AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
File No. 333-00641
File No. 811-07527
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 8
------------------------------
and
REGISTRATION STATEMENT UNDER
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 9
---------------
TIP FUNDS
(formerly, Turner Funds)
(Exact Name of Registrant as Specified in Charter)
c/o The CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (610) 251-0268
(Name and Address of Agent for Service)
STEPHEN KNEELEY
TURNER INVESTMENT PARTNERS, INC.
1235 WESTLAKES DR., SUITE 350
BERWYN, PENNSYLVANIA 19312-2414
Copies to:
JAMES W. JENNINGS, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
2000 ONE LOGAN SQUARE 1800 M STREET, NW
PHILADELPHIA, PENNSYLVANIA 19103 WASHINGTON, DC 20036
- ------------------------------------------------------------------------
It is proposed that this filing become effective (check appropriate box):
___ immediately upon filing pursuant to paragraph (b)
___ on [date] pursuant to paragraph (b)
_X_ 60 days after filing pursuant to paragraph (a)
___ on [date] pursuant to paragraph (a) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2)
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the Investment
Company Act of 1940 the Registrant has registered an indefinite number or amount
of its shares of beneficial interest under the Securities Act of 1933. The Rule
24f-2 Notice for the Registrant's fiscal year ended September 30, 1996 was filed
on November 27, 1996.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TIP FUNDS
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
- -----------------------------------------------------------------------------------------------------------------------------------
PART A -
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information N/A
Item 4. General Description of Registrant The Trust and the Funds; Investment Objectives; Invest
ment Policies; Risk Factors; Investment Limitations;
General Information - The Trust
Item 5. Management of the Fund General Information-Trustees of the Trust; The Adviser;
The Administrator; The Transfer Agent; The Distributor;
Portfolio Transactions; Expense Summary
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities General Information-Voting Rights; General Infor-
mation-Shareholder Inquiries; General Information-Divi
dends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *
PART B -
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Trust
Item 13. Investment Objectives and Policies Investment Objectives (Prospectus); Investment Poli-
cies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Trust (Prospec-
tus); Trustees and Officers of the Trust; The Admin-
istrator
Item 15. Control Persons and Principal Trustees and Officers of the Trust;
Holders of Securities 5% Shareholders
Item 16. Investment Advisory and Other The Adviser (Prospectus and Statement of Additional
Services Information); The Administrator (Prospectus and
Statement of Additional Information); The
Distributor (Prospectus and Statement of Additional
Information); The Transfer Agent (Prospectus);
General Information - Counsel and Independent Public
Accountants (Prospectus); Experts; General
Information - Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions (Prospectus); Portfolio Trans-
actions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing Purchase and Redemption of Shares
of Securities Being Offered (Prospectus); Purchase and Redemption of Shares; Deter
mination of Net Asset Value;
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Yield and Total Return
Item 23. Financial Statements Financial Information
</TABLE>
<PAGE>
Part C -
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration
Statement.
* Included in Registrant's Annual Report to Shareholders
iii
<PAGE>
TIP FUNDS
Investment Adviser:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TIP 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 funds (each a "Fund" and, together, the "Funds"),
which are separate series of the Trust:
PENN CAPITAL SELECT FINANCIAL SERVICES FUND
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
PENN CAPITAL VALUE PLUS FUND
This Prospectus concisely sets forth the information about the Trust and the
Funds 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 October 10, 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.
THE STRATEGIC HIGH YIELD FUND INVESTS PRIMARILY, AND MAY INVEST ALL OF ITS
ASSETS, AND THE VALUE PLUS FUND INVESTS A SIGNIFICANT PORTION OF ITS ASSETS, IN
LOWER RATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." THESE SECURITIES ARE
SPECULATIVE AND ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST
THAN INVESTMENTS IN HIGHER RATED BONDS. BECAUSE INVESTMENT IN SUCH SECURITIES
ENTAILS GREATER RISKS, INCLUDING RISK OF DEFAULT, AN INVESTMENT IN THE STRATEGIC
HIGH YIELD FUND OR VALUE PLUS FUND SHOULD NOT CONSTITUTE A COMPLETE INVESTMENT
PROGRAM AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS. INVESTORS SHOULD CAREFULLY
CONSIDER THE RISKS POSED BY AN INVESTMENT IN THE STRATEGIC HIGH YIELD FUND OR
THE VALUE PLUS FUND BEFORE INVESTING. "SEE INVESTMENT OBJECTIVES AND POLICIES,"
"RISK FACTORS" AND THE "APPENDIX."
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.
October 10, 1997
<PAGE>
TABLE OF CONTENTS
Summary .................................................................... 3
Expense Summary ............................................................ 6
The Trust and the Funds .................................................... 7
Investment Objectives ...................................................... 7
Investment Policies ........................................................ 7
Risk Factors ............................................................... 10
Investment Limitations ..................................................... 13
The Adviser ................................................................ 13
The Administrator .......................................................... 15
The Transfer Agent ......................................................... 16
The Distributor ............................................................ 16
Portfolio Transactions ..................................................... 16
Purchase and Redemption of Shares .......................................... 17
Performance ................................................................ 20
Taxes ...................................................................... 21
General Information ........................................................ 23
Description of Permitted Investments and Risk Factors ...................... 24
-2-
<PAGE>
SUMMARY
The following provides basic information about the Penn Capital Select Financial
Services Fund (the "Select Financial Services Fund"), the Penn Capital Strategic
High Yield Bond Fund (the "Strategic High Yield Fund"), and the Penn Capital
Value Plus Fund (the "Value Plus Fund") (collectively, the "Funds"). The Funds
are three of the eleven mutual funds comprising TIP 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 Funds' investment objectives and primary policies?
Penn Capital Select Financial Services Fund
The Select Financial Services Fund seeks to generate long term capital
appreciation. The Fund invests primarily in equity securities of companies
principally engaged in the banking and financial services industries, and will
concentrate its investments in the banking industry. The banking industry
includes commercial and industrial banks, savings and loan associations and
their holding companies. The financial services industry includes consumer and
industrial finance companies, diversified financial service companies,
investment banking, securities brokerage and investment advisory companies,
leasing companies and insurance companies and other financial services
companies.
Penn Capital Strategic High Yield Bond Fund
The Strategic High Yield Fund seeks to maximize income through high current
yield and, as a secondary objective, to produce above average capital
appreciation. The Fund invests primarily in a diversified portfolio of high
yield bonds and other high yield securities.
Penn Capital Value Plus Fund
The Value Plus Fund seeks to achieve capital appreciation and above average
income with less risk than the average risk of the Standard & Poor's S&P 500
Index ("S&P 500 Index"). Generally, one third of the Fund's assets will be
invested in large cap value equity securities, one third invested in small cap
value equity securities and one third invested in bonds (primarily high yield
securities) in order to generate interest income.
What are the risks involved with investing in the Funds? The investment policies
of the Funds entail certain risks and considerations of which investors should
be aware. The Select Financial Services and Value Plus Funds will be exposed to
the risks of investing in equity securities, including equity securities of
small cap issuers (i.e., issuers with market capitalizations of less than $1
billion). Investments in smaller companies involve greater risks than
investments in larger, more established companies. The Select Financial Services
Fund will focus its investments in the U.S. banking and financial services
industries, and will be concentrated in the banking industry (i.e., at least 25%
(and up to 100%) of its total assets will be invested in the banking industry).
Although diversified
-3-
<PAGE>
throughout these industries, to the extent that it invests a significant portion
of its assets in the banking and financial services industries, it is subject to
the risks associated with investing in issuers in those industries. The
Strategic High Yield Fund invests in non-investment grade fixed income
securities that have speculative characteristics. In addition, to varying
degrees, the Funds may borrow money and utilize leveraging techniques. The Funds
may invest in securities that fluctuate in value, and investors should expect
each Fund's net asset value per share to fluctuate in value. The value of equity
securities may be affected by the financial markets as well as by developments
impacting specific issuers. 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 Funds' high
yield securities may be volatile and are subject to greater amounts of credit
risk than investment grade issuers.
