Annual Report October 31, 1998
PROVIDENT INVESTMENT COUNSEL
MUTUAL
FUNDS
Small Cap Growth Fund
Provident Investment Counsel
Investing in growth since 1951
<PAGE>
CONTENTS
3 President's Letter
4 Our Philosophy
5 Performance Update/Portfolio Review
6 Interview with Management
9 Performance Comparison
THE FUND'S
10 Statement of Assets and Liabilities
11 Statement of Operations
12 Statement of Changes in Net Assets
13 Financial Highlights
14 Notes to Financial Statements
17 Independent Auditor's Report
THE PORTFOLIO'S
18 Statement of Net Assets
29 Statement of Operations
30 Statement of Changes in Net Assets
31 Notes to Financial Statements
34 Independent Auditor's Report
Items of Interest
o THE GROWTH STYLE OF INVESTMENT MANAGEMENT appears to have resumed a
leadership role. Over the past year, investors have returned their focus to
companies with the most visible prospects for growth, and Provident
portfolios have been rewarded.
o TECHNOLOGY, RETAIL, AND HEALTH CARE STOCKS have led the Provident Funds'
performance during the past year.
2
<PAGE>
Dear Fellow Shareholders,
This past year has been a volatile one, especially for
shares of small companies. While we recognize that small
company shares experienced some turbulence during 1998, we
are confident in the prospects for small companies in the
near future.
The volatility in small company shares we have seen
recently is not unprecedented, and has created some
compelling valuations relative to other investment
categories. In fact, comparison of small stock price to
earnings ratios (P/Es) relative to the broad market P/Es as
measured by the S&P 500 Index are near levels not seen in 20
years. Investors have begun to recognize these compelling
valuations, and we are pleased with the positive returns in
late October, November, and December.
We are fully aware that volatility is a normal and
expected occurrence with bond and stock investing. During
any period of unusual volatility, our focus is on
identifying those companies with the brightest prospects for
future growth. This focus and our long-term view have served
us well over many years.
Please visit our web site for market updates and
portfolio information at www.provnet.com. We appreciate your
continued confidence in Provident Investment Counsel and
look forward to helping you reach your investment goals.
Sincerely,
/s/ Douglass B. Allen
Douglass B. Allen
President, PIC Investment Trust
December 10, 1998
3
<PAGE>
Our Philosophy
o Focused, fundamental research, properly controlled,
adds value.
o Sustainable earnings growth is the most important
contributor to long-term stock appreciation.
o Emphasis on strong financial characteristics ensures
focus on growth and quality.
o Investment style consistency is critical to superior
long-term investment results.
[GRAPHIC OMITTED]
4
<PAGE>
Performance Update/Portfolio Review
Small Cap Growth Fund
TOP 10 STOCK HOLDINGS:
1. Dollar Tree Stores 4.3%
2. Apollo Group 2.6%
3. Nova Corp. 2.3%
4. CSG Systems International 2.2%
5. Fiserv 2.1%
6. Vitesse Semiconductor 1.6%
7. TMP Worldwide 1.6%
8. Renal Care Group 1.5%
9. 99 Cents Only Stores 1.4%
10. Orthodontic Centers of America 1.4%
SECTOR WEIGHTINGS
Average annualized total
returns for the period ending 10/31/98:
1 Year 3 Year 5 year Since Inception 9/30/93
-17.85% 2.34% 8.95% 9.15%
[PIE CHART OMITTED]
Healthcare/Medical 18.5%
Consumer Non-Durables 9.5
Industrials 13.8
Technology 32.1
Retail 10.2
Other 15.9
5
<PAGE>
Interview with Provident Managers
What industry sectors performed positively for the various funds' equity
holdings?
Small Cap
o Retail
o Commercial Services
o Electronic Technology
Q With investors today growing weary of all the market volatility
we have been experiencing, how is Provident positioned to manage
risk?
A Recent weeks have certainly redefined market volatility.
Investors often lose sight of the fact that volatility can be
classified two ways--there's good volatility when markets are up
in big numbers, and conversely bad volatility when markets are
down. In order to mitigate portfolio risk, the Small Cap Fund
offers diversification with more than 100 company holdings.
Security risk is addressed through the methodology of a
disciplined process of stock selection and stock elimination. In
addition to our disciplined approach to stock selection, it is
also important to note our sell disciplines, disciplines that are
integral to our goals of delivering superior investment returns
over time and reducing risk. They are categorized both
quantitatively and qualitatively.
Q With Asia and other world issues looming in the background, GDP
decreasing, and your commitment to identifying companies with
superior earnings growth, how does the prospect of an economic
slowdown impact your research process and your future results?
A First, let us respond by reminding you that PIC has been in this
business since 1951 or some 47 years, and we have seen many
economic cycles with a variety of catalysts at work. Our research
process has historically and will continue to seek to identify
those companies with superior earnings regardless of the economic
environment. Consistency is a key element to the earnings of the
companies we consider for investment. And our research process,
bottom up in nature, is arduous enough to force the cream to the
top. Regarding Asia and other world issues, toward
6
<PAGE>
the end of 1997 and the beginning of this year, we made a
conscious effort to domesticate portfolio holdings by focusing on
companies that are generating US based growth. We have been the
beneficiary of the continued weakness in the Asian economy. This
focus and a renewed interest in growth issues by investors has
benefited the Fund.
Q How sustainable is this move back to growth stocks?
A We think the move is sustainable for some time, as investors seek
comfort in growth companies that have the highest degree of
visibility for both sales and earnings growth moving forward.
Once again, the largest, most liquid issues that have driven the
broad market in the last few years may have difficulty generating
continued rapid growth in earnings without sales growth.
Q How does the recent market volatility affect this shift towards
growth?
