eddy, Trustees - 14.89%
Long Beach, CA 90815
B-14
<PAGE>
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Mid Cap Fund A as of January 31, 2000:
Larry D. Tashjian and
Karen D. Tashjian, Trustees - 9.78%
La Canada, CA 91011
George E. Handtmann III, Trustee - 10.84%
Carpinteria, CA 93013
Jeffrey J. Miller and
Paula J. Miller, Trustees - 5.86%
La Canada, CA 91011
Robert M. Kommerstad and
Lila M. Kommerstad, Trustees - 5.86%
Bradbury, CA 91010
Thomas J and Julie H. Condon, Trustees - 9.81%
San Marina, CA 91108
Merrill Lynch - 15.14%
Jacksonville, FL 32246
Donald H. Neu - 5.22%
San Marino, CA 91108
Donaldson Lufkin & Jenrette
Secs. Corp. - 9.65%
Jersey City, NJ 07303
The following persons, to the knowledge of the Trust, owned more than 5% of
the outstanding shares of the Small Company Growth Fund A as of January 31,
2000:
Merrill Lynch, for benefit of
Building One Fund Admin Team A - 53.49%
Jacksonville, FL 32246
IITC - 5.66%
Boulder, CO 80503
To the knowledge of the Trust, as of January 31, 2000, Merrill Lynch, for
sole benefit of its customers, Jacksonville, FL 32246 owned 82.54% of the
outstanding shares of the Balanced Fund B.
To the knowledge of the Trust, as of January 31, 2000, Merrill Lynch, for
sole benefit of its customers, Jacksonville, FL 32246 and Robert Baird Co.,
Inc., Milwaukee, WI 53202, owned 99.43% and 13.98%, respectively, of the
outstanding shares of the Growth Fund B.
B-15
<PAGE>
To the knowledge of the Trust, as of January 31, 2000, Merrill Lynch, for
sole benefit of its customers, Jacksonville, FL 32246 owned 99.03% of the
outstanding shares of the Mid Cap Fund B.
To the knowledge of the Trust, as of January 31, 2000, Merrill Lynch, for
sole benefit of its customers, Jacksonville, FL 32246 owned 99.61% of the
outstanding shares of the Small Company Growth Fund B.
As of January 30, 2000, shares of the Funds owned by the Trustee and
officers as a group were less than 1%.
THE ADVISOR
The Trust does not have an investment advisor, although the Advisor
performs certain administrative services for it, including providing certain
officers and office space.
The following information is provided about the Advisor and the Portfolios.
Subject to the supervision of the Boards of Trustees of the Portfolios,
investment management and services will be provided to the Portfolios by the
Advisor, pursuant to separate Investment Advisory Agreements (the "Advisory
Agreements"). Under the Advisory Agreements, the Advisor will provide a
continuous investment program for the Portfolios and make decisions and place
orders to buy, sell or hold particular securities. In addition to the fees
payable to the Advisor and the Administrator, the Portfolios and the Trust are
responsible for their operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of Trustees other than those affiliated with the Advisor or the
Administrator; (v) legal and audit expenses; (vi) fees and expenses of the
custodian, shareholder service and transfer agents; (vii) fees and expenses for
registration or qualification of the Trust and its shares under federal or state
securities laws; (viii) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders; (ix) other expenses incidental to
holding any shareholder meetings; (x) dues or assessments of or contributions to
the Investment Company Institute or any successor; (xi) such non-recurring
expenses as may arise, including litigation affecting the Trust or the
Portfolios and the legal obligations with respect to which the Trust or the
Portfolios may have to indemnify their officers and Trustees; and (xii)
amortization of organization costs.
The Advisor is an indirect, wholly owned subsidiary of United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services. On February 15, 1995, UAM acquired the assets of
the Advisor's predecessor, which had the same name as the Advisor; on that date
the Advisor entered into new Advisory Agreements having the same terms as the
previous Advisory Agreements with the Portfolios. The term "Advisor" also refers
to the Advisor's predecessor.
