AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1997
File No. 333-00641
File No. 811-07527
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 6
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and
REGISTRATION STATEMENT UNDER
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7
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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
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It is proposed that this filing become effective (check appropriate box):
- --- immediately upon filing pursuant to paragraph (b)
- --- on [date] pursuant to paragraph (b)
- --- 60 days after filing pursuant to paragraph (a)
- --- on [date] pursuant to paragraph (a) of Rule 485
X 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.
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<PAGE>
TIP FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<S> <C> <C>
PART A -
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;
Investment 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
Information - Shareholder Inquiries; General
Information - Dividends 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
Policies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Trust
(Prospectus); Trustees and Officers of the
Trust; The Administrator
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
Services Additional 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
Transactions
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; Determination 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 1, 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 1, 1997
<PAGE>
TABLE OF CONTENTS
Summary................................................................... 3
Expense Summary........................................................... 5
Financial Highlights...................................................... 7
The Trust and the Funds................................................... 11
Investment Objectives..................................................... 11
Investment Policies....................................................... 11
Risk Factors.............................................................. 13
Investment Limitations.................................................... 15
The Adviser............................................................... 15
The Administrator......................................................... 16
The Transfer Agent........................................................ 17
The Distributor........................................................... 17
Portfolio Transactions.................................................... 17
Purchase and Redemption of Shares......................................... 17
Performance............................................................... 21
Taxes..................................................................... 21
General Information....................................................... 23
Description of Permitted Investments and Risk Factors..................... 25
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<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. 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 Value Plus Fund will be exposed to the risks of investing in
equity securities. The Select Financial Services Fund will focus its investments
in the U.S. banking and financial services industries. Although diversified
throughout the industry, 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
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borrow money and utilize leveraging techniques. The Funds may invest in
securities that fluctuate in value, and the investors should expect the Funds'
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 annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
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<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Deferred Sales Load.................................................... None
Redemption Fees (1).................................................... None
Exchange Fees.......................................................... None
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(1) A wire redemption charge, currently $10.00, is deducted from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
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Select Financial Strategic
Services High Yield Value Plus
Fund Fund Fund
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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%
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Total Operating Expenses
(after fee
waivers or expense
reimbursements)(3) 1.40% 1.00% 1.40%
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(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" 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
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You would pay the following expenses on a $1,000 1 year 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
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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."
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<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.
Examples of these companies in the financial services sector include commercial
banks, savings and loan associations, 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 bonds") as a
means of seeking to generate current income.
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<PAGE>
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 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 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 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 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
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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, one third in small cap value
equity securities and one third in bonds (primarily high yield securities) in
order to generate interest income.
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 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.
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<PAGE>
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 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.
Financial Services Industry -- 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
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<PAGE>
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 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
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<PAGE>
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., Ba1 or lower rating by
Moody's and 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 -- 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 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
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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 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.
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 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
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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 ___ 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. 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.
Penn Capital's Financial Services Industry Performance Information: The Adviser,
and Mr. Hocker in particular, have extensive experience in the banking and
financial services industries. In addition to his experience as founder of a
regional bank with over $435 million in assets, since 1995, Mr. Hocker has been
the lead portfolio manager of a partnership (the "Penn Capital Bank
Partnership") which seeks to capitalize on the returns available due to the
consolidation trends in the banking and financial services industries. The
following table presents historical performance data for that partnership. This
data compares the performance of that partnership against the NASDAQ Combined
Bank Index. The computed total rates of return include the impact of capital
appreciation as well as the
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reinvestment of interest and dividends. This does not indicate how the Select
Financial Services Fund may perform in the future.
Penn Capital NASDAQ Combined
Time Period Bank Partnership Bank Index(1)
One year ended 3/31/97: 43.36%* 30.91%*
Since Inception (3/27/95): 35.66%* 33.81%*
* Annualized.
(1) The NASDAQ Combined Bank Index (the "Bank Index") is a capitalization-
weighted index designed to measure the performance of all NASDAQ stocks
in the banking sector, which consists of 344 stocks. The Bank Index is
unmanaged and reflects the reinvestment of dividends.
The performance figures for the partnership are net of advisory fees
and net of the effect of leverage on the partnership, but do not
reflect a performance allocation payable to the Adviser by the
partnership. The effect of deducting operating expenses on the Fund's
annualized performance, including the compounding effect over time, may
be substantial.
Penn Capital's High Yield Performance Information: In November 1987, the Adviser
instituted a managed "defensive" high yield investment philosophy for its
clients which concentrates in first- and second-tier high yield securities. In
December 1989, the Adviser instituted a managed "active" high yield investment
philosophy which concentrates in riskier, third- and fourth-tier high yield
securities and financial instruments, and which may overweight investments in a
single industry, issuer or class of security. These "defensive" and "active"
philosophies were developed over a lengthy period of time by the Adviser's
portfolio managers, beginning while they were at Delaware Management Co. The
Strategic High Yield Fund combines elements of both of the Adviser's high yield
investment philosophies.
The following table presents historical performance data that is a composite of
all discretionary high yield accounts greater than $1 million under management
for at least one full quarter. This data compares the performance of these
accounts against the CS First Boston High Yield Index and the Merrill Lynch High
Yield Index. The computed total rates of return include the impact of capital
appreciation as well as the reinvestment of interest and dividends. This data
does not indicate how the Strategic High Yield Fund may perform in the future.
Penn Capital CS First Boston Merrill Lynch High
Time Period High Yield Composite High Yield Index(1) Yield Index(2)
One year ended
3/31/97: 12.13%* 11.66%* 10.82%*
Three years ended
3/31/97: 12.99%* 10.26%* 10.73%*
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Five years ended
3/31/97: 13.87%* 11.20%* 11.70%*
Since Inception
(10/31/87): 14.66%* 12.40%* 12.05%*
* Annualized.