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? Penn Capital Management Company, Inc. (the "Adviser") serves
as the investment adviser to the Funds. 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 Funds. See "Expense
Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Funds' 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 Funds are offered on a no-load basis.
Is there a minimum investment? The Funds require a minimum initial investment of
$2,500 ($2,000 for IRAs), which the Distributor may waive at its discretion.
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 Funds distribute substantially all of their net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least
-4-
<PAGE>
annually. Distributions are paid in additional shares unless the shareholder
elects to take the payment in cash. See "Dividends and Distributions."
-5-
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases .......................................... None
Sales Load Imposed on Reinvested Dividends ............................... None
Deferred Sales Load ...................................................... None
Redemption Fees(1) ....................................................... None
Exchange Fees ............................................................ None
- --------------------------------------------------------------------------------
(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)
- --------------------------------------------------------------------------------
Strategic Value
Select Financial High Yield Plus
Services Fund Fund Fund
---------------- ---------- ------
Advisory Fees (after
fee waivers)(1) .99% .75% .99%
12b-1 Fees None None None
Other Expenses (after expense
reimbursements, if applicable)(2) .41% .25% .41%
Total Operating Expenses (after ----- ----- -----
fee waivers or expense reimbursements)(3) 1.40% 1.00% 1.40%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fee to
the extent necessary to keep the "Total Operating Expenses" of the Select
Financial Services, Strategic High Yield and Value Plus Funds during the
current fiscal year from exceeding 1.40%, 1.00% and 1.40%, respectively.
Absent these fee waivers, Advisory Fees would be 1.00%, .75% and 1.00%,
respectively. The Adviser reserves the right to terminate its waivers at
any time in its sole discretion.
(2) Absent expense reimbursements by the Adviser, "Other Expenses" for the
Strategic High Yield Fund would be .41%. "Other Expenses" for the Funds are
estimated for the current fiscal year.
(3) Absent fee waivers or expense reimbursements, "Total Operating Expenses"
for the Select Financial Services, Strategic High Yield and Value Plus
Funds would be 1.41%,1.16% and 1.41%, respectively, based on current
expectations and assumptions.
EXAMPLE
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 1 years 3 years
investment in the Fund assuming (1) a 5% annual return ------- -------
and (2) redemption at the end of each time period.
Select Financial Services Fund $14 $44
Strategic High Yield Fund $10 $32
Value Plus Fund $14 $44
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUNDS AFTER WAIVERS,
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 Funds. Additional
information may be found under "The Adviser" and "The Administrator."
-6-
<PAGE>
THE TRUST AND THE FUNDS
TIP Funds (the "Trust") offers shares in eleven 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 Penn Capital Select Financial Services
Fund (the "Select Financial Services Fund"), the Penn Capital Strategic High
Yield Bond Fund (the "Strategic High Yield Fund"), and the Penn Capital Value
Plus Fund (the "Value Plus Fund") (collectively, the "Funds").
INVESTMENT OBJECTIVE
Penn Capital Select Financial Services Fund -- The Select Financial Services
Fund seeks to generate long term capital appreciation.
Penn Capital Strategic High Yield Bond Fund --The Strategic High Yield Fund
seeks to maximize income through high current yield and, as a secondary
objective, to produce above average capital appreciation.
Penn Capital Value Plus Fund -- The Value Plus Fund seeks to achieve capital
appreciation and above average income with less risk than the average risk of
the S&P 500 Index.
There can be no assurance that the Funds will achieve their investment
objective.
INVESTMENT POLICIES
Penn Capital Select Financial Services Fund
The Select Financial Services Fund invests primarily (and, under normal
conditions, at least 65% of its total assets) in the equity securities of
companies principally engaged in the banking and financial services industries.
At least 25% (and up to 100%) of the Fund's total assets will be invested in
issuers in the banking industry. To the extent its investments are concentrated
in the banking industry, the Fund is subject to the risks associated with that
industry, including sensitivity to interest rate changes and potentially adverse
legislative and regulatory changes. Examples of companies in the banking
industry include commercial and industrial banks, savings and loan associations
and their holding companies. Examples of companies in the financial services
sector include investment advisers, brokerage companies, insurance companies,
real estate and leasing companies and companies that span across these segments.
Generally speaking, the Fund will hold a diversified portfolio of companies with
strong fundamentals, many of which the Adviser believes hold the potential to be
acquired at a premium to their trading prices, measured at the time of their
original acquisition by the Fund (takeover candidates). Any remaining assets may
be invested in equity securities and fixed income securities, warrants and
rights to purchase common stocks, and in ADRs. The Fund may also purchase shares
of other investment companies and foreign securities, and may purchase high
yield securities (otherwise known as "junk
-7-
<PAGE>
bonds") as a means of seeking to generate current income.
The Fund may invest in non-rated securities or in securities rated in the lowest
ratings categories established by the Standard & Poor's Corporation ("S&P")
and/or Moody's Investors Service, Inc. ("Moody's"). Securities rated below
investment grade will not constitute more than 15% of the Select Financial
Services Fund's total assets. See Appendix A for a discussion of these ratings.
Penn Capital Strategic High Yield Bond Fund -- The Strategic High Yield Fund
invests primarily (and, under normal conditions, at least 65% of its total
assets) in a diversified portfolio of high yield securities (otherwise known as
"junk bonds"). Securities and other financial instruments of issuers that may or
may not be paying interest on a current basis and that are currently
experiencing financial difficulties including, potentially, companies which are
undergoing or are likely to undergo financial restructuring or liquidation, both
under and outside of Federal Bankruptcy Code proceedings, are also included in
the high yield universe and may be acquired by the Fund. The Fund invests
primarily in publicly traded securities, and, to a lesser extent, privately
placed restricted securities and other financial instruments for which there is
a more limited trading market.
The Adviser believes that the market for high yield securities is relatively
inefficient compared to other securities due to the limited availability of
information on such securities, the lack of extensive institutional research
coverage of and market making activity with respect to many issuers of such
securities, the complexity and difficulty of evaluation of such securities and
the limited liquidity, at times, of such securities. The Adviser intends to
exploit these inefficiencies using its knowledge and experience in the high
yield market. The Adviser seeks to reduce risk through diversification, credit
analysis and attention to current developments and trends in both the economy
and financial markets.
The Fund will invest in securities rated BB or Ba or lower by S&P and/or Moodys,
but may invest in non-rated securities or in securities rated as low as the
lowest ratings categories established by S&P and/or Moody's. See Appendix A for
a discussion of these ratings.
Any remaining assets may be invested in equity securities and investment grade
fixed income securities. In addition, to a limited extent, the Fund will
selectively utilize leverage in order to seek to further increase the Fund's
yield, and may borrow money in connection with interest rate arbitrage
transactions.
Penn Capital Value Plus Fund -- The Value Plus Fund invests primarily (and,
under normal conditions, at least 65% of its total assets) in a diversified
portfolio of equity securities that may or may not pay dividends but whose main
contribution to total return is intended from capital appreciation. The "value"
equity securities the Fund will purchase will tend to have a low price to
earnings ratio relative to the securities' market prices. The Fund will invest
any remaining assets in fixed-income securities, cash and money market
instruments, and may invest up to 35% of its assets in high yield securities.
The Fund seeks to provide, through a combination of income and capital
appreciation, a total return
-8-
<PAGE>
consistent with a reasonable level of risk by investing in value equity
securities and in fixed income obligations, including high yield securities. The
Fund strives to secure a current yield appreciably higher than the average
dividend yield of the companies comprising the S&P 500 Index. Typically,
portfolios with high current income also exhibit less volatility and superior
returns in down markets. The Fund actively seeks opportunity and value in all
parts of a company's capital structure, including common and preferred stocks,
as well as investment grade and high yield corporate and convertible bonds.