A We have seen volatility in our growth portfolios. However, the
investment theme of a shift towards growth oriented issues is now
more relevant than ever. The general outlook today is calling for
a continued gradual decline in corporate profitability of the
largest, most liquid company stocks. These are the issues that
have driven the broad market the last several years by generating
positive earnings surprises with the help of restructuring and
"financial engineering." In an uncertain economic environment,
investors will be more focused on those issues with the highest
visibility of future sales and earnings. That is, as mentioned
before, those companies that deliver consistent earnings and
sales growth in any economic environment.
7
<PAGE>
Interview with Provident Managers, continued
Q What role does economic forecasting play in the investment
process at Provident?
A Economic forecasting plays a minimal role in the stock selection
process at Provident. Our Growth portfolios are built one stock
at a time.
Q In today's world of individuals hiring multiple investment
managers through individual accounts and retirement plans, the
focus on style consistency has increased. What exactly does this
mean and why is it important to shareholders?
A We have always believed that investment style consistency is
critical to superior long-term investment results. Individuals
are now seeking diversification through multiple managers and
need to be assured that an allocation to a growth vehicle is
invested in growth stocks rather than simply the type of stocks
that may be in favor at any given time.
8
<PAGE>
Provident Investment Counsel Performance Comparison
Small Cap Growth Fund
================================================================================
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PROVIDENT INVESTMENT COUNSEL SMALL CAP GROWTH FUND AND
THE RUSSELL 2000 GROWTH INDEX.
Provident
Investment
Counsel
Small Cap Russell 2000
Growth Fund Growth Index
----------- ------------
10/01/93 $10,000 $10,000
10/31/93 10,172 10,300
04/30/94 9,478 9,900
10/31/94 10,055 10,200
04/30/95 10,514 10,700
10/31/95 14,567 12,300
04/30/96 18,823 14,900
10/31/96 18,067 13,900
04/30/97 14,948 12,916
10/31/97 19,005 16,879
04/30/98 20,959 18,560
10/31/98 15,611 14,204
Past performance is not predictive of future performance.
9
<PAGE>
Provident Investment Counsel Statement of Assets and Liabilities
Small Cap Growth Fund as of October 31, 1998
================================================================================
ASSETS
- --------------------------------------------------------------------------------
Investment in PIC Small Cap Portfolio, at value $141,186,023
Receivables:
Fund shares sold 109,196
For investments sold in Portfolio 1,202
From Provident Investment Counsel, Inc. (Note 3) 15,568
- --------------------------------------------------------------------------------
Total assets 141,311,989
================================================================================
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
For investments purchased in Portfolio 109,196
Fund shares repurchased 1,202
Deferred Trustees' Compensation (Note 3) 11,338
Accrued expenses 8,979
- --------------------------------------------------------------------------------
Total liabilities 130,715
================================================================================
NET ASSETS
- --------------------------------------------------------------------------------
Applicable to 7,788,504 shares of beneficial
interest outstanding $141,181,274
================================================================================
NET ASSET VALUE PER SHARE $ 18.13
- --------------------------------------------------------------------------------
================================================================================
SOURCE OF NET ASSETS
- --------------------------------------------------------------------------------
Paid-in capital $161,463,004
Accumulated net investment loss (29,679)
Accumulated net realized loss on investments (28,020,080)
Net unrealized appreciation on investments 7,768,029
- --------------------------------------------------------------------------------
Net Assets $141,181,274
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
Provident Investment Counsel Statement of Operations
Small Cap Growth Fund Year ended October 31, 1998
================================================================================
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Net investment loss from Portfolio $ (938,236)
================================================================================
Expenses
- --------------------------------------------------------------------------------
Administration fees (Note 3) 288,287
Transfer agent's fee 14,501
Trustees' fees 2,001
Legal fee 7,000
Audit fee 10,300
Reports to shareholders 10,001
Custody and accounting services fee 6,001
Registration fee 1,000
Miscellaneous 14,962
- --------------------------------------------------------------------------------
Total expenses 354,053
Less, reimbursement/waiver by Provident
Investment Counsel, Inc. (Note 3) (354,053)
- --------------------------------------------------------------------------------
Net expenses 0
================================================================================
Net investment loss (938,236)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
- --------------------------------------------------------------------------------
Net realized loss on investments (27,961,289)
Unrealized appreciation
of investments 3,720,627
- --------------------------------------------------------------------------------
Net loss on investments (24,240,662)
================================================================================
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($25,178,898)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
Provident Investment Counsel
Small Cap Growth Fund Statements of Changes in Net Assets
================================================================================
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------
Year Year
ended ended
From operations: Oct. 31, 1998 Oct. 31, 1997
- --------------------------------------------------------------------------------
Net investment loss $ (938,236) $ (808,092)
Net realized gain (loss) on investments (27,961,289) 74,102,539
Unrealized appreciation
(depreciation) of investments 3,720,627 (68,286,326)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (25,178,898) 5,008,121
================================================================================
Distributions to Shareholders:
From net realized gains (11,840,606) (2,548,960)
================================================================================
Transactions in shares of beneficial interest:
Purchases of 4,210,252 and 5,598,735
shares, respectively 89,693,654 131,997,374
Reinvestment of 560,104 and 110,728
shares, respectively 11,840,607 2,548,960
Redemptions of 1,364,413 and 9,783,763
shares, respectively (28,852,682) (227,575,148)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 72,681,579 (93,028,814)
================================================================================
Total increase (decrease) in net assets 35,662,075 (90,569,653)
================================================================================
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of year 105,519,199 196,088,852
- --------------------------------------------------------------------------------
End of year $141,181,274 $105,519,199
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE>
Provident Investment Counsel
Small Cap Growth Fund Financial Highlights
<TABLE>
<CAPTION>
====================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- --------------------------------------------------------------------------------------------------------------------
Year Year Year Year Year
ended ended ended ended ended
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 24.08 $ 23.19 $ 18.69 $ 12.90 $ 13.05
- --------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.03) (0.40) (0.10) (0.07) (0.06)
Net realized and unrealized
gain (loss) on investments (3.99) 1.58 4.60 5.86 (0.09)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.02) 1.18 4.50 5.79 (0.15)
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders:
From net realized gains (1.93) (0.29) -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 18.13 $ 24.08 $ 23.19 $ 18.69 $ 12.90
====================================================================================================================
Total return (17.85%) 5.15% 24.08% 44.88% (1.15%)
====================================================================================================================
Ratios/supplemental data:
Net assets, end of year
(millions) $ 141.2 $ 105.5 $ 196.1 $ 130.3 $ 84.3
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: +**
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment loss (0.67%) (0.48%) (.60%) (.51%) (.49%)
</TABLE>
+Net of expense reimbursements.