(1) The CS First Boston High Yield Index (the "CS First Boston Index") is
an unmanaged, trader-priced portfolio constructed to mirror the public
high yield debt market. Revisions to the Index are effected weekly. The
CS First Boston Index has several modules representing different
sectors of the high yield market, including cash paying, zerofix,
pay-in-kind, and defaulted modules. The Index is unmanaged and reflects
the reinvestment of dividends.
(2) The Merrill Lynch High Yield Index (the "Merrill High Yield Index")
consists of below investment grade corporate securities. High yield
bonds contain higher credit risks than investment grade securities,
thereby increasing the possibility that some issues will not be able to
make timely interest payments and may be in default. The Index is
unmanaged and reflects the reinvestment of dividends.
The performance figures for the Adviser's accounts described above are
net of advisory fees. Some of the accounts comprising the Adviser's
composite utilize leverage and are subject to performance fees. The
Adviser's high yield composite reflects the effect of leverage, but
does not reflect the deduction of a performance allocation for any
account. Prior to December 1989, the Adviser managed only defensive
high yield accounts. Starting in December 1989, the Adviser's high
yield composite reflects both active and defensive high yield accounts.
The effect of deducting operating expenses on the Fund's annualized
performance, including the compounding effect over time, may be
substantial.
Penn Capital's Value/Income Performance Information: The Adviser has
considerable experience investing in value-oriented equity securities. The
Adviser's value/income style, which typically involves a two-thirds allocation
to equity securities (50% of which are dividend-paying, large cap equity
securities and 50% of which are small cap value equity securities) and a
one-third allocation to fixed income securities (including high yield
securities), seeks to augment its value style by capitalizing on the Adviser's
high yield expertise. The Adviser utilizes a contrarian investment style, with
attention directed toward those companies offering the best combination of such
quality criteria as strong market share, solid management and high normalized
return on capital. The Adviser has been managing a value/income partnership (the
"Penn Capital Value/Income Partnership") using this approach since February
1993. The following table presents historical performance data for that
partnership. This data compares the performance of the partnership to that of
the Russell 2000 Index and the S&P 500 Index. The computed total rates of return
include the impact of capital appreciation as well as the reinvestment of
interest and dividends. This data does not indicate how the Value Plus Fund may
perform in the future.
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Penn Capital
Value/Income Russell 2000 S&P 500
Time Period Partnership Index(1) Index(2)
One year ended 3/31/97: 13.75%* 3.56%* 19.82%*
Two years ended 3/31/97: 18.61%* 14.61%* 25.78%*
Three years ended 3/31/97: 16.71%* 10.91%* 22.29%*
Since Inception (2/28/93): 19.88%* 11.16%* 16.94%*
* Annualized.
(1) The Russell 2000 Index (the "Russell 2000 Index") is comprised of the
smallest 2000 companies in the Russell 3000 Index, representing
approximately 11% of the total market capitalization of the Russell
3000 Index. The Russell 2000 Index is unmanaged and reflects the
reinvestment of dividends.
(2) The Standard & Poor's 500 Composite Index (the "S&P 500 Index") is a
broad-based measure of the change in the aggregate market value of 500
common stocks (primarily, but not entirely, stocks traded on the New
York Stock Exchange), which include 400 industrial stocks, 40 financial
stocks, 40 utility stocks, and 20 transportation stocks. It represents
roughly 70% of the total U.S. equity market capitalization with
slightly less than 10% of the stock population represented.
The performance figures for the partnership are net of advisory fees
and net of the effect of leverage on the partnership. The effect of
deducting operating expenses on the Fund's annualized performance,
including the compounding effect over time, may be substantial.
The Penn Capital Bank Partnership had approximately $3 million in assets as of
March 31, 1997. Penn Capital's High Yield Composite results are a dollar
weighted composite of fully discretionary, separately managed accounts that are
over $1 million in size under the Adviser's management for at least one full
quarter. The Penn Capital High Yield Composite consists of 17 accounts with
approximately $132 million in assets (9% "defensive" high yield accounts and 91%
"active" high yield accounts). The Penn Capital Value/Income Partnership had
approximately $12 million in assets as of March 31, 1997.
The modified Bank Administration Institute (BAI) method is used to compute a
time weighted rate of return in accordance with standards set by the Association
of Investment Management and Research (AIMR). The information above does not
reflect all of Penn Capital's assets under management, and may not accurately
reflect the performance of all accounts it manages.
ALL INFORMATION PRESENTED RELIES ON DATA SUPPLIED BY THE ADVISER AND STATISTICAL
SERVICES, REPORTS OR OTHER SOURCES BELIEVED BY THE TRUST TO BE RELIABLE. IT HAS
NOT BEEN VERIFIED OR AUDITED.
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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 $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
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(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 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.
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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.
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.
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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 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
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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.
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
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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.
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
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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:
The Funds are 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 excess of net long-term capital gain over net
short-term capital loss) which it distributes to shareholders.
Tax Status of Distributions:
The Funds will distribute all of their net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. Any net capital gains will be distributed annually and will be
taxed to shareholders as long-term capital gains, regardless of how long the
shareholder has held shares. The 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.
