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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
File No. 33-70958
File No. 811-8104
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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. 5
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and
REGISTRATION STATEMENT UNDER
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 8
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TIP INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
(Exact Name of Registrant as Specified in Charter)
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312-2414
(Address of Principal Executive Offices, Zip Code)
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)
- ---
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TIP INSTITUTIONAL FUNDS
CROSS REFERENCE SHEET
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N-1A ITEM NO. LOCATION
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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
Advisers; The Administrator; The Transfer Agent; The
Distributor; Portfolio Transactions; Expense Summary
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities General Information-Voting Rights; General Infor-
mation-Shareholder Inquiries; General Information -
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 Poli-
cies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Trust (Prospec-
tus); Trustees and Officers of the Trust; The Admin-
istrator
Item 15. Control Persons and Principal Trustees and Officers of the Trust;
Holders of Securities
Item 16. Investment Advisory and Other The Advisers (Prospectus and Statement of Additional
Services Information); The Administrator (Prospectus and
Statement of Additional Information); The
Distributor (Prospectus and Statement of Additional
Information); The Transfer Agent (Prospectus);
General Information - Counsel and Independent Public
Accountants (Prospectus); Experts; General
Information - Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions (Prospectus); Portfolio Trans-
actions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing Purchase and Redemption of Shares
of Securities Being Offered (Prospectus); Purchase and Redemption of Shares;
Determination of Net Asset Value;
Item 20. Tax Status Taxes (Prospectus); Taxes
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Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Yield and Total Return
Item 23. Financial Statements N/A
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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
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TIP INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") provides a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus offers shares of the following mutual
fund (the "Fund"), which is a separate series of the Trust:
TURNER MICRO CAP GROWTH FUND
This Prospectus concisely sets forth the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated March 1, 1998, has been filed with the
Securities and Exchange Commission, and is available without charge by calling
1-888-TIP-7654. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
March 1, 1998
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TABLE OF CONTENTS
Summary ............................................................... 3
Expense Summary......................................................... 5
The Trust and the Fund.................................................. 6
Investment Objective.................................................... 6
Investment Policies..................................................... 6
Risk Factors............................................................. 9
Investment Limitations.................................................. 11
The Adviser............................................................. 11
The Administrator....................................................... 13
The Transfer Agent...................................................... 13
The Distributor......................................................... 13
Portfolio Transactions.................................................. 13
Purchase and Redemption of Shares....................................... 14
Performance............................................................. 18
Taxes ............................................................... 18
General Information..................................................... 20
Description of Permitted Investments and Risk Factors................... 22
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SUMMARY
The following provides basic information about the Turner Micro Cap Growth Fund
(the "Micro Cap Fund" or the "Fund"). The Fund is one of the four mutual funds
comprising TIP Institutional Funds (formerly, The Solon 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 is the Fund's investment objective and its primary policies?
Turner Micro Cap Growth Fund
The Micro Cap Fund seeks capital appreciation. It invests primarily in a
diversified portfolio of common stocks of issuers with market capitalizations of
not more than $500 million at the time of purchase that the Adviser believes
offer strong earnings growth potential.
What are the risks involved with investing in the Fund? The investment policies
of the Fund entail certain risks and considerations of which investors should be
aware. The Fund may invest in securities that fluctuate in value, and investors
should expect the Fund's net asset value per share to fluctuate in value. The
value of equity securities may be affected by the financial markets as well as
by developments impacting specific issuers. The Micro Cap Fund will typically
invest in companies, whose market capitalizations at the time of purchase are
equivalent to the market capitalizations of the companies comprising the bottom
quartile of the Russell 2000 Index at its most recent annual reconstitution.
Investments in smaller companies involve greater risks than investments in
larger, more established companies. In addition, the Fund may borrow money.
Micro cap companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than the large companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.
For more information about the Fund, see "Investment Objective," "Investment
Policies," "Risk Factors," and "Description of Permitted Investments and Risk
Factors."
Who is the Adviser? Turner Investment Partners, Inc. ("Turner" or the
"Adviser"), serves as the investment adviser to the Micro Cap Fund. See "Expense
Summary" and "The Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves as the
administrator and shareholder servicing agent for the Fund. See "Expense
Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Fund's shares. See "The Distributor."
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Who is the Transfer Agent? DST Systems, Inc., serves as the transfer agent and
dividend disbursing agent for the Trust. See "The Transfer Agent."
Is there a sales load? No, shares of the Fund are offered on a no-load basis.
Is there a minimum investment? The Fund requires a minimum initial investment of
$100,000, 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, on any Business Day.
Redemption orders received by the Transfer Agent prior to the determination of
the net asset value per share of the Fund 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 (generally, 4:00 p.m., Eastern
Time) the order is effective. See "Purchase and Redemption of Shares."
How are distributions paid? The Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
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EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load..................................................... None
Redemption Fees (1)..................................................... None
Exchange Fees........................................................... None
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(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
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Micro
Cap Fund
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Advisory Fees (1)
12b-1 Fees 1.00%
Other Expenses (after expense None
reimbursements, if applicable) (2) .25%
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Total Operating Expenses (after
fee waivers or expense reimbursements) (3) 1.25%
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(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fees to
the extent necessary to keep the "Total Operating Expenses" of the Fund
during the current fiscal year from exceeding 1.25%. 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 Micro
Cap Fund are estimated to be .33%.
(3) Absent fee waivers or expense reimbursements, "Total Operating Expenses" for
the Fund would be 1.33%, based on current expectations and assumptions.
EXAMPLE
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You would pay the following expenses on a $1,000 investment in 1 year 3 years
the Fund assuming (1) a 5% annual return and (2) redemption at the ------ -------
end of each time period.
Micro Cap Fund $13 $40
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THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUND AFTER WAIVERS AND
REIMBURSEMENTS, AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and example
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by shareholders of the Fund. Additional
information may be found under "The Adviser" and "The Administrator."
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THE TRUST AND THE FUND
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") offers shares
in four mutual funds. Each share of each mutual fund represents an undivided,
proportionate interest in that mutual fund. This Prospectus offers Institutional
Class shares of the Trust's Turner Micro Cap Growth Fund (the "Micro Cap Fund"
or the "Fund").
INVESTMENT OBJECTIVE
Turner Micro Cap Growth Fund -- The Micro Cap Fund seeks capital appreciation.