Typically, one-third of the Fund's assets will be invested in large cap value
equity securities (i.e., securities of issuers with market capitalizations of
over $1 billion), one third in small cap value equity securities (i.e.,
securities of issuers with market capitalizations of less than $1 billion) and
one third in bonds (primarily high yield securities) in order to generate
interest income. The Fund's exposure to high yield bonds will not exceed 35% of
its total assets.
The Fund will invest primarily in publicly-traded securities, yet will maintain
the right to purchase private securities for which there is a more limited
trading market. The Fund generally seeks diversity both in terms of industries
and issuers, but may invest relatively high proportions of its assets in a
single industry or issuer. The Fund will also from time to time invest in the
securities of companies engaged in an initial public offering.
The fixed income investments of the Fund consist primarily, but not exclusively,
of cash paying, high yield corporate bonds. The Fund may invest in non-rated
securities or in securities rated in the lowest ratings categories established
by S&P and/or Moody's. See Appendix A for a discussion of the these ratings.
For a further description of these types of instruments see "Description of
Permitted Investments and Risk Factors" in the Statement of Additional
Information.
ALL FUNDS
Each Fund may invest in repurchase agreements, which entail a risk of loss
should the seller default on its obligation to repurchase the security which is
the subject of the transaction.
Each Fund may participate in a securities lending program which entails a risk
of loss should a borrower fail financially.
Each Fund may, although they have no present intention to do so, invest a
portion of its assets in derivatives, including futures, options, forwards and
swaps. Futures contracts, options, options on futures contracts, forwards and
swaps entail certain costs and risks, including imperfect correlation between
the value of the securities held by a Fund and the value of the particular
derivative instrument, and the risk that the Fund could not close out a futures
or options position when it would be most advantageous to do so.
Each Fund may invest in certain instruments such as certain types of mortgage
securities and when-issued securities, and may, to a limited extent, borrow
money and utilize leveraging techniques. In
-9-
<PAGE>
addition, the Strategic High Yield Fund will utilize leverage and borrow money
in order to achieve its investment objective. These investments and techniques,
along with certain transactions involving futures, options, forwards and swaps,
require a Fund to segregate some or all of its cash or liquid securities to
cover its obligations pursuant to such instruments or techniques. As asset
segregation reaches certain levels, a Fund may lose flexibility in managing its
investments properly, responding to shareholder redemption request, or meeting
other obligations and may be forced to sell other securities that it wanted to
retain or to realize unintended gains or losses.
Investments in floating rate securities (floaters) and inverse floating rate
securities (inverse floaters) and mortgage-backed securities (mortgage
securities), including principal-only and interest-only stripped mortgage-backed
securities (SMBs), may be highly sensitive to interest rate changes, and highly
sensitive to the rate of principal payments (including prepayments on underlying
mortgage assets).
Each Fund may also invest in federal, state and municipal government
obligations, investment grade corporate bonds, foreign securities, including
emerging market securities, zero coupon, pay-in-kind and deferred payment bonds,
variable and floating rate securities, money market instruments, shares of other
investment companies and cash equivalents, and may invest up to 20% of its
assets in American Depository Receipts (ADRs).
Each Fund may invest up to 15% of its net assets in illiquid securities, and for
temporary defensive purposes, may 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) and shares of
money market investment companies and may hold a portion of its assets in cash.
RISK FACTORS
Prospective investors in the Funds should consider the following factors as they
apply to each Fund's allowable investments and policies.
Equity Securities -- The Funds may invest in public and privately issued equity
securities, including common and preferred stocks, warrants, rights to subscribe
to common stock and convertible securities. Investments in equity securities in
general are subject to market risks that may cause their prices to fluctuate
over time. The value of securities convertible into equity securities, such as
warrants or convertible debt, is also affected by prevailing interest rates, the
credit quality of the issuer and any call provision. Fluctuations in the value
of equity securities in which a Fund invests will cause the net asset value of
that Fund to fluctuate. An investment in such funds may be more suitable for
long-term investors who can bear the risk of short-term principal fluctuations.
The Funds may invest to a significant degree in equity securities of smaller
institutions, including, but not limited to, those within the banking and
financial services industries. Any investment in smaller or medium
capitalization companies involves greater risk than that customarily associated
with
-10-
<PAGE>
investments in larger, more established companies. This increased risk may be
due to the greater business risks of smaller size, limited markets and financial
resources, narrow product lines and lack of depth of management. The securities
of smaller companies are often traded in the over-the-counter market and if
listed on a national securities exchange may not be traded in volumes typical
for that exchange. Thus, the securities of smaller-sized companies are likely to
be less liquid, and subject to more abrupt or erratic market movements than
securities of larger, more established companies.
Banking and Financial Services Industries -- To the extent that the Select
Financial Services Fund invests a significant percentage of its assets in the
banking and financial services industries, it is subject to risks associated
with those industries. The companies within the banking and financial services
industries are subject to extensive regulation, rapid business changes, volatile
performance dependent upon the availability and cost of capital and prevailing
interest rates, and significant competition. General economic conditions
significantly affect these companies. Credit and other losses resulting from the
financial difficulty of borrowers or other third parties have a potentially
adverse effect on companies in this industry. Investment banking, securities
brokerage and investment advisory companies are particularly subject to
government regulation and the risks inherent in securities trading and
underwriting activities. Insurance companies are particularly subject to
government regulation and rate setting, potential anti-trust and tax law
changes, and industry-wide pricing and competition cycles. Property and casualty
insurance companies may also be affected by weather and other catastrophes. Life
and health insurance companies may be affected by mortality and morbidity rates,
including the effects of epidemics. Individual insurance companies may be
exposed to reserve inadequacies, problems in investment portfolios and failures
to reinsurance carriers.
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.
Investment grade bonds include securities rated BBB by S&P or Baa by Moody's,
which may be regarded as having speculative characteristics as to repayment of
principal. If a security is downgraded, the Adviser will review the situation
and take appropriate action.
High Yield Securities -- High yield securities include, but are not limited to,
bonds and preferred stock paying current cash coupons or dividends,
payment-in-kind bonds and preferred stock, zero coupon bonds, interests in term
loans and in revolving credit facilities (or combinations thereof), convertible
securities, units of bonds and warrants or stock, and other securities and
financial
-11-
<PAGE>
instruments, including those on which the issuer is unable to pay stated
dividends or interest payments on a current basis. Investments in high yield
securities involve market risks, credit risks and call risks. Market risks
relate to general interest rate fluctuations. As the general level of interest
rates rise, the market price of medium and long-term securities to general
interest rates fluctuates. High yield securities are generally medium term bonds
and therefore are less sensitive than long-term securities to general interest
rate fluctuations. Credit risks relate to the continuing ability of the issuer
of a security to pay the stated interest or dividends and ultimately to repay
principal upon maturity. Discontinuation of such payments could substantially
adversely affect the market price of the security. Call risks arise from early
call features that many high-yield securities contain. In addition, the Funds
may invest in securities on which the issuer is not currently paying the full
amount, or any, of the stated interest or dividends.
The high yield market consists primarily of fixed income securities that are not
rated or that are rated below investment grade (i.e., Ba or lower rating by
Moody's and/or BB+ or lower by S&P), including securities of issuers subject to
proceedings under the Federal Bankruptcy Code. The market for such securities is
relatively inefficient due to its complexity and the limited availability of
information on such securities. Most of these securities pay high current yield,
which provides a cushion against potential price volatility so long as current
payments are continued.
Securities of Foreign Issuers -- The Funds may invest in securities of foreign
issuers with a strong U.S. trading presence and in sponsored and unsponsored
ADR's. Investments in the securities of foreign issuers may subject the Funds 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 Funds' assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and the Funds may incur
costs in connection with conversions between various currencies. Moreover,
investments in emerging market nations may be considered speculative, and there
may be a greater potential for nationalization, expropriation or adverse
diplomatic developments (including war) or other events which could adversely
effect the economies of such countries or investments in such countries.