**Includes the Fund's shares of expenses, net of expense reimbursements and
waivers, allocated from PIC Small Cap Portfolio. If the expense reimbursements
and waivers, with respect to the Fund and PIC Small Cap Portfolio, had not been
made, the ratio of expenses to average net assets would have been 1.26%, 1.25%,
1.25%, 1.34%, and 1.47%, respectively.
See Notes to Financial Statements.
13
<PAGE>
Provident Investment Counsel Notes to Financial Statements
Small Cap Growth Fund October 31, 1998
================================================================================
1 - ORGANIZATION
- --------------------------------------------------------------------------------
Provident Investment Counsel Small Cap Growth Fund (the "Fund") (formerly
P*I*C Small Cap Growth Fund) is one of several series of PIC Investment Trust
(the "Trust"). The Trust was organized on December 11, 1991 as a Delaware
business trust, with an unlimited number of shares of beneficial interest of
$.01 par value, and is registered under the Investment Company Act of 1940 as an
open-end, diversified management investment company. The Fund invests
substantially all of its assets in the PIC Small Cap Portfolio (the
"Portfolio"), a separate, registered management investment company having the
same investment objective as the Fund. At October 31, 1998, the Fund owned
81.30% of the total net assets of the Portfolio. The financial statements of the
Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
2 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Fund. These policies are in conformity with generally accepted
accounting principles.
A. Investment Valuation. The Fund reflects its investment in the Portfolio at
its proportionate interest in the value of the Portfolio's net assets.
Valuation of securities by the Portfolio is discussed at Note 2A of the
Portfolio's Notes to Financial Statements.
B. Investment Income and Dividends to Shareholders. The Fund earns income,
net of the expenses of the Portfolio, daily on its investment in the
Portfolio. All net investment income and realized and unrealized gains or
losses on investments of the Portfolio are allocated pro-rata among the
Fund and the other Holders of Interests in the Portfolio. Dividends, if
any, are paid annually to shareholders of the Fund and recorded on the
ex-dividend date.
C. Federal Income Taxes. The Fund intends to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
D. Accounting Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
14
<PAGE>
Provident Investment Counsel Notes to Financial Statements,
Small Cap Growth Fund continued
================================================================================
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
3 - TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
The Trust has entered into administration agreements with Provident
Investment Counsel, Inc. ("PIC") and Investment Company Administration LLC
("ICA"), pursuant to which agreements certain employees of these entities serve
as officers and/or trustees of the Trust and the Portfolio. PIC and ICA also
provide management services necessary for the operations of the Trust and the
Portfolio and furnish office facilities. PIC receives a fee for its services to
the Fund at the rate of 0.20% of the average daily net assets of the Fund, but
waived its fee of $278,286 for the year ended October 31, 1998. PIC has
voluntarily agreed to reimburse the Fund to the extent necessary so that the
expenses of the Fund, including those expenses allocated from the Portfolio, do
not exceed 1.00% of the Fund's average net assets. The amount of reimbursement
for the year ended October 31, 1998 was $75,767. ICA receives an annual fee for
its services at the rate of $10,000.
First Fund Distributors, Inc. (the "Distributor"), a registered
broker-dealer, acts as the principal underwriter for the Trust in connection
with the offering of its shares, but receives no compensation for its services.
The Distributor is an affiliate of ICA.
On December 19, 1995, the Trust approved a Deferred Compensation Plan for
Trustees (the "Plan"). Trustees are entitled to receive $2,500 per quarter and
$500 per meeting attended, which is allocated among the Funds. Trustees can
elect to receive payment in cash or defer payments provided for in the Plan. If
a trustee elects to defer payment, the Plan provides for the creation of a
deferred payment account (phantom share account). This account accumulates the
deferred fees earned and the value of the account is adjusted at the end of each
quarter to reflect a value which would have been earned if the account had been
invested in designated investments. The Fund recognizes as trustee expense
amounts accrued as meetings are attended plus the change in the value of the
phantom share account determined on a quarterly basis.
15
<PAGE>
Provident Investment Counsel Notes to Financial Statements,
Small Cap Growth Fund continued
================================================================================
4 - INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
Additions and reductions in the Fund's investment in the Portfolio
aggregated $89,767,687 and $28,940,868, respectively.
At October 31, 1998, the Fund had tax basis capital losses of $27,600,000
which may be carried over to offset future capital gains. Such losses expire
October 31, 2006.