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<PAGE>
The Funds may, in certain circumstances involving tax-free reorganizations,
accept securities that are appropriate investments as payment for Fund shares
(an "In-Kind Purchase"). An In-Kind Purchase may result in adverse tax
consequences under certain circumstances to either the investors transferring
securities for shares ("In-Kind Investors") or to investors who acquire
shares of a Fund after a transfer ("new shareholders"). As a result of an
In-Kind Purchase, a Fund may acquire securities that have appreciated in value
or depreciated in value from the date they were acquired. If appreciated
securities were to be sold after an In-Kind Purchase, the amount of the gain
would be taxable to new shareholders as well as to In-Kind Investors. The effect
of this for new shareholders would be to tax them on a distribution that
represents a return of the purchase price of their shares rather than an
increase in the value of their investment. The effect on In-Kind Investors would
be to reduce their potential liability for tax on capital gains by spreading it
over a larger asset base. The opposite may occur if a Fund acquires securities
having an unrealized capital loss. In that case, In-Kind Investors will be
unable to utilize the loss to offset gains, but, because an In-Kind Purchase
will not result in any gains, the inability of In-Kind Investors to utilize
unrealized losses will have no immediate tax effect. For new shareholders, to
the extent that unrealized losses are realized by a Fund, new shareholders may
benefit by any reduction in net tax liability attributable to the losses. The
Adviser cannot predict whether securities acquired in any In-Kind Purchase will
have unrealized gains or losses on the date of the In-Kind Purchase. Consistent
with its duties as investment adviser, the Adviser will, however, take tax
consequences to investors into account when making decisions to sell portfolio
assets, including the impact of realized capital gains on shareholders of a
Fund.
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.
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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.
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<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
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<PAGE>
available through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the underlying security. Holders of
unsponsored depositary receipts generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
BORROWING -- The Funds may borrow money 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
borrowing in connection with securities purchases or interest rate arbitrage
transactions.
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.
<PAGE>
HIGH YIELD SECURITIES -- Securities rated below investment grade are often
referred to as "junk bonds." Fixed income securities are subject to the risk of
an issuer's ability to meet principal
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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 not 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.
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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 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.
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<PAGE>
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest 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
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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
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.
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APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch are considered to be
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investment grade and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+. Bonds rated A by Fitch are considered to
be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated BBB by Fitch are considered to be
investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1+, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a "very
strong" degree of safety regarding timely payment. Those rated A-2, the second
highest rating category, reflect a satisfactory degree of safety regarding
timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's")
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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.
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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 1, 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-17
PURCHASE AND REDEMPTION OF SHARES.......................................... S-18
DETERMINATION OF NET ASSET VALUE........................................... S-18
TAXES...................................................................... S-18
PORTFOLIO TRANSACTIONS..................................................... S-20
DESCRIPTION OF SHARES...................................................... S-21
SHAREHOLDER LIABILITY...................................................... S-22
LIMITATION OF TRUSTEES' LIABILITY.......................................... S-22
FINANCIAL INFORMATION...................................................... S-22
October 1, 1997
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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.
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No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities equal to the market value of the futures positions held, less
margin deposits, in a segregated account with its custodian. Collateral equal to
the current market value of the futures position will be marked to market on a
daily basis.
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
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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
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 downturn 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.
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Payment Expectations
High-yield, high-risk bonds may contain redemption or call provisions. If an
issuer exercised these provisions in a declining interest rate market, the Funds
would have to replace the securities with a lower yielding security, resulting
in a decreased return for investors. Conversely, a high-yield, high-risk bond's
value will decrease in a rising interest rate market, as will the value of the
Funds' assets. If the Funds experience significant unexpected net redemptions,
this may force them to sell high-yield, high-risk bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Funds' rates of return.
Liquidity and Valuation
There may be little trading in the secondary market for particular bonds, which
may affect adversely the Funds' ability to value accurately or dispose of such
bonds. Adverse publicity and investor perception, whether or not based on
fundamental 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.
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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 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.
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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 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.
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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.
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
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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.
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
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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 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
capitl 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 be 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.
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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 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
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shares present at a meeting, if more than 50% of the outstanding shares of a
Fund are present or represented by proxy, or (ii) more than 50% of a Fund's
outstanding shares, whichever is less.
No Fund may:
1. 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
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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 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.
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
S-13
<PAGE>
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.
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.
S-14
<PAGE>
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.
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.
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, 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, 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, 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.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee - Treasurer, Thomas Jefferson
University, since 1995, and Assistant Treasurer, 1988-1995.
MARK D. TURNER (DOB 12/12/57) - Trustee* - President and Director of Fixed
Income Management of Turner Investment Partners, Inc. (the Adviser), since 1990.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee - Professor, Loyola Marymount
University, since 1984.
S-15
<PAGE>
DAVID G. LEE (DOB 04/16/52) - President and Chief Executive Officer - Senior
Vice President of the Manager and Distributor since 1993. Vice President of the
Manager and Distributor (1991-1993). President, GW Sierra Trust Funds before
1991.
STEPHEN J. KNEELEY (DOB 02/09/63) - Vice President and Assistant Secretary -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Manager 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).
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Manager and Distributor since
1995. Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston and
Strawn (law firm), 1991-1994.
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Manager and Distributor since
1996. Associate, Drinker, Biddle & Reath (law firm) (1994-1996). Assistant Vice
President - Operations of Delaware Service Company, Inc. (1988-1993).
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Manager and Distributor since 1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Manager and the Distributor since
1994. Vice President and Assistant Secretary of SEI, the Manager and Distributor
1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President, Assistant Secretary - Vice
President, Deputy General Counsel and Assistant Secretary of SEI, the Manager
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.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, the Adviser, the Administrator and the Distributor.
S-16
<PAGE>
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, the Adviser, the Administrator and the Distributor, since 1995. Attorney,
Aquila Management Corporation, 1994. Rutgers University School of Law - Newark,
1991-1994.
----------------------------
* Robert Turner and Mark Turner are "interested persons" of the Trust as the
term is defined in the 1940 Act.
