File No. 811-8060
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [_]
Amendment No. 4 [X]
PIC Small Cap. Portfolio
(Exact name of registrant as specified in charter)
300 North Lake Avenue
Pasadena, CA 91101-4106
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (including area code): (626) 449-8500
Thad M. Brown
Provident Investment Counsel
300 North Lake Avenue
Pasadena, CA 91101-4106
(Name and address of agent for service of process)
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PIC SMALL CAP. PORTFOLIO
PART A.
Item 4. General Description of Registrant
PIC Small Cap. Portfolio (the "Small Cap. Portfolio" or the
"Portfolio") is a diversified, management open-end investment company which was
organized as a trust under the laws of the State of New York on March 22, 1993.
The investment objective of the Small Cap. Portfolio is to provide
capital appreciation. There is no assurance that the Small Cap. Fund will
achieve its objective.
The Small Cap. Portfolio will invest in equity securities, consisting
of common stocks and securities having the characteristics of common stocks,
such as convertible preferred stocks, convertible debt securities and warrants.
The Small Cap. Portfolio will invest at least 60% and under normal circumstances
expects to invest at least 95% of its assets in such equity securities of small
companies. In general, a "small company" is one which has a market
capitalization or annual revenues of $250 million or less at the time of
investment. In selecting investments for the Small Cap. Portfolio, Provident
Investment Counsel, the Advisor to the Small Cap. Portfolio, will select equity
securities of small companies which are currently experiencing an above-average
rate of earnings growth. To the extent that the Small Cap. Portfolio does invest
in small issuers, there is the risk that such securities will be less marketable
or may be subject to greater fluctuations in price than the securities of larger
issuers. Small companies often pay no dividends, and income is not a primary
goal of the Small Cap. Portfolio.
The Advisor supports its selection of individual securities through
intensive research and uses qualitative and quantitative disciplines to
determine when securities should be sold. In unusual circumstances, economic,
monetary, technical and other factors may cause the Advisor to assume a
temporary, defensive position during which all or a substantial portion of the
Portfolio's assets may be invested in short-term instruments. For more
information about short- term investments, see "Short-Term Investments" below.
The Small Cap. Portfolio also may invest part of its assets temporarily in
short-term investments pending the investment of the proceeds of the sale of its
Interests or of its portfolio securities.
The Small Cap. Portfolio may also invest up to 20% of its assets in
foreign equity securities, although there is no requirement that it do so. See
"Foreign Securities" below.
Short-Term Investments. The short-term investments that may be
purchased by the Small Cap. Portfolio consist of high quality debt obligations
maturing in one year or less from the date of purchase, such as U.S. Government
securities, certificates of deposit, bankers' acceptances and commercial paper.
High quality means the obligations have been rated at least A-1 by S&P or
Prime-1 by Moody's, or have an outstanding issue of debt securities rated at
least A by S&P or Moody's, or are of comparable quality in the opinion of the
Advisor. See the Appendix for a description of S&P and Moody's ratings.
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Short-term investments also include repurchase agreements. A repurchase
agreement is a transaction in which the Portfolio purchases a security, and at
the same time, the seller (normally a commercial bank or broker-dealer) agrees
to repurchase the same security (and/or a security substituted for it under the
repurchase agreement) at an agreed-upon price and date in the future. The resale
price is in excess of the purchase price in that it reflects an agreed-upon
market interest rate effective for the period of time during which the Portfolio
holds the securities. The majority of these transactions run from day to day and
not more than seven days from the original purchase. The Portfolio's risk is
limited to the ability of the seller to pay the agreed-upon sum upon the
delivery date; in the event of bankruptcy or other default by the seller, there
may be possible delays and expenses in liquidating the instrument purchased,
decline in its value and loss of interest. However, the securities will be
marked to market every business day so that the value is at least equal to the
amount due from the seller, including accrued interest. The Advisor will also
consider the creditworthiness of any bank or broker-dealer involved in
repurchase agreements.
U.S. Government Securities. U.S. Government securities include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal Home Loan Banks, the Federal National Mortgage
Association and the Student Loan Marketing Association.
Except for U.S. Treasury securities, obligations of U.S. Government
agencies and instrumentalities may or may not be supported by the full faith and
credit of the United States. Some, such as those of the Federal Home Loan Banks,
are backed by the right of the issuer to borrow from the Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.
Foreign Securities. The Small Cap. Portfolio has the right to invest up
to 20% of its total assets in foreign securities. The Portfolio will only
purchase foreign securities which are listed on a "national securities
exchange," as defined in the Investment Company Act of 1940 (the "1940 Act"), or
included in the NASDAQ National Market System or which are represented by
American Depositary Receipts listed on a national securities exchange or
included in the NASDAQ National Market System.