16
<PAGE>
Provident Investment Counsel
Small Cap Growth Fund Independent Auditor's Report
================================================================================
To the Board of Trustees of
P*I*C Investment Trust
and the Shareholders of
Provident Investment Counsel Small Cap Growth Fund
We have audited the accompanying statement of assets and liabilities of
Provident Investment Counsel Small Cap Growth Fund (a series of P*I*C Investment
Trust) as of October 31, 1998, the related statement of operations, the
statements of changes in net assets and the financial highlights for each of the
periods indicated. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Provident Investment Counsel Small Cap Growth Fund as of October 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
December 3, 1998
17
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES - 94.8% Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising - 2.2%
- -------------------------------------------------------------------------------------
Lamar Advertising Company, Class A* 31,600 $ 986,513 0.6%
TMP Worldwide Inc.* 94,020 2,820,600 1.6%
- -------------------------------------------------------------------------------------
Total Advertising 3,807,113 2.2%
=====================================================================================
Aerospace - 0.5%
- -------------------------------------------------------------------------------------
Orbital Sciences Corporation* 16,500 544,500 0.3%
TriStar Aerospace Co.* 25,000 256,250 0.2%
- -------------------------------------------------------------------------------------
Total Aerospace 800,750 0.5%
=====================================================================================
Airlines - 0.3%
- -------------------------------------------------------------------------------------
Ryanair Holdings plc ADR* 19,670 577,806 0.3%
=====================================================================================
Alcoholic Beverages - 0.6%
- -------------------------------------------------------------------------------------
Beringer Wine Estates Holdings, Inc.* 21,300 966,487 0.6%
=====================================================================================
Apparel - 0.7%
- -------------------------------------------------------------------------------------
Novel Denim Holdings Limited* 76,940 1,173,335 0.7%
=====================================================================================
Auto Parts: O.E.M. - 0.9%
- -------------------------------------------------------------------------------------
Gentex Corporation* 101,000 1,483,438 0.9%
=====================================================================================
Automotive Aftermarket - 0.4%
- -------------------------------------------------------------------------------------
Keystone Automotive Industries, Inc.* 36,770 687,139 0.4%
=====================================================================================
Biotechnology - 1.5%
- -------------------------------------------------------------------------------------
IDEXX Laboratories, Inc.* 22,300 508,719 0.3%
Incyte Pharmaceuticals, Inc.* 14,600 445,300 0.3%
MedImmune, Inc.* 24,500 1,647,625 0.9%
- -------------------------------------------------------------------------------------
Total Biotechnology 2,601,644 1.5%
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting - 1.0%
- -------------------------------------------------------------------------------------
Citadel Communications Corporation* 25,200 $ 516,600 0.3%
Heftel Broadcast* 30,300 1,246,088 0.7%
- -------------------------------------------------------------------------------------
Total Broadcasting 1,762,688 1.0%
=====================================================================================
Clothing/Shoe/Accessory Stores - 1.1%
- -------------------------------------------------------------------------------------
Abercrombie & Fitch Co.* 7,440 295,275 0.2%
Just For Feet, Inc.* 15,800 267,613 0.2%
Pacific Sunwear of California, Inc.* 59,225 1,280,741 0.7%
- -------------------------------------------------------------------------------------
Total Clothing/Shoe/Accessory Stores 1,843,629 1.1%
=====================================================================================
Computer Software - 11.1%
- -------------------------------------------------------------------------------------
Avant! Corporation* 10,000 170,625 0.1%
AXENT Technologies, Inc.* 80,430 2,020,804 1.2%
Business Objects S.A. ADR* 110,500 1,857,781 1.1%
Check Point Software Technologies Ltd. * 74,700 1,699,425 1.0%
Documentum, Inc.* 14,700 499,800 0.3%
HNC Software Inc.* 37,560 1,262,955 0.7%
Legato Systems, Inc.* 16,100 629,913 0.4%
Mercury Interactive Corporation* 41,000 1,701,500 1.0%
National Instruments Corporation* 23,000 629,625 0.4%
New Era of Networks, Inc.* 5,000 233,473 0.1%
Peregrine Systems, Inc.* 47,500 1,656,563 0.9%
RWD Technologies, Inc.* 27,460 518,308 0.3%
Saville Systems PLC ADR* 37,600 634,500 0.4%
Siebel Systems, Inc.* 33,440 683,430 0.4%
Software AG Systems, Inc.* 64,970 974,550 0.6%
Transaction Systems Architects, Inc., Class A* 41,310 1,491,032 0.8%
TSI International Software Ltd.* 12,300 385,913 0.2%
VERITAS Software Corporation* 19,050 954,881 0.5%
Wind River Systems, Inc.* 27,870 1,221,054 0.7%
- -------------------------------------------------------------------------------------
Total Computer Software 19,226,132 11.1%
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount Stores - 5.8%
- -------------------------------------------------------------------------------------
Dollar Tree Stores, Inc.* 195,580 $ 7,542,054 4.3%
Fred's, Inc. 15,900 207,694 0.1%
99 CENTS Only Stores* 52,000 2,405,000 1.4%
- -------------------------------------------------------------------------------------
Total Discount Stores 10,154,748 5.8%
=====================================================================================
Diversified Commercial Services - 11.1%
- -------------------------------------------------------------------------------------
ABACUS Direct Corporation* 8,400 409,500 0.2%
Iron Mountain Incorporated* 25,350 774,759 0.5%
Lason, Inc.* 40,680 2,227,230 1.3%
Modis Professional Services, Inc.* 23,538 414,857 0.2%
NCO Group, Inc.* 56,235 1,771,403 1.0%
Nova Corporation* 138,736 4,006,002 2.3%
On Assignment, Inc.* 40,500 1,377,000 0.8%
Personnel Group of America, Inc.* 78,280 1,213,340 0.7%
Romac International, Inc.* 65,190 1,140,825 0.7%
StaffMark, Inc.* 34,310 602,569 0.3%
Sylvan Learning Systems, Inc.* 69,450 2,144,269 1.2%
The Profit Recovery Group
International, Inc.* 74,100 2,273,944 1.3%
Wackenhut Corrections Corporation* 39,400 967,762 0.6%
- -------------------------------------------------------------------------------------
Total Diversified Commercial Services 19,323,460 11.1%
=====================================================================================
Diversified Electronic Products - 0.6%
- -------------------------------------------------------------------------------------
NICE Systems Ltd. ADR* 20,800 395,200 0.2%
Uniphase Corporation* 14,500 717,750 0.4%
- -------------------------------------------------------------------------------------
Total Diversified Electronic Products 1,112,950 0.6%
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
EDP Peripherals - 1.9%
- -------------------------------------------------------------------------------------
