TIP FUNDS
(formerly, Turner Funds)
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
TIP Funds (formerly, Turner Funds) (the "Trust") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual fund (the
"Fund"), which is a separate series of the Trust:
TURNER FIXED INCOME FUND
This Prospectus concisely sets forth the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated January 31, 1997, as revised on August 15, 1997,
has been filed with the Securities and Exchange Commission, and is available
without charge by calling 1-800-224-6312. The Statement of Additional
Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
January 31, 1997,
as revised on
August 15, 1997
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TABLE OF CONTENTS
Summary................................................................ 3
Expense Summary........................................................ 4
The Trust and the Fund................................................. 5
Investment Objective................................................... 5
Investment Policies.................................................... 5
Risk Factors........................................................... 6
Investment Limitations................................................. 6
The Adviser............................................................ 7
The Administrator...................................................... 7
The Transfer Agent..................................................... 7
The Distributor........................................................ 7
Portfolio Transactions................................................. 7
Purchase and Redemption of Shares...................................... 8
Performance............................................................ 10
Taxes.................................................................. 11
General Information.................................................... 12
Description of Permitted Investments and Risk Factors.................. 13
2
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SUMMARY
The following provides basic information about the Turner Fixed Income Fund
(the "Fund"). The Fund is one of the twelve mutual funds comprising TIP Funds
(formerly, Turner Funds) (the "Trust"). This summary is qualified in its
entirety by reference to the more detailed information provided elsewhere in
this Prospectus and in the Statement of Additional Information.
What are the Fund's investment objective and primary policies?
The Fixed Income Fund seeks total return through both current income and
capital appreciation. It invests primarily in fixed income securities of varying
maturities.
What are the risks involved with investing in the Fund? The investment
policies of the Fund entail certain risks and considerations of which investors
should be aware. The Fund invests in securities that fluctuate in value, and
investors should expect the Fund's net asset value per share to fluctuate in
value. The values of fixed income securities tend to vary inversely with
interest rates and may be affected by market and economic factors as well as by
developments impacting specific issuers. The Fixed Income Fund may invest in
fixed income securities that have speculative characteristics. The Fund may
enter into futures and options transactions and may purchase zero coupon
securities. The Fund may purchase mortgage-backed securities, and may purchase
securities of foreign issuers. Investments in these securities involve certain
other risks.
For more information about the Fund, see "Investment Objectives,"
"Investment Policies," "Risk Factors," and "Description of Permitted Investments
and Risk Factors."
Who is the Adviser? Turner Investment Partners, Inc. (the "Adviser"),
serves as the investment adviser to the Fund. See "Expense Summary" and "The
Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves
as the administrator and shareholder servicing agent for the Fund. See "Expense
Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the
"Distributor") serves as the distributor of the Fund's shares. See "The
Distributor."
Who is the Transfer Agent? DST Systems, Inc. serves as the transfer agent
and dividend disbursing agent for the Trust. See "The Transfer Agent."
Is there a sales load? No, shares of the Fund are offered on a no-load
basis.
Is there a minimum investment? The Fund requires a minimum initial
investment of $2,500 ($2,000 for IRAs), which the Distributor may waive at its
discretion. Subsequent purchases must be at least $500.
How do I purchase and redeem shares? Purchases and redemptions may be made
through the Transfer Agent on each day that the New York Stock Exchange is open
for business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent (or its
authorized agent) receives the order and payment, by check or in readily
available funds, prior to 4:00 p.m. Eastern time. Redemption orders received by
the Transfer Agent prior to 4:00 p.m. Eastern time on any Business Day will be
effective that day. The purchase and redemption price for shares is the net
asset value per share determined as of the end of the day the order is
effective. See "Purchase and Redemption of Shares."
How are distributions paid? The Fund distributes substantially all of its
net investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
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EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases..................................... None
Sales Load Imposed on Reinvested Dividends.......................... None
Deferred Sales Load................................................. None
Redemption Fees(1).................................................. None
Exchange Fees....................................................... None
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(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
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FIXED
INCOME
FUND
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Advisory Fees (after fee waivers or reimbursements if applicable)(1)... .05%
12b-1 Fees............................................................. None
Other Expenses(2)...................................................... .70%
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Total Operating Expenses (after fee waivers or reimbursements)(3)...... .75%
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(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fee for
the Fixed Income Fund to the extent necessary to keep the "Total Operating
Expenses" of the Fund during the current fiscal year from exceeding .75%.
The Adviser reserves the right to terminate its waivers at any time in its
sole discretion. Absent such waivers, Advisory Fees for the Fixed Income
Fund would be .50% .
(2) "Other Expenses" for the Fixed Income Fund are estimated for the current
fiscal year.
(3) Absent fee waivers and expense reimbursements, "Total Operating Expenses"
for the Fixed Income Fund would be 1.20% based on current expectations and
assumptions.
EXAMPLE
<TABLE>
<CAPTION>
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1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Your would pay the following expenses on a $1,000 investment in the Fund assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
Fixed Income Fund........................................................................... $8 $24
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUND AFTER WAIVERS AND
REIMBURSEMENTS, IF ANY, AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and example
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by shareholders of the Fund. Additional
information may be found under "The Adviser" and "The Administrator."
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THE TRUST AND THE FUND
TIP Funds (formerly, Turner Funds) (the "Trust") offers shares in twelve
separately-managed mutual funds, each of which is a separate series of the
Trust. Each share of each mutual fund represents an undivided, proportionate
interest in that mutual fund. This Prospectus offers shares of the Trust's
Turner Fixed Income Fund (the "Fund").
INVESTMENT OBJECTIVE
FIXED INCOME FUND -- The Fixed Income Fund seeks total return through current
income and capital appreciation.
There can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
FIXED INCOME FUND
The Fixed Income Fund invests as fully as practicable (and, under normal
conditions, at least 65% of its total assets) in a portfolio of fixed income
securities of varying levels of quality and maturity, that, in the Adviser's
opinion, are undervalued in the market. To determine a security's fair market
value, the Adviser will focus on the yield and credit quality of particular
securities based upon third-party evaluations of quality as well as the
Adviser's own research and analysis of the issuer. The Adviser will attempt to
diversify the Fund's holdings across the yield curve by holding short,
intermediate and long-term securities. Normally, the Fund will maintain a
dollar-weighted average portfolio duration that approximates the average
duration range of the Fund's benchmark index, the Lehman Brothers Aggregate Bond
Index (currently 4.6 years). Duration is a measure of the expected life of a
fixed income security on a cash flow basis. For example, assuming a portfolio
duration of eight years, an increase in interest rates of 1%, a parallel shift
in the yield curve, and no change in the spread relationships among securities,
the value of the portfolio would decline 8%. Using the same assumptions, if
interest rates decrease 1%, the value of the portfolio would increase 8%. The
Adviser considers duration an accurate measure of a security's expected life and
sensitivity to interest rate changes. The Adviser may increase or decrease this
average weighted duration when, in the Adviser's opinion, market conditions
warrant.