Portfolio Turnover -- The annual portfolio turnover rate for the Select
Financial Services Fund, under normal circumstances, is not expected to exceed
200%. The annual turnover rate for the Strategic High Yield Fund, under normal
circumstances, is not expected to exceed 200%. Under normal circumstances, the
annual turnover rate for the Value Plus Fund is not expected to exceed 200%. An
annual portfolio turnover rate in excess of 100% may result from the Adviser's
investment
-12-
<PAGE>
strategy or from prevailing market conditions. 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 objectives of the Funds and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Funds. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. Each 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 each
Fund's total assets.
2. The Funds, except the Select Financial Services Fund, may not purchase any
securities which would cause 25% or more of the total assets of such 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 obligations issued or guaranteed by the U.S. Government or its agencies
and instrumentalities and repurchase agreements involving such securities, or
with respect to the Select Financial Services Fund, obligations of issuers in
the banking industry.
3. Each Fund may not 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 a Fund to purchase securities or require a Fund
to segregate assets are not considered to be borrowings. Asset coverage of at
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.
The foregoing percentages (except the limitation on borrowing) will apply at the
time of the purchase of a security.
THE ADVISER
Penn Capital Management Company, Inc. ("Penn Capital" or the "Adviser"), 52
Haddonfield-Berlin Road, Suite 1000, Cherry Hill, New Jersey 08034, is a
professional investment management firm founded in 1987 and registered as an
investment adviser under the Investment Advisers Act. Richard A. Hocker is a
founding partner and Chief Investment Officer of the Adviser, an investment
management firm that manages the investment portfolios of institutions and high
net worth individuals and which currently has assets under management of
approximately $____ million. The Adviser
-13-
<PAGE>
employs a staff of 17 and manages monies in a variety of investment styles
through either separate account management or one of its private investment
funds.
The Adviser serves as the investment adviser for the Funds under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of the Funds and
continuously reviews, supervises and administers the Funds' investment programs,
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 1.00% of the average daily net assets of
the Select Financial Services Fund, .75% of the average daily net assets of the
Strategic High Yield Fund, and 1.00% of the average daily net assets of the
Value Plus Fund. The Adviser has voluntarily agreed to waive all or a portion of
its fee and to reimburse expenses of the Select Financial Services, Strategic
High Yield and Value Plus Funds in order to limit their total operating expenses
(as a percentage of average daily net assets on an annualized basis) to not more
than 1.40%, 1.00% and 1.40%, respectively. The Adviser reserves the right, in
its sole discretion, to terminate these voluntary fee waivers and reimbursements
at any time.
The Funds are managed by a team consisting of certain principals of the Adviser.
The Select Financial Services and Value Plus Funds are managed by Richard A.
Hocker. Scott D. Schumacher, a Senior Analyst, assists Mr. Hocker in managing
the Select Financial Services and Value Plus Funds. The Strategic High Yield
Fund is co-managed by Richard A. Hocker and Kathleen A. News.
Prior to founding the Adviser, Mr. Hocker was a shareholder and Senior Portfolio
Manager of Delaware Management Co., an investment management firm which, during
Mr. Hocker's tenure, increased its assets under management from $300 million to
$21 billion. At Delaware Management Co., Mr. Hocker was instrumental in
developing and managing a variety of mutual funds, including Delchester Bond
Fund and Delaware Cash Reserve, and where he personally managed, at its height,
approximately $2 billion of assets. Additionally, Mr. Hocker is the founder and
Chairman of the Board of Covenant Bank, a community bank based in Haddonfield,
N.J., with approximately $435 million in assets. As Chairman of Covenant Bank,
Mr. Hocker has been the senior negotiator for acquisitions of three financial
institutions, as well as the purchases of individual branches of regional banks
that Covenant Bank has completed since 1992.
Kathleen A. News, a co-founder of the Adviser, serves as the Managing Director
of the Adviser and co-portfolio manager of the Strategic High Yield Fund. Ms.
News has over 20 years of investment experience at both the Adviser and Delaware
Management Co., including over 10 years managing high yield portfolios. While at
Delaware, Ms. News served as a portfolio manager for Delaware Cash Reserve, as
well as managing fixed income accounts for various Fortune 500 institutions.
Scott D. Schumacher, a Senior Analyst of the Adviser, assists Mr. Hocker in
managing the Select Financial Services and Value Plus Funds. He has been
employed by the Adviser since 1987. Mr.
-14-
<PAGE>
Schumacher began working with the investment team in 1992. As the Adviser's
senior analyst, Mr. Schumacher is directly responsible for researching the
financial services sector and monitoring credit positions of existing accounts.
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 minimum
fee from each Fund of $75,000. Once a Fund's assets reach $62.5 million, it will
be charged its asset-based fee, which is calculated daily and paid monthly, at
an annual rate of .12% of each 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
-15-
<PAGE>
$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 Street, 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.
Certain broker-dealers assist their clients in the purchase of shares from the
Distributor and charge a fee for this service in addition to the Funds' public
offering price.
PORTFOLIO TRANSACTIONS
The Funds may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. The Adviser obtains its research information from a number of
sources, including large brokerage houses, trade and financial journals and
publications, corporate reports, rating service manuals, and interviews with
corporate executives and other industry sources. The Adviser may select brokers
on the basis of the research, statistical and pricing services they provide to a
Fund, as well as on the basis of the Adviser's business relationship with the
brokers. A commission paid to such brokers may be higher than that which another
qualified broker would have charged for effecting the same transactions,
provided that such commissions are in compliance with the Securities Exchange
Act of 1934, as amended, and that the Adviser determines in good faith that the
commission is reasonable in terms of either the transaction or the overall
responsibility of the Adviser to the Funds and the Adviser's other clients. The
Adviser may direct commission business for the Funds to designated
broker-dealers (including the Distributor) in connection with such
broker-dealers' payment of certain Fund expenses.
Since shares of the Funds are not marketed through intermediary broker-dealers,
the Funds do 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. However, the Adviser may place orders for the Funds
with qualified broker-dealers who refer clients to the Funds.
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
-16-
<PAGE>
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 Funds 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 Funds may be made on any
Business Day.
The minimum initial investment in each 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 Funds' public offering price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Funds) for $2,500 or more ($2,000 for IRAs), 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 check
providing for the investment being redeemed has cleared (which may take up to 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 a 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:
[______________________Fund]. The shareholder's name and account number must be
specified in the wire.
-17-
<PAGE>
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
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 each 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 Funds calculated to
three decimal places. The Trust will not issue certificates representing shares
of the Funds.
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.
Shares of each Fund may be purchased in exchange for securities to be included
in that Fund, subject to the Adviser's or Administrator's determination that
these securities are acceptable. Securities accepted in such an exchange will be
valued at their market value. All accrued interest and subscription or other
rights that are reflected in the market price of accepted securities at the time
of valuation become the property of that Fund and must be delivered by the
shareholder to that Fund upon receipt from the issuer.
The Adviser or Administrator will not accept securities in exchange for Fund
shares unless (1) such securities are appropriate for the Fund at the time of
the exchange; (2) the shareholder represents and agrees that all securities
offered to the Fund are not subject to any restrictions upon their sale by the
Fund under the Securities Act of 1933, as amended, or otherwise; and (3) prices
are available from an independent pricing service approved by the Trust's Board
of Trustees.
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
-18-
<PAGE>
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 Funds 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 Funds 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 Funds, 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
each Fund is the net asset value per share of such 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 Funds by
Federal Reserve wire on Federal holidays restricting wire transfers. The Funds
do 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.
-19-
<PAGE>
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.
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 - Each 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 each 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 Funds may advertise 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 a Fund refers to the annualized income generated by an
investment in that 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.