Electronics for Imaging, Inc.* 89,700 $ 2,158,406 1.3%
National Computer Systems, Inc. 8,300 232,400 0.1%
Pinnacle Systems, Inc.* 15,000 510,000 0.3%
Premisys Communications, Inc.* 35,000 369,688 0.2%
- -------------------------------------------------------------------------------------
Total EDP Peripherals 3,270,494 1.9%
=====================================================================================
EDP Services - 7.2%
- -------------------------------------------------------------------------------------
BEA Systems, Inc.* 20,000 391,875 0.2%
CSG Systems International, Inc.* 69,838 3,806,171 2.2%
ECsoft Group plc ADR* 6,000 132,000 0.1%
Fiserv, Inc.* 78,950 3,671,175 2.1%
Forrester Research, Inc.* 28,420 916,545 0.5%
Intelligroup, Inc.* 30,150 520,088 0.3%
International Network Services* 17,950 762,875 0.4%
Pegasus Systems, Inc.* 60,300 1,047,713 0.6%
Policy Management Systems Corporation* 18,600 845,138 0.5%
The BISYS Group, Inc.* 10,500 459,375 0.3%
- -------------------------------------------------------------------------------------
Total EDP Services 12,552,955 7.2%
=====================================================================================
Electronic Components - 1.0%
- -------------------------------------------------------------------------------------
DSP Communications, Inc.* 48,000 471,000 0.3%
Sanmina Corporation* 28,400 1,164,400 0.7%
- -------------------------------------------------------------------------------------
Total Electronic Components 1,635,400 1.0%
=====================================================================================
Engineering and Construction - 0.4%
- -------------------------------------------------------------------------------------
Dycom Industries, Inc.* 20,000 701,250 0.4%
=====================================================================================
Environmental Services - 1.6%
- -------------------------------------------------------------------------------------
Allied Waste Industries, Inc.* 31,774 687,113 0.4%
Casella Waste Systems, Inc., Class A* 45,370 1,338,415 0.8%
U S Liquids Inc.* 46,700 706,337 0.4%
- -------------------------------------------------------------------------------------
Total Environmental Services 2,731,865 1.6%
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance Companies - 0.9%
- -------------------------------------------------------------------------------------
HealthCare Financial Partners, Inc.* 43,900 $1,344,437 0.8%
Metris Companies Inc. 5,200 170,950 0.1%
- -------------------------------------------------------------------------------------
Total Finance Companies 1,515,387 0.9%
=====================================================================================
Generic Drugs - 0.2%
- -------------------------------------------------------------------------------------
Alpharma Inc., Class A 13,000 359,937 0.2%
=====================================================================================
Homebuilding - 1.5%
- -------------------------------------------------------------------------------------
Fairfield Communities, Inc.* 145,020 1,423,009 0.8%
Palm Harbor Homes, Inc.* 46,048 1,162,712 0.7%
- -------------------------------------------------------------------------------------
Total Homebuilding 2,585,721 1.5%
=====================================================================================
Hospital/Nursing Management - 0.6%
- -------------------------------------------------------------------------------------
Province Healthcare Company* 37,500 979,687 0.6%
=====================================================================================
Insurance Brokers/Services - 0.9%
- -------------------------------------------------------------------------------------
Clark/Bardes Holdings, Inc.* 30,500 305,000 0.2%
Mutual Risk Management Ltd. 34,900 1,180,056 0.7%
- -------------------------------------------------------------------------------------
Total Insurance Brokers/Services 1,485,056 0.9%
=====================================================================================
Life Insurance - 0.1%
- -------------------------------------------------------------------------------------
Annuity and Life Re (Holdings), Ltd. 8,000 187,000 0.1%
=====================================================================================
Major Pharmaceuticals - 0.6%
- -------------------------------------------------------------------------------------
Shire Pharmaceuticals Group plc* 46,300 1,007,025 0.6%
=====================================================================================
Medical Electronics - 0.5%
- -------------------------------------------------------------------------------------
ADAC Laboratories 5,000 148,125 0.1%
VISX, Incorporated* 13,000 651,625 0.4%
- -------------------------------------------------------------------------------------
Total Medical Electronics 799,750 0.5%
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Medical Specialties - 2.0%
- -------------------------------------------------------------------------------------
Atrix Laboratories, Inc.* 56,440 $ 571,455 0.3%
K-V Pharmaceutical Company, Class A* 15,500 350,688 0.2%
MiniMed Inc.* 6,540 362,970 0.2%
Ocular Sciences, Inc.* 26,480 665,310 0.4%
ResMed Inc.* 4,000 204,000 0.1%
Safeskin Corporation* 43,800 969,075 0.6%
Xomed Surgical Products, Inc.* 7,700 346,019 0.2%
- -------------------------------------------------------------------------------------
Total Medical Specialties 3,469,517 2.0%
=====================================================================================
Medical/Dental Distributors - 1.0%
- -------------------------------------------------------------------------------------
Henry Schein, Inc.* 47,070 1,821,021 1.0%
=====================================================================================
Medical/Nursing Services - 4.6%
- -------------------------------------------------------------------------------------
AmSurg Corp., Class A* 55,400 367,025 0.2%
Laser Vision Centers, Inc.* 43,900 471,925 0.2%
Orthodontic Centers of America, Inc.* 126,940 2,403,926 1.4%
Renal Care Group, Inc.* 89,445 2,605,086 1.5%
Total Renal Care Holdings, Inc.* 90,463 2,216,343 1.3%
- -------------------------------------------------------------------------------------
Total Medical/Nursing Services 8,064,305 4.6%
=====================================================================================
Miscellaneous Electronic Technology - 0.9%
- -------------------------------------------------------------------------------------
Applied Micro Circuits Corporation* 37,800 907,200 0.5%
DSET Corporation* 20,000 250,000 0.2%
TranSwitch Corporation* 16,200 394,875 0.2%
- -------------------------------------------------------------------------------------
Total Miscellaneous Electronic Technology 1,552,075 0.9%
=====================================================================================
Miscellaneous Health Services - 2.8%
- -------------------------------------------------------------------------------------
Alternative Living Services, Inc.* 68,600 1,792,175 1.0%
Assisted Living Concepts, Inc.* 45,390 612,765 0.3%
CareMatrix Corporation* 68,750 1,692,969 1.0%
Sunrise Assisted Living, Inc.* 19,900 856,944 0.5%
- -------------------------------------------------------------------------------------
Total Miscellaneous Health Services 4,954,853 2.8%