The Fund will purchase the following types of securities if, at the time of
purchase, such securities either have been classified as investment grade by a
nationally recognized statistical rating organization ("NRSRO") or are
determined by the Adviser to be of comparable quality: (i) obligations issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities"); (ii) corporate bonds and
debentures of U.S. and foreign issuers rated in one of the four highest rating
categories; (iii) privately issued mortgage-backed securities rated in the
highest rating category; (iv) asset-backed securities rated in the two highest
rating categories; (v) receipts evidencing separately traded interest and
principal component parts of U.S. Government obligations ("Receipts"); (vi)
commercial paper rated in one of the two highest rating categories; (vii)
obligations of U.S. commercial banks and savings and loan institutions that have
net assets of at least $500 million as of the end of their most recent fiscal
year ("bank obligations"); (viii) obligations issued or guaranteed by the
government of Canada; (ix) obligations of supranational entities rated in one of
the four highest rating categories; (x) loan participations; (xi) repurchase
agreements involving any of the foregoing securities; and (xii) shares of other
investment companies. Investment grade bonds include securities rated BBB by
Standard and Poor's Corporation ("S&P") or Baa by Moody's Investors Service,
Inc. ("Moody's"), which may be regarded as having speculative characteristics as
to repayment of principal. If a security is downgraded to below investment
grade, the Adviser will review the situation and take appropriate action.
Securities rated below investment grade will not constitute more than 5% of the
Fund's total assets.
The Fund may invest in variable and floating rate obligations and in convertible
debt securities that meet the ratings criteria set forth above.
THE FUND
The Fund may purchase securities on a when-issued basis.
The Fund may enter into futures and options transactions.
5
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The Fund may invest up to 15% of its net assets in illiquid securities.
The Fund may purchase convertible securities.
The Fund may, for temporary defensive purposes, invest up to 100% of its total
assets in money market instruments (including U.S. Government securities, bank
obligations, commercial paper rated in the highest rating category by an NRSRO,
repurchase agreements involving the foregoing securities), shares of money
market investment companies and cash.
For a further description of these types of instruments see "Description of
Permitted Investments and Risk Factors" in the Statement of Additional
Information.
RISK FACTORS
FIXED INCOME SECURITIES -- The market value of fixed income investments will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities, but will affect the investing Fund's net asset value.
Mortgage-backed and asset-backed securities purchased by the Fixed Income Fund
may be subject to prepayment, which may result in capital gains or losses, and
which make it difficult to determine such securities' average life and yield.
When the mortgage-backed securities held by a Fund are pre-paid, the Fund must
reinvest the proceeds in securities the yield of which reflects prevailing
interest rates, which may be lower than the yield of the pre-paid security.
SECURITIES OF FOREIGN ISSUERS -- Investments in the securities of foreign
issuers may subject a Fund to investment risks that differ in some respects from
those related to investments in securities of U.S. issuers. Such risks include
future adverse political and economic developments, possible imposition of
withholding taxes on income, possible seizure, nationalization or expropriation
of foreign deposits, possible establishment of exchange controls or taxation at
the source or greater fluctuation in value due to changes in exchange rates.
Foreign issuers of securities often engage in business practices different from
those of domestic issuers of similar securities, and there may be less
information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
of the Fund's assets measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies.
PORTFOLIO TURNOVER -- Under normal circumstances, the portfolio turnover rate
for the Fixed Income Fund is not expected to exceed 150%. An annual portfolio
turnover rate in excess of 100% may result from the Adviser's investment
strategy, or may result from the Adviser's maintenance of appropriate issuer
diversification. Portfolio turnover rates in excess of 100% may result in higher
transaction costs, including increased brokerage commissions and higher levels
of taxable capital gain. See "Taxes."
INVESTMENT LIMITATIONS
The investment objective of the Fund and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Fund. Fundamental policies cannot be changed with respect to the
Fund without the consent of the holders of a majority of the Fund's outstanding
shares.
1. The Fund may not (i) purchase securities of any issuer (except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction applies to 75% of the
Fund's total assets.
6
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2. The Fund may not purchase any securities which would cause 25% or more of the
total assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Turner Investment Partners, Inc., is a professional investment management firm
founded in March, 1990. Robert E. Turner is the Chairman and controlling
shareholder of the Adviser. As of June 30, 1997, the Adviser had discretionary
management authority with respect to approximately $2.23 billion of assets. The
Adviser has provided investment advisory services to investment companies since
1992. The principal business address of the Adviser is 1235 Westlakes Drive,
Suite 350, Berwyn, Pennsylvania 19312.
The Adviser serves as the investment adviser for the Fund under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .50% of the average daily net assets of
the Fixed Income Fund. The Adviser has voluntarily agreed to waive all or a
portion of its fee and to reimburse expenses of the Fund in order to limit their
total operating expenses (as a percentage of average daily net assets on an
annualized basis) to not more than 0.75%. The Fund had not commenced operations
as of September 30, 1996. The Adviser reserves the right, in its sole
discretion, to terminate these voluntary fee waivers and reimbursements at any
time.
Mark D. Turner, President and Director of Fixed Income Management of the
Adviser, is the manager of the Fixed Income Fund. Mr. Turner joined Turner
Investment Partners, Inc. in 1990. Prior to 1990, he was Vice President and
Senior Portfolio Manager with First Maryland Asset Management. He has 14 years
of investment experience.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") provides the Trust with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
the Fund, which is calculated daily and paid monthly, at an annual rate of .12%
of the Fund's average daily net assets up to $75 million, .10% on the next $75
million of such assets, .09% on the next $150 million of such assets, .08% of
the next $300 million of such assets, and .075% of such assets in excess of $600
million.
The Administrator also serves as shareholder servicing agent for the Trust under
a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Avenue, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Trust under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company, acts as the Trust's
distributor pursuant to a distribution agreement (the "Distribution Agreement").