-20-
<PAGE>
The total return of a 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 Funds may periodically compare their 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 Funds
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 Funds 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 Funds'
portfolios. The Funds 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 Funds may
also quote financial and business publications and periodicals as they relate to
fund management, investment philosophy, and investment techniques.
The Funds 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 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 Funds:
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Funds intend 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 a 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
-21-
<PAGE>
excess of net long-term capital gain over net short-term capital loss) which it
distributes to shareholders.
Tax Status of Distributions:
Each Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from a Fund's
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. Any net capital gains will be distributed annually and will be
taxed to shareholders as gains from the sale of exchange of a capital asset held
for more than one year, regardless of how long the shareholder has held shares.
The Funds 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 Funds are sold with original issue discount
and thus do not make periodic cash interest payments. The Funds will be required
to include as part of their current income the accrued discount on such
obligations even though the Funds have not received any interest payments on
such obligations during that period. Because the Funds distribute all of their
net investment income to shareholders, the Funds 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.
Dividends declared by the Funds 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 Funds and received by the shareholders on
December 31 in the year declared, if paid by the Funds at any time during the
following January. The Funds intend 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 Funds and may be exempt, depending on
the state, when received by a shareholder from a Fund provided certain
state-specific conditions are satisfied. The Funds 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 a Fund is considered tax
exempt in their particular state. Income derived by a Fund from securities of
foreign issuers may be subject to foreign withholding taxes. The Funds 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 a Fund's shares is a taxable event to the
shareholder.
-22-
<PAGE>
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. 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 Funds. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
-23-
<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 each
Fund is distributed in the form of dividends at least annually. 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 Funds 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 Funds:
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
-24-
<PAGE>
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.
BORROWING -- The Funds may borrow money equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. Borrowing may
exaggerate changes in the net asset value of a Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
a Fund's assets may change in value during the time the borrowing is
outstanding. A Fund may be required to liquidate portfolio securities at a time
when it would be disadvantageous to do so in order to make payments with respect
to any borrowing. The Funds may be required to segregate liquid assets in an
amount sufficient to meet their obligations in connection with such borrowings.
In addition, the Strategic High Yield Fund may borrow to leverage its portfolio.
Such borrowings may take the form of a margin account or a conventional bank
borrowings in connection with securities purchases or interest rate arbitrage
transactions. In an interest rate arbitrage transaction, the Fund borrows money
at one interest rate and lends the proceeds at another, higher interest rate.
These transactions involve a number of risks, including the risk that the
borrower will fail or otherwise become insolvent or that there will be a
significant change in prevailing interest rates.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics of both fixed income and
equity securities. Because of the conversion feature, the market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Fund may also enter
into a contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of a Fund's securities denominated in such foreign currency.
HIGH YIELD SECURITIES -- Securities rated below investment grade are often
referred to as
-25-
<PAGE>
"junk bonds." Fixed income securities are subject to the risk of an issuer's
ability to meet principal and interest payments on the obligation (credit risk),
and may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Lower rated or unrated (i.e., high yield)
securities are more likely to react to developments affecting market and credit
risk than are more highly rated securities, which primarily react to movements
in the general level of interest rates. The market values of fixed-income
securities tend to vary inversely with the level of interest rates. Yields and
market values of high yield securities will fluctuate over time, reflecting no
only changing interest rates but the market's perception of credit quality and
the outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities are not generally meant for
short-term investing.
The high yield market is relatively new and its growth has paralleled a long
period of economic expansion and an increase in merger, acquisition and
leveraged buyout activity. Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the secondary market for more highly rated securities. As a result,
the Fund's adviser could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Furthermore the Trust may experience difficulty in valuing
certain securities at certain times. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect the Fund's net asset value and
investment practices, the secondary market value for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
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.
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 a Fund's books. Illiquid
-26-
<PAGE>
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.
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.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
loaned securities. A Fund continues to receive interest on the loaned securities
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
SHORT SALES -- A short sale is "against the box" if at all times during which
the short position is open, the Fund owns at least an equal amount of the
securities or securities convertible into, or exchangeable without further
consideration for, securities of the same issue as the securities that are sold
short.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities a Fund anticipates purchasing at a later date.
Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investment and their
share price and yield.
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
-27-
<PAGE>
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").
U.S. TREASURY RECEIPTS -- U.S. Treasury receipts are interests in separately
traded interest and principal component parts of U.S. Treasury obligations that
are issued by banks or brokerage firms and are created by depositing U.S.
Treasury obligations into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit of the registered
owners of the certificates of receipts. The custodian arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the register.
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 a
Fund before settlement.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT 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. Upon maturity, the holder
is entitled to receive the par value of the security. While interest payments
-28-
<PAGE>
are not made on such securities, holders of such securities are deemed to have
received "phantom income" annually. Because a Fund will distribute its "phantom
income" to shareholders, to the extent that shareholders elect to receive
dividends in cash rather than reinvesting such dividends in additional shares, a
Fund will have fewer assets with which to purchase income producing securities.
In the event of adverse market conditions, zero coupon, pay-in-kind and deferred
payment securities may be subject to greater fluctuations in value and may be
less liquid than comparably rated securities paying cash interest at regular
interest payment periods.
-29-
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds which are rated Aaa 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 by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
-30-
<PAGE>
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for the bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the U.S. Securities Act of 1933
or issued in conformity with any other applicable law or regulation. Nor does
Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
Investment Grade
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated 'BBB' 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.
Speculative Grade
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'C' the
-31-
<PAGE>
highest degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal payments.
The 'BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category
also is used for debt subordinated to senior debt that is assigned an
actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default, and
is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The 'CCC' rating
category also is used for debt subordinated to senior debt that is assigned
an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is being
paid.
D Debt is rated 'D' when the issue is in payment default, or the obligor has
filed for bankruptcy. The 'D' rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period
has not expired, unless S&P believes that such payments will be made during
such grace period.
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from AA- time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are more
variable and
A- greater in periods of economic stress.
-32-
<PAGE>
BBB+ Below average protection factors but still considered sufficient for
prudent investment.
BBB- Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
Present or BB prospective financial protection factors fluctuate according
to industry conditions or company fortunes.
BB- Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met
when due.
B Financial protection factors will fluctuate widely according to economic
cycles, industry conditions and/or company fortunes.
B- Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
Investment Grade Bond
AAA Bonds 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.
AA Bonds 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+'.
A Bonds 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.
BBB Bonds 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.
Speculative grade bond
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be
-33-
<PAGE>
affected over time by adverse economic changes. However, business and
financial alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest
potential for recovery on these bonds, and 'D' represents
the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used 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', 'DDD', 'DD', or 'D' categories.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is 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 substantially.
AA Obligations for which there is a very low expectation of investment risk.
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.
A Obligations for which there is a low expectation of investment risk.
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.
BBB Obligations for which there is currently a low expectation of investment
risk. 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
other categories.
BB Obligations for which there is a possibility of investment risk developing.
Capacity for timely repayment of principal and interest exists, but is
susceptible over time to adverse changes in business, economic
-34-
<PAGE>
or financial conditions.
B Obligations for which investment risk exists. Timely repayment of principal
and interest is not sufficiently protected against adverse changes in
business, economic or financial conditions.
CCC Obligations for which there is a current perceived possibility of default.
Timely repayment of principal and interest is dependent on favorable
business, economic or financial conditions.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
Notes:"+" or "-" may be appended to a rating to denote relative status within
major rating categories.
Ratings of BB and below are assigned where it is considered that
speculative characteristics are present.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
Investment Grade
AAA The highest category; indicates that the ability to repay principal and
interest on a timely basis is very high.
AA The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
A The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BBB The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB While not investment grade, the "BB" rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there
are significant uncertainties that could affect the ability to adequately
service debt obligations.
B Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments could
well negatively affect the payment of interest and principal on a timely
basis.
CCC Issues rated "CCC" clearly have a high likelihood of default, with little
capacity to address further
-35-
<PAGE>
adverse changes in financial circumstances.