For its services, the Advisor receives a fee from the Balanced
Portfolio at an annual rate of 0.60% of its average net assets, 0.80% of the
B-16
<PAGE>
Growth Portfolio's average net assets, 0.80% of the Small Cap Portfolio's
average net assets and 0.70% of the Mid Cap Portfolio's average net assets.
For the fiscal year ended October 31, 1999, the Balanced Portfolio paid the
Advisor fees of $101,317, net of a waiver of $90,404. For the same period, the
Growth Portfolio paid the Advisor fees of $1,329,942, net of a waiver of $7,147.
For the same period, the Mid Cap Portfolio accrued advisory fees of $58,869, all
of which were waived. For the same period the Small Cap Portfolio paid the
Advisor fees of $1,789,614, net of a waiver of $3,878.
During the fiscal years ended October 31, 1998 and 1997, the Advisor earned
fees pursuant to the Advisory Agreements as follows: from the Balanced
Portfolio, $236,672 and $153,518, respectively; from the Growth Portfolio,
$1,045,893 and $838,058, respectively; and from the Small Cap Portfolio,
$1,418,731 and $1,525,768, respectively. During the period December 31, 1997
through October 31, 1998, the Advisor earned fees pursuant to the Advisory
Agreement from the Mid Cap Portfolio of $29,031. However, the Advisor has agreed
to limit the aggregate expenses of the Balanced Portfolio to 0.80% of average
net assets, the aggregate expenses of the Mid Cap Portfolio to 0.90% of average
net assets, and the aggregate expenses of the Growth and Small Cap Portfolios to
1.00% of average net assets . As a result, the Advisor paid expenses of the
Balanced Portfolio that exceeded these expense limits in the amounts of $71,076
and $91,689 during the fiscal years ended October 31, 1998 and 1997,
respectively. The Advisor paid expenses of the Growth Portfolio that exceeded
these expense limits in the amounts of $22,176 and $48,003 during the fiscal
years ended October 31, 1998 and 1997, respectively. The Advisor paid expenses
of the Small Cap Portfolio that exceeded these expense limits in the amounts of
$24,020 and $24,879 during the fiscal years ended October 31, 1998 and 1997,
respectively. The Advisor waived advisory fees in the amount of $85,951 for the
period December 31, 1997 through October 31, 1998.
Under the Advisory Agreements, the Advisor will not be liable to the
Portfolios for any error of judgment by the Advisor or any loss sustained by the
Portfolios except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages will be
limited as provided in the 1940 Act) or of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisory Agreements will remain in effect for two years from their
execution. Thereafter, if not terminated, each Advisory Agreement will continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a majority vote of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
The Advisory Agreements are terminable by vote of the Board of Trustees or
by the holders of a majority of the outstanding voting securities of the
Portfolios at any time without penalty, on 60 days written notice to the
Advisor. The Advisory Agreements also may be terminated by the Advisor on 60
days written notice to the Portfolios. The Advisory Agreements terminate
automatically upon their assignment (as defined in the 1940 Act).
B-17
<PAGE>
The Advisor also provides certain administrative services to the Trust
pursuant to Administration Agreements, including assisting shareholders of the
Trust, furnishing office space and permitting certain employees to serve as
officers and Trustees of the Trust. For its services, it earns a fee at the rate
of 0.20% of the average net assets of each series of the Trust.