No compensation is paid to the Distributor for its distribution services.
PORTFOLIO TRANSACTIONS
The Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation.
Since shares of the Fund are not marketed through intermediary broker-dealers,
the Fund does not have a practice of allocating brokerage or effecting principal
transactions with broker-dealers on the basis of sales of shares which may be
made through such firms.
7
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However, the Adviser may place orders for the Fund with qualified broker-dealers
who refer clients to the Fund.
Some securities considered for investment by a Fund may also be appropriate for
other accounts and/or clients served by the Adviser. If the purchase or sale of
securities consistent with the investment policies of a Fund and another of the
Adviser's accounts and/or clients are considered at or about the same time,
transactions in such securities will be allocated among the fund and the other
accounts and/or clients in a manner deemed equitable by the Adviser.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business ("Business Day").
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: TIP Funds, P.O. Box 419805, Kansas City, Missouri 64141-6805,
by mail or wire transfer. All shareholders may place orders by telephone; when
market conditions are extremely busy, it is possible that investors may
experience difficulties placing orders by telephone and may wish to place orders
by mail. Purchases and redemptions of shares of the Fund may be made on any
Business Day. Shares of the Fund are offered only to residents of states in
which such shares are eligible for purchase.
The minimum initial investment in the Fund is $2,500 ($2,000 for IRAs) and
subsequent purchases must be at least $500. The Distributor may waive these
minimums at its discretion. No minimum applies to subsequent purchases effected
by dividend reinvestment.
Minimum Account Size -- Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any account if, as the
result of redemptions, the value of that account drops below $2,500. You will be
allowed at least 60 days, after notice by the Fund, to make an additional
investment to bring your account value up to at least $2,500 before the
redemption is processed.
Certain brokers assist their clients in the purchase or redemption of shares and
charge a fee for this service in addition to the Fund's public offering price.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Fund) for $2,500 ($2,000 for IRAs) or more, together with a
completed Account Application to: TIP Funds, P.O. Box 419805, Kansas City,
Missouri 64141-6805. Third-Party checks, credit cards, credit card checks and
cash will not be accepted. When purchases are made by check (including certified
or cashier's checks), redemption proceeds will not be forwarded until the
investment being redeemed has been in the account for 15 days. Subsequent
investments may also be mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [Fixed Income
Fund]. The shareholder's name and account number must be specified in the wire.
Initial Purchases: Before making an initial investment by wire, an investor
must first telephone 1-800-224-6312 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: TIP Funds, P.O. Box 419805,
Kansas City, Missouri 64141-6805.
Subsequent Purchases: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
Subsequent purchases may also be made by wire through the Automated Clearing
House ("ACH").
GENERAL INFORMATION REGARDING PURCHASES
A purchase request will be effective as of the day received by the Transfer
Agent if the Transfer Agent (or its authorized agent) receives the purchase
request in good order and payment before 4:00 p.m., Eastern time. A purchase
request is in good order if it is complete and accompanied by the appropriate
8
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documentation, including an Account Application and additional documentation
required. Purchase requests in good order received after 4:00 p.m., Eastern
time, will be effective the next Business Day. Payment may be made by check or
readily available funds. The purchase price of shares of the Fund is the Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full and fractional shares of the Fund calculated to
three decimal places. The Trust will not issue certificates representing shares
of the Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
Systematic Investment Plan -- A shareholder may also arrange for periodic
additional investments in a Portfolio through automatic deductions by Automated
Clearing House ("ACH") transactions from a checking or savings account by
completing the Systematic Investment Plan form. This Systematic Investment Plan
is subject to account minimum initial purchase amounts and a minimum
pre-authorized investment amount of $100 per month. An application form for the
Systematic Investment Plan may be obtained by calling 1-800-224-6312.
EXCHANGES
Shareholders of the Fund may exchange their shares for shares of the other TIP
Funds that are then offering their shares to the public. Exchanges are made at
net asset value. An exchange is considered a sale of shares and may result in
capital gain or loss for federal income tax purposes. The shareholder must have
received a current prospectus for the new Fund before any exchange will be
effected, and the exchange privilege may be exercised only in those states where
shares of the new Fund may legally be sold. If the Transfer Agent (or its
authorized agent) receives exchange instructions in writing or by telephone (an
"Exchange Request") in good order by 4:00 p.m., Eastern time, on any Business
Day, the exchange will be effected that day. The liability of the Fund or the
Transfer Agent for fraudulent or unauthorized telephone instructions may be
limited as described below. The Trust reserves the right to modify or terminate
this exchange offer on 60 days' notice.
REDEMPTIONS
Redemption requests in good order received by the Transfer Agent (or its
authorized agent) prior to 4:00 p.m., Eastern time on any Business Day will be
effective that day. To redeem shares of the Fund, shareholders must place their
redemption orders with the Transfer Agent (or its authorized agent) prior to
4:00 p.m., Eastern time, on any Business Day. The redemption price of shares of
the Fund is the net asset value per share of the Fund next determined after the
redemption order is effective. Payment of redemption proceeds will be made as
promptly as possible and, in any event, within seven days after the redemption
order is received, provided, however, that redemption proceeds for shares
purchased by check (including certified or cashier's checks) will be forwarded
only upon collection of payment for such shares; collection of payment may take
up to 15 days. Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Fund by
Federal Reserve wire on Federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone if they reasonably believe
those instructions to be genuine. The Trust and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine.
Such procedures may include the taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
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A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature on certain redemption requests. The Trust requires
signature guarantees to be provided in the following circumstances: (1) written
requests for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds to a bank other than the bank previously designated on the
account application; and (3) redemption requests that provide that the
redemption proceeds should be sent to an address other than the address of
record or to a person other than the registered shareholder(s) for the account.
Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. The Trust
does not accept guarantees from notaries public or from organizations that do
not provide reimbursement in the case of fraud.
Systematic Withdrawal Plan -- The Fund offers a Systematic Withdrawal Plan
("SWP") for shareholders who wish to receive regular distributions from their
account. Upon commencement of the SWP, the account must have a current value of
$2,500 or more. Shareholders may elect to receive automatic payments via ACH
wire transfers of $100 or more on a monthly, quarterly, semi-annual or annual
basis. An application form for SWP may be obtained by calling 1-800-224-6312.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any time,
upon written notice to the Transfer Agent.