There can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
Turner Micro Cap Growth Fund -- The Micro Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $500
million at the time of purchase that the Adviser believes to have strong
earnings growth potential. Under normal market conditions, the Fund will
maintain a weighted average market capitalization of less than $350 million. The
Fund seeks to purchase securities that are well diversified across economic
sectors. The Micro Cap Fund will typically invest in companies whose market
capitalizations, at the time of purchase, are equivalent to the market
capitalizations of the companies comprising the bottom quartile of the Russell
2000 Index at its most recent annual reconstitution. The Fund may invest in
warrants and rights to purchase common stocks, and may invest up to 10% of its
total assets in micro cap stocks of foreign issuers and in ADRs.
The Micro Cap Fund invests in some of the smallest, most dynamic publicly-traded
companies. These emerging growth companies are typically in the early stages of
a long-term development cycle. In many cases, these companies offer unique
products, services or technologies and often serve special or expanding market
niches. Because of their small size, and less frequent trading activity, the
companies represented in the Fund's portfolio may be overlooked or not closely
followed by investors. Accordingly, their prices may rise either as a result of
improved business fundamentals, particularly when earnings grow faster than
general expectations, or as more investors appreciate the full extent of a
company's underlying business potential. Thus in the opinion of the Fund's
Adviser, they offer substantial appreciation potential for meeting retirement
and other long-term goals.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of micro capitalization stocks. To
manage risk and improve liquidity, Turner expects to invest in numerous small,
publicly traded companies, representing a broad cross-section of U.S.
industries.
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For a further description of these types of instruments and the risk factors
associated with them, see "Description of Permitted Investments and Risk
Factors" in the Statement of Additional Information.
The 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.
The Fund may participate in a securities lending program, which entails a risk
of loss should a borrower fail financially.
The Fund may purchase Rule 144A securities. For a further description of these
securities, see "Rule 144A Securities" in the "Description of Permitted
Investments and Risk Factors."
The Fund may invest in certain instruments such as certain types of when-issued
securities, and may borrow money and sell securities short. In addition, the
Fund may, although it has no present intention to do so, invest a portion of its
assets in derivatives, including futures, options, forwards and swaps, caps,
floors and collars. 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 the 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. These investments and techniques, require the 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, the 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.
The Fund may also invest in investment grade corporate bonds, foreign
securities, zero coupon, pay-in-kind and deferred payment bonds, shares of
other investment companies and cash equivalents.
The 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 a nationally recognized
statistical rating organization ("NRSRO")) and shares of money market investment
companies and may hold a portion of its assets in cash.
RISK FACTORS
Prospective investors in the Fund should consider the following factors as they
apply to the Fund's allowable investments and policies.
Equity Securities -- The Fund 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
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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 the 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.
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. 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 and/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.
Micro Cap Company Stocks -- The Micro Cap Fund may invest to a significant
degree in equity securities of smaller institutions. Any investment in a smaller
capitalization company 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. Micro cap companies may
have limited product lines, markets or financial resources; may lack management
depth or experience; and may be more vulnerable to adverse general market or
economic developments than the large companies. Some of the companies in which
the Micro Cap Fund may invest may distribute, sell or produce products which
have recently been brought to market and may be dependent on key personnel. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.
The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, the Fund may need to
discount the securities from recent prices or dispose of the securities over a
longer period of time. Also, because micro-cap companies normally have fewer
shares outstanding and these shares trade less frequently than large companies,
it may be more difficult for the Fund to buy and sell significant amounts of
such shares without an unfavorable impact on prevailing market prices.
Securities of Foreign Issuers -- The Fund may invest to a limited extent in
securities of foreign
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issuers and in sponsored and unsponsored ADR's. Investments in the securities of
foreign issuers may subject the Fund to investment risks that differ in some
respects from those related to investments in securities of U.S. issuers. Such
risks include future adverse political and economic developments, possible
imposition of withholding taxes on income, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or greater fluctuation in value due to changes in
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities, and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
of the Fund's assets measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies.
Portfolio Turnover -- The annual portfolio turnover rate for the Micro Cap Fund,
under normal circumstances, is not expected to exceed 250%. 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.
INVESTMENT LIMITATIONS
The investment objectives of the Fund and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Fund. Fundamental policies cannot be changed with respect to the
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. The Fund may not: (i) purchase securities of any issuer (except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction applies to 75% of the
Fund's total assets.
2. The Fund may not purchase any securities which would cause 25% or more of the
total assets of such Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry.
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. The 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 the Fund to purchase securities or require the
Fund to segregate assets are not considered to be borrowings. Asset coverage of
at least 300% is required for all borrowings, except where the Fund
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has borrowed money for temporary purposes in amounts not exceeding 5% of its
total assets. The 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
Turner Investment Partners, Inc.
Turner Investment Partners, Inc. ("Turner") is a professional investment
management firm founded in March, 1990. Robert E. Turner is the Chairman and
controlling shareholder of Turner. As of September 30, 1997, Turner had
discretionary management authority with respect to approximately $2.3 billion of
assets. Turner has provided investment advisory services to investment companies
since 1992. The principal business address of Turner is 1235 Westlakes Drive,
Suite 350, Berwyn, Pennsylvania 19312.
Turner serves as the investment adviser for the Micro Cap Fund under an
investment advisory agreement (the "Advisory Agreement"). Under the Advisory
Agreement, Turner makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the average daily net assets of
the Micro Cap Fund. Turner has voluntarily agreed to waive all or a portion of
its fee and to reimburse expenses of the Micro Cap Fund in order to limit its
total operating expenses (as a percentage of average daily net assets on an
annualized basis) to not more than 1.25%. Turner reserves the right, in its sole
discretion, to terminate these voluntary fee waivers and reimbursements at any
time.
Frank L. Sustersic, CFA, a Senior Security Analyst and Equity Portfolio Manager
at Turner, serves as lead portfolio manager to the Fund. Mr. Sustersic joined
Turner in 1994. Prior to 1994, he was Investment Officer/Fund Manager with First
Fidelity Bank Corporation. He has eight years of investment experience.