Interest or dividend payments on foreign securities may be subject to
foreign withholding taxes. There are also risks in investing in foreign
securities. The value of an investment may be affected indirectly by changes in
currency rates and in exchange control regulations. Foreign companies are
frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information about
foreign issuers. In addition, investments in foreign countries are subject to
the possibility of expropriation or
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confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect the value of those investments.
Options Transactions. The Small Cap. Portfolio may write (sell) covered
cash and cash secured put options, and it may purchase call and put options on
stocks and stock indices. The Small Cap. Portfolio will write options on its
portfolio securities for the purpose of increasing its return or to protect the
value of its portfolio. If the price of the underlying security moves adversely
to the Portfolio's position, the option may be exercised, and the Portfolio will
be required to purchase or sell the underlying security at a disadvantageous
price, which may only be partially offset by the amount of the premium, if at
all. The Small Cap. Portfolio also may write straddles, which are combinations
of put and call options on the same security, and which may generate additional
income, but may also present increased risk. The premium paid for a put or call
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise or liquidation of the option, and unless the price of the
underlying security changes sufficiently, the option may expire without value to
the Portfolio. The Portfolio's custodian or a securities depository holds
securities in escrow for the Portfolio in connection with options transactions.
See the Statement of Additional Information.
Futures. The Portfolio may buy and sell stock index futures contracts.
The Portfolio will enter into these transactions in order to hedge against
changes in prices of the Portfolio's securities. No more than 25% of the
Portfolio will be hedged.
A stock index futures contract is an agreement pursuant to which one
party agrees to deliver to the other an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made. If the Advisor
expected general stock market prices to rise, it might purchase a stock index
futures contract as a hedge against an increase in prices of particular equity
securities it wanted ultimately to buy. If in fact the stock index did rise, the
price of the equity securities intended to be purchased might also increase, but
that increase would be offset in part by the increase in the value of the
Portfolio's futures contract resulting from the increase in the index. On the
other hand, if the Advisor expected general stock market prices to decline, it
might sell a futures contract on the index. If that index did in fact decline,
the value of some or all of the equity securities held by the Portfolio might
also be expected to decline, but that decrease would be offset in part by the
increase in the value of the futures contract.
There is no assurance that it will be possible at any particular time
to close a futures position. In the event that the Portfolio could not close a
futures position and the value of the position declined, the Portfolio would be
required to continue to make daily cash payments of maintenance margin. There
can be no assurance that hedging transactions will be successful, as there may
be an imperfect correlation between movements in the prices of the futures
contracts and of the securities being hedged, or price distortions due to market
conditions in the futures markets. Successful use of futures contracts is
subject to the Advisor's ability to predict correctly movements in the direction
of interest rates, market prices and other factors affecting the value of
securities.
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Portfolio Turnover. The annual rate of portfolio turnover of the Small
Cap. Portfolio was 151.52% for the fiscal year ended October 31, 1997, but it is
expected to be less than 100% in the future. However, under certain market
conditions, the Portfolio may experience a higher rate of portfolio turnover. In
general, the Advisor will not consider the rate of portfolio turnover to be a
limiting factor in determining when or whether to purchase or sell securities in
order to achieve the Portfolio's objective. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by the Portfolio, and may increase realized capital gains
which are taxable to Holders when distributed.
INVESTMENT RESTRICTIONS
The Portfolio has adopted certain investment restrictions, which are
described fully in the Statement of Additional Information. One of these
restrictions states that the Portfolio may borrow money only from banks for
temporary or emergency purposes in amounts not to exceed 10% of the Portfolio's
assets, and that additional investments may not be made while any such
borrowings are in excess of 5% of the Portfolio's assets. Like the investment
objective, these restrictions are fundamental and may be changed only by a
majority vote of the outstanding Interests of the Portfolio.
It is a position of the Securities and Exchange Commission (and an
operating although not a fundamental policy of the Portfolio) that open-end
investment companies such as the Portfolio should not make certain illiquid
investments if thereafter more than 15% of the value of its net assets would be
so invested. The investments included in this 15% limit are (i) those which are
restricted; i.e., those which cannot freely be sold for legal reasons (other
than those which meet the requirements of Securities Act Rule 144A); (ii) fixed
time deposits subject to withdrawal penalties (other than deposits with a term
of less than seven days); (iii) repurchase agreements having a maturity of more
than seven days; and (iv) investments for which market quotations are not
readily available. The 15% limitation does not include obligations which are
payable at principal amount plus accrued interest within seven days after
purchase.
Item 5. Management of the Fund.
The Portfolio's Board of Trustees decides on matters of general policy
and reviews the activities of the Advisor and the Administrator. The Portfolio's
officers conduct and supervise the daily business operations of the Portfolio.