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 Administrator.
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.
S-17
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Currently, the weekdays on
which the Fund is closed for business are: New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Shares of each Fund are offered on a
continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
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 following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (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
S-18
<PAGE>
expressed herein, and may have a retroactive effect with respect to the
transactions contemplated herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of stocks or securities held for less than three months; (iii) at
the close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iv) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer, or of two or 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)
S-19
<PAGE>
will be taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits, and such distributions will generally be
eligible for the corporate dividends-received deduction.
State Taxes
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The 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
S-20
<PAGE>
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 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.
S-21
<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal 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.
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-22
<PAGE>
TIP FUNDS
Supplement dated July 15, 1997 to
the Turner Ultra Large Cap Fund
Statement of Additional Information
dated January 31, 1997
The Statement of Additional Information for the TIP Funds is hereby amended
and supplemented by the following unaudited financial statements of Turner Ultra
Large Cap Fund for the period ended March 31, 1997
Schedule of Investments TIP FUNDS
March 31, 1997 (Unaudited)
Market
Value
ULTRA LARGE CAP FUND Shares (000)
- -------------------- ------ ------
Common Stocks (88.8%)
Aircraft (2.6%)
Allied Signal 77 $ 5
Boeing 34 3
-----
8
-----
Banks (1.7%)
Citicorp 42 5
-----
Beauty Products (3.6%)
Colgate-Palmolive 33 3
Proctor & Gamble 69 8
-----
11
-----
Chemicals (1.3%)
Monsanto 101 4
-----
Communications Equipment (2.0%)
Ascend Communications* 154 6
-----
Drugs (13.1%)
Amgen 116 6
Bristol-Myers Squibb 105 6
Eli Lilly 81 7
Merck 154 13
Pfizer 92 8
-----
40
-----
Entertainment (2.0%)
Walt Disney 84 6
-----
Food, Beverage & Tobacco (8.6%)
Coca-Cola 223 13
Conagra 111 6
RJR Nabisco 218 7
-----
26
-----
Hotels & Lodging (1.3%)
HFS* 66 4
-----
Household Products (2.6%)
General Electric 82 8
-----
Insurance (1.7%)
American International Group 40 5
-----
Market
Value
Shares (000)
------ ------
Machinery (3.0%)
Applied Materials* 76 $ 3
Minnesota Mining & Manufacturing 72 6
-----
9
-----
Medical Products & Services (2.6%)
Medtronic 132 8
-----
Miscellaneous Business Services (10.2%)
CUC International* 202 5
First Data 171 6
Microsoft* 153 14
Sun Microsystems* 211 6
-----
31
-----
Miscellaneous Consumer Services (1.6%)
Service International 154 5
-----
Paper & Paper Products (1.3%)
Kimberly-Clark 40 4
-----
Petroleum Refining (0.3%)
Unocal 36 1
-----
Retail (6.6%)
Home Depot 73 4
PepsiCo 286 9
Wal-Mart Stores 235 7
-----
20
-----
Rubber & Plastic (1.3%)
Nike, Cl B 62 4
-----
Semi-Conductors/Instruments (10.2%)
Intel 116 16
Micron Technology 219 9
Texas Instruments 74 6
-----
31
-----
<PAGE>
Schedule of Investments TIP FUNDS
March 31, 1997 (Unaudited)
Market
ULTRA LARGE CAP FUND Value
(Concluded) Shares (000)
- -------------------- ------ ------
Telephone & Telecommunication (4.3%)
AT&T 161 $ 6
Sprint 62 3
WorldCom* 181 4
-----
13
-----
Wholesale (6.9%)
Gillette 108 8
Johnson & Johnson 159 8
Philip Morris 42 5
-----
21
-----
Total Common Stocks
(Cost $288) 270
-----
Total Investments (88.8%)
(Cost $288) $ 270
=====
*Non-income producing security
Cl-Class
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statements of Assets & Liabilities TIP FUNDS
March 31, 1997 (Unaudited)
Ultra
Large Cap
Fund
(000)
---------
Assets:
Investment Securities (Cost $288).......................... $ 270
Capital Shares Sold........................................ 15
Other Assets............................................... 45
-----
Total Assets............................................. 330
-----
Liabilities:
Accrued Expenses Payable................................... 4
Capital Shares Redeemed.................................... 2
Other Liabilities.......................................... 20
-----
Total Liabilities........................................ 26
-----
Net Assets:
Portfolio shares (unlimited authorization--no par value)
based on 32,254 outstanding shares of beneficial
interest................................................ 325
Accumulated net realized loss on investments.............. (3)
Net unrealized depreciation on investments................ (18)
-----
Net Assets.............................................. $ 304
=====
Net Asset Value, Offering Price and Redemption Price
Per Share................................................. $9.42
=====
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Operations TIP FUNDS
(Unaudited)
Ultra
Large Cap
Fund
(000)
---------
For the
Period
Ended 3/31/97(1)
(000)
-------------
Investment Income:
Dividends................................................. $ 1
Interest.................................................. --
-----
Total Investment Income................................. 1
-----
Expenses:
Investment Advisory Fees.................................. 1
Investment Advisory Fee Waiver............................ (1)
Contributions by Advisor.................................. (9)
Administrator Fees........................................ 12
Administrator Fee Waiver.................................. (12)
Custodian Fees............................................ 1
Transfer Agent Fees....................................... 2
Professional Fees......................................... 1
Trustee Fees.............................................. --
Registration Fees......................................... 5
Pricing Fees.............................................. --
Printing Expense.......................................... --
Amortization of Deferred Organizational Costs............. --
Insurance and Other Fees.................................. 1
-----
Total Expenses.......................................... 1
Directed Brokerage...................................... --
-----
Net Expenses.......................................... 1
-----
Net Investment Loss................................. --
-----
Net Realized Gain (Loss) From Securities Sold........... (3)
Net Unrealized Depreciation of
Investment Securities................................. (18)
-----
Net Realized and Unrealized Loss on Investments......... (21)
-----
Net Decrease in Net Assets Resulting From Operations.... $(21)
=====
- -----------
(1) Commenced operations on February 1, 1997.