Robert E. Turner, CFA, Chairman and Chief Investment Officer of Turner, serves
as co-portfolio manager to the Fund. Mr. Turner founded Turner in 1990. Prior to
1990, he was Senior Investment Manager with Meridian Investment Company. He has
15 years of investment experience.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") provides the Trust with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
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For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly, at an annual rate of .10%
of that Fund's average daily net assets up to $250 million, .08% on the next
$250 million of such assets, and .07% of such assets in excess of $500 million.
The Fund is subject to a minimum annual fee of $75,000 for the first class of
shares and $15,000 for each additional class of shares which may be reduced at
the sole discretion of the Administrator.
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 Fund's public
offering price.
PORTFOLIO TRANSACTIONS
The Fund 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
the 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 Fund and the Adviser's other clients. The
Adviser may direct commission business for the Fund to designated broker-dealers
(including the Distributor) in connection with such broker-dealers' payment of
certain Fund expenses.
Since shares of the Fund are not marketed through intermediary broker-dealers,
the Fund does not have a practice of allocating brokerage or effecting principal
transactions with broker-dealers on the basis of sales of shares which may be
made through such firms. However, the Adviser may place orders for the Fund with
qualified broker-dealers who refer clients to the Fund.
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Some securities considered for investment by the 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 the 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 Institutional Funds, P.O. Box 419805, Kansas City,
Missouri 64141-6805, by mail or wire transfer. All shareholders may place orders
by telephone; when market conditions are extremely busy, it is possible that
investors may experience difficulties placing orders by telephone and may wish
to place orders by mail. Purchases and redemptions of shares of the Fund may be
made on any Business Day.
The minimum initial investment in the Fund is $100,000, and subsequent purchases
must be at least $5,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
Certain brokers assist their clients in the purchase or redemption of shares and
charge a fee for this service in addition to the Fund's public offering price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Fund) for $100,000, together with a completed Account
Application to: TIP Institutional 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 the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [Turner Micro
Cap Growth 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 1-888-TIP-7654 to be assigned an account number. The investor's
name, account number, taxpayer
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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 Institutional 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 the Fund is the Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full and fractional shares of the Fund calculated to
three decimal places. The Trust will not issue certificates representing shares
of the Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
Exchanges
Shareholders of the Fund may exchange their Institutional Class shares for
Institutional Class shares of the other TIP Institutional 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. If the
Transfer Agent (or its authorized agent) receives exchange instructions in
writing or by telephone (an "Exchange Request") in good order prior to 4:00
p.m., Eastern time, on any Business Day, the exchange will be effected that day.
The liability of the Fund or the Transfer Agent for fraudulent or unauthorized
telephone instructions may be limited as described below. The Trust reserves the
right to modify or terminate this exchange offer on 60 days' notice.
Because excessive trading can hurt Fund performance and shareholders, the Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges into and out of the
Fund per calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted together
for purposes of the four exchange limit.
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<PAGE>
Redemptions
Redemption requests in good order received by the Transfer Agent (or its
authorized agent) prior to the determination of the Fund's net asset value per
share, 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 the Fund is the net asset value per share of
such Fund next determined after the redemption order is effective. Payment of
redemption proceeds will be made as promptly as possible and, in any event,
within seven days after the redemption order is received, provided, however,
that redemption proceeds for shares purchased by check (including certified or
cashier's checks) will be forwarded only upon collection of payment for such
shares; collection of payment may take up to 15 days. Shareholders may not close
their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Fund by
Federal Reserve wire on Federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone if they reasonably believe
those instructions to be genuine. The Trust and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine.
Such procedures may include the taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
Valuation of Shares
The net asset value per share of the Fund is determined by dividing the total
market value of that Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Fund. Net asset value per share
is determined daily as of the close of business of the New York Stock Exchange
(currently, 4:00 p.m., Eastern time) on any Business Day.
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<PAGE>
PERFORMANCE
From time to time, the Fund 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 the 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 the Fund refers to the average compounded rate of return on
a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Fund may periodically compare 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 Fund
may quote Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. The Fund may also
quote the Frank Russell Company or Wilshire Associates, consulting firms that
compile financial characteristics of common stocks and fixed income securities,
regarding non-performance-related attributes of the Fund's portfolios. The Fund
may use long term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Fund or its shareholders.
Shareholders are urged to consult their tax advisors regarding specific
questions as
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<PAGE>
to federal, state and local income taxes. Further information concerning taxes
is set forth in the Statement of Additional Information.
Tax Status of the Fund:
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as the Fund qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
Tax Status of Distributions:
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from the Fund's
net investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. Any net capital gains will be distributed annually and will be
taxed to shareholders as gains from the sale or exchange of a capital asset held
for more than one year, regardless of how long the shareholder has held shares.
The Fund will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue discount
and thus do not make periodic cash interest payments. The Fund will be required
to include as part of their current income the accrued discount on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to shareholders, the Fund may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. The Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Each sale, exchange or redemption of a Fund's shares is a taxable event to the
shareholder.
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<PAGE>
GENERAL INFORMATION
The Trust
The Trust, an open-end management investment company, was organized under
Delaware law as a business trust under a Declaration of Trust dated October 25,
1993. 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 State of Delaware. 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 share.
In other words, each shareholder of record is entitled to one vote for each
share held on the record date for the meeting. Shareholders of each Fund or
Class will vote separately on matters pertaining solely to that Fund or Class.
As a Delaware business trust, the Trust is not required to hold annual meetings
of Shareholders, but approval will be sought for certain changes in the
operation of the Trust and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
Reporting
The Trust issues unaudited financial information semiannually and audited
financial statements annually for the Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
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<PAGE>
Shareholder Inquiries
Shareholder inquiries should be directed to TIP Institutional Funds, P.O. Box
419805, Kansas City, Missouri 64141-6805, or by calling 1-888-TIP-7654.
Purchases, exchanges and redemptions of shares should be made through the
Transfer Agent by calling 1-888-TIP-7654.
Dividends and Distributions
Substantially all of the net investment income (excluding capital gains) of the
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 Fund are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a distribution of ordinary income
or capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable distribution or dividend.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants for the Trust.
Custodian
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Fund:
BORROWING -- The Fund may borrow money equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. Borrowing may
exaggerate changes in the net asset value of the Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
the Fund's assets may change in value during the time the borrowing
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<PAGE>
is outstanding. The 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 Fund may be required to segregate liquid assets in
an amount sufficient to meet their obligations in connection with such
borrowings. In an interest rate arbitrage transaction, the Fund borrows money at
one interest rate and lends the proceeds at another, higher interest rate. These
transactions involve a number of risks, including the risk that the borrower
will fail or otherwise become insolvent or that there will be a significant
change in prevailing interest rates.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics of both fixed income and
equity securities. Because of the conversion feature, the market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days, securities for
which there is no active secondary market, and repurchase agreements with
durations or maturities over 7 days in length.