The Advisor
The Advisor to the Small Cap. Portfolio is Provident Investment
Counsel, Inc., 300 North Lake Avenue, Pasadena, California 91101-4106. Subject
to the direction and control of the Trustees of the Small Cap. Portfolio, the
Advisor formulates and implements an investment program for the Portfolio,
including determining which securities should be bought and sold. The Advisor
also provides certain of the officers of the Portfolio. For its services, The
Advisor receives a fee from the Portfolio, accrued daily and paid monthly, at
the annual rate of 0.80% of the average daily net assets of the Portfolio.
The Advisor traces its origins to an investment partnership formed in
1951. On February 15, 1995, it became an indirect, wholly owned subsidiary of
United Asset Management
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("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. At
December 31, 1996, total assets under the Advisor's management were in excess of
$20 billion.
The Administrator
Pursuant to an Administration Agreement, Investment Company
Administration Corporation (the "Administrator") supervises the overall
administration of the Portfolio, including, among other responsibilities, the
preparation and filing of all documents required for compliance by the Portfolio
with applicable laws and regulations, arranging for the maintenance of books and
records and the Portfolio, and supervision of other organizations that provides
services to the Portfolio. Certain officers of the Portfolio are also provided
by the Administrator. The Portfolio is responsible for paying legal and auditing
fees, the fees and expenses of its custodian, accounting services and transfer
agents, trustees' fees and registration fees, as well as its other operating
expenses. For the services it provides, the Administrator receives a fee from
the Portfolio at an annual rate of .10% of the average daily net assets of the
Portfolio; the fee is accrued daily and paid monthly.
Transfer and Dividend Paying Agent
The Portfolio does not have a transfer or dividend paying agent for the
Portfolio.
Item 6. Capital Stock and Other Securities
Holders of Interests in the Portfolio are entitled to one vote for each
full Interest held (and fractional votes for fractions of Interests) and may
vote in the election of Trustees and on other matters submitted to meetings of
Holders. It is not contemplated that regular annual meetings of Holders will be
held.
The Declaration of Trust provides that the Holders have the right, upon
the declaration in writing or vote of the Holders of a majority of Interests, to
remove a Trustee. The Trustees will call a meeting of Holders to vote on the
removal of a Trustee upon the written request of the Holders of ten per cent of
its Interests. In addition, ten Holders holding the lesser of $25,000 worth or
one per cent of the Interests may advise the Trustees in writing that they wish
to communicate with other Holders for the purpose of requesting a meeting to
remove a Trustee. The Trustees will then, if requested by the applicants, mail
at the applicants' expense the applicants' communication to all other Holders.
Holders of Interests have no preemptive or other right to subscribe for
additional securities. Interests are non-transferable.
Holders may be liable for obligations of the Portfolio, but the risk of
a Holder incurring financial loss on account of such liability is limited to
circumstances in which the Portfolio was unable to meet its obligations.
The Book Capital Account balances of Holders are determined at such
time or times, at such frequency and pursuant to such method as the Trustees may
from time to time determine.
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The power and duty to make such calculations may be delegated by the Trustees to
such person as the Trustees may determine. Such calculations are made on such
days as necessary to comply with Rule 22c-1 under the 1940 Act.
The Trustees shall, in compliance with applicable provisions of the
Internal Revenue Code (the "Code") or regulations thereunder, agree to (a) the
daily allocation of income or loss to each Holder, (b) the payment of
distributions to Holders and (c) upon liquidation of the Portfolio, the final
distribution of items of taxable income and expense. Any such agreement may be
amended from time to time to comply with the Code or regulations thereunder. The
Trustees may retain from net profits such amount as they may deem necessary to
pay the debts or expenses of the Portfolio or to meet obligations of the
Portfolio, or as they may deem desirable to use in the conduct of the affairs of
the Portfolio or to retain for future requirements or extension of the business
of the Portfolio.
As of February 28, 1998, the Registrant was controlled by PIC
Investment Trust, 300 North Lake Avenue, Pasadena, CA 91101, which owned 99.99%
of its outstanding Interests.
Item 7. Purchase of Securities Being Offered
Interests in the Portfolio are issued solely to institutional
investors, including regulated investment companies, group trusts governed by
Section 501(a) of the Code, common trust funds governed by Section 584 of the
Code and similar collective investment arrangements in transactions which do not
involve any "public offering" within the meaning of the Securities Act of 1933
(the "1933 Act"). This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
There is no sales charge on Interests in the Portfolio, and the
Portfolio does not use its assets for distribution pursuant to Rule 12b-1 under
the 1940 Act. There is no minimum investment in the Portfolio. The Portfolio
reserves the right to reject any investment.
The net asset value of the Portfolio is determined as of the close of
regular trading (currently 4:00 p.m., New York time) on each day that the New
York Stock Exchange is open for trading. The net asset value per Interest of the
Portfolio is the value of the Portfolio's assets, less its liabilities, divided
by the number of Interests outstanding.