Amounts designated as "___" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Changes in Net Assets TIP FUNDS
(Unaudited)
Ultra Large
Cap Fund
-------------
For the
Period
Ended
3/31/97(1)
(000)
-------------
Investment Activities:
Net Investment Income (Loss).............................. --
Net Realized Gain (Loss) on Securities Sold............... $ (3)
Excess Market Value Over Book Value of Securities
Distributed Upon Redemption of Shares................... --
Net Unrealized Appreciation (Depreciation) of
Investment Securities................................... (18)
------
Net Increase (Decrease) in Net Assets Resulting
from Operations....................................... (21)
------
Distributions to Shareholders:
Net Investment Income..................................... --
Realized Capital Gain..................................... --
------
Total Distributions..................................... --
------
Capital Share Transactions:
Proceeds from Shares Issued............................... 450
Proceeds from Shares Issued in Lieu of Cash Distributions. --
Cost of Shares Redeemed................................... (125)
------
Increase (Decrease) in Net Assets From Capital
Share Transactions.................................... 325
------
Total Increase (Decrease) in Net Assets................. 304
------
Net Assets:
Beginning of Period..................................... --
Excess Market Value Over Book Value of Securities
Received in In-Kind Subscriptions..................... --
------
End of Period........................................... $304
======
Shares Issued and Redeemed:
Issued.................................................... 45
Issued in Lieu of Cash Distributions...................... --
Redeemed.................................................. (13)
------
Net Increase (Decrease) in Share Transactions........... 32
======
- ---------
(1) The Turner Ultra Large Cap Fund commenced operations on
February 1, 1997.
Amounts designated as "___" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS TIP FUNDS
For a Share Outstanding Throughout each Period (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net
Asset Net Unrealized Distributions Distributions Asset
Value Investment Gains or from Net from Value
Beginning Income (Losses) on Investment Capital End
of Period (Loss) Investments Income Gains of Period Total Return(5)
----------- ---------- ------------ ------------- ------------- --------- ---------------
- --------------------
Ultra Large Cap Fund
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 0.01 (0.59) -- -- $9.42 (5.80)%
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Net Ratio of Investment
Net Investments Expenses Income (Loss) to
Assets Ratio Income to Average Average
End of Expenses (Loss) Net Assets Net Assets Portfolio Average
of Period to Average to Average (Excluding (Excluding Turnover Cumulative
(000) Net Assets Net Assets Waivers) Waivers) Rate Rate(2)
- --------- ----------- ------------ ---------- ----------------- --------- ----------
- --------------------
Ultra Large Cap Fund
- --------------------
<S> <C> <C> <C> <C> <C> <C>
304 1.00%* 0.82%* 39.85%* (38.03)%* 101.53% $0.0600
</TABLE>
* Annualized
(1) The Turner Ultra Large Cap Fund commenced operations on February 1, 1997.
(2) Average commissions rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal
years beginning after September 1, 1995.
Amounts designated as "___" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS TIP FUNDS
March 31, 1997 (Unaudited)
1. Organization:
TIP Funds (the "Trust) a Massachusetts' business trust, is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with five funds: the Turner Small Cap fund (the
"Small Cap Fund"), the Turner Growth Equity Fund (the "Growth Equity Fund"),
the Turner Midcap Fund (the "Midcap Fund"), the Turner Ultra Large Cap Fund
(the "Ultra Large Cap Fund") and the Turner Fixed Income Fund (the "Fixed
Income Fund"). These statements relate only to the Ultra Large Cap Fund (the
"Fund"). The assets of each fund are segregated, and a shareholder's interest
is limited to the fund in which shares are held. The Funds' prospectus
provides a description of each Fund's investment objectives, policies and
strategies.
On April 19, 1996, the shareholders of the Advisor's Inner Circle Turner
Small Cap Fund and the Advisor's Inner Circle Growth Equity Fund (the Advisors'
Inner Circle Trust) and together "the Turner Funds" voted to approve a tax-free
reorganization of the Turner Funds through a transfer of all the assets and
liabilities of the Turner Funds to the Turner Small Cap and Turner Growth
Equity Funds' portfolios. In connection with the reorganization, the Funds
have changed their fiscal year end from October 31, 1996 to September 30, 1996.
On February 21, 1997 the Board of Trustees of Turner Funds voted to change the
name of the Trust to TIP Funds.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Funds.
Security Valuation -- Investments in equity securities which are traded on a
national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sales was
reported on that date are stated at the last quoted bid price. Debt obligations
exceeding sixty days to maturity for which market quotations are readily
available are valued the most recently quoted bid price. Debt obligations
with sixty days or less remaining until maturity may be valued at their
amortized cost, which approximates market value.
Federal Income Taxes -- It is each Fund's intention to quality as a regulated
investment company by complying with the appropriate provisions of the Internal
Revenue Code of 1986, as amended. Accordingly, no provision for Federal
income taxes is required.
Security Transactions and Related Income -- Security transactions are accounted
for on the date the security is purchased or sold (trade date). Dividend income
is recognized on the ex-dividend date, and interest income is recognized on the
accrual basis. Costs used in determining realized gains and losses on the sales
of investment securities are those of the specific securities sold during the
respective holding period.