During the fiscal years ended October 31, 1999, 1998 and 1997, the Advisor
earned fees from the Balanced Fund A of $63,395, $78,802 and $51,137,
respectively; from the Growth Fund A of $11,251, $6,338 and $1,029,
respectively; from the Small Company Growth Fund A of $2,263, $6,173 and $1,993,
respectively. For fiscal year ended October 31, 1999 and for the period December
31, 1997 through October 31, 1998, the Adviser earned fees from the Mid Cap Fund
A of $16,589 and $8,219, respectively. The Advisor has agreed to limit the
aggregate expenses of the Balanced Fund A, Growth Fund A, Mid Cap Fund A and
Small Company Growth Fund A to 1.05%, 1.35%, 1.39% and 1.55%, respectively, of
each Fund's average daily net assets. As a result, for the fiscal year ended
October 31, 1999, the Advisor waived fees and reimbursed expenses of the Funds
as follows: Waived Reimbursed Fees Expenses
Balanced Fund A $63,395 $172,739
Growth Fund A 11,251 60,119
Mid Cap Fund A 16,589 68,247
Small Company Growth Fund A 2,263 63,968
During the period March 31, 1999 through October 31, 1999, the Advisor
earned fees from the Balanced Fund B, Growth Fund B, Small Company Growth Fund B
and Mid Cap Fund B in the amounts of $279, $458, $59 and $124, respectively. The
Advisor has agreed to limit the aggregate expenses of the Balanced Fund B,
Growth Fund B, Mid Cap Fund B and Small Company Growth Fund B to 1.90%, 2.10%,
2.14% and 2.30%, respectively, of each Fund's average daily net assets. As a
result, for the period March 31, 1999 through October 31, 1999, the Advisor
waived fees and reimbursed expenses of the Funds as follows:
Waived Reimbursed
Fees Expenses
---- --------
Balanced Fund B $279 $61,584
Growth Fund B 458 55,850
Mid Cap Fund B 124 58,374
Small Company Growth Fund B 59 60,035
The Advisor reserves the right to be reimbursed for any waiver of its fees
or expenses paid on behalf of the Funds if, within three subsequent years, a
Fund's expenses are less than the limit agreed to by the Advisor.
B-18
<PAGE>
THE ADMINISTRATOR
The Funds and the Portfolios each pay a monthly administration fee to
Investment Company Administration, LLC for managing some of their business
affairs. Each Fund pays an annual fee of $15,000. Each Portfolio pays an annual
administration fee of 0.10% of its average net assets. Each Portfolio, other
than the Balanced Portfolio, is subject to an annual minimum administration fee
of $45,000. For the fiscal year ended October 31, 1999, the Balanced Portfolio,
Growth Portfolio, Mid Cap Portfolio and Small Cap Portfolio paid $31,954,
$167,136, $45,625 and $224,187, respectively, in administration fees. For the
fiscal year ended October 31, 1998, the Balanced Portfolio, Growth Portfolio,
Mid Cap Portfolio and Small Cap Portfolio paid $39,445, $130,737, $37,835 and
$177,341, respectively, in administration fees.
THE DISTRIBUTOR
First Fund Distributors, Inc., 4455 E. Camelback Road, Suite 261E, Phoenix
AZ 85018, is the Trust's principal underwriter.
DISTRIBUTION PLANS
The Trustees and/or shareholders of the Trust have adopted, on behalf of
each Fund A, a Distribution Plan (the "A Plan") pursuant to Rule 12b-1 under the
1940 Act. The A Plan provides that each Fund A will pay a 12b-1 fee to the
Distributor at an annual rate of up to 0.25% of its average daily net assets for
expenses incurred in marketing its shares, including advertising, printing and
compensation to securities dealers or other industry professionals.
The Trustees of the Trust have adopted, on behalf of each Fund B, a
Distribution Plan (the "B Plan") pursuant to Rule 12b-1 under the 1940 Act. The
B Plan provides for the payment of a distribution fee at the annual rate of up
to 0.75% of each Fund B's average daily net assets for expenses incurred in
marketing its shares and a service fee at the annual rate of up to 0.25% of each
Fund B's average daily net assets.
The Trustees of the Trust have adopted, on behalf of each Fund C, a
Distribution Plan (the "C Plan") pursuant to Rule 12b-1 under the 1940 Act. The
C Plan provides for the payment of a distribution fee at the annual rate of up
to 0.75% of each Fund C's average daily net assets for expenses incurred in
marketing its shares and a service fee at the annual rate of up to 0.25% of each
Fund C's average daily net assets.