The Portfolio values its investments on the basis of the market value
of the securities. Securities and other assets for which market prices are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees of the Portfolio. The fair value of debt securities with
remaining maturities of 60 days or less is normally their amortized cost value,
unless conditions indicate otherwise. Cash and receivables are valued at their
face amounts. Interest will be recorded as accrued and dividends will be
recorded on their ex-dividend date.
Item 8. Redemption or Repurchase
A Holder wishing to redeem Interests may do so at any time by writing
to the Fund in care of its Custodian at P.O. Box 8950, Wilmington DE 19899, or
by delivering instructions to
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the Custodian at 103 Bellevue Parkway, Wilmington, Delaware 19809. The
redemption request should identify the Portfolio, specify the number of
Interests to be redeemed and be signed by an authorized person of the Holder. If
the request is not properly executed, the Interests specified will be redeemed
at the net asset value next determined after receipt of the request. Payment for
Interests tendered will be made within seven days after receipt by the Portfolio
of instructions properly executed. However, payment may be delayed under unusual
circumstances, as specified in the Investment Company Act of 1940 or as
determined by the Securities and Exchange Commission. Payment will be sent only
to Holders at the address of record.
Redemption of Small Accounts
In order to reduce the Portfolio's expenses, the Board of Trustees is
authorized to cause the redemption of all of the Interests of any Holder whose
account has declined to a net asset value of less than $500, as a result of a
transfer or redemption, at the net asset value determined as of the close of
business on the business day preceding the sending of proceeds of such
redemption. The Portfolio would give Holders whose Interests were being redeemed
60 days' prior written notice in which to purchase sufficient Interests to avoid
such redemption.
Item 9. Pending Legal Proceedings
Not applicable.
The date of this Part A is March 2, 1998.
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PART B.
PIC SMALL CAP. PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page
This Statement of Additional Information of the PIC Small Cap.
Portfolio (the "Small Cap. Portfolio" or the "Portfolio") is not a prospectus,
and it should be read only in conjunction with Part A of this Registration
Statement. The date of this Statement of Additional Information is March 2,
1998.
Item 11. Table of Contents
Item 12. General Information and History................................ B-1
Item 13. Investment Objective and Policies.............................. B-1
Item 14. Management of the Fund......................................... B-5
Item 15. Control Persons and Principal Holders of Securities............ B-6
Item 16. Investment Advisory and Other Services......................... B-6
Item 17. Brokerage Allocation........................................... B-7
Item 18. Capital Stock and Other Securities............................. B-8
Item 19. Purchase, Redemption and Pricing of Securities Being Offered... B-8
Item 20. Tax Status..................................................... B-8
Item 21. Underwriters................................................... B-9
Item 22. Calculation of Performance Data................................ B-9
Appendix................................................................. B-9
Item 23. Financial Statements........................................... B-10
Item 12. General Information and History
Not applicable.
Item 13. Investment Objective and Policies
The investment objective of the Small Cap. Portfolio is to provide
capital appreciation. There is no assurance that the Portfolio will achieve its
objective. The discussion below supplements information contained in Part A as
to investment policies of the Small Cap.
Portfolio.
Investment Restrictions
The Portfolio has adopted the following restrictions as fundamental
policies, which may not be changed without the favorable vote of the holders of
a "majority," as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the outstanding voting securities of the Portfolio. Under the 1940 Act, the
"vote of the holders of a majority of the outstanding voting securities" means
the vote of the holders of the lesser of (i) 67% of the Interests of the
Portfolio represented at a meeting at which the holders of more than 50% of its
outstanding Interests are represented or (ii) more than 50% of the outstanding
Interests of the Portfolio.
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The Portfolio may not:
1. Issue senior securities, borrow money or pledge its assets, except
that the Portfolio may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not exceeding
10% of its total assets (not including the amount borrowed), provided that it
will not make investments while borrowings in excess of 5% of the value of the
its total assets are outstanding;
2. Make short sales of securities or maintain a short position, except
for short sales against the box;
3. Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
4. Write put or call options, except that it may write covered cash and
cash secured put options and purchase call and put options on stocks and stock
indices;
5. Act as underwriter (except to the extent the Portfolio may be deemed
to be an underwriter in connection with the sale of securities in its investment
portfolio);
6. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
7. Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Portfolio may purchase and sell
securities which are secured by real estate and securities of companies which
invest or deal in real estate);
8. Purchase or sell commodities or commodity futures contracts, except
that the Portfolio may purchase and sell stock index futures contracts;
9. Buy oil and gas limited partnerships or oil, gas or mineral leases;
10. Make loans (except for purchases of debt securities consistent with
the investment
policies of the Portfolio and except for repurchase agreements); or
11. Make investments for the purpose of exercising control or
management.