VALUATION OF SHARES
The net asset value per share of the Fund is determined by dividing the total
market value of that Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Fund. Net asset value per share
is determined daily as of the close of business of the New York Stock Exchange
(currently, 4:00 p.m., Eastern time) on any Business Day.
PERFORMANCE
From time to time, the Fund may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. The yield of the Fund refers to the annualized income generated by
an investment in the Fund over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of the Fund refers to the average compounded rate of return on
a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions. The Fund may periodically compare its performance to that of
other mutual funds tracked by mutual fund rating services (such as Lipper
Analytical Services, Inc.), financial and business publications and periodicals,
broad groups of comparable mutual funds, unmanaged indices, which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs, or other investment alternatives. The Fund
may quote Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. The Fund may also
quote the Frank Russell Company or Wilshire Associates, consulting firms that
compile financial characteristics of common stocks and fixed income securities,
regarding non-performance-related attributes of the Fund's portfolio. The Fund
may use long term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark
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while measures of benchmark correlation indicate how valid a comparative
benchmark might be. Measures of volatility and correlation are calculated using
averages of historical data and cannot be calculated precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Fund or its shareholders.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes. Further information
concerning taxes is set forth in the Statement of Additional Information.
TAX STATUS OF THE FUND:
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as the Fund qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS:
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. It can be expected that none of the dividends paid by the Fund will
qualify for that deduction. Any net capital gains will be distributed annually
and will be taxed to shareholders as long-term capital gains, regardless of how
long the shareholder has held shares. The Fund will make annual reports to
shareholders of the federal income tax status of all distributions, including
the amount of dividends eligible for the dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue discount
and thus do not make periodic cash interest payments. The Fund will be required
to include as part of its current income the accrued discount on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to its shareholders, the Fund may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
The Fund may, in certain circumstances, accept securities that are appropriate
investments as payment for Fund shares (an "In-Kind Purchase"). An In-Kind
Purchase may result in adverse tax consequences under certain circumstances to
either the investors transferring securities for shares (an "In-Kind Investors")
or to investors who acquire shares of the Fund after a transfer ("new
shareholders"). As a result of an In-Kind Purchase, the Fund may acquire
securities that have appreciated in value or depreciated in value from the date
they were acquired. If appreciated securities were to be sold after an In-Kind
Purchase, the amount of the gain would be taxable to new shareholders as well as
to In-Kind Investors. The effect of this for new shareholders would be to tax
them on a distribution that represents a return of the purchase price of their
shares rather than an increase in the value of their investment. The effect on
In-Kind Investors would be to reduce their potential liability for tax on
capital gains by spreading it over a larger asset base. The opposite may occur
if the Fund acquires securities having an unrealized capital loss. In that case,
In-Kind Investors will be unable to utilize the loss to offset gains, but,
because an In-Kind Purchase will not result in any gains, the inability of
In-Kind Investors to utilize unrealized losses will have no immediate tax
effect. For new shareholders, to the extent that unrealized losses are realized
by the Fund, new shareholders may benefit by any reduction in net tax liability
attributable to the losses. The Adviser cannot predict whether securities
acquired in any In-Kind Purchase will have unrealized gains or losses on the
date of the In-Kind Purchase.
11
<PAGE>
Consistent with its duties as investment adviser, the Adviser will, however,
take tax consequences to investors into account when making decisions to sell
portfolio assets, including the impact of realized capital gains on shareholders
of the Fund.
Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. The Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by the Fund and may be exempt, depending on
the state, when received by a shareholder from the Fund provided certain
state-specific conditions are satisfied. The Fund will inform shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisers to determine whether
any portion of the income dividends received from the Fund is considered tax
exempt in their particular state. Income derived by the Fund from securities of
foreign issuers may be subject to foreign withholding taxes. The Fund will not
be able to elect to treat shareholders as having paid their proportionate share
of such foreign taxes.
Each sale, exchange or redemption of the Fund's shares is a taxable event to the
shareholder.
GENERAL INFORMATION
THE TRUST
The Trust, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated January
26, 1996, and amended on February 21, 1997. The Declaration of Trust permits the
Trust to offer separate series ("portfolios") of shares. All consideration
received by the Trust for shares of any portfolio and all assets of such
portfolio belong to that portfolio and would be subject to liabilities related
thereto. The Trust reserves the right to create and issue shares of additional
portfolios.
The Trust pays its operating expenses, including fees of its service providers,
audit and legal expenses, expenses of preparing prospectuses, proxy solicitation
material and reports to shareholders, costs of custodial services and
registering the shares under federal and state securities laws, pricing and
insurance expenses, and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote for each dollar
invested. In other words, each shareholder of record is entitled to one vote for
each dollar of net asset value of the shares held on the record date for the
meeting. Shareholders of each Fund will vote separately on matters pertaining
solely to that Fund. As a Massachusetts business trust, the Trust is not
required to hold annual meetings of Shareholders, but approval will be sought
for certain changes in the operation of the Trust and for the election of
Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually for the Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
12
<PAGE>
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to TIP Funds, P.O. Box 419805, Kansas
City, Missouri 64141-6805, or by calling 1-800-224-6312. Purchases, exchanges
and redemptions of shares should be made through the Transfer Agent by calling
1-800-224-6312.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (excluding capital gains) of the
Fixed Income Fund is distributed in the form of monthly dividends. Shareholders
of record of the Fixed Income Fund on the second to last Business Day of each
quarter or month, respectively, will be entitled to receive the quarterly or
monthly dividend distribution. If any capital gain is realized, substantially
all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
Dividends and other distributions of the Fund are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a distribution of ordinary income
or capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable distribution or dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants for the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Fund:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
DERIVATIVES -- Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., CMOs, REMICs, IOs and
POs), when issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
Receipts and STRIPs), privately issued stripped securities (e.g., TGRs, TRs, and
CATs). See elsewhere in the "Description of Permitted Investments and Risk
Factors" and in the Statement
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<PAGE>
of Additional Information for discussions of these various instruments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days, securities for
which there is no active secondary market, and repurchase agreements with
durations or maturities over 7 days in length.
MONEY MARKET INSTRUMENTS -- Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper ratings;
and (v) repurchase agreements involving any of the foregoing obligations entered
into with highly-rated banks and broker-dealers.