MONEY MARKET INSTRUMENTS -- Money market securities are high-quality, dollar-
denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper ratings;
and (v) repurchase agreements involving any of the foregoing obligations entered
into with highly-rated banks and broker-dealers.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which the 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.
RIGHTS -- Rights give existing shareholders of a corporation the right, but not
the obligation, to buy shares of the corporation at a given price, usually below
the offering price, during a specified period.
RULE 144A SECURITIES -- Rule 144A securities are securities exempt from
registration on resale pursuant to Rule 144A under the 1933 Act. Rule 144A
securities are traded in the institutional market pursuant to this registration
exemption, and, as a result, may not be as liquid as exchange-traded securities
since they may only be resold to certain qualified institutional investors. Due
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<PAGE>
to the relatively limited size of this institutional market, these securities
may affect the Fund's liquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.
Nevertheless, Rule 144A securities may be treated as liquid securities pursuant
to guidelines adopted by the Trust's Board of Trustees.
SECURITIES LENDING -- In order to generate additional income, the Fund may lend
its securities 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. The 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 -- Short sales are transactions in which the Fund sells a security
it does not own. To complete the transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing the security at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. 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.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
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.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy
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equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a separate account with liquid securities or cash in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date, and no interest accrues to
the Fund before settlement.
ZERO COUPON, 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 the 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, the 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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Trust:
TIP INSTITUTIONAL FUNDS
Fund:
TURNER MICRO CAP GROWTH FUND
Adviser:
TURNER INVESTMENT PARTNERS, INC.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Auditors:
ERNST & YOUNG LLP
<PAGE>
TIP INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
The TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") provides a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus offers Adviser Class shares of the
following mutual funds (each a "Fund" and, together, the "Funds") each of which
is a separate series of the Trust:
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
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 March 1, 1998, has been filed with the
Securities and Exchange Commission, and is available without charge by calling
1-888-TIP-7654. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
March 1, 1998
<PAGE>
TABLE OF CONTENTS
Summary ................................................................... 3
Expense Summary............................................................. 5
The Trust and the Funds..................................................... 10
Investment Objectives....................................................... 10
Investment Policies......................................................... 10
Risk Factors................................................................ 13
Investment Limitations...................................................... 14
The Adviser................................................................. 15
The Administrator........................................................... 16
The Transfer Agent.......................................................... 16
The Distributor and Shareholder Servicing Agent............................. 16
Portfolio Transactions...................................................... 16
Purchase and Redemption of Shares........................................... 17
Performance................................................................. 20
Taxes ................................................................... 21
General Information......................................................... 22
Description of Permitted Investments and Risk Factors....................... 24
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SUMMARY
The following provides basic information about Adviser Class Shares of the
Turner Short Duration Government Funds - One Year Portfolio ("Short Duration One
Year Portfolio") and the Turner Short Duration Government Funds - Three Year
Portfolio ("Short Duration Three Year Portfolio") (each a "Fund" and, together,
the "Funds"). The Funds are two of the four mutual funds comprising TIP
Institutional Funds (formerly, The Solon 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? Each Fund seeks
maximum total return consistent with preservation of capital and prudent
investment management. Each Fund invests primarily in attractively priced
obligations either issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Moreover, each Fund seeks to limit fluctuations and principal
and reduce interest rate risk by maintaining average effective durations no
greater than those of one-year U.S. Treasury bills and three-year U.S. Treasury
notes, respectively. Effective duration is an indicator of a security's
volatility or risk associated with changes in interest rates. There can be no
assurance that the Funds will meet their objectives.
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 Funds invest in securities that fluctuate in value, and investors
should expect each Fund's net asset value per share to fluctuate in value. The
values of fixed income securities tend to vary inversely with interest rates and
may be affected by market and economic factors as well as by developments
impacting specific issuers. The Funds may enter into futures and options
transactions and may purchase zero coupon securities. In addition, the Funds
will purchase mortgage-related securities. Investments in these securities
involve certain other risks.
For more information about the Funds, see "Investment Objectives," "Investment
Policies," "Risk Factors," and "Description of Permitted Investments and Risk
Factors."
Who is the Adviser? Turner Investment Partners, Inc. (the "Adviser"), serves as
the investment adviser to the Funds. See "Expense Summary" and "The Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves as the
admin istrator 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 and as shareholder servicing
agent. See "The Distributor and Shareholder Servicing Agent."
Who is the Transfer Agent? DST Systems, Inc., serves as the transfer agent and
dividend disbursing agent for the Trust. See "The Transfer Agent."
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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
$10,000, which the Distributor may waive at its discretion. Subsequent purchases
must be at least $1,000.
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? Each Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
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EXPENSE SUMMARY
S
HAREHOLDER 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)
Short Duration Short Duration
One Year Three Year
Portfolio Portfolio
Advisory Fees(after fee waivers or
reimbursements, if applicable)(1) .25% .25%
12b-1 Fees None None
Other Expenses(2) .36% .36%
Total Operating Expenses (after fee
waivers or reimbursements)(3) .61% .61%
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(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fee for
each Fund and to reimburse expenses to the extent necessary to keep the
"Total Operating Expenses" of each Fund during the current fiscal year from
exceeding .61%. The Adviser reserves the right to terminate its waivers at
any time in its sole discretion.
(2) "Other Expenses" for the Funds are estimated for the current fiscal year.
"Other Expenses" includes a shareholder servicing fee of up to .25%.
(3) Absent fee waivers, expense reimbursements, "Total Operating Expenses" would
be 1.13% and .89% respectively, for the Short Duration One Year and Short
Duration Three Year Portfolios, based on current expectations and
assumptions.
EXAMPLE
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Your would pay the following expenses on a $1,000 investment in a 1 year 3 years
Fund assuming (1) a 5% annual return and (2) redemption at the ------ -------
end of each time period.