The Portfolio observes the following restrictions as a matter of
operating but not fundamental policy, pursuant to positions taken by federal
regulatory authorities:
The Portfolio may not invest more than 10% of its assets in the
securities of other investment companies or purchase more than 3% of any other
investment company's voting securities or make any other investment in other
investment companies except as permitted by federal law.
Repurchase Agreements
Repurchase agreements are transactions in which a Portfolio purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or maturity of
the purchased security. The purchaser maintains custody of the underlying
securities prior to their repurchase; thus the obligation of the bank or dealer
to pay the repurchase price on the date agreed to is, in effect, secured by such
underlying securities. If the
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value of such securities is less than the repurchase price, the other party to
the agreement will provide additional collateral so that at all times the
collateral is at least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with
direct investments in securities, the Portfolio intends to enter into repurchase
agreements only with banks and dealers believed by the Advisor to present
minimum credit risks in accordance with guidelines established by the Boards of
Trustees. The Advisor will review and monitor the creditworthiness of such
institutions under the Board's general supervision. To the extent that the
proceeds from any sale of collateral upon a default in the obligation to
repurchase were less than the repurchase price, the purchaser would suffer a
loss. If the other party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to bankruptcy or other liquidation proceedings, there
might be restrictions on the purchaser's ability to sell the collateral and the
purchaser could suffer a loss. However, with respect to financial institutions
whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy
Code, the Portfolio intends to comply with provisions under that Code that would
allow them immediately to resell the collateral.
Options Activities
The Small Cap. Portfolio may write call options on stocks and stock
indices, if the calls are "covered" throughout the life of the option. A call is
"covered" if the Portfolio owns the optioned securities. When the Small Cap.
Portfolio writes a call, it receives a premium and gives the purchaser the right
to buy the underlying security at any time during the call period at a fixed
exercise price regardless of market price changes during the call period. If the
call is exercised, the Portfolio will forgo any gain from an increase in the
market price of the underlying security over the exercise price.
The Small Cap. Portfolio may purchase a call on securities to effect a
"closing purchase transaction," which is the purchase of a call covering the
same underlying security and having the same exercise price and expiration date
as a call previously written by the Portfolio on which it wishes to terminate
its obligation. If the Portfolio is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the call
previously written by the Portfolio expires (or until the call is exercised and
the Portfolio delivers the underlying security).
The Small Cap. Portfolio also may write and purchase put options
("puts"). When the Portfolio writes a put, it receives a premium and gives the
purchaser of the put the right to sell the underlying security to the Portfolio
at the exercise price at any time during the option period. When the Portfolio
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. When the Portfolio writes a put, it will maintain at all times during the
option period, in a segregated account, cash or U.S. Government securities equal
in value to the exercise price of the put.
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.
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The Portfolio's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the Portfolio has
written puts or calls, or as to other securities acceptable for such escrow so
that no margin deposit is required of the Portfolio. Until the underlying
securities are released from escrow, they cannot be sold by the Portfolio.
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 Portfolio may buy and sell stock index futures contracts. A futures
contract is an agreement between two parties to buy and sell a security or an
index for a set price on a future date. Futures contracts are traded on
designated "contract markets" which, through their clearing corporations,
guarantee performance of the contracts.
A stock index futures contract may be used as a hedge by the Small Cap.
Portfolio with regard to market risk as distinguished from risk relating to a
specific security. A stock index futures contract does not require the physical
delivery of securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date, a final cash settlement occurs.
Changes in the market value of a particular stock index futures contract
reflects changes in the specified index of equity securities on which the future
is based.
There are several risks in connection with the use of futures
contracts. In the event of an imperfect correlation between the futures contract
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the fund may be exposed to risk of loss.
Further, unanticipated changes in interest rates or stock price movements may
result in a poorer overall performance for the Portfolio than if it had not
entered into any futures on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
securities and futures markets. Second, from the point of view of speculators,
the deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
Item 14. Management of the Fund
The Trustees and officers of the Portfolio, their business addresses
and principal occupations during the past five years are:
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Richard N. Frank (age 74), Trustee Chief Executive Officer, Lawry's
234 E. Colorado Blvd. Restaurants, Inc.; formerly Chairman
Pasadena, CA 91101 of Lawry's Foods, Inc.
Bernard J. Johnson (age 73), Retired; formerly Chairman Emeritus of
Trustee Emeritus the Advisor
300 North Lake Avenue
Pasadena, CA 91101
James Clayburn LaForce (age 69), Dean Emeritus, John E. Anderson
Trustee Graduate School of Management,
P.O. Box 1585 University of California, Los Angeles.
Pauma Valley, CA 92061 Director of The BlackRock Funds.