MORTGAGE BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional fifteen- and thirty-year fixed rate mortgages, graduated
payment mortgages, adjustable rate mortgages, and balloon mortgages. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. Prepayment of
mortgages which underlie securities purchased at a premium often results in
capital losses, while prepayment of mortgages purchased at a discount often
results in capital gains. Because of these unpredictable prepayment
characteristics, it is often not possible to predict accurately the average life
or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Fannie Mae
and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC
obligations are not backed by the full faith and credit of the U.S. Government
as GNMA certificates are, but Fannie Mae and FHLMC securities are supported by
the instrumentalities' right to borrow from the U.S. Treasury. GNMA, Fannie May
and FHLMC each guarantee timely distributions of interest to certificate
holders. GNMA and Fannie Mae also each guarantee timely distributions of
scheduled principal.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
CMOs: CMOs are debt obligations of multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO is issued with a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae or FHLMC represent beneficial ownership interests in a
REMIC trust consisting principally or mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments, while the other class may receive all of the principal
payments. SMBs are extremely sensitive to changes in interest rates because of
the impact thereon of prepayment of principal on the underlying mortgage
securities. The market for SMBs is not as
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<PAGE>
fully developed as other markets; SMBs therefore may be illiquid.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days from the date of purchase. Repurchase
agreements are considered loans under the 1940 Act.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a separate account with liquid securities or cash in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date, and no interest accrues to
the Fund before settlement.
ZERO COUPON SECURITIES -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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TIP FUNDS
(formerly, Turner Funds)
TURNER ULTRA LARGE CAP GROWTH FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP GROWTH FUND
TURNER SMALL CAP GROWTH FUND
TURNER FIXED INCOME FUND
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Ultra Large Cap Growth Fund (formerly, Turner Ultra Large Cap Fund)
(the "Ultra Large Cap Growth Fund"), Turner Growth Equity Fund (the "Growth
Equity Fund"), Turner Midcap Growth Fund (formerly, Turner Midcap Fund) (the
"Midcap Growth Fund"), Turner Small Cap Growth Fund (formerly, Turner Small Cap
Fund) (the "Small Cap Growth Fund") and Turner Fixed Income Fund (the "Fixed
Income Fund") (each a "Fund" and, together, the "Funds"). It is intended to
provide additional information regarding the activities and operations of the
TIP Funds (formerly, Turner Funds) (the "Trust") and should be read in
conjunction with the Funds' Prospectus dated January 31, 1997, as supplemented
on August 15, 1997. The Prospectus may be obtained without charge by calling
1-800-224-6312.
TABLE OF CONTENTS
THE TRUST....................................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS.........................................S-2
INVESTMENT LIMITATIONS.......................................................S-6
THE ADVISER..................................................................S-8
THE ADMINISTRATOR............................................................S-9
THE DISTRIBUTOR.............................................................S-10
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-11
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-14
PURCHASE AND REDEMPTION OF SHARES...........................................S-14
DETERMINATION OF NET ASSET VALUE............................................S-15
TAXES ...................................................................S-15
PORTFOLIO TRANSACTIONS......................................................S-17
DESCRIPTION OF SHARES.......................................................S-19
SHAREHOLDER LIABILITY.......................................................S-19
LIMITATION OF TRUSTEES' LIABILITY...........................................S-20
5% SHAREHOLDERS.............................................................S-20
FINANCIAL INFORMATION.......................................................S-22
APPENDIX ....................................................................A-1
January 31, 1997
supplemented on August 15, 1997
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Turner Ultra Large
Cap Growth Fund (formerly, Turner Ultra Large Cap Fund) (the "Ultra Large Cap
Growth Fund"), Turner Growth Equity Fund (the "Growth Equity Fund"), Turner
Midcap Growth Fund (formerly, Turner Midcap Fund) (the "Midcap Growth Fund"),
Turner Small Cap Growth Fund (formerly, Turner Small Cap Fund) (the "Small Cap
Growth Fund") and Turner Fixed Income Fund (the "Fixed Income Fund") (each a
"Fund" and, together, the "Funds"). Each Fund is a separate series of the TIP
Funds (the "Trust"), a diversified, open-end management investment company
established as a Massachusetts business trust under a Declaration of Trust dated
January 26, 1996 and amended on February 21, 1997. The Declaration of Trust
permits the Trust to offer separate series ("portfolios") of shares of
beneficial interest ("shares"). Each portfolio is a separate mutual fund, and
each share of each portfolio represents an equal proportionate interest in that
portfolio. See "Description of Shares." The Trust also offers shares in the
Clover Max Cap Value Fund, Clover Equity Value Fund, Clover Small Cap Value
Fund, Clover Fixed Income Fund, Penn Capital Select Financial Services Fund,
Penn Capital Strategic High Yield Bond Fund, and Penn Capital Value Plus Fund.
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
Futures Contracts and Options on Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of
S-2
<PAGE>
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks or bonds comprising the
Index is made; generally contracts are closed out prior to the expiration date
of the contracts.
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities, equal to the market value of the futures positions held, less
margin deposits, in a segregated account with its custodian. Collateral equal to
the current market value of the futures position will be marked to market on a
daily basis.
Lower-Rated Securities
Lower-rated securities are lower-rated bonds commonly referred to as "junk
bonds" or high-yield securities. These securities are rated lower than "Baa3" by
Moody's Investors Service, Inc. (Moody's) and/or lower than "BBB-" by Standard &
Poor's Corporation ("S&P"). The Funds may invest in securities rated in the
lowest ratings categories established by Moody's or by S&P. These ratings
indicate that the obligations are speculative and may be in default. In
addition, the Funds may invest in unrated securities of comparable quality
subject to the restrictions stated in the Funds' Prospectus.
S-3
<PAGE>
Certain Risk Factors Relating to High-Yield, High-Risk Securities
The descriptions below are intended to supplement the discussion in the
Prospectus.
Growth of High-Yield, High-Risk Bond Market
The widespread expansion of government, consumer and corporate debt within the
U.S. economy has made the corporate sector more vulnerable to economic downturns
or increased interest rates. Further, an economic downturn could severely
disrupt the market for lower rated bonds and adversely affect the value of
outstanding bonds and the ability of the issuers to repay principal and
interest. The market for lower-rated securities may be less active, causing
market price volatility and limited liquidity in the secondary market. This may
limit the Funds' ability to sell such securities at their market value. In
addition, the market for these securities may be adversely affected by
legislative and regulatory developments. Credit quality in the junk bond market
can change suddenly and unexpectedly, and even recently issued credit ratings
may not fully reflect the actual risks imposed by a particular security.