For the fiscal year ended October 31, 1999, the Balanced Fund A paid
$79,244 under its Plan, of which $4,189 was paid as compensation to
broker-dealers, $29,690 was compensation to the Distributor, $29,302 was
compensation to sales personnel, $3,714 was for reimbursement of advertising and
marketing materials expenses, $2,158 was for reimbursement of printing and
postage expenses and $10,191 was for miscellaneous other expenses. During the
B-19
<PAGE>
same period, the Growth Fund A paid $14,063 under its Plan, of which $2,077 was
paid as compensation to broker-dealers, $4,205 was compensation to the
Distributor, $4,071 was compensation to sales personnel, $455 was for
reimbursement of advertising and marketing materials expenses, $706 was for
reimbursement of printing and postage expenses and $2,549 was for miscellaneous
other expenses. During the same period, the Mid Cap Fund A paid $20,737 under
its Plan, of which $75 was paid as compensation to broker-dealers, $8,044 was
compensation to the Distributor, $7,755 was compensation to sales personnel,
$802 was for reimbursement of advertising and marketing materials expenses,
$1,137 was for reimbursement of printing and postage expenses and $2,924 was for
miscellaneous other expenses. During the same period, the Small Company Growth
Fund A paid $2,828 under its Plan, of which $343 was paid as compensation to
broker-dealers, $585 was compensation to the Distributor, $536 was compensation
to sales personnel, $288 was for reimbursement of advertising and marketing
materials expenses, $647 was for reimbursement of printing and postage expenses
and $429 was for miscellaneous other expenses.
For the period March 31, 1999 through October 31, 1999, the Balanced Fund B
paid $1,047 under its Plan, of which $307 was compensation to the Distributor,
$299 was compensation to sales personnel, $12 was for reimbursement of
advertising and marketing materials expenses, $217 was for reimbursement of
printing and postage expenses and $212 was for miscellaneous other expenses.
During the same period, the Growth Fund B paid $1,718 under its Plan, of which
$588 was compensation to the Distributor, $573 was compensation to sales
personnel, $14 was for reimbursement of advertising and marketing materials
expenses, $246 was for reimbursement of printing and postage expenses and $297
was for miscellaneous other expenses. During the same period, the Mid Cap Fund B
paid $466 under its Plan, of which $85 was compensation to the Distributor, $82
was compensation to sales personnel, $6 was for reimbursement of advertising and
marketing materials expenses, $207 was for reimbursement of printing and postage
expenses and $86 was for miscellaneous other expenses. During the same period,
the Small Company Growth Fund B paid $221 under its Plan, of which $32 was
compensation to the Distributor, $31 was compensation to sales personnel, $5 was
for reimbursement of advertising and marketing materials expenses, $88 was for
reimbursement of printing and postage expenses and $65 was for miscellaneous
other expenses.
SHAREHOLDER SERVICES PLAN
On May 15, 1998, the Board of Trustees approved the implementation of a
Shareholder Services Plan (the "Services Plan") under which the Advisor will
provide, or arrange for others to provide, certain specified shareholder
services. As compensation for the provision of shareholder services, each Fund A
will pay the Advisor a monthly fee at an annual rate of 0.15% of the Fund's
average daily net assets. The Advisor will pay certain banks, trust companies,
broker-dealers and other financial intermediaries (each, a "Participating
Organization") out of the fees the Advisor receives from the Funds under the
Services Plan to the extent that the Participating Organization performs
shareholder servicing functions for Fund A shares owned by its customers.
B-20
<PAGE>
During the fiscal year ended October 31, 1999, Balanced Fund A, Growth Fund
A, Mid Cap Fund A and Small Company Growth Fund A paid $47,547, $8,438, $12,442
and $1,697, respectively, in shareholder servicing fees. During the fiscal year
ended October 31, 1999, Balanced Fund B, Growth Fund B, Mid Cap Fund B and Small
Company Growth Fund B paid $349, $573, $156 and $74, respectively, in
shareholder servicing fees.