Trustee of Payden & Rygel Investment
Trust. Director of the Timken Co.,
Rockwell International, Eli Lilly,
Jacobs Engineering Group and Imperial
Credit Industries.
Jeffrey J. Miller (age 47), President Managing Director and Secretary of the
and Trustee* Advisor
300 North Lake Avenue
Pasadena, CA 91101
Angelo R. Mozilo (age 59), Trustee Vice Chairman and Executive Vice
155 N. Lake Avenue President of Countrywide Credit
Pasadena, CA 91101 Industries (mortgage banking)
Thad M. Brown (age 47), Vice Senior Vice President and Chief
President, Secretary and Financial Officer of the Advisor
Treasurer of the Trust
300 North Lake Avenue
Pasadena, CA 91101
- ---------------------------------
* denotes Trustees who are "interested persons" of Portfolio under the 1940 Act.
The following compensation was paid to each of the following Trustees.
No other compensation or retirement benefits were received by any Trustee or
officer from the Registrant or other registered investment company in the "Fund
Complex."
<TABLE>
<CAPTION>
Cash Compensation Deferred Compensation Total Compensation
Name of Trustee From Registrant From Registrant From Fund Complex*
- --------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Richard N. Frank -0- $4,000 $12,000
James Clayburn La Force $4,000 -0- 12,000
Angelo R. Mozilo -0- 4,000 12,000
</TABLE>
*The "Fund Complex" consists of the PIC Balanced Portfolio, the PIC Growth
Portfolio and the PIC Small Cap Portfolio.
Item 15. Control Persons and Principal Holders of Securities
The Portfolio is controlled by PIC Investment Trust, 300 North Lake
Avenue, Pasadena, CA 91101, which owns 99.99% of its outstanding interests.
B-5
<PAGE>
Item 16. Investment Advisory and Other Services
Subject to the supervision of the Board of Trustees of the Portfolio,
investment management and services are provided to the Portfolio by the Advisor,
pursuant to an Investment Advisory Agreement (the "Advisory Agreement").
Under the Advisory Agreement, the Advisor provides a continuous
investment program for the Portfolio and makes decisions and places orders to
buy, sell or hold particular securities. In conjunction with Investment Company
Administration Corporation (the "Administrator"), the Advisor also supervises
all matters relating to the operation of the Portfolio and obtains for it
officers, clerical staff, office space, equipment and services. As compensation
for its services, the Advisor receives a monthly fee at an annual rate of 0.80
of 1% of the Portfolio's average net assets. In addition to the fees payable to
the Advisor and the Administrator, the Portfolio is responsible for its
operating expenses, including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of
Trustees other than those affiliated with the Advisor or the Administrator; (v)
legal and audit expenses; (vi) fees and expenses of the custodian and transfer
agent; (vii) fees and expenses for registration or qualification of the
Portfolio and its Interests under federal or state securities laws; (viii)
expenses of preparing, printing and mailing reports and notices and proxy
material to Holders; (ix) other expenses incidental to holding any meetings of
Holders; (x) dues or assessments of or contributions to the Investment Company
Institute or any successor; (xi) such non-recurring expenses as may arise,
including litigation affecting the Portfolio and the legal obligations with
respect to which the Portfolio may have to indemnify its officers and Trustees;
and (xii) amortization of organization costs.
Under the Advisory Agreement, the Advisor will not be liable to the
Portfolio for any error of judgment by the Advisor or any loss sustained by the
Portfolio except in the case of a breach of fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages will be
limited as provided in the 1940 Act) or of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The Advisory Agreement was approved by the Board of Trustees and by a
majority of the Trustees who neither are interested persons of the Portfolio nor
have any direct or indirect financial interest in the Advisory Agreement or any
agreement related thereto ("Independent Trustees") on December 19, 1997. If not
terminated, the Advisory Agreement continues automatically for successive annual
periods, provided that such continuance is specifically approved at least
annually (i) by a majority vote of the Independent Trustees cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
of Trustees or by vote of a majority of the outstanding voting securities of the
Portfolio.
The Advisory Agreement is terminable by vote of the Board of Trustees
or by the holders of a majority of the outstanding voting securities of the
Portfolio at any time without penalty, on 60 days' written notice to the
Advisor. The Advisory Agreement also may be terminated by the Advisor on 60 days
written notice to the Portfolio. The Advisory Agreement terminates automatically
upon its assignment (as defined in the 1940 Act).
During the fiscal years ended October 31, 1997, 1996 and 1995, the
Registrant paid investment advisory fees to the Advisor in the amounts of
$1,525,768, $1,395,748 and $771,499,
B-6
<PAGE>
respectively. In order to limit the aggregate expenses of the Registrant to 1%
of average net assets, the Advisor paid expenses of the Registrant that exceed
the limit in the amount of $24,879, $26,098, and $66,713. The Registrant paid
fees to its Administrator in the amounts of $190,721, $174,469 and $96,687,
respectively.