Sensitivity to Interest Rate and Economic Changes
Lower rated bonds are somewhat sensitive to adverse economic changes and
corporate developments. During an economic down turn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond defaulted on its obligations to
pay interest or principal or entered into bankruptcy proceedings, the Funds may
incur losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and change can be expected to result in
increased volatility of market prices of high-yield bonds and the Funds' net
asset values.
Payment Expectations
High-yield, high-risk bonds may contain redemption or call provisions. If an
issuer exercised these provisions in a declining interest rate market, the Funds
would have to replace the securities with a lower yielding security, resulting
in a decreased return for investors. Conversely, a high-yield, high-risk bond's
value will decrease in a rising interest rate market, as will the value of the
Funds' assets. If the Funds experience significant unexpected net redemptions,
this may force them to sell high-yield, high-risk bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Funds' rates of return.
Liquidity and Valuation
There may be little trading in the secondary market for particular bonds, which
may affect adversely the Funds' ability to value accurately or dispose of such
bonds. Adverse publicity and investor perception, whether or not based on
fundamental
S-4
<PAGE>
analysis, may decrease the values and liquidity of high-yield, high-risk bonds,
especially in a thin market.
Taxes
The Funds may purchase debt securities (such as zero-coupon, pay-in-kind or
other types of securities) that contain original issue discounts. Original issue
discount that accrues in a taxable year is treated as earned by each Fund and
therefore is subject to the distribution requirements of the tax code even
though the such Fund has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Funds in a
taxable year may not be represented by cash income, the Funds may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
Investment Company Shares
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
Options
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, a Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If a Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of
S-5
<PAGE>
securities that the Fund may seek to purchase in the future. A Fund purchasing
put and call options pays a premium therefor. If price movements in the
underlying securities are such that exercise of the options would not be
profitable for the Fund, loss of the premium paid may be offset by an increase
in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
fund and as a means of providing limited protection against decreases in its
market value. When a fund sells an option, if the underlying securities do not
increase or decrease to a price level that would make the exercise of the option
profitable to the holder thereof, the option generally will expire without being
exercised and the Fund will realized as profit the premium received for such
option. When a call option written by a Fund is exercised, the Fund will be
required to sell the underlying securities to the option holder at the strike
price, and will not participate in any increase in the price of such securities
above the strike price. When a put option written by a Fund is exercised, the
Fund will be required to purchase the underlying securities at the strike price,
which may be in excess of the market value of such securities.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are generally illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
Custodian consisting of cash or liquid, high grade debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an
S-6
<PAGE>
option position by entering into a closing transaction. The ability of a Fund to
enter into closing transactions depends upon the existence of a liquid secondary
market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Risk Factors: Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
Repurchase Agreements
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
When-Issued and Delayed Delivery Securities
S-7
<PAGE>
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
INVESTMENT LIMITATIONS
Fundamental Policies
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of each Fund which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of a Fund's outstanding shares, whichever is less.
No Fund may:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate fund to purchase securities or require
a Fund to segregate assets are not considered to be borrowings. Asset
coverage of a least 300% is required for all borrowings, except where a
Fund has borrowed money for temporary purposes in amounts not exceeding
5% of its total assets. A Fund will not purchase securities while its
borrowings exceed 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that each Fund may (i) purchase or
hold debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
4. Issue senior securities (as defined in the Investment Company Act of
1940 (the "1940 Act")) except as permitted by rule, regulation or order
of the Securities and Exchange Commission (the "SEC").
S-8
<PAGE>
5. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
Non-Fundamental Policies
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
5. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing
in more than seven days) if, in the aggregate, more than 15% of its net
assets would be invested in illiquid securities.
In addition, each Fund will invest no more than 5% of its net assets in short
sales, unregistered securities, futures contracts, options and investment
company securities. Unregistered securities sold in reliance on the exemption
from registration in Section 4(2) of the 1933 Act and securities exempt from
registration on re-sale pursuant to Rule 144A of the 1933 Act may be treated as
liquid securities under procedures adopted by the Board of Trustees.
S-9
<PAGE>
THE ADVISER
The Trust and Turner Investment Partners, Inc. (the "Adviser") have entered into
an advisory agreement (the "Advisory Agreement"). The Advisory Agreement
provides that the Adviser shall not be protected against any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of the Fund are
registered, the Adviser will bear the amount of such excess. The Adviser will
not be required to bear expenses of any Fund to an extent which would result in
the Fund's inability to qualify as a regulated investment company under
provisions of the Internal Revenue Code of 1986, as amended (the "Code").
The continuance of the Advisory Agreement as to any Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Fund, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to any Fund,
by a majority of the outstanding shares of that Fund, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
On April 30, 1996, the Growth Equity Fund, the Small Cap Growth Fund and the
Fixed Income Fund acquired the assets of the Turner Growth Equity, Turner Small
Cap and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner
Circle Fund. For the fiscal years ended October 31, 1994 and 1995, and September
30, 1996, the Funds paid the following advisory fees:
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
----------------------------------------- ------------------------------------
1994 1995 1996 1994 1995 1996
- ----------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ultra Large Cap ** ** ** ** ** **
Growth Fund
- ----------------------------------------------------------------------- ------------------------------------
Growth Equity $613,070 $897,405 $666,476 $114,486 $0 $0
Fund
- ----------------------------------------------------------------------- ------------------------------------
Midcap Growth ** ** ** ** ** **
Fund
- ----------------------------------------------------------------------- ------------------------------------
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<PAGE>
Small Cap Growth * * $197,634 * * $82,694
Fund
- ----------------------------------------------------------------------- ------------------------------------
Fixed Income Fund ** ** ** ** ** **
- ----------------------------------------------------------------------- ------------------------------------
</TABLE>
* For the fiscal periods ending October 1994 and 1995, the Advisor waived all
fees due it under the Advisory Agreement with respect to the Small Cap Growth
Fund and reimbursed expenses of $66,551 and $11,944, respectively.
** Not in operation during such period.
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. The Administration Agreement shall
remain in effect for a period of three (3) years after the effective date of the
agreement and shall continue in effect for successive periods of one (1) year
unless terminated by either party on not less than 90 days' prior written notice
to the other party.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interests in the Administrator. SEI Investments and its subsidiaries
and affiliates, including the Administrator, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors and money managers.
The Administrator and its affiliates also serve as administrator to the
following other mutual funds: The Achievement Funds Trust, The Advisors' Inner
Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Boston 1784
Funds(R), CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series
Fund, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R),
Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds and STI Classic Variable Trust.