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miscellaneous Technology Services - 1.3%
- -------------------------------------------------------------------------------------
EarthLink Network, Inc.* 15,800 $ 608,300 0.4%
EBay Inc.* 2,300 191,187 0.1%
Lycos, Inc.* 24,900 1,011,562 0.6%
Verio Inc.* 26,400 366,300 0.2%
- -------------------------------------------------------------------------------------
Total Miscellaneous Technology Services 2,177,349 1.3%
=====================================================================================
Movies/Entertainment - 0.4%
- -------------------------------------------------------------------------------------
International Speedway Corporation, Class A 24,900 768,787 0.4%
=====================================================================================
Oilfield Services/Equipment - 0.2%
- -------------------------------------------------------------------------------------
Friede Goldman International Inc.* 20,000 335,000 0.2%
=====================================================================================
Other Consumer Services - 2.9%
- -------------------------------------------------------------------------------------
Apollo Group, Inc., Class A* 141,161 4,534,797 2.6%
Steiner Leisure Limited* 21,300 519,187 0.3%
- -------------------------------------------------------------------------------------
Total Other Consumer Services 5,053,984 2.9%
=====================================================================================
Other Pharmaceuticals - 1.1%
- -------------------------------------------------------------------------------------
Medicis Pharmaceutical Corporation, 39,400 1,974,925 1.1%
Class A*
=====================================================================================
Other Specialty Stores - 2.6%
- -------------------------------------------------------------------------------------
Central Garden & Pet Company, Class A* 50,820 1,003,695 0.6%
Guitar Center, Inc.* 76,280 1,306,295 0.8%
O'Reilly Automotive, Inc.* 20,900 817,712 0.4%
Hibbet Sport Goods Inc.* 49,780 1,347,171 0.8%
- -------------------------------------------------------------------------------------
Total Other Specialty Stores 4,474,873 2.6%
=====================================================================================
Other Telephone/Communications - 0.8%
- -------------------------------------------------------------------------------------
McLeodUSA Incorporated, Class A* 31,300 1,144,406 0.7%
Pacific Gateway Exchange, Inc.* 9,000 259,875 0.1%
- -------------------------------------------------------------------------------------
Total Other Telephone/Communications 1,404,281 0.8%
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Printing/Forms - 1.1%
- -------------------------------------------------------------------------------------
Consolidated Graphics, Inc.* 40,100 $1,902,244 1.1%
=====================================================================================
Real Estate - 0.4%
- -------------------------------------------------------------------------------------
LaSalle Partners Incorporated* 26,680 780,390 0.4%
=====================================================================================
Rental/Leasing Companies - 1.4%
- -------------------------------------------------------------------------------------
Financial Federal Corporation* 27,500 641,094 0.3%
Rental Service Corporation* 3,000 65,250 0.1%
United Rentals, Inc.* 67,100 1,803,312 1.0%
- -------------------------------------------------------------------------------------
Total Rental/Leasing Companies 2,509,656 1.4%
=====================================================================================
Restaurants - 0.7%
- -------------------------------------------------------------------------------------
Dave & Buster's, Inc.* 38,780 727,125 0.4%
Starbucks Corporation* 12,480 541,320 0.3%
- -------------------------------------------------------------------------------------
Total Restaurants 1,268,445 0.7%
=====================================================================================
Semiconductors - 3.5%
- -------------------------------------------------------------------------------------
Level One Communications, Incorporated* 25,565 672,679 0.4%
MIPS Technologies, Inc.* 48,200 1,114,625 0.6%
PMC-Sierra, Inc.* 33,230 1,491,196 0.9%
Vitesse Semiconductor Corporation* 88,480 2,853,480 1.6%
- -------------------------------------------------------------------------------------
Total Semiconductors 6,131,980 3.5%
=====================================================================================
Services to the Health Industry - 8.6%
- -------------------------------------------------------------------------------------
Access Health, Inc.* 65,640 2,354,835 1.4%
Cerner Corporation* 106,690 2,387,189 1.4%
Covance Inc.* 19,000 529,625 0.3%
Medical Manager Corporation* 52,000 1,293,500 0.7%
MedQuist Inc.* 30,400 818,900 0.5%
Omnicare, Inc.* 44,470 1,536,994 0.9%
PAREXEL International Corporation* 23,110 509,864 0.3%
Pharmaceutical Product Development, Inc.* 22,400 604,800 0.3%
Professional Detailing, Inc.* 16,000 374,000 0.2%
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Percentage of
EQUITY SECURITIES, continued Shares Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Services to the Health Industry, continued
- -------------------------------------------------------------------------------------
QuadraMed Corporation* 58,000 $ 1,189,000 0.7%
Quintiles Transnational Corp.* 51,440 2,327,660 1.3%
Sabratek Corporation* 9,000 270,000 0.2%
Superior Consultant Holdings Corporation* 18,340 678,580 0.4%
- -------------------------------------------------------------------------------------
Total Services to the Health Industry 14,874,947 8.6%
=====================================================================================
Smaller Banks - 1.0%
- -------------------------------------------------------------------------------------
Hamilton Bancorp Inc.* 62,930 1,730,575 1.0%
=====================================================================================
Specialty Foods/Candy - 0.4%
- -------------------------------------------------------------------------------------
Rexall Sundown, Inc.* 42,470 761,806 0.4%
=====================================================================================
Specialty Insurers - 0.5%
- -------------------------------------------------------------------------------------
CMAC Investment Corporation 11,800 494,125 0.3%
Enhance Financial Services Group Inc. 12,560 308,505 0.2%
- -------------------------------------------------------------------------------------
Total Specialty Insurers 802,630 0.5%
=====================================================================================
Telecommunications Equipment - 0.6%
- -------------------------------------------------------------------------------------
Aspect Telecommunications Corporation* 36,700 555,087 0.3%
Gilat Satellite Networks, Ltd.* 11,100 516,150 0.3%
- -------------------------------------------------------------------------------------
Total Telecommunications Equipment 1,071,237 0.6%
=====================================================================================
Trucking - 0.4%
- -------------------------------------------------------------------------------------
United Road Services, Inc.* 39,400 630,400 0.4%
=====================================================================================