Net Asset Value Per Share -- The net asset value per share of each Fund is
calculated on each business day, by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
Repurchase Agreements -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued) TIP FUNDS
March 31, 1997 (Unaudited)
of the repurchase agreements ensure that the market value of the collateral,
including accrued interest thereon, is sufficient in the event of default of
the counterparty. If the counterparty defaults and the value of the collateral
declines or if the counterparty enters an insolvency proceeding, realization
of the collateral by the Funds may be delayed or limited.
Other -- Expenses that are directly related to one of the Funds are charged to
that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative daily net assets.
Distributions from net investment income are declared and paid to Shareholders
on a quarterly basis. Any net realized capital gains on sales of securities are
distributed to Shareholders at least annually.
Dividends from net investment income and distributions from net realized capital
gains are determined in accordance with U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain,
as appropriate, in the period that the differences arise.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of income and expenses during the reported period. Actual
results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES:
Certain officers of the Trust are also officers of SEI Fund Resources (the
"Administrator") and/or SEI Financial Services Company (the "Distributor").
Such officers are paid no fees by the Trust for serving as officers and
trustees of the Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
The TIP Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee
of .12% of the average daily net assets of each of the Funds up to $75
million, .10% on the next $75 million, .09% on the next $150 million, .08%
on the next $300 million and .075% of such assets in excess on $600 million.
During fiscal 1997, the Administrator has voluntarily waived a portion of its
fee.
The Growth Equity Fund had directed certain portfolio trades to brokers who
paid a portion of its expenses. For the six month period ended March 31, 1997,
the Growth Equity Fund's expenses were reduced by $37,549 under this
arrangement.
DST Systems, Inc., (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds under a transfer agency agreement
with the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 30, 1996. The Distributor receives no fees for its distribution services
under this agreement.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Concluded) TIP FUNDS
March 31, 1997 (Unaudited)
5. Investment Advisory and Custodian Agreements:
The Trust and Turner Investment Partners, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement dated April 30, 1996, under which the Adviser
receives an annual fee equal to .75% of the average daily net assets of the
Ultra Large Cap, Growth Equity and Midcap Funds, 1.00% of those of the Small Cap
Fund and .50% of those of the Fixed Income Fund. The Adviser has voluntarily
agreed to waive all or a portion of its fees and to reimburse expenses of the
Ultra Large Cap, Growth Equity, Midcap, Small Cap and Fixed Income 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 1.00%, 1.00%, 1.25%, 1.25%
and 0.75%, respectively. Fee waivers and expense reimbursements are voluntary
and may be terminated at any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Funds. Fees of
the Custodian are being paid on the basis of the net assets of the Funds. The
Custodian plays no role in determining the investment policies of the Funds or
which securities are to be purchased or sold in the Funds.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the six month period ended March 31, 1997 are as
follows:
Ultra
Large Cap
Fund
(000)
---------
Purchases
Government................................... --
Other........................................ $ 519
Sales
Government................................... --
Other........................................ $ 228
At March 31, 1997, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Funds
at March 31, 1997, are as follows:
Ultra
Large Cap
Fund
(000)
---------
Aggregate gross
unrealized appreciation...................... $ 3
Aggregate gross
unrealized depreciation...................... (21)
----
Net unrealized appreciation (depreciation)..... $(18)
----
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
TIP FUNDS
Ultra Large Cap Fund
Supplement dated July 15, 1997
to Prospectus dated January 31, 1997
The Prospectus dated January 31, 1997, is hereby amended by the addition of
the following unaudited financial information for the Turner Ultra Large Cap
Fund for the period ended March 31, 1997.
Financial Highlights TIP Funds
For the Period from Inception Through March 31, 1997 Unaudited
For a Share Outstanding Throughout the Period
Ultra Large
Cap Fund(1)
-----------
Net Asset value, Beginning of Period $ 10.00
Income from investment operations:
Net Investment Income 0.01
Net Realized and Unrealized Gain on Investments (0.59)
Distributions from Net Investment Income --
Net Asset Value, End of Period $ 9.42
Total Return (5.80)%
Period Net Assets, End of Period (000's) $ 304
Ratio of Expenses to Average Net Assets* 1.00%
Ratio of Net Investment Income to Average Net Assets* 0.82%
Ratio of Expenses to Average Net Assets 39.85%
(Excluding Waivers and Contributions)*
Ratio of Net Investment Income to
Average Net Assets (Excluding Waivers and Contributions)* (38.03)%
Portfolio Turnover Rate 101.53%
Average Commission Rate** $0.0600
- ----------
* Annualized
** Average commission rate paid per share for the security purchases and sales
during the period.
(1) Commenced operations February 1, 1997.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
The Prospectus and Statement of Additional Information for the Ultra Large Cap
Fund, Small Cap Fund, Midcap Fund, and Fixed Income Fund included as part of
Post-Effective Amendment No. 4 to the Registrant's Registration Statement on
Form N-1A (File No. 333-00641) filed with the Securities and Exchange Commission
on January 28, 1997, is hereby incorporated by reference as if set forth in full
herein.
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements
Part A: Financial Highlights
Part B: The following unaudited financial statements for the
Turner Ultra Large Cap Fund as of March 31, 1997 are
included as part of the Statement of Additional
Information.
Schedule of Investments
Statement of Assets & Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(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) Form of Investment Advisory Agreement between the
Registrant and Clover Capital Management, Inc.,
(incorporated herein by reference to Post-Effective
Amendment No. 5 filed on April 10, 1997).
5(c) Form of Investment Advisory Agreement between the
Registrant and Penn Capital Management Company, Inc.,
is filed herewith.