Short Duration One Year Portfolio - Adviser Class $6 $20
Short Duration Three Year Portfolio - Adviser Class $6 $20
- --------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF EACH FUND AFTER WAIVERS
AND REIMBURSEMENTS, IF ANY, AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and
example is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by shareholders of the Funds.
Additional information may be found under "The Adviser" and "The Administrator."
-5-
<PAGE>
Financial Highlights
The following financial information for the Institutional Class Shares Solon
Short Duration Government Funds - One Year Portfolio and Solon Short Duration
Government Funds - Three Year Portfolio, for the fiscal year ended February 28,
1997, has been derived from audited financial statements of The Solon Funds.
Such information should be read in conjunction with the financial statements of
the Trust and the report of Ernst & Young LLP, independent auditors, appearing
in the annual report to shareholders which is incorporated by reference in this
prospectus and is available to shareholders at no charge. The performance of the
Adviser Class Shares of the Funds will be lower due to the shareholder servicing
fee charged to the Adviser Class Shares.
<TABLE>
<CAPTION>
One Year Portfolio
For the Year Ended
2/28/97 2/29/96
------- --------
<S> <C> <C>
Net Asset Value,
Beginning of Period $ 10.03 $ 9.99
Income From Investment Operations
Net investment income 0.60 0.64
Net realized and unrealized gain 0.03 0.05
------- -------
Total from investment operations 0.63 0.69
Less Distributions:
Dividends from net investment income (0.60) (0.65)
------- -------
Net Asset Value, End of Period $ 10.06 $ 10.03
======= =======
Total Return 6.32% 7.09%
Ratios/Supplemental Data:
Net assets, end of period ($000) 865 398
Ratio of expenses to average net assets
Before expense reimbursement 10.25% 16.47%
After interest reimbursement 0.00% 0.00%
Interest expense -- --
Ratio of net investment income to average
net assets 5.91% 6.46%
Portfolio turnover rate 81.82% --
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Year Portfolio
For the Year Ended
2/28/97 2/29/96
---------- ---------
<S> <C> <C>
Net Asset Value
Beginning of Period $ 10.04 $ 9.80
Income From Investment Operations
Net investment income 0.58 0.60
Net realized and unrealized gain (loss) 0.01 0.23
-------- ---------
Total from investment operations 0.57 0.83
Less Distributions:
Dividends from net investment income (0.59) (0.59)
Realized gain on investments (0.02)
-------- ---------
Net Asset Value, End of Period $ 10.00 $ 10.04
-------- ---------
Total Return 5.45% 8.73%
Ratios/Supplemental Data:
Net assets, end of period ($000) $ 17,809 $ 11,027
Ratio of expenses to average net assets
Before expense reimbursement 1.21% 1.45%
After expense reimbursement 0.24% 0.24%
Interest expense 0.02% 0.12%
Ratio of net investment income to average net assets 5.80% 6.18%
Portfolio turnover rate 279% 251%
Average debt outstanding during the year* ($000) 56 256
Average shares outstanding during that year* (000) 1,321 901
Average debt per share during the year*($) 0.04 0.28
</TABLE>
*Average based upon amounts outstanding at each month end.
-7-
<PAGE>
THE TRUST AND THE FUNDS
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") offers shares
in four 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 Adviser Class shares of the
Trust's Turner Short Duration Government Fund - One Year Portfolio ("Short
Duration One Year Portfolio") and Turner Short Duration Government Fund - Three
Year Portfolio ("Short Duration Three Year Portfolio") (each a "Fund" and,
together, the "Funds").
INVESTMENT OBJECTIVES
Short Duration One Year Portfolio and Short Duration Three Year Portfolio
The investment objective of each Fund is to provide maximum total return
consistent with preservation of capital and prudent investment management. Under
normal circumstances, the Short Duration One Year Portfolio seeks to maintain an
average effective duration comparable to or less than that of one-year U.S.
Treasury bills. The Short Duration Three Year Portfolio seeks to maintain an
average effective duration comparable to or less than that of three-year U.S.
Treasury notes.
Effective duration is an indicator of a security's price volatility or risk
associated with changes in interest rates. See "Effective Duration." Because the
Adviser seeks to manage interest rate risk by limiting effective duration, each
Fund may invest in securities of any maturity.
There can be no assurance that the Funds will achieve their investment
objectives.
INVESTMENT POLICIES
Short Duration One Year Portfolio and Short Duration Three Year Portfolio
Under normal market conditions, Each Fund invests at least 65% of the value of
its total assets in obligations either issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
Certain of the obligations, including U.S. Treasury bills, notes and bonds and
mortgage-related securities of the Government National Mortgage Association
("GNMA"), are issued or guaranteed by the U.S. Government. Other securities
issued by U.S. Government agencies or instrumentalities are supported only by
the credit of the agency or instrumentality, such as those issued by the Federal
Home Loan Bank, while others, such as those issued by Fannie Mae and the Student
Loan Marketing Association, have an additional line of credit with the U.S.
Treasury.
-8-
<PAGE>
The balance of each Fund's assets may be invested in cash and high grade debt
securities, shares of other investment companies, including privately issued
mortgage-related securities and general obligation bonds and notes of various
states and their political subdivisions, rated within the three highest grades
assigned by Standard & Poor's Corporation ("S&P") (AAA, AA or A), Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa or A), or Fitch Investor Services,
Inc. ("Fitch") (AAA, AA or A), or, if unrated by S&P, Moody's and/or Fitch,
judged by the Adviser to be of comparable quality. A further description of
S&P's, Moody's and Fitch's ratings is included in the Appendix to the Statement
of Additional Information.
Effective Duration
Traditionally, a debt security's maturity has been used to represent the
sensitivity of the debt security's price to changes in interest rates (which is
the interest rate risk or volatility of the security). However, term to maturity
measures only the time until a debt security provides its final payment, taking
no account of the pattern of the security's payments prior to maturity. Most
debt securities provide interest ("coupon") payments in addition to final
("par") payment at maturity. Some debt securities also have call provisions
allowing the issuer to repay the instrument in full before the stated maturity
date. Depending on the relative magnitude of these payments, the market values
of debt securities respond differently to changes in the level and structure of
interest rates.
Effective duration has its origins in standard duration, which was developed as
a more precise alternative to the concept of term to maturity. Standard
duration, which is expressed in years, takes the length of the time intervals
between the present time and the time that the interest and principal payments
are scheduled, or in the case of a callable bond, expected to be received, and
weighs them by the present values of the cash to be received at each future
point in time.