On April 30, 1996, the Growth Equity Fund, the Small Cap Growth Fund and the
Fixed Income Fund acquired the assets of the Turner Growth Equity, Turner Small
Cap and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner
Circle Fund. For
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the fiscal years ended October 31, 1994 and 1995, and September 30, 1996, the
Funds paid the following administrative fees:
Administrative Fees Paid
---------------------------------------------
1994 1995 1996
- ---------------------------------------------------------------------
Ultra Large Cap * * *
Growth Fund
- ---------------------------------------------------------------------
Growth Equity $164,423 $214,591 $136,587
Fund
- ---------------------------------------------------------------------
Midcap Growth * * *
Fund
- ---------------------------------------------------------------------
Small Cap $54,658 $75,000 $68,682
Growth Fund
- ---------------------------------------------------------------------
Fixed Income * * *
Fund
- ---------------------------------------------------------------------
* Not in operation during such period.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the "Distribution
Agreement") with respect to shares of the Funds. The Distributor receives no
compensation for distribution of shares of the Funds.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each may have held other positions with the named companies during
that period. The Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise
S-12
<PAGE>
noted, the business address of each Trustee and each Executive Officer is SEI
Investments Company, Oaks, Pennsylvania 19456. Certain officers of the Trust
also serve as officers of some or all of the following: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street
Funds, Boston 1784 Funds(R), CoreFunds, Inc., CrestFunds, Inc., CUFUND, The
Expedition Funds, FMB Funds, Inc., First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc, HighMark Funds,
Marquis Funds(R), Monitor Funds, Morgan Grenfell Investment Trust, The PBHG
Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic
Funds, and STI Classic Variable Trust, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds(R), and Santa Barbara Group
of Mutual Funds, Inc., are distributed by SEI Investments Distribution Co.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. (the Adviser) since 1990.
RICHARD A. HOCKER (DOB 07/21/46) - Trustee* - CEO and Chairman of the Board of
Covenant Bank, 1988-1997. Director of Bedminister Bioconversion Corporation,
since 1988. Chief Investment Officer and Senior Vice President of Penn Capital
Management Co., Inc., since 1987.
MICHAEL E. JONES (DOB 12/24/54) - Trustee* - Senior Vice President, Investment
Adviser and Portfolio Manager with Clover Capital Management Inc., since 1984.
Principal of CCM Securities Inc.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee** - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee** - Professor, Loyola Marymount
University, since 1984.
JANET F. SANSONE (DOB 08/11/45) - Trustee** - Corporate Vice President of Human
Resources of Frontier Corporation, since 1993. Director of Education at General
Electric Corporation, 1982-1993.
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
JANET RADER-ROTE (DOB 08/24/60) - Vice President and Assistant Secretary
Director of Operations and Compliance of Turner Investment Partners, Inc., since
1992.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995.
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<PAGE>
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston and Strawn
(law firm), 1991-1994.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994. Associate, Morgan, Lewis & Bockius LLP(law firm),
1988-1992.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President and Assistant Secretary,
Deputy General Counsel, Vice President and Assistant Secretary of SEI, Vice
President and Assistant Secretary of the Administrator and Distributor, since
1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting - Director, Funds Administration
and Accounting of SEI since 1994. Senior Audit Manager, Arthur Andersen LLP,
1986-1994.
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker, Biddle & Reath (law firm) (1994-1996). Assistant
Vice President - Operations of Delaware Service Company, Inc. (1988-1993)
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor, since 1995. Attorney, Aquila
Management Corporation, 1994. Rutgers University School of Law - Newark, 1991-
1994.
S-14
<PAGE>
The Trustees and Officers of the Trust own less than 1% of the
outstanding shares of the Trust. The Trust pays fees only to the Trustees who
are not interested persons of the Trust. Compensation of Officers and interested
Trustees of the Trust is paid by the adviser or the manager.
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From Registrant
Compensation and Fund
From Registrant Pension or Complex Paid to
for the Fiscal Retirement Estimated Trustees for the
Year Ended Benefits Accrued Annual Benefits Fiscal Year Ended
Name of Person, September 30, as Part of Fund Upon September 30,
Position 1996 Expenses Retirement 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Turner * * * *
- -------------------------------------------------------------------------------------------------------------------
Mark Turner * * * *
- -------------------------------------------------------------------------------------------------------------------
Joan Lamm-Tennant(1) $3,500 N/A N/A $3,500
- -------------------------------------------------------------------------------------------------------------------
Alfred C. Salvato $3,500 N/A N/A $3,500
- -------------------------------------------------------------------------------------------------------------------
John T. Wholihan $3,500 N/A N/A $3,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Joan Lamm-Tennant resigned from the Board on March 17, 1997.
* Messrs. Robert Turner, Richard Hocker and Michael Jones are Trustees who may
be deemed to be "interested persons" of the Trust as the term is defined in the
1940 Act.
** Member of the Audit Committee.
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)6 - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
S-15
<PAGE>
For the 30-day period ended September 30, 1996, the Growth Equity Fund's yield
was 0% and the Small Cap Fund's yield was 0%. The Ultra Large Cap, Midcap and
Fixed Income Funds were not in operation during this period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period.
For the fiscal year ended September 30, 1996, and for the period from March 11,
1992 (commencement of operations of the Turner Growth Equity Portfolio of The
Advisors' Inner Circle Fund) through September 30, 1996, the total return for
the Growth Equity Fund was 20.61% and 14.54%, respectively. For the fiscal year
ended September 30, 1996 and the period from February 7, 1994 (commencement of
operations of the Turner Small Cap Portfolio of The Advisors' Inner Circle Fund)
through September 30, 1996, the total return for the Small Cap Growth Fund was
52.90% and 40.53%, respectively. The Ultra Large Cap Growth, Midcap Growth and
Fixed Income Funds were not in operation during these periods.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Currently, the weekdays on
which the Fund is closed for business are: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Shares of each Fund are offered on a
continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
S-16
<PAGE>
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued by the Administrator. The Administrator
may use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as on trade quotations obtained from third parties. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of stocks or securities held for less than three months; (iii) at
the close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iv) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer, or of two or
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<PAGE>
more issuers which are engaged in the same, similar or related trades or
business if the Fund owns at least 20% of the voting power of such issuer.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Fund will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short-and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions will generally be eligible for the corporate dividends-received
deduction.