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).
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).
C-1
<PAGE>
9(b) Form of 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).
16 Performance Calculations, (incorporated herein by
reference to Pre-Effective Amendment No. 1 to
Registration Statement filed April 19, 1996).
17 Financial Data Schedule for Turner Ultra Large Cap Fund
is filed herewith.
24 Powers of Attorney for David G. Lee, Alfred C. Salvato,
Mark Turner, Robert E. Turner, and John T. Wholihan
(incorporated herein by reference to Post-Effective
Amendment No. 4 filed on January 28, 1997).
24(a) Power of Attorney for Robert DellaCroce (incorporated
herein by reference to Post-Effective Amendment No. 5
filed on April 10, 1997).
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 June 30, 1997:
Turner Ultra Large Cap Fund 26
Turner Growth Equity Fund 130
Turner Midcap Fund 53
Turner Small Cap Fund 672
Turner Fixed Income Fund 0
Clover Equity Value Fund 1800
Clover Small Cap Value Fund 377
Clover Fixed Income Fund 311
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
C-2
<PAGE>
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.
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, Turner Growth Equity, Turner Midcap, Turner Small Cap
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 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
C-3
<PAGE>
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.
Registrant's distributor, SEI Investments Distribution Co. ("SEI
Investments"), 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
The Expedition Funds June 9, 1997
C-4
<PAGE>
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.
<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 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 --
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
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
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
C-6
<PAGE>
Pittsford, New York 14534
Penn Capital Management Company, Inc.
52 Haddonfield-Berlin Road
Suite 1000
Cherry Hill, New Jersey 08034
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 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. 6 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on
the 11th day of July 1997.
TIP FUNDS
By: /s/ David G. Lee
-----------------
David G. Lee
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.
* Trustee July 11, 1997
-------------------------
Alfred C. Salvato
* Trustee July 11, 1997
-------------------------
Mark D. Turner
* Trustee July 11, 1997
-------------------------
Robert E. Turner
* Trustee July 11, 1997
-------------------------
John T. Wholihan
/s/ David G. Lee President and Chief July 11, 1997
------------------------- Executive Officer
David G. Lee
/s/ Robert DellaCroce Controller and July 11, 1997
------------------------- Chief Financial Officer
Robert DellaCroce
By: /s/ David G. Lee July 11, 1997
-------------------------
David G. Lee
Attorney-in-Fact
C-8
<PAGE>
EXHIBIT INDEX
Name Exhibit
-------------------------------------------------------------------------
Agreement and Declaration of Trust of the Registrant, dated Ex-99.B1
January 26, 1996, (incorporated herein by reference to
Registration Statement filed on February 1, 1996).
Amendment dated March 28, 1997, to the Agreement and Ex-99.B1(a)
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)
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).
Form of Investment Advisory Agreement between Ex-99.B5(b)
the Registrant and Clover Capital Management, Inc.,
(incorporated herein by reference to Post-Effective
Amendment No. 5 filed on April 10, 1997).
Form of Investment Advisory Agreement between Ex-99.B5(c)
the Registrant and Penn Capital Management
Company, Inc., is filed herewith.
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).
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).
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).
C-9
<PAGE>
Form of 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 David G. Lee, Ex-99.B24
Alfred C. Salvato, Mark D. Turner, Robert E. Turner,
and John T. Wholihan (incorporated herein by reference
to Post-Effective Amendment No. 4 filed on
January 28, 1997).
Power of Attorney for Robert DellaCroce (incorporated Ex-99.B24(a)
herein by reference to Post-Effective Amendment No. 5
filed on April 10, 1997).
Financial Data Schedule for Turner Ultra Large Cap Ex-99.B27
Fund is filed herewith.
C-10
Exhibit 5(c)
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of August, 1997, by and between TIP Funds,
a Massachusetts business trust (the "Trust"), and Penn Capital Management
Company, Inc. (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Fund Resources (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to the Portfolios set forth in the attached
schedule and such other portfolios as the Trust and the Adviser may agree upon
(the "Portfolios"), and the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously
review, supervise, and administer the investment program of
the Portfolios, to determine in its discretion the securities
to be purchased or sold, to provide the Administrator and the
Trust with records concerning the Adviser's activities which
the Trust is required to maintain, and to render regular
reports to the Administrator and to the Trust's Officers and
Trustees concerning the Adviser's discharge of the foregoing
responsibilities.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust
and in compliance with such policies as the Trustees may from
time to time establish, and in compliance with the objectives,
policies, and limitations for each such Portfolio set forth in
the Portfolio's prospectus and statement of additional
information as amended from time to time, and applicable laws
and regulations.
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office
space, furnishings and equipment and the personnel required by
it to perform the services on the terms and for the
compensation provided herein.
<PAGE>
2. Portfolio Transactions. The Adviser is authorized to select
the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Portfolios and is
directed to use its best efforts to obtain the best net
results as described from time to time in the Portfolios'
Prospectuses and Statement of Additional Information. The
Adviser will promptly communicate to the Administrator and to
the officers and the Trustees of the Trust such information
relating to portfolio transactions as they may reasonably
request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust
under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Trust to a
broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described
from time to time by the Portfolios' Prospectuses and
Statement of Additional Information.
3. Compensation of the Adviser. For the services to be rendered
by the Adviser as provided in Sections 1 and 2 of this
Agreement, the Trust shall pay to the Adviser compensation at
the rate specified in the Schedule(s) which are attached
hereto and made a part of this Agreement. Such compensation
shall be paid to the Adviser at the end of each month, and
calculated by applying a daily rate, based on the annual
percentage rates as specified in the attached Schedule(s), to
the assets. The fee shall be based on the average daily net
assets for the month involved (less any assets of such
Portfolios held in non-interest bearing special deposits with
a Federal Reserve Bank).