CC "CC" is applied to issues that are subordinate to other obligations rated
"CCC" and are afforded less protection in the event of bankruptcy or
reorganization.
D Default
Ratings in the Long-Term Debt categories may include a plus (+) or minus (-)
designation, which indicates where within the respective category the issue is
placed.
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.
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.
-36-
<PAGE>
Trust:
TIP FUNDS
Funds:
PENN CAPITAL SELECT FINANCIAL SERVICES FUND
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
PENN CAPITAL VALUE PLUS FUND
Adviser:
PENN CAPITAL MANAGEMENT COMPANY, INC.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Auditors:
ERNST & YOUNG LLP
<PAGE>
TIP FUNDS
Penn Capital Select Financial Services Fund
Penn Capital Strategic High Yield Bond Fund
Penn Capital Value Plus Fund
Investment Adviser:
Penn Capital Management Company, Inc.
This Statement of Additional Information is not a prospectus and relates only to
the Penn Capital Select Financial Services Fund (the "Select Financial Services
Fund"), Penn Capital Strategic High Yield Bond Fund (the "Strategic High Yield
Fund") and Penn Capital Value Plus Fund (the "Value Plus 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 October 10, 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-11
THE ADVISER .................................................... S-13
THE ADMINISTRATOR .............................................. S-14
THE DISTRIBUTOR ................................................ S-14
TRUSTEES AND OFFICERS OF THE TRUST ............................. S-15
COMPUTATION OF YIELD AND TOTAL RETURN .......................... S-18
PURCHASE AND REDEMPTION OF SHARES .............................. S-18
DETERMINATION OF NET ASSET VALUE ............................... S-19
TAXES .......................................................... S-19
PORTFOLIO TRANSACTIONS ......................................... S-20
DESCRIPTION OF SHARES .......................................... S-22
SHAREHOLDER LIABILITY .......................................... S-22
LIMITATION OF TRUSTEES' LIABILITY .............................. S-23
FINANCIAL INFORMATION .......................................... S-23
October 10, 1997
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Penn Capital Select
Financial Services Fund (the "Select Financial Services Fund"), Penn Capital
Strategic High Yield Bond Fund (the "Strategic High Yield Fund") and Penn
Capital Value Plus Fund (the "Value Plus Fund") (each a "Fund" and, together,
the "Funds"). Each Fund is a separate, diversified series of the TIP Funds
(formerly, Turner Funds) (the "Trust"), an open-end management investment
company established as a Massachusetts business trust under a Declaration of
Trust dated January 26, 1996. 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." 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 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."
S-2
<PAGE>
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.
Investment Company Shares
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law. 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."
Lower-Rated Securities
S-3
<PAGE>
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.
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
S-4
<PAGE>
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 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.
Mortgage- and Asset-Backed Securities
The Funds may invest in mortgage-backed securities and asset-backed securities.
Two principal types of mortgage-backed securities are collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"),
which are rated in one of the top two categories by S&P or Moody's. CMOs are
securities collateralized by mortgages, mortgage pass-throughs, mortgage
pay-through bonds (bonds representing an interest in a pool of mortgages where
the cash flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). CMOs typically are issued
with a number of classes or series which have different maturities and which are
retired using cash flow from underlying collateral according to a specified
plan.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs
S-5
<PAGE>
issued or guaranteed by U.S. Government agencies or instrumentalities, the CMOs
themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
In addition to mortgage-backed securities, the Funds may invest in securities
secured by asset-backed securities including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with mortgage-backed
securities. In addition, credit card receivables are unsecured obligations of
card holders.
Obligations of Supranational Agencies
The Funds may purchase obligations of supranational agencies. Currently, the
Funds only intend to invest in obligations issued or guaranteed by the Asian
Development Bank, Inter-American Development Bank, International Bank for
Reconstruction and Development (World Bank), African Development Bank, European
Coal and Steel Community, European Economic Community, European Investment Bank
and Nordic Investment Bank.
Options
A put option on a security 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 on a security 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
S-6
<PAGE>
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 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 securities in an amount equal to the
amount the Fund would be required to pay upon exercise of the put.
S-7
<PAGE>
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 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 securities or indices must be covered. When a Fund writes
an option on an index or a security, 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.
REITS
The Funds may invest in real estate investment trusts ("REITs"), which pool
investors' funds for investment in income producing commercial real estate or
real estate related loans or interests.
A REIT is not taxed on income distributed to its shareholders or unitholders if
it complies with regulatory requirements relating to its organization,
ownership, assets and income, and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
for each taxable year. Generally, REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents
and capital gains from appreciation realized through property sales. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs. Shareholders in the Funds
should realize that by investing in REITs indirectly through the Funds, he or
she will bear not only his or her proportionate share of the expenses of the
Fund, but also indirectly, similar expenses of underlying REITs.
S-8
<PAGE>
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants. Mortgage REITs may be
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized management skills. Some REITs may have limited diversification
and may be subject to risks inherent in financing a limited number of
properties. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income under the Code or its failure to maintain exemption from registration
under the 1940 Act.
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 actual or constructive
possession of the underlying collateral. However, if the seller defaults, a 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.
Securities of Foreign Issuers
The Funds may invest in securities of foreign issuers. In addition, the Funds
may invest in American Depositary Receipts. These instruments may subject the
Fund to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. These include risks of
adverse political and economic developments (including possible governmental
seizure or nationalization of
S-9
<PAGE>
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. The value of a Portfolio's
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollars, and a Portfolio may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains if any, to be distributed to shareholders by a
Portfolio. Foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements than those applicable to domestic branches
of U.S. banks. Furthermore, emerging market countries may have less stable
political environments than more developed countries. Also, it may be more
difficult to obtain a judgment in a court outside the United States.
Swaps, Caps, Floors and Collars
In a typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specific interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed-upon level. An interest rate collar combines elements of buying
a cap and selling a floor. In swap agreements, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the Fund's
investment and their share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a result,
swaps can be highly volatile and have a considerable impact on the Fund's
performance.
Swap agreements are subject to risks related to the counterparty's ability to
perform, and may decline in value if the counterparty's creditworthiness
deteriorates. A Fund
S-10
<PAGE>
may also suffer losses if it is unable to terminate outstanding swap agreements
or reduce its exposure through offsetting transactions. Any obligation a Fund
may have under these types of arrangements will be covered by setting aside cash
or liquid securities in a segregated account. A Fund will enter into swaps only
with counterparties believed to be creditworthy.
Variable or Floating Rate Instruments
The Funds may invest in variable or floating rate instruments which may involve
a demand feature and may include variable amount master demand notes which may
or may not be backed by bank letters of credit. The holder of an instrument with
a demand feature may tender the instrument back to the issuer at par prior to
maturity. A variable amount master demand note is issued pursuant to a written
agreement between the issuer and the holder, its amount may be increased by the
holder or decreased by the holder or issuer, it is payable on demand, and the
rate of interest varies based upon an agreed formula. The quality of the
underlying credit must, in the opinion of the Adviser, be equivalent to the
long-term bond or commercial paper ratings applicable to permitted investments
for the Funds. The Adviser will monitor on an ongoing basis the earnings power,
cash flow and liquidity ratios of the issuers of such instruments and will
similarly monitor the ability of an issuer of a demand instrument to pay
principal and interest on demand.
When-Issued and Delayed Delivery Securities
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.
S-11
<PAGE>
No Fund may:
1. 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.
2. 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.
3. 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").
4. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
5. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages 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 (set forth in
the Prospectus).
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. Notwithstanding the
foregoing, the Strategic High Yield Fund may
S-12
<PAGE>
purchase securities on margin in accordance with the investment policies
set forth in the Prospectus.
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.
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. Rule 144A securities are securities
that are traded in the institutional market pursuant to an exemption from
registration.