DEALER COMMISSIONS
The Distributor pays a portion of the sales charges imposed on purchases of
the Fund A shares to retail dealers, as follows: Dealer Commission as a % of
Your investment offering price
Up to $49,000 5.00%
$50,000-$99,999 3.75
$100,000-$249,999 2.75
$250,000-$499,999 2.00
$500,000-$999,999 1.60
$1,000,000 and over *
- ----------
* The Distributor pays a commission of up to 1.00% to financial institutions
that initiate purchases of $1 million or more.
CUSTODIAN AND AUDITORS
The Trust's custodian, Provident National Bank, 200 Stevens Drive, Lester,
PA 19113 is responsible for holding the Funds' assets. Provident Financial
Processing Corporation, 400 Bellevue Parkway, Wilmington, DE 19809, acts as each
Fund's transfer agent; its mailing address is P.O. Box 8943, Wilmington, DE
19899. The Trust's independent accountants, PricewaterhouseCoopers, LLP, assist
in the preparation of certain reports to the Securities and Exchange Commission
and the Funds' tax returns.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisory Agreements state that in connection with its duties to arrange
for the purchase and the sale of securities held by the Portfolios by placing
purchase and sale orders for the Portfolios, the Advisor shall select such
broker-dealers ("brokers") as shall, in its judgment, achieve the policy of
"best execution," i.e., prompt and efficient execution at the most favorable
securities price. In making such selection, the Advisor is authorized in the
Advisory Agreements to consider the reliability, integrity and financial
condition of the broker. The Advisor also is authorized by the Advisory
Agreements to consider whether the broker provides research or statistical
information to the Portfolios and/or other accounts of the Advisor. The Advisor
may select brokers who sell shares of the Portfolios or the Funds which invest
in the Portfolios.
B-21
<PAGE>
The Advisory Agreements state that the commissions paid to brokers may be
higher than another broker would have charged if a good faith determination is
made by the Advisor that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities as to the accounts as to which it exercises
investment discretion and that the Advisor shall use its judgment in determining
that the amount of commissions paid are reasonable in relation to the value of
brokerage and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of commission rates
reflecting such services. The Advisory Agreements provide that to demonstrate
that such determinations were in good faith, and to show the overall
reasonableness of commissions paid, the Advisor shall be prepared to show that
commissions paid (i) were for purposes contemplated by the Advisory Agreements;
(ii) were for products or services which provide lawful and appropriate
assistance to its decision-making process; and (iii) were within a reasonable
range as compared to the rates charged by brokers to other institutional
investors as such rates may become known from available information. During the
fiscal year ended October 31, 1999, the Balanced Portfolio paid $33,433 in
brokerage commissions, of which $2,372 was paid to brokers who furnished
research services. During the fiscal year ended October 31, 1998, the Balanced
Portfolio paid $34,286 in brokerage commissions, of which $319 was paid to
brokers who furnished research services. During the fiscal year ended October
31, 1999, the Growth Portfolio paid $214,042 in brokerage commissions, of which
$17,604 was paid to brokers who furnished research services. During the fiscal
year ended October 31, 1998, the Growth Portfolio paid $165,841 in brokerage
commissions, of which $2,255 was paid to brokers who furnished research
services. During the fiscal year ended December 31, 1999, the Small Cap
Portfolio paid $341,189 in brokerage commissions, of which $25,493 was paid to
brokers who furnished research services. During the fiscal year ended December
31, 1998, the Small Cap Portfolio paid $208,083 in brokerage commissions, of
which $10,766 was paid to brokers who furnished research services. During the
fiscal year ended December 31, 1999, the Mid Cap Portfolio paid $22,029 in
brokerage commissions, of which $234 was paid to brokers who furnished research
services. During the period December 31, 1997 through October 31, 1998, the Mid
Cap Portfolio paid $15,377 in brokerage commissions, of which $921 was paid to
brokers who furnished research services. During the fiscal year ended October
31, 1997, the Balanced Portfolio, Growth Portfolio and Small Cap Portfolio paid
brokerage commissions in the amounts of $24,471, $110, 376 and $218,0897,
respectively.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Portfolios in the valuation of the Portfolios'
investments. The research which the Advisor receives for the Portfolios'
brokerage commissions, whether or not useful to the Portfolios, may be useful to
it in managing the accounts of its other advisory clients. Similarly, the
research received for the commissions of such accounts may be useful to the
Portfolios.