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of
printing and mailing reports, prospectuses, statements of
additional information, and sales literature relating to the
solicitation of prospective clients. The Trust shall pay all
expenses relating to mailing to existing shareholders
prospectuses, statements of additional information, proxy
solicitation material and shareholder reports.
5. Excess Expenses. If the expenses for any Portfolio for any
fiscal year (including fees and other amounts payable to the
Adviser, but excluding interest, taxes, brokerage costs,
litigation, and other extraordinary costs) as calculated every
business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory
authority of any jurisdiction in which shares of a Portfolio
are qualified for
<PAGE>
offer and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of any Portfolio
which would result in the Portfolio's inability to qualify as
a regulated investment company under provisions of the
Internal Revenue Code. Payment of expenses by the Adviser
pursuant to this Section 5 shall be settled on a monthly basis
(subject to fiscal year end reconciliation) by a reduction in
the fee payable to the Adviser for such month pursuant to
Section 3 and, if such reduction shall be insufficient to
offset such expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. Status of Adviser. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser shall be free
to render similar services to others so long as its services
to the Trust are not impaired thereby. The Adviser shall be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be
deemed an agent of the Trust.
8. Certain Records. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule
31a-2 promulgated under the Investment Company Act of 1940
which are prepared or maintained by the Adviser on behalf of
the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.
9. Limitation of Liability of Adviser. The duties of the
Adviser shall be confined to those expressly set forth herein,
and no implied duties are assumed by or may be asserted
against the Adviser hereunder. 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 hereunder, except a loss resulting
from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder, except as may
otherwise be provided under provisions of applicable state law
or Federal securities law which cannot be waived or modified
hereby. (As used in this Paragraph 9, the term "Adviser" shall
include directors, officers, employees and other corporate
agents of the Adviser as well as that corporation itself).
10. Permissible Interests. Trustees, agents, and shareholders
of the Trust are or may be interested in the Adviser (or any
successor thereof) as directors, partners, officers, or
shareholders, or otherwise; directors, partners, officers,
<PAGE>
agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or
otherwise; and the Adviser (or any successor) is or may be
interested in the Trust as a shareholder or otherwise. In
addition, brokerage transactions for the Trust may be effected
through affiliates of the Adviser if approved by the Board of
Trustees, subject to the rules and regulations of the
Securities and Exchange Commission.
11. License of Adviser's Name. The Adviser hereby agrees to
grant a license to the Trust for use of its name in the names
of the Portfolios for the term of this Agreement and such
license shall terminate upon termination of this Agreement.
12. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until
two years from date of execution, and thereafter, for periods
of one year so long as such continuance thereafter is
specifically approved at least annually (a) by the vote of a
majority of those Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of each
Portfolio; provided, however, that if the shareholders of any
Portfolio fail to approve the Agreement as provided herein,
the Adviser may continue to serve hereunder in the manner and
to the extent permitted by the Investment Company Act of 1940
and rules and regulations thereunder. The foregoing
requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940
and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any
time, without the payment of any penalty by vote of a majority
of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio on not less
than 30 days' nor more than 60 days' written notice to the
Adviser, or by the Adviser at any time without the payment of
any penalty, on 90 days' written notice to the Trust. This
Agreement will automatically and immediately terminate in the
event of its assignment. Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed
postpaid, to the other party at any office of such party.
As used in this Section 11, the terms "assignment",
"interested persons", and a "vote of a majority of the
outstanding voting securities" shall have the
<PAGE>
respective meanings set forth in the Investment Company Act of
1940 and the rules and regulations thereunder; subject to such
exemptions as may be granted by the Securities and Exchange
Commission under said Act.
13. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Trust, at Oaks, PA 19456 and if to the Adviser at 52
Haddonfield-Berlin Road, Suite 1000, Cherry Hill, NJ 08034.
14. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
15. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts
and the applicable provisions of the 1940 Act. To the extent
that the applicable laws of the Commonwealth of Massachusetts,
or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
are not binding upon any of the Trustees, officers, or shareholders of the Trust
individually but binding only upon the assets and property of the Trust.
Further, the obligations of the Trust with respect to any one Portfolio shall
not be binding upon any other Portfolio.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
TIP FUNDS
By:
-----------------------------
Attest:
-------------------------
PENN CAPITAL MANAGEMENT COMPANY, INC.
By:
-----------------------------
Attest:
-------------------------
<PAGE>
Schedule A dated July ____, 1997
to the
Investment Advisory Agreement
dated August ______ 1997
between
TIP Funds
and
Penn Capital Management Company, Inc.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
- --------------------- ----------------------
Penn Capital Select Financial Services Fund 1.00% of the average daily
net assets
Penn Capital Strategic High Yield Bond Fund .75% of the average daily
net assets
Penn Capital Value Plus Fund 1.00% of the average daily
net assets
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001006783
<NAME> TIP FUNDS
<SERIES>
<NUMBER> 040
<NAME> TURNER ULTRA LARGE CAP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-mos
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 288
<INVESTMENTS-AT-VALUE> 270
<RECEIVABLES> 15
<ASSETS-OTHER> 45
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 330
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 325
<SHARES-COMMON-STOCK> 32
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3)
<ACCUM-APPREC-OR-DEPREC> (18)
<NET-ASSETS> 304
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1)
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (3)
<APPREC-INCREASE-CURRENT> (18)
<NET-CHANGE-FROM-OPS> (21)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 450
<NUMBER-OF-SHARES-REDEEMED> (125)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 304
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1
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<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 345
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.59)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