THE ADVISER
The Trust and Penn Capital Management Company, Inc. (the "Adviser") have entered
into an advisory agreement (the "Advisory Agreement") with respect to the Funds.
The Advisory Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in carrying out its duties, but 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 (except as provided under provisions of applicable law).
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 applicable limitations, 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.
S-13
<PAGE>
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, a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interests in the Administrator. SEI and its 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, CoreFunds, Inc., CrestFunds, Inc., CUFUND, The
Expedition Funds, FMB Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., Marquis Funds(R),
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R), Santa Barbara
Group of Mutual Funds, Inc., 1784 Funds(R), 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.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments Company, and the Trust are parties to a distribution
agreement (the "Distribution Agreement"). 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 must be renewed annually
thereafter. The Distribution Agreement may be terminated by the Distributor or
by the Trust, 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.
S-14
<PAGE>
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 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.
S-15
<PAGE>
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 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. 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.
S-16
<PAGE>
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.
----------
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>
- ---------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
From Registrant Benefits Accrued Upon From Registrant
for the Fiscal as Part of Fund Retirement and Fund
Year Ended Expenses Complex Paid to
September 30, Trustees for the
1996 Fiscal Year Ended
September 30,
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.
S-17
<PAGE>
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.
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.
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
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
S-18
<PAGE>
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.
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, but may utilize a pricing
matrix. 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 discussion of federal income tax consequences is based on the Internal
Revenue Code of 1986, as amended (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 the excess, if any, of net
short-term capital gain net long-term capital losses) ("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) 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
S-19
<PAGE>
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iii) 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 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 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.
S-20
<PAGE>
The Funds have no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Fund, the Adviser is responsible
for placing the orders to execute transactions for the Funds. In placing orders,
it is the policy of the Fund to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, 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, the Portfolios will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Funds will primarily consist of dealer spreads
and underwriting commissions.
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 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 not expected that the Funds may execute brokerage or other agency
transactions through the Distributor for commissions in conformity with the 1940
Act, the Securities Exchange Act of 1934 and rules promulgated by the SEC. Under
these provisions, the
S-21
<PAGE>
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.
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 proportionate 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.
S-22
<PAGE>
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.
FINANCIAL INFORMATION
Ernst & Young LLP has served as the Funds independent public accountants since
inception.
S-23
<PAGE>
PART C: OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits:
<S> <C>
(a) Financial Statements
Part A - Not Applicable
Part B - Not Applicable
(b) Additional Exhibits
1 Agreement and Declaration of Trust of the Registrant,
dated January 26, 1996 (incorporated herein by
reference to Registration Statement filed on February
1, 1996).
1(a) Amendment dated March 28, 1997, to the Agreement and
Declaration of Trust of the Registrant, dated January
26, 1996 (incorporated herein by reference to Post-
Effective Amendment No. 5 filed on April 10, 1997).
2 By-Laws of the Registrant (incorporated herein by
reference to Registration Statement filed on
February 1, 1996).
5(a) Investment Advisory Agreement between the Registrant
and Turner Investment Partners, Inc., (incorporated
herein by reference to Post-Effective Amendment No. 4
filed on January 28, 1997).
5(b) Investment Advisory Agreement between the Registrant
and Clover Capital Management, Inc., is filed herewith.
5(c) Form of Investment Advisory Agreement between the
Registrant and Penn Capital Management Company, Inc.,
(incorporated by reference to Post-Effective
Amendment No. 6 filed on July 15, 1997).
6(a) Distribution Agreement between the Registrant and
SEI Investments Distribution Co.(formerly, SEI
Financial Services Company), (incorporated herein by
reference to Post-Effective Amendment No. 4 filed on
January 28, 1997).
6(b) Form of Distribution Agreement between the Registrant
and CCM Securities Inc., (incorporated herein by
reference to Post-Effective Amendment No. 7 filed on
August 15, 1997).
8(a) Custodian Agreement between the Registrant and
CoreStates Bank, N.A., (incorporated herein by
reference to Post-Effective Amendment No. 4 filed on
January 28, 1997).
9(a) Administration Agreement between the
Registrant and SEI Investments Management
Corporation (formerly, SEI Financial
Management Corporation), (incorporated
herein by reference to Post-Effective
Amendment No. 4 filed on January 28, 1997).
9(b) Form of Transfer Agency Agreement between
the Registrant and DST Systems, Inc.,
(incorporated herein by reference to
Pre-Effective Amendment No. 1 to
Registration Statement filed April 19,
1996).
10 Opinion and Consent of Counsel, (incorporated herein
by reference to Pre-Effective Amendment No. 1 to
Registration Statement filed April 19, 1996).
C-1
<PAGE>
16 Performance Calculations, (incorporated herein by
reference to Pre-Effective Amendment No. 1 to
Registration Statement filed April 19, 1996).
24 Powers of Attorney for Robert E. Turner, Richard A.
Hocker, Michael E. Jones, Alfred C. Salvato, John T.
Wholihan, Stephen J. Kneeley, Janet F. Sansone, and
Robert DellaCroce are filed herewith.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant:
See the Prospectus and the Statement of Additional Information
regarding the Registrant's control relationships. SEI Investments Management
Corporation (formerly, SEI Financial Management Corporation) is the owner of all
beneficial interest in the Administrator and is a subsidiary of SEI Investments
Company, which also controls the distributor of the Registrant, SEI Investments
Distribution Co. (formerly, SEI Financial Services Company), as well as to other
corporations engaged in providing various financial and record keeping services,
primarily to bank trust departments, pension plan sponsors, and investment
managers.
Item 26. Number of Holders of Securities, as of August 1, 1997:
Turner Ultra Large Cap Fund 27
-----
Turner Growth Equity Fund 127
-----
Turner Midcap Fund 55
-----
Turner Small Cap Fund 873
-----
Turner Fixed Income Fund 0
-----
Clover Equity Value Fund 1792
-----
Clover Small Cap Value Fund 417
-----
Clover Fixed Income Fund 315
-----
Penn Capital Select Financial Services Fund 0
-----
Penn Capital Strategic High Yield Bond Fund 0
-----
Penn Capital Value Plus Fund 0
---
Item 27. Indemnification:
Article VIII of the Agreement of Declaration of Trust filed as Exhibit
1 to the Registration Statement is incorporated by reference. Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Declaration of Trust or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and, therefore, is
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
C-2
<PAGE>
Item 28. Business and Other Connections of Investment Advisers:
ADVISERS
- --------
Turner Investment Partners, Inc.
- --------------------------------
Turner Investment Partners, Inc. ("Turner") is the investment adviser for the
Turner Ultra Large Cap Growth, Turner Growth Equity, Turner Midcap Growth,
Turner Small Cap Growth and Turner Fixed Income Funds. The principal address of
Turner is 1235 Westlakes Drive, Suite 350, Berwyn, PA 19312.
Turner is an investment adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Turner, together
with information as to any other business profession, vocation or employment of
substantial nature engaged in by such officers and directors during the past two
years is incorporated by reference to Schedules A and D of Form ADV filed by
Turner pursuant to the Advisers Act (SEC File No. 801-36220).
Clover Capital Management, Inc.
- -------------------------------
Clover Capital Management, Inc. is the investment adviser for the Clover Max Cap
Value, Clover Capital Equity Value, Clover Capital Fixed Income and Clover
Capital Small Cap Value Funds. The principal address of Clover Capital
Management, Inc. is 11 Tobey Village Office Park, Pittsford, NY 14534.
The list required by this Item 28 of officers and directors of Clover Capital
Management, Inc., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules A
and D of Form ADV filed by Clover Capital Management, Inc. under the Advisers
Act of 1940 (SEC File No. 801-27041).
Penn Capital Management Company, Inc.
- -------------------------------------
Penn Capital Management Company, Inc. is the investment adviser for the Penn
Capital Select Financial Services, Penn Capital Strategic High Yield Bond and
Penn Capital Value Plus Funds. The principal address of Penn Capital Management
Company, Inc., is 52 Haddonfield-Berlin Road, Suite 1000, Cherry Hill, NJ 08034.