B-22
<PAGE>
The debt securities which will be a major component of the Balanced
Portfolio's portfolio are generally traded on a "net" basis with dealers acting
as principal for their own accounts without a stated commission although the
price of the security usually includes a profit to the dealer. Money market
instruments usually trade on a "net" basis as well. On occasion, certain money
market instruments may be purchased by the Portfolios 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 Funds generally will not invest for short-term trading
purposes, portfolio securities may be sold without regard to the length of time
they have been held when, in the opinion of the Advisor, investment
considerations warrant such action. Portfolio turnover rate is calculated by
dividing (1) the lesser of purchases or sales of portfolio securities for the
fiscal year by (2) the monthly average of the value of portfolio securities
owned during the fiscal year. A 100% turnover rate would occur if all the
securities in a Portfolio's portfolio, with the exception of securities whose
maturities at the time of acquisition were one year or less, were sold and
either repurchased or replaced within one year. A high rate of portfolio
turnover (100% or more) generally leads to higher transaction costs and may
result in a greater number of taxable transactions. See "Portfolio Transactions
and Brokerage." Growth Portfolio's portfolio turnover rate for the fiscal years
ended October 31, 1999 and 1998 was 80.34% and 81.06%, respectively. Balanced
Portfolio's portfolio turnover rate for the fiscal years ended October 31, 1999
and 1998 was 174.19% and 111.47%, respectively. During the fiscal year ended
October 31, 1999, the Balanced Portfolio changed its asset allocation between
fixed-income and equity securities, which resulted in a higher rate of portfolio
turnover than for the prior fiscal year. Small Cap Portfolio's portfolio
turnover rate for the fiscal years ended October 31, 1999 and1998 was 133.24%
and 81.75%, respectively. As a result of volatility in the equity markets during
the fiscal year ended October 31, 1999, the Small Cap Portfolio had a higher
rate of portfolio turnover than in the prior fiscal year. Mid Cap Portfolio's
portfolio turnover rate for the fiscal year ended December 31, 1999 and for the
period December 31, 1997 through October 31, 1998 was 144.64% and 166.89%,
respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Reference is made to "Ways to Set Up Your Account - How to Buy Shares - How
To Sell Shares" in the prospectus for additional information about purchase and
redemption of shares. You may purchase and redeem shares of each Fund on each
day on which the New York Stock Exchange ("Exchange") is open for trading. The
Exchange annually announces the days on which it will not be open for trading.
The most recent announcement indicates that it will not be open on the following
days: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the Exchange may close on days not included in that announcement.
B-23
<PAGE>
The contingent deferred sales charge imposed on Fund B and Fund C shares
does not apply to (a) any redemption pursuant to a tax-free return of an excess
contribution to an individual retirement account or other qualified retirement
plan if the Fund is notified at the time of such request; (b) any redemption of
a lump-sum or other distribution from qualified retirement plans or accounts
provided the shareholder has attained the minimum age of 70 1/2 years and has
held the Fund shares for a minimum period of three years; (c) any redemption by
advisory accounts managed by the Advisor or its affiliates; (d) any redemption
made by employees, officers or directors of the Advisor or its affiliates; (e)
any redemption by a tax-exempt employee benefit plan if continuation of the
investment would be improper under applicable laws or regulations; and (f) any
redemption or transfer of ownership of shares following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code (the "Code"), of a
shareholder if the Fund is provided with proof of death or disability and with
all documents required by the Transfer Agent within one year after the death or
disability.
NET ASSET VALUE
The net asset value of the Portfolios' shares will fluctuate and is
determined as of the close of trading on the Exchange (normally 4:00 p.m.
Eastern time) each business day. Each Portfolio's net asset value is calculated
separately.
The net asset value per share is computed by dividing the value of the
securities held by each Portfolio plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of interests in the Portfolio
outstanding at such time.