State Taxes
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The Adviser may, consistent with the interests of the Fund, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in
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<PAGE>
addition to and not in lieu of the services required to be performed by the
Adviser under the Advisory Agreement. If, in the judgment of the Adviser, a Fund
or other accounts managed by the Adviser will be benefitted by supplemental
research services, the Adviser is authorized to pay brokerage commissions to a
broker furnishing such services which are in excess of commissions which another
broker may have charged for effecting the same transaction. These research
services include advice, either directly or through publications or writings, as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends; assisting
in determining portfolio strategy; providing computer software used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. The expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information, such services may not be
used exclusively, or at all, with respect to the Fund or account generating the
brokerage, and there can be no guarantee that the Adviser will find all of such
services of value in advising that Fund.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for a Fund
on an exchange if a written contract is in effect between the Trust and the
Distributor expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by a Fund for exchange transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who recommend a
Fund's shares to clients, and may, when a number of brokers and dealers can
provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.
On April 30, 1996, the Growth Equity Fund, the Small Cap Growth Fund and the
Fixed Income Fund acquired the assets of the Turner Growth Equity, Turner Small
Cap and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner
Circle Fund. For
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<PAGE>
the fiscal years ended October 31, 1994, 1995 and September 30, 1996, the Funds
turnover rate was as follows:
TURNOVER RATE
----------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------
Ultra Large Cap * * *
Growth Fund
- --------------------------------------------------------------------------------
Growth Equity Fund 164.81% 177.86% 147.79%
- --------------------------------------------------------------------------------
Midcap Growth Fund * * *
- --------------------------------------------------------------------------------
Small Cap Growth 173.92% 183.49% 149.00%
Fund
- --------------------------------------------------------------------------------
Fixed Income Fund * * *
- --------------------------------------------------------------------------------
* Not in operation during such period.
On April 30, 1996, the Growth Equity Fund, the Small Cap Growth Fund and the
Fixed Income Fund acquired the assets of the Turner Growth Equity, Turner Small
Cap and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner
Circle Fund. The Brokerage Commissions paid for each Fund for the fiscal years
ended October 31, 1994, 1995 and September 30, 1996, was as follows:
Total Dollar Amount of Brokerage Commissions Paid
---------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------
Ultra Large * * *
Cap Growth
Fund
- -------------------------------------------------------------------------
Growth $497,901 $581,138 $369,573
Equity Fund
- -------------------------------------------------------------------------
Midcap * * *
Growth Fund
- -------------------------------------------------------------------------
Small Cap $22,495 $41,882 $128,154
Growth Fund
- -------------------------------------------------------------------------
Fixed Income * * *
Fund
- -------------------------------------------------------------------------
*Not in operation during such period.
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<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportion ate interest in that portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received by
the Trust for shares of any portfolio and all assets in which such consideration
is invested would belong to that portfolio and would be subject to the
liabilities related thereto. Share certificates representing shares will not be
issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust, and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
As of January 6,1997, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
S-21
<PAGE>
Growth Equity Fund
Name and Address Number of Shares Percent of Funds
- ---------------- ---------------- ----------------
Saul & Co. 905,399.48 12.69%
FBO Sheet Metal Annuity
c/o First Union National Bank
A/C 154600537
401 South Tryon Street CMG-1151
Charlotte, NC 28202-1911
Retirement Plan for Employees of 683,904.23 9.59%
Bridgeport Hospital
c/o People's Bank Trust Department
850 Main Street, 13th Floor
Bridgeport, CT 06604-4917
Citicorp USA Inc. Pledgee 582,077.38 8.16%
McNeil Children's Trust
Loan Collateral Account
c/o Carole McNeil
P.O. Box 803598
Dallas, TX 75380-3598
Plumbers Local Union #690 558,315.37 7.83%
Pension Fund
2791 Southampton Road
Philadelphia, PA 19154-1296
Corestates Bank NA TTEE 547,876.45 7.68%
Montgomery, McCracken,
Walker & Rhoads
Retirement Plan 02320-07-A
P.O. Box 7829
Philadelphia, PA 19101-7829
Saxon & Co. TTEE 477,368.80 6.69%
FBO Duane Morris/Hecksher Trust
Account # 35 35 002 1029077
P.O. Box 7780-1888
Philadelphia, PA 19182
Society National Bank TTEE 365,956.26 5.13%
FBO Cleveland Botanical Garden
P.O. Box 94870
Cleveland, OH 44101-4870
S-22
<PAGE>
Small Cap Growth Fund
Charles Schwab & Co. Inc 1,845,638.27 50.82%
Special Customer Account
FBO of Customers
Attn: Mutual Funds/Team A
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin Jenrette Secs Corp. 531,997.00 14.65%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07399-0001
Midcap Growth Fund
Wachovia Bank of NC NA 33,827.13 18.96%
Investment Advice IRA Master Plan
A/C for H. Vann Austin
A/C #33-86003-00 NC-31057
301 North Main Street P.O. Box 3073
Winston Salem, NC 27160-0001
Wachovia Bank of NC Customer 26,582.61 14.90%
for H. Vann Austin Trust
DTD 08-18-1995
U/A with H. Vann Austin
P.O. Box 3073 NC 31057
Winston Salem, NC 27150-0001
Mark D. Turner 26,483.62 14.85%
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312-2414
Mark D. Turner & 20,021.09 11.22%
Christina M. Turner JTWROS
Attn: Mark Turner
1235 Westlakes Drive, Suite 1235
Berwyn, PA 19312-2407
Charles Schwab & Co. Inc. 13,313.44 7.46%
Special Customer Acct.
FBO of Customers
Attn: Mutual Funds/Team A
101 Montgomery Street
San Francisco, CA 94104-4122
S-23
<PAGE>
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended September 30, 1996,
including notes thereto and the report of Ernst & Young LLP thereon, are herein
incorporated by reference. The unaudited financial statements for the Ultra
Large Cap Growth and Midcap Growth Funds including notes thereto, are herein
incorporated by reference. A copy of the 1996 Annual Report must accompany the
delivery of this Statement of Additional Information.
S-24
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or 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. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's 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. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
A-1
<PAGE>
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Bonds rated A by Fitch are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB by Fitch are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1+, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a "very
strong" degree of safety regarding timely payment. Those rated A-2, the second
highest rating category, reflect a satisfactory degree of safety regarding
timely payment but not as high as A-1.
A-2
<PAGE>
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated A1+
are supported by the highest capacity for timely repayment. Obligations rated
A2, the second highest rating, are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