The list required by this Item 28 of officers and directors of Penn Capital
Management Company, Inc., together with information as to any other business
profession, vocation, or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated by reference to
Schedules A and D of Form ADV filed by Penn Capital Management Company, Inc.
under the Advisers Act of 1940 (SEC File No. 801-31452).
Item 29. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or
investment adviser.
C-3
<PAGE>
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds(R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
SEI Investments provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in
the answer to Item 21 of Part B. Unless otherwise noted, the business
address of each director or officer is Oaks, PA 19456.
C-4
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & President-Investment --
Advisory Group
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President- --
Investment Services Division
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
David G. Lee Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & Vice President,
Secretary Assistant Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Secretary Vice President,
Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President,
Assistant Secretary
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President & Treasurer --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Joanne Nelson Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President,
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President,
Assistant Secretary
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President,
Assistant Secretary
C-5
<PAGE>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Wayne M. Withrow Vice President & Managing Director --
James Dougherty Director of Brokerage Services --
</TABLE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated
thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records will be
maintained at the offices of Registrant's Custodian:
CoreStates Bank, N.A.
Broad & Chestnut Streets
P.O. Box 7618
Philadelphia, Pennsylvania 19101
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required
books and records are maintained at the offices of Registrant's
Administrator:
SEI Fund Resources
Oaks, Pennsylvania 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the principal offices
of the Registrant's Advisers:
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312
Clover Capital Management, Inc.
11 Tobey Village Office Park
Pittsford, New York 14534
Penn Capital Management Company, Inc.
52 Haddonfield-Berlin Road
Suite 1000
Cherry Hill, New Jersey 08034
C-6
<PAGE>
Item 31. Management Services: None.
Item 32. Undertakings:
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Trustees of their desire to communicate with shareholders of the Trust,
the Trustees will inform such Shareholders as to the approximate number of
Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant hereby undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Trustee(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to file a post-effective amendment, including
financial statements which need not be certified for the Penn Capital Select
Financial Services, Penn Capital Strategic High Yield Bond and Penn Capital
Value Plus Funds within 4-6 months from the effective date of the Registrant's
Post-Effective Amendment No. 6.
Registrant hereby undertakes to file a post-effective amendment, including
financial statements which need not be certified for the Clover Capital Max Cap
Value Fund within 4-6 months from the effective date of the Registrant's
Post-Effective Amendment No. 7.
Registrant hereby undertakes to furnish each prospective person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, when such annual report is issued containing information called
for by Item 5A of Form N-1A, upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 8 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on
the 3rd day of October 1997.
TIP FUNDS
By: /s/ Stephen J. Kneeley
------------------------
Stephen J. Kneeley
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following person in the capacity on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
* Trustee October 3, 1997
---------------------------
Robert E. Turner
* Trustee October 3, 1997
---------------------------
Richard A. Hocker
* Trustee October 3, 1997
---------------------------
Michael E. Jones
* Trustee October 3, 1997
---------------------------
Janet F. Sansone
* Trustee October 3, 1997
---------------------------
Alfred C. Salvato
* Trustee October 3, 1997
---------------------------
John T. Wholihan
/s/ Stephen J. Kneeley President and Chief October 3, 1997
---------------------------
Stephen J. Kneeley Executive Officer
* Controller and October 3, 1997
---------------------------
Robert DellaCroce Chief Financial
Officer
By: /s/ Stephen J. Kneeley October 3, 1997
------------------------
Stephen J. Kneeley
Attorney-in-Fact
</TABLE>
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Name Exhibit
---- -------
<S> <C>
Agreement and Declaration of Trust of the Ex-99.B1 Registrant,
dated January 26, 1996, (incorporated herein by reference to
Registration Statement filed on February
1, 1996).
Amendment dated March 28, 1997, to the Agreement Ex-99.B1(a)
and Declaration of Trust of the Registrant, dated January 26,
1996, (incorporated herein in by reference to Post-Effective
Amendment No. 5 filed on April 10, 1997)
By-Laws of the Registrant, (incorporated herein Ex-99.B2
by reference to Registration Statement
filed on February 1, 1996).
Investment Advisory Agreement between Ex-99.B5(a)
the Registrant and Turner Investment Partners, Inc.
(incorporated herein by reference to Post-Effective
Amendment No. 4 filed on January 28, 1997).
Investment Advisory Agreement between Ex-99.B5(b)
the Registrant and Clover Capital Management, Inc.,
is filed herewith.
Form of Investment Advisory Agreement between Ex-99.B5(c)
the Registrant and Penn Capital Management
Company, Inc., (incorporated herein by reference
to Post-Effective Amendment No. 6 filed
on July 15, 1997).
Distribution Agreement between the Ex-99.B6(a)
Registrant and SEI Investments Distribution Co.
(formerly, SEI Financial Services Company)
(incorporated herein by reference to Post-Effective
Amendment No. 4 filed on January 28, 1997).
Distribution Agreement between the Ex-99.B6(b)
Registrant and CCM Securities, Inc.,
(incorporated herein by reference to Post-Effective
Amendment No. 7 filed on August 15, 1997).
Custodian Agreement between the Registrant Ex-99.B8(a)
and CoreStates Bank, N.A.(incorporated herein
by reference to Post-Effective Amendment No. 4
filed on January 28, 1997).
C-9
<PAGE>
Administration Agreement between the Ex-99.B9(a)
Registrant and SEI Investments Management Corporation
(formerly, SEI Financial Management Corporation)
(incorporated herein by reference to Post-Effective
Amendment No. 4 filed on January 28, 1997).
Form of Transfer Agency Agreement between the Registrant and Ex-99.B9(b)
DST Systems, Inc. (incorporated herein by reference
to Pre-Effective Amendment No. 1 to Registration
Statement filed April 19,1996)
Opinion and Consent of Counsel Ex-99.B10
(incorporated herein by reference to Pre-Effective
Amendment No. 1 to Registration Statement filed
April 19,1996)
Performance Calculations Ex-99.B16
(incorporated herein by reference to Pre-Effective
Amendment No. 1 to Registration Statement filed
April 19,1996)
Powers of Attorney for Robert E. Turner, Ex-99.B24
Richard A. Hocker, Michael E. Jones, Alfred C. Salvato,
John T. Wholihan, Stephen J. Kneeley, Janet F. Sansone
and Robert DellaCroce are filed herewith.
</TABLE>
C-10
<PAGE>
EXHIBIT 24
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Robert E. Turner Date: 9/23/97
- ------------------------- ---------
Robert E. Turner, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Richard A. Hocker Date: 9/23/97
- ------------------------- ---------
Richard A. Hocker, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Michael E. Jones Date: 9/23/97
- ------------------------- ---------
Michael E. Jones, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ John T. Wholihan Date: 9/23/97
- ------------------------- ---------
John T. Wholihan, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Alfred C. Salvato Date: 9/23/97
- ------------------------- ---------
Alfred C. Salvato, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Janet F. Sansone Date: 9/29/97
- ------------------------- ---------
Janet F. Sansone, Trustee
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Stephen J.
Kneeley, Kevin P. Robins, James W. Jennings and John H. Grady, Jr., and each of
them singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any or all amendments
(including post-effective amendments) to the Trust's Registration Statement on
Form N-1A under the provisions of the Investment Company Act of 1940 and the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Robert DellaCroce Date: 9/23/97
- ------------------------- ---------
Robert DellaCroce, Controller and
Chief Financial Officer
<PAGE>
TIP FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Funds (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts, hereby constitutes and appoints Kevin P.
Robins, James W. Jennings and John H. Grady, Jr., and each of them singly, his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trust's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Stephen J. Kneeley Date: 9/23/97
- ------------------------- ---------
Stephen J. Kneeley, President