Equity securities listed on a national securities exchange or traded on the
NASDAQ system are valued on their last sale price. Other equity securities and
debt securities for which market quotations are readily available are valued at
the mean between their bid and asked price, except that debt securities maturing
within 60 days are valued on an amortized cost basis. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
TAXATION
The Funds will each be taxed as separate entities under the Code and each
intends to elect to qualify for treatment as a regulated investment company
("RIC") under Subchapter M of the Code. In each taxable year that the Funds
qualify, the Funds (but not their shareholders) will be relieved of federal
income tax on that part of their investment company taxable income (consisting
generally of interest and dividend income, net short-term capital gain and net
realized gains from currency transactions) and net capital gain that is
distributed to shareholders.
B-24
<PAGE>
In order to qualify for treatment as a RIC, the Funds must distribute
annually to shareholders at least 90% of their investment company taxable income
and must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of each Fund's gross income each taxable year must
be derived from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
securities or currencies; (2) at the close of each quarter of each Fund's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, limited in respect of any one issuer, to an amount that does
not exceed 5% of the value of the Fund and that does not represent more than 10%
of the outstanding voting securities of such issuer; and (3) at the close of
each quarter of each Fund's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends from a Fund's investment company taxable income (whether paid in
cash or invested in additional shares) will be taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits. Distributions
of a Fund's net capital gain (whether paid in cash or invested in additional
shares) will be taxable to shareholders as long-term capital gain, regardless of
how long they have held their Fund shares.
Dividends declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in one of such months will be
deemed to have been paid by the Fund and received by the shareholders on the
record date if the dividends are paid by a Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other noncorporate shareholders who do not provide the Fund with a correct
taxpayer identification number. Each Fund also is required to withhold 31% of
all dividends and capital gain distributions paid to such shareholders who
otherwise are subject to backup withholding.
B-25
<PAGE>
PERFORMANCE INFORMATION
TOTAL RETURN
Average annual total return quotations used in a Fund's advertising and
promotional materials are calculated according to the following formula:
n
P(1 + T) = ERV
where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.
The Funds' return computed at the public offering price (using the maximum
sales charge for Fund A shares and the applicable CDSC for Fund B shares) for
the periods ended October 31, 1999 are set forth below:
Average Annual Total Return
One Year Five Years Life of Fund*
-------- ---------- -------------
Balanced Fund A 12.35% 16.59% 13.20%
Growth Fund A 23.55% N/A 21.08%
Mid Cap Fund A 42.05% N/A 24.57%
Small Company Growth Fund A 50.25% N/A 9.34%
- ----------
* The inception dates for the Funds are as follows: Balanced Fund A - June
11, 1992 ; Growth Fund A - February 3, 1997; Mid Cap Fund A - December 31,
1997; and Small Company Growth Fund A - February 3, 1997.
Annual Total Return
Life of Fund*
-------------
Balanced Fund B -7.71%
Growth Fund B -2.51%
Mid Cap Fund B 14.72%
Small Company Growth Fund B 32.66%
- ----------
* The inception dates for the Funds B are March 31, 1999.
B-26
<PAGE>
YIELD
Annualized yield quotations used in a Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2 [(a-b + 1){6} - 1]
--
cd
where a equals dividends and interest earned during the period; b equals
expenses accrued for the period, net of reimbursements; c equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends; and d equals the maximum offering price per share on the last
day of the period.
Except as noted below, in determining net investment income earned during
the period ("a" in the above formula), a Fund calculates interest earned on each
debt obligation held by it during the period by (1) computing the obligation's
yield to maturity, based on the market value of the obligation (including actual
accrued interest) on the last business day of the period or, if the obligation
was purchased during the period, the purchase price plus accrued interest; (2)
dividing the yield to maturity by 360 and multiplying the resulting quotient by
the market value of the obligation (including actual accrued interest). Once
interest earned is calculated in this fashion for each debt obligation held by a
Fund, net investment income is then determined by totaling all such interest
earned.