Effective duration is a measure of the expected change in value of a fixed
income security for a given change in interest rates. For example, if interest
rates rose by one percent, the value of a security having an effective duration
of two generally would decrease by two percent.
Effective duration was developed because the standard duration calculation does
not always properly reflect the interest rate risk of a security. For example,
floating and variable rate debt securities often have final maturities of 10 or
more years; however, their interest rate risk corresponds to the frequency of
the coupon reset. Another type of security whose interest rate risk is not
properly captured by standard duration is a mortgage "pass-through" security.
The stated final maturity of such a security is generally 30 years, but current
prepayment rates generally are more critical in determining such security's
interest risk rate.
Consequently, the Adviser uses more sophisticated analytical techniques to
arrive at an effective duration that incorporates the economic life of a
security into the determination of its interest rate risk. These techniques may
involve the Adviser's estimates of future economic parameters that may vary from
actual future values. Each Fund expects that, under normal circumstances, the
-9-
<PAGE>
dollar weighted stated maximum average maturity (or period until the next
interest rate reset date) of the Fund's portfolio securities may be longer than
its average portfolio effective duration and, although unlikely, in some cases
could be as long as 30 years.
Because the Short Duration Three Year Portfolio's average portfolio effective
duration can be comparable to that of a three-year U.S. Treasury note, whose
value is more sensitive to changes in interest rates than is the one-year U.S.
Treasury bill, the Adviser seeks to preserve the Short Duration Three Year
Portfolio's capital through careful management of interest rate risk using
effective duration measurements and investment techniques. The Trust believes
that effective duration provides the Adviser a more precise definition and means
of managing interest rate risk and preserving the Short Duration Three Year
Portfolio's capital than do traditional average weighted maturity measures. In
addition, while the Short Duration Three Year Portfolio's average portfolio
effective duration is permitted to be comparable to a three-year U.S. Treasury
note, the Trust expects that under many normal market conditions the Portfolio's
average portfolio effective duration will be comparable to that of a two-year
U.S. Treasury note and thus less sensitive to interest rate risk than a
three-year U.S. Treasury note.
The relative proportions of the Funds' net assets invested in the different
types of permissible investments will vary from time to time depending upon the
Adviser's assessment of the relative market value of the sectors in which the
Funds invest. In addition, the Funds may purchase securities that are trading at
a discount from par when the Adviser believes there is a potential for capital
appreciation.
The Funds may enter into forward commitments or purchase securities on a when
issued basis, and may invest in variable or floating rate obligations.
The Funds may enter into futures and options transactions.
The Funds may invest up to 10% of its net assets in illiquid securities.
For temporary defensive purposes, during periods when the Adviser determines
that market conditions warrant, each Fund may invest up to 100% of its assets in
Money Market Instruments and in cash.
For a further description of these types of instruments see "Description of
Permitted Investments and Risk Factors" in the Statement of Additional
Information.
RISK FACTORS
Fixed Income Securities -- The market value of fixed income investments will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities
-10-
<PAGE>
with longer maturities tend to produce higher yields, the prices of longer
maturity securities are also subject to greater market fluctuations as a result
of changes in interest rates. Changes by recognized agencies in the rating of
any fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities, but will affect the investing Fund's net asset value.
Mortgage-backed and asset-backed securities purchased by the Funds may be
subject to prepayment, which may result in capital gains or losses, and which
make it difficult to determine such securities' average life and yield. When the
mortgage-backed securities held by a Fund are pre-paid, the Fund must reinvest
the proceeds in securities the yield of which reflects prevailing interest
rates, which may be lower than the yield of the pre-paid security.
Mortgage-Related Securities - The mortgage-related securities in which the Funds
may invest are subject to prepayment of the underlying mortgages. During periods
of declining interest rates, prepayment of mortgages underlying mortgage-related
securities can be expected to accelerate. When the mortgage-related securities
held by the Funds are prepaid, the Funds must reinvest the proceeds in
securities the yield of which reflects prevailing interest rates, which may be
lower than the yield on prepaid mortgage-related securities. See
"Mortgage-Related Securities" in the "Description of Permitted Investments and
Risk Factors."
Portfolio Turnover -- Each Fund's annual portfolio turnover rate is not expected
to exceed 100%. An annual portfolio turnover rate in excess of 100% may result
from the Adviser's investment strategy of focusing on earnings potential and
disposing of securities when the Adviser believes that their earnings potential
has diminished, or may result from the Adviser's maintenance of appropriate
issuer diversification. Portfolio turnover rates in excess of 100% may result in
higher transaction costs, including increased brokerage commissions, and higher
levels of taxable capital gain. For the annual portfolio turnover rates for the
predecessor portfolios to each of the Funds, see "Financial Highlights."
INVESTMENT LIMITATIONS
The investment objective of the Funds and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Funds. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. Each Fund may not (i) purchase securities of any issuer (except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction applies to 75% of each
Fund's total assets.
-11-
<PAGE>
2. Each Fund may not purchase any securities which would cause 25% or more of
the total assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Turner Investment Partners, Inc., is a professional investment management firm
founded in March, 1990. Robert E. Turner is the Chairman and controlling
shareholder of the Adviser. As of September 30, 1997, the Adviser had
discretionary management authority with respect to approximately $2.3 billion of
assets. The Adviser has provided investment advisory services to investment
companies since 1992. The principal business address of the Adviser is 1235
Westlakes Drive, Suite 350, Berwyn, Pennsylvania 19312.
The Adviser serves as the investment adviser for the Fund under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .25% of the average daily net assets of
each Fund. The Adviser has voluntarily agreed to waive all or a portion of its
fee and to reimburse expenses of the Funds in order to limit their total
operating expenses of each Fund (as a percentage of average daily net assets on
an annualized basis) to not more than .61%. The Adviser reserves the right, in
its sole discretion, to terminate these voluntary fee waivers and reimbursements
at any time.