The Registrant's custodian is PNC Bank, 17th and Market Streets,
Philadelphia, PA 19101, which holds its assets. The Registrant's auditors are
McGladrey & Pullen, LLP, 555 Fifh Avenue, New York, NY 10017-2416, which audits
the Registrant's financial statements and prepares its tax returns.
Item 17. Brokerage Allocation
The Advisory Agreement states that in connection with its duties to
arrange for the purchase and the sale of securities held in the portfolio of the
Portfolio by placing purchase and sale orders for the Portfolio, the Advisor
shall select such broker-dealers ("brokers") as shall, in its judgment, achieve
the policy of "best execution,"i.e., prompt and efficient execution at the most
favorable securities price. In making such selection, the Advisor is authorized
in the Advisory Agreement to consider the reliability, integrity and financial
condition of the broker. The Advisor also is authorized by the Advisory
Agreement to consider whether the broker provides research or statistical
information to the Portfolio and/or other accounts of the Advisor.
The Advisory Agreement states that the commissions paid to brokers may
be higher than another broker would have charged if a good faith determination
is made by the Advisor that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities as to the accounts as to which it exercises
investment discretion and that the Advisor shall use its judgment in determining
that the amount of commissions paid are reasonable in relation to the value of
brokerage and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of commission rates
reflecting such services. The Advisory Agreement provides that to demonstrate
that such determinations were in good faith, and to show the overall
reasonableness of commissions paid, the Advisor shall be prepared to show that
commissions paid (i) were for purposes contemplated by the Advisory Agreement;
(ii) were for products or services which provide lawful and appropriate
assistance to its decision-making process; and (iii) were within a reasonable
range as compared to the rates charged by brokers to other institutional
investors as such rates may become known from available information. During the
fiscal years ended October 31, 1997, 1996 and 1995, brokerage commissions paid
by the Registrant aggregated $218,087, $115,709 and $59,282, respectively.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Portfolio in the valuation of the Portfolio's
investments. The research which the Advisor receives for the Portfolio's
brokerage commissions, whether or not useful to the Portfolio, may be useful to
it in managing the accounts of its other advisory clients. Similarly, the
research received for the commissions of such accounts may be useful to the
Portfolio.
B-7
<PAGE>
Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased by the Portfolio
directly from an issuer in which case no commissions or discounts are paid. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter`s concession or discount.
Item 18. Capital Stock and Other Securities
See Part A.
Item 19. Purchase, Redemption and Pricing of Securities Being Offered
The net asset value of the Portfolio's Interests will fluctuate and is
determined as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time) each business day. The Exchange annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
the Exchange may close on days not included in that announcement.
The net asset value per Interest is computed by dividing the value of
the securities held by the Portfolio plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of Interests in the Portfolio
outstanding at such time.
Item 20. Tax Status
The Portfolio does not expect to be subject to any income taxes.
However, each investor in the Portfolio will be taxable on its share of the
Portfolio's ordinary income and capital gain.
Item 21. Underwriters
Not applicable.
Item 22. Calculation of Performance Data
Not applicable.
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
B-8
<PAGE>
present which make the long term risks appear somewhat larger than in Aaa
securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Standard & Poor's Corporation: Corporate Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
Commercial Paper Ratings
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
Item 23. Financial Statements
The Financial Statements of Registrant are included in the Annual
Report to Shareholders of PIC Small Company Growth Fund for the fiscal year
ended October 31, 1997 and incorporated by reference herein.
B-9
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements are included the Annual Report to
Shareholders of PIC Small Company Growth Fund and incorporated herein by
reference:
Statement of Net Assets as of October 31, 1997
Statement of Operations, Year ended October 31, 1997
Statement of Changes in Net Assets, Year ended October 31, 1997
and Period ended October 31, 1996
Notes to Financial Statements, October 31, 1997
Independent Auditor's Report
(b) Exhibits:
(1) Declaration of Trust
(2) Not applicable
(3) Not applicable
(4) Not applicable
(5) Management Agreement
(6) Not applicable
(7) Not applicable
(8) Custodian Agreement(1)
(9) Administration Agreement
(10) Not applicable
(11) Consent of McGladrey & Pullen
(12) Not applicable
(13) Investment letter
(14) Not applicable
(15) Not applicable
(16) Not applicable
(1) To be filed by Amendment.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of February 28, 1998, there were four record Holders of Interests in the
Registrant.
C-1
<PAGE>
Item 27. Indemnification.