For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
OTHER INFORMATION
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials a Fund may
compare its performance with data published by Lipper Analytical Services, Inc.
("Lipper") or CDA Investment Technologies, Inc. ("CDA"). A Fund also may refer
in such materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper or CDA.
B-27
<PAGE>
Advertising and promotional materials also may refer to discussions of a Fund
and comparative mutual fund data and ratings reported in independent periodicals
including, but not limited to, The Wall Street Journal, Money Magazine, Forbes,
Business Week, Financial World and Barron's.
GENERAL INFORMATION
Each Fund is a diversified series of the Trust, which is an open-end
investment management company, organized as a Delaware business trust on
December 11, 1991. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in a Fund. Each share
represents an interest in a Fund proportionately equal to the interest of each
other share. Upon the Trust's liquidation, all shareholders would share pro rata
in the net assets of the Fund in question available for distribution to
shareholders. If they deem it advisable and in the best interest of
shareholders, the Board of Trustees may create additional series of shares which
differ from each other only as to dividends. The Board of Trustees has created
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 a particular Fund are allocated fairly among the
Funds by the Trustees, generally on the basis of the relative net assets of each
Fund.
Prior to October 31, 1999, the Provident Investment Counsel Funds A were
called Provident Investment Counsel Pinnacle Balanced Fund, Provident Investment
Counsel Pinnacle Growth Fund, Provident Investment Counsel Pinnacle Mid Cap Fund
and Provident Investment Counsel Pinnacle Small Company Growth Fund.
Each Fund is one of a series of shares, each having separate assets and
liabilities, of the Trust. The Board of Trustees may at its own discretion,
create additional series of shares. The Declaration of Trust contains an express
disclaimer of shareholder liability for its acts or obligations and provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for its obligations.
The Declaration of Trust further provides the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares) and may vote in the election of Trustees
and on other matters submitted to meetings of shareholders. It is not
contemplated that regular annual meetings of shareholders will be held. Rule
18f-2 under the 1940 Act provides that matters submitted to shareholders be
approved by a majority of the outstanding securities of each series, unless it
is clear that the interests of each series in the matter are identical or the
matter does not affect a series. However, the rule exempts the selection of
B-28
<PAGE>
accountants and the election of Trustees from the separate voting requirements.
Income, direct liabilities and direct operating expenses of each series will be
allocated directly to each series, and general liabilities and expenses of the
Trust will be allocated among the series in proportion to the total net assets
of each series by the Board of Trustees.
The Declaration of Trust provides that the shareholders have the right,
upon the declaration in writing or vote of more than two-thirds of its
outstanding shares, to remove a Trustee. The Trustees will call a meeting of
shareholders to vote on the removal of a Trustee upon the written request of the
record holders of ten per cent of its shares. In addition, ten shareholders
holding the lesser of $25,000 worth or one per cent of the shares may advise the
Trustees in writing that they wish to communicate with other shareholders for
the purpose of requesting a meeting to remove a Trustee. The Trustees will then,
if requested by the applicants, mail at the applicants' expense the applicants'
communication to all other shareholders. Except for a change in the name of the
Trust, no amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of more than 50% of its outstanding shares. The
holders of shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth above. The Trust may be
terminated upon the sale of its assets to another issuer, if such sale is
approved by the vote of the holders of more than 50% of its outstanding shares,
or upon liquidation and distribution of its assets, if approved by the vote of
the holders of more than 50% of its outstanding shares. If not so terminated,
the Trust will continue indefinitely.
Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
FINANCIAL STATEMENTS
The annual report to shareholders for the Funds A and Funds B for the
fiscal year ended October 31, 1999 is a separate document supplied with this
SAI, and the financial statements, accompanying notes and report of independent
accountants appearing therein are incorporated by reference into this SAI.
B-29
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD & POOR'S RATINGS GROUP: CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
B-30
<PAGE>
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are assessments of the issuer's ability to
repay punctually promissory obligations. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1--highest quality; Prime 2--higher
quality; Prime 3--high quality.
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.
B-31