James L. Midanek, a Fixed Income Portfolio Manager of the Adviser, is the
portfolio manager of the Funds. Mr. Midanek joined Turner Investment Partners,
Inc., in 1997. Prior to joining Turner in 1997, Mr. Midanek was Chief Investment
Officer of Solon Asset Management, L.P., which he founded in 1989, and Portfolio
Manager of the Funds. From 1992 to 1994, Mr. Midanek was Chief Investment
Officer of the Fixed Income Group of Montgomery Asset Management, L.P., where he
managed four institutional fixed income funds. From 1987 to 1989, he established
a successful mortgage-related securities department, including trading, sales
and research functions, at J.P. Morgan Securities. At E.F. Hutton from 1985 to
1987, Mr. Midanek was senior vice president in charge of mortgage-related
trading and sales. From 1984 to 1985, Mr. Midanek was the senior
mortgage-related securities trader at Drexel Burnham Lambert, in charge of the
contract trading function, and traded a wide variety of collateral types,
including residential fixed and floating rate whole loans, recreational vehicle
paper, mobile home loans, project loans and branch sale notes.
-12-
<PAGE>
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") provides the Trust with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly, at an annual rate of .08%
of that Fund's average daily net assets for the first year. Thereafter, each
Fund pays administrative fees at an annual rate of .10% of that Fund's average
daily net assets up to $250 million, .08% on the next $250 million of such
assets, and .07% of such assets in excess of $500 million. The Funds are subject
to a minimum annual fee of $75,000 for the first class of shares and $15,000 for
each additional class of shares, which may be reduced at the sole discretion of
the Administrator.
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 AND SHAREHOLDER SERVICING AGENT
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.
The Funds have adopted a shareholder service plan for Adviser Class shares (the
"Adviser Class Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefor. Under the Adviser Class Service Plan, the Distributor may provide
those services itself, or may enter into arrangements under which third parties
provide such services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any difference between the
fee it receives and the amount it pays such third parties. In addition, the
Funds may enter into such arrangements directly. Under the Adviser Class Service
Plan, the Distributor is entitled to receive a fee at a negotiated annual rate
of up to .25% of each Fund's average daily net assets attributable to Adviser
Class shares that are subject to the arrangement in return for provision of a
broad range of shareholder and administrative services, including: maintaining
client accounts; arranging for bank wires; responding to client inquiries
concerning services provided for investments; changing dividend options; account
designations and addresses; providing sub-accounting; providing information on
share positions to clients; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and processing dividend
payments.
-13-
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser considers a number of factors in determining which brokers or
dealers to use for a Fund's portfolio transactions. These factors include, but
are not limited to, the reasonableness of commissions, the quality of services
and execution and the availability of research that the Adviser may lawfully and
appropriately use in its investment management and advisory capacities. Provided
a Fund receives prompt execution at competitive prices, the Adviser also may
consider the sale of the Fund's shares as a factor in selecting broker-dealers
for the Fund's portfolio transactions.
The Adviser may select brokers on the basis of the research, statistical and
pricing services they provide to a Fund. A commission paid to such brokers may
be higher than that which another qualified broker would have charged for
effecting the same transaction, 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.
Some securities considered for investment by a Fund may also be appropriate for
other accounts and/or clients served by that Adviser. If the purchase or sale of
securities consistent with the investment policies of the Fund and another of
the Adviser's accounts and/or clients are considered at or about the same time,
transactions in such securities will be allocated among the Fund and the other
accounts and/or clients in a manner deemed equitable by the Adviser.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business ("Business Day").
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: TIP Institutional Funds, P.O. Box 419805, Kansas City,
Missouri 64141-6805, by mail or wire transfer. All shareholders may place orders
by telephone; when market conditions are extremely busy, it is possible that
investors may experience difficulties placing orders by telephone and may wish
to place orders by mail. Purchases and redemptions of shares of the Fund may be
made on any Business Day. Certain brokers assist their clients in the purchase
or redemption of shares and charge a fee for this service in addition to a
Fund's public offering price.
The minimum initial investment in the Fund is $10,000 and subsequent purchases
must be at least $1,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
-14-
<PAGE>
Certain brokers assist their clients in the purchase or redemption of shares and
charge a fee for this service in addition to the Funds' public offering price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the appropriate Fund) for $10,000 or more, together with
a completed Account Application to: TIP Institutional 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 the Funds 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 1-888-TIP-7654 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 Institutional 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 any Fund is that Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full
-15-
<PAGE>
and fractional shares of each Fund calculated to three decimal places. The Trust
will not issue certificates representing shares of each Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
Shares of each Fund may be purchased in exchange for securities to be included
in that Fund, subject to the Adviser's or Administrator's determination that
these securities are acceptable. Securities accepted in such an exchange will be
valued at their market value. All accrued interest and subscription or other
rights that are reflected in the market price of accepted securities at the time
of valuation become the property of that Fund and must be delivered by the
shareholder to that Fund upon receipt from the issuer.
The Adviser or Administrator will not accept securities in exchange for Fund
shares unless (1) such securities are appropriate for a 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.
Exchanges
Adviser Class shareholders of the Funds may exchange their shares for Adviser
Class shares of the other TIP Institutional 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. 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 the Fund next determined after the
redemption order is effective. Payment of redemption proceeds will be made as
promptly as possible and, in any event, within seven days after the redemption
order
-16-
<PAGE>
is received, provided, however, that redemption proceeds for shares purchased by
check (including certified or cashier's checks) will be forwarded only upon
collection of payment for such shares; collection of payment may take up to 15
days. Shareholders may not close their accounts by telephone. Redemption
requests from IRA accounts must be made in writing.
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 on which wire transfers are restricted.
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 release of redemption proceeds.
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.
Valuation of Shares
The net asset value per share of each Fund is determined by dividing the total
market value of the 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.
Portfolio securities are valued using current market valuations: either the last
reported sale price or, in the case of securities for which there is no last
reported sale, the case of securities for which there is no last reported sale,
the mean between the closing bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at their
fair values as determined in good faith under the supervision of the Trust's
Board of Trustees by the Trust's officers and by the Adviser, in accordance with
methods which are specifically authorized by the Board of Trustees. Short term
obligations with maturities of 60 days or less are valued at their amortized
cost.
-17-
<PAGE>
PERFORMANCE
From time to time, the Funds may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. The yield of the Fund refers to the annualized income generated by
an investment in a 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.
Each Fund may periodically compare its performance to that of other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services,
Inc.), financial and business publications and periodicals, broad groups of
comparable mutual funds, unmanaged indices, which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs, or other investment alternatives. Each Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. Each Fund may
also quote the Frank Russell Company or Wilshire Associates, consulting firms
that compile financial characteristics of common stocks and fixed income
securities, regarding non-performance-related attributes of a Fund's portfolio.