Article V of Registrant's Declaration of Trust, states as follows:
1. Definitions. As used in this Article, the following terms
shall have the meanings set forth below:
(a) the term "indemnitee" shall mean any present or
former Trustee, officer or employee of the Trust, any present or former
Trustee or officer of another trust or corporation whose securities are
or were owned by the Trust or of which the Trust is or was a creditor
and who served or serves in such capacity at the request of the Trust,
any present or former investment adviser, sub-adviser or principal
underwriter of the Trust and the heirs, executors, administrators,
successors and assigns of any of the foregoing; however, whenever
conduct by an indemnitee is referred to, the conduct shall be that of
the original indemnitee rather than that of the heir, executor,
administrator, successor or assignee;
(b) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which an
indemnitee is or was a party or is threatened to be made a party by
reason of the fact or facts under which he or it is an indemnitee as
defined above;
(c) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office in question;
(d) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by an indemnitee in
connection with a covered proceeding; and
(e) the term "adjudication of liability" shall mean,
as to any covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent.
2. Indemnification. The Trust shall indemnify any indemnitee
for covered expenses in any covered proceeding, whether or not there is an
adjudication of liability as to such indemnitee, to the maximum extent permitted
by law. However, the Trust shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct. Nothing in this Declaration of Trust shall protect a Trustee against
any liability to which such Trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee
C-2
<PAGE>
hereunder.
3. Advance of Expenses. Covered expenses incurred by an
indemnitee in connection with a covered proceeding shall be advanced by the
Trust to an indemnitee prior to the final disposition of a covered proceeding
upon the request of the indemnitee for such advance and the undertaking by or on
behalf of the indemnitee to repay the advance unless it is ultimately determined
that the indemnitee is entitled to indemnification thereunder, but only if one
or more of the following is the case: (i) the indemnitee shall provide a
security for such undertaking; (ii) the Trust shall be insured against losses
arising out of any lawful advances; or (iii) there shall have been a
determination, based on a review of the readily available facts (as opposed to a
full trial-type inquiry) that there is a reason to believe that the indemnitee
ultimately will be found entitled to indemnification by either independent legal
counsel in a written opinion or by the vote of a majority of a quorum of
trustees who are neither "interested persons" as defined in the 1940 Act nor
parties to the covered proceeding. Nothing herein shall be deemed to affect the
right of the Trust and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940 Act or to
affect any other indemnification rights to which any indemnitee may be entitled
to the extent permitted by the 1940 Act.
Item 28. Business and Other Connections of Investment Adviser.
Provident Investment Counsel, Inc. is the investment advisor of the
Registrant. For information as to the business, profession, vocation or
employment of a substantial nature of Provident Investment Counsel, Inc.,
reference is made to the Form ADV filed under the Investment Advisers Act of
1940 by Provident Investment Counsel, Inc.
Item 29. Principal Underwriters.
Not applicable.
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of Registrant and
Registrant's custodian, as follows: the documents required to be maintained by
paragraphs (4), (5), (6), (7), (10) and (11) of Rule 31a-1(b) will be maintained
by the Registrant's Administrator, and all other records will be maintained by
the Custodian.
Item 31. Management Services.
Not applicable.
C-3
<PAGE>
Item 32. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940 the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pasadena and
State of California on the 2nd day of March, 1998.
PIC SMALL CAP. PORTFOLIO
By /s/ Robert H. Wadsworth
-----------------------------------
Robert H. Wadsworth
Assistant Secretary
C-4
McGladrey & Pullen, LLP
-----------------------
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated December 5, 1997 on the
financial statements of PIC Small Cap. Portfolio referred to therein, which is
incorporated by reference in Amendment No. 4 to the Registration Statement on
Form N-1A, File No. 811-8060, of PIC Small Cap. Porfolio as filed with the
Securities and Exchange Commission.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
New York, New York
March 4, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 913133
<NAME> PIC SMALL CAP PORTFOLIO
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 129,180,456
<INVESTMENTS-AT-VALUE> 139,291,703
<RECEIVABLES> 1,740,651
<ASSETS-OTHER> 26,605
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 141,058,959
<PAYABLE-FOR-SECURITIES> 1,349,296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,866
<TOTAL-LIABILITIES> 1,403,162
<SENIOR-EQUITY> 139,655,797
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 7,736,214
<SHARES-COMMON-PRIOR> 12,007,857
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 139,655,797
<DIVIDEND-INCOME> 115,763
<INTEREST-INCOME> 856,522
<OTHER-INCOME> 0
<EXPENSES-NET> 1,907,210
<NET-INVESTMENT-INCOME> 934,925
<REALIZED-GAINS-CURRENT> 72,084,822
<APPREC-INCREASE-CURRENT> (62,640,291)
<NET-CHANGE-FROM-OPS> 8,509,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (61,644,879)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,525,768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,932,089
<AVERAGE-NET-ASSETS> 190,721,023
<PER-SHARE-NAV-BEGIN> 16.64
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.41
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 18.05
<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