Wholesale Distributors - 0.4%
- -------------------------------------------------------------------------------------
Pentacon, Inc.* 17,200 88,150 0.1%
School Specialty, Inc.* 38,900 612,675 0.3%
- -------------------------------------------------------------------------------------
Total Wholesale Distributors 700,825 0.4%
- -------------------------------------------------------------------------------------
Total Equity Securities (Cost $154,720,740) 164,548,951 94.8%
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
<TABLE>
<CAPTION>
=====================================================================================
Principal Percentage of
FIXED INCOME SECURITIES - 8.6% Amount Value Net Assets
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Investments - 8.6%
- -------------------------------------------------------------------------------------
Ford Motor Credit Company,
5.09151%, 11/20/98 $9,000,000 $9,000,000 5.2%
General Motors Acceptance Corporation,
5.162%, 11/12/98 6,000,000 6,000,000 3.4%
- -------------------------------------------------------------------------------------
Total Short-Term Investments (Cost $15,000,000) 15,000,000 8.6%
=====================================================================================
MONEY MARKET FUNDS - 0.2% Shares Value
- -------------------------------------------------------------------------------------
Temporary Investment Fund Inc.-Temp Fund 197,644 197,644 0.1%
Temporary Investment Fund Inc.-Temp Cash 197,644 197,644 0.1%
- -------------------------------------------------------------------------------------
Total Money Market Funds (Cost $395,288) 395,288 0.2%
- -------------------------------------------------------------------------------------
Total Investments (Cost $170,116,028) 179,944,239 103.6%
=====================================================================================
OTHER ASSETS - 1.3%
- -------------------------------------------------------------------------------------
Receivables:
Investment securities sold 2,141,155
Shares of beneficial interest sold 116,169
Interest 41,852
Prepaid insurance 4,187
Other assets 13,254
- -------------------------------------------------------------------------------------
Total other assets 2,316,617 1.3%
=====================================================================================
TOTAL ASSETS $182,260,856 104.9%
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
P*I*C
SMALL CAP Statement of Net Assets
PORTFOLIO as of October 31, 1998
================================================================================
Percentage of
LIABILITIES - (4.9%) Value Net Assets
- --------------------------------------------------------------------------------
Payables:
Investment securities purchased $ 8,379,119
Shares of beneficial interest redeemed 40,845
To Advisor (Note 3) 107,018
Deferred Trustees compensation (Note 3) 22,560
Accrued expenses 57,675
- --------------------------------------------------------------------------------
Total liabilities 8,607,217 (4.9%)
================================================================================
TOTAL NET ASSETS - 100.0% $173,653,639 100.0%
- --------------------------------------------------------------------------------
*Non-income producing security.
See Notes to Financial Statements.
28
<PAGE>
P*I*C
SMALL CAP Statement of Operations
PORTFOLIO Year ended October 31, 1998
================================================================================
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Income:
- --------------------------------------------------------------------------------
Dividends $ 96,942
Interest 478,730
- --------------------------------------------------------------------------------
Total income 575,672
================================================================================
Expenses:
- --------------------------------------------------------------------------------
Investment advisory fee (Note 3) 1,418,731
Administration fees (Note 3) 177,341
Accounting services fee 77,268
Custodian fee 61,054
Audit fee 18,502
Trustees' fees 5,100
Insurance 5,812
Legal fee 12,795
Amortization of organization costs 10,001
Miscellaneous 10,829
- --------------------------------------------------------------------------------
Total expenses 1,797,433
Less, reimbursement/waiver by Advisor (Note 3) (24,020)
- --------------------------------------------------------------------------------
Net expenses 1,773,413
================================================================================
Net investment loss (1,197,741)
================================================================================
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
- --------------------------------------------------------------------------------
Net realized loss on investments (30,872,647)
Unrealized depreciation
of investments (283,036)
- --------------------------------------------------------------------------------
Net loss on investments (31,155,683)
================================================================================
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ($32,353,424)
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
P*I*C
SMALL CAP Statements of Changes in Net Assets
PORTFOLIO
<TABLE>
<CAPTION>
===================================================================================
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------------------------
Year Year
ended ended
From operations: October 31, 1998 October 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net investment loss $ (1,197,741) $ (934,925)
Net realized gain (loss)
on investments (30,872,647) 72,084,822
Unrealized depreciation
on investments (283,036) (62,640,291)
- -----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (32,353,424) 8,509,606
===================================================================================
Transactions in interest:
Contributions by Holders 123,809,971 164,160,467
Withdrawals by Holders (57,458,705) (234,314,952)
- -----------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in interests 66,351,266 (70,154,485)
===================================================================================
Total increase (decrease) in net assets 33,997,842 (61,644,879)
===================================================================================
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of year 139,655,797 201,300,676
- -----------------------------------------------------------------------------------
End of year $173,653,639 $139,655,797
- -----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
P*I*C
SMALL CAP Notes to Financial Statements
PORTFOLIO October 31, 1998
================================================================================
1 - ORGANIZATION
- --------------------------------------------------------------------------------
PIC Small Cap Portfolio (the "Portfolio") was organized on March 22, 1993
as a trust under the laws of the State of New York. The beneficial interests in
the Portfolio are divided into an unlimited number of non-transferable
Interests, par value $.01 each. The Portfolio is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
2 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies consistently
followed by the Portfolio. These policies are in conformity with generally
accepted accounting principles.
A. Valuation of Securities. Equity securities listed on a national
securities exchange or traded on the NASDAQ system are valued at
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.
B. Federal Income Taxes. The Portfolio intends to comply with the
requirements of the Internal Revenue Code applicable to it.
Therefore, no federal income tax provision is required.
C. Other. Securities transactions are recorded on the trade date basis.
Realized gains and losses from securities transactions are reported
on an identified cost basis. Interest is recorded as accrued, and
dividend income is recorded on the ex-dividend date.
D. Accounting Estimates. In preparing financial statements in
conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
31
<PAGE>
P*I*C
SMALL CAP Notes to Financial Statements,
PORTFOLIO continued
================================================================================
3 - TRANSACTIONS WITH AFFILIATES
- --------------------------------------------------------------------------------
The Portfolio has entered into an investment advisory agreement with
Provident Investment Counsel, Inc. ("PIC") and an administration agreement with
Investment Company Administration LLC ("ICA"), pursuant to which agreements
certain employees of these entities serve as officers and/or trustees of the
Portfolio. PIC and ICA also provide management services necessary for the
operations of the Portfolio and furnish office facilities.
PIC receives a fee for its services to the Portfolio at the rate of
0.80% of the average daily net assets of the Portfolio. PIC has voluntarily
agreed to limit the total expenses of the Portfolio to an annual rate of 1.00%
of the Portfolio's average daily net assets. During the year ended October 31,
1998, PIC received $1,394,711 in fees from the Portfolio after deducting fees
waived and expenses reimbursed of $24,020. ICA receives an annual fee for its
services at the rate of .10% of average daily net assets of the Portfolio. Fees
paid to ICA pursuant to the agreement totaled $177,341 for the year ended
October 31, 1998.
On December 19, 1995, the Portfolio approved a Deferred Compensation Plan
for Trustees (the "Plan"). Trustees are entitled to receive $2,500 per quarter
and $500 per meeting attended, which is allocated among the Portfolios. Trustees
can elect to receive payment in cash or defer payments provided for in the Plan.
If a Trustee elects to defer payment, the Plan provides for the creation of a
deferred payment account (phantom share account). This account accumulates the
deferred fees earned and the value of the account is adjusted at the end of each
quarter to reflect a value which would have been earned if the account had been
invested in designated investments. The Portfolio recognizes as trustee expense
amounts accrued as meetings are attended plus the change in the value of the
phantom share account determined on a quarterly basis.
4 - INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
During the year ended October 31, 1998, the cost of purchases and the
proceeds from sales of investment securities, other than short-term obligations,
were $195,915,640 and $137,768,188, respectively. The cost of securities for
federal income tax purposes was $170,578,021. The aggregate gross unrealized
appreciation and depreciation of portfolio securities, based on cost for federal
income tax purposes, were as follows:
32
<PAGE>
P*I*C
SMALL CAP Notes to Financial Statements,
PORTFOLIO continued
================================================================================
Unrealized appreciation $19,963,778
Unrealized depreciation (10,597,560)
------------
Net unrealized appreciation $ 9,366,218
============
5 - SELECTED RATIO DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Year Year Year Year
ended ended ended ended ended
Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratios to average net assets*
Operating expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment loss (.68%) (.49%) (.59%) (.51%) (.49%)
Portfolio turnover rate 81.75% 151.52% 53.11% 45.45% 63.89%
</TABLE>
*Net of expenses reimbursements equivalent to 0.01%, 0.01%, 0.01%, 0.07%, and
0.10% of average net assets, respectively.
33
<PAGE>
P*I*C
SMALL CAP Independent Auditor's Report
PORTFOLIO
================================================================================
To the Board of Trustees of
and the holders of Interests in,
P*I*C Small Cap Portfolio
We have audited the accompanying statement of net assets of P*I*C Small Cap
Portfolio as of October 31, 1998, the related statement of operations for the
year then ended and the statement of changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1998 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of P*I*C Small Cap Portfolio as of
October 31, 1998, the results of its operations, and the changes in its net
assets for the periods indicated, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
New York, New York
December 3, 1998
34
<PAGE>
[This page intentionally left blank.]
<PAGE>
Provident Inventment Counsel Trustees and Officers
Small Cap Growth Fund
================================================================================
TRUSTEES AND OFFICERS - P*I*C INVESTMENT TRUST
- --------------------------------------------------------------------------------
Jeffrey J. Miller, Trustee
Jettie M. Edwards, Trustee
Bernard J. Johnson, Trustee Emeritus
Jeffrey D. Lovell, Trustee
Wayne H. Smith, Trustee
Douglass B. Allen, President
Thad M. Brown, Vice President, Secretary and Treasurer
TRUSTEES AND OFFICERS - P*I*C SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
Jeffrey J. Miller, Trustee
Richard N. Frank, Trustee
James Clayburn LaForce, Trustee
Angelo R. Mozilo, Trustee
Bernard J. Johnson, Trustee Emeritus
Douglass B. Allen, President
Thad M. Brown, Vice President, Secretary and Treasurer
LEGAL COUNSEL - P*I*C INVESTMENT TRUST
- --------------------------------------------------------------------------------
Swidler, Berlin, Shereff, Friedman, LLP
LEGAL COUNSEL - P*I*C SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
Paul, Hastings, Janofsky & Walker, LLP
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
McGladrey & Pullen, LLP
This report is intended for shareholders of the Fund and may not be used as
sales literature unless preceded or accompanied by a current prospectus.
Past performance results shown in this report should not be considered a
representation of future performance. Share price and returns will fluctuate so
that shares, when redeemed, may be worth more or less than their original cost.
Statements and other information herein are dated and are subject to change.
36