Each Fund may use long term performance of these capital markets to demonstrate
general long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. Each Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
Each Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Funds or their
shareholders. Shareholders are urged to consult their tax advisors regarding
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specific questions as to federal, state and local income taxes. Further
information concerning taxes is set forth in the Statement of Additional
Information.
Tax Status of the Fund:
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. Each Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as 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:
Each Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. It can be expected that none of the dividends paid by a Fund will
qualify for that deduction. Any net capital gains will be distributed annually
and will be taxed to shareholders as gains from the sale or exchange of a
capital asset held for more than one year, regardless of how long the
shareholder has held shares. Each Fund will make annual reports to shareholders
of the federal income tax status of all distributions, including the amount of
dividends eligible for the dividends-received deduction.
Certain securities purchased by each Fund are sold with original issue discount
and thus do not make periodic cash interest payments. Each Fund will be required
to include as part of its current income the accrued discount on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because each Fund distributes all of its net
investment income to its shareholders, the Fund may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. Each Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
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Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by the Fund and may be exempt, depending on
the state, when received by a shareholder from each Fund provided certain
state-specific conditions are satisfied. Each Fund will inform shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisers to determine whether
any portion of the income dividends received from the Fund is considered tax
exempt in their particular state. Income derived by each Fund from securities of
foreign issuers may be subject to foreign withholding taxes. Each Fund will not
be able to elect to treat shareholders as having paid their proportionate share
of such foreign taxes.
Each sale, exchange or redemption of the Funds' shares is a taxable event to the
shareholder.
GENERAL INFORMATION
The Trust
The Trust, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated October
25, 1993. 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 State of Delaware. 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. Shares issued by each Fund have no preemptive, conversion, or
subscription rights. Each whole share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional share shall be
entitled to a
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proportionate fractional vote. Each Fund, as a separate series of the Trust,
votes separately on matters affecting only that Fund. Voting rights are not
cumulative. Shareholders of each Class of each Fund will vote separately on
matters pertaining solely to that Fund or that Class. As a Delaware 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 each Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
Shareholder Inquiries
Shareholder inquiries should be directed to TIP Institutional Funds, P.O. Box
419805, Kansas City, Missouri 64141-6805, or by calling 1-888-TIP-7654.
Purchases, exchanges and redemptions of shares should be made through the
Transfer Agent by calling 1-888-TIP-7654.
Dividends and Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Each Fund's current policy is to
declare income dividends daily and pay them monthly on or about the last
business day of the month. Each Fund currently intends to make at least one
capital gains distribution during each calendar year.
Substantially all of the net investment income (excluding capital gains) of the
Fixed Income Fund is distributed in the form of monthly dividends. Shareholders
of record of the Fixed Income Fund on the second to last Business Day of each
quarter or month, respectively, will be entitled to receive the quarterly or
monthly dividend distribution. If any capital gain is realized, substantially
all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
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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:
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.
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.
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The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BORROWING -- Each Fund may borrow money from banks in an aggregate amount not to
exceed one-third of the value of the Fund's total assets, and the Fund may
pledge its assets in connection with such borrowings. In addition, each Fund
considers reverse repurchase agreements and dollar roll transactions to be
borrowings and accordingly, limits its borrowings from all sources to no more
than one-half of the value of the Fund's total assets. Under most normal market
conditions, however, each Fund expects that borrowings from all sources only
occasionally will exceed one third of the value of its total assets.
DERIVATIVES -- Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., CMOs, REMICs, IOs and
POs), when issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
Receipts and STRIPs), privately issued stripped securities (e.g., TGRs, TRs, and
CATs). See elsewhere in the "Description of Permitted Investments and Risk
Factors" and in the Statement of Additional Information for discussions of these
various instruments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days, securities for
which there is no active secondary market, and repurchase agreements with
durations or maturities over 7 days in length.
LEVERAGING -- Leveraging a Fund creates an opportunity for increased net income,
but, at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of a Fund's shares and
in the yield on the Fund's portfolio. Although the principal of such borrowings
will be fixed, a Fund's assets may change in value during the time the borrowing
is outstanding. Leveraging creates interest expenses for a Fund which could
exceed the income from the assets retained. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest that a Fund
will have to pay, the Fund's net income will be greater than if leveraging were
not used. Conversely, if the income from the assets retained with borrowed funds
is not sufficient to cover the cost of leveraging, the net income of the Fund
will be less than if leveraging were not used, and therefore the amount
available for distribution to stockholders as dividends will be reduced. Because
the SEC staff believes both reverse repurchase agreements and dollar roll
transactions are collateralized borrowings, the SEC staff believes that they
create leverage, which is a speculative factor. The requirement that such
transactions be fully collateralized by assets segregated by the Fund's
Custodian does impose a practical limit on the leverage created by such
transactions. The Adviser will not use leverage if as a result the effective
duration of the portfolios of the Short Duration One Year Portfolio and the
Short Duration Three Year Portfolio would not be
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comparable or less than that of a one-year U.S. Treasury note and a three-year
U.S. Treasury note, respectively.
MONEY MARKET INSTRUMENTS -- Market instruments 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; and (vi) to the extent
permitted by applicable law, shares of other investment companies investing
solely in money market instruments.
MORTGAGE-RELATED SECURITIES -- A mortgage-related security is an interest in a
pool of mortgage loans. Most mortgage-related securities are pass-through
securities, which means that investors receive payments consisting of a pro rata
share of both principal and interest (less servicing and other fees), as well as
unscheduled prepayments, as mortgages in the underlying mortgages pool are paid
off by the borrowers.
Agency-Mortgage-Related Securities: The dominant issuers or guarantors of
mortgage-related securities today are GNMA, Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates pass-through securities from pools
of U.S. government guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks and
savings associations. Fannie Mae and FHLMC issue pass-through securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages obtained from various entities, including savings associations,
savings banks, commercial banks, credit unions and mortgage bankers.
The principal and interest on GNMA pass-through securities are guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. Fannie Mae
guarantees full and timely payment of all interest and principal, while FHLMC
guarantees timely payment of interest and ultimate collection of principal, of
its pass-through securities. Fannie Mae and FHLMC securities are not backed by
the full faith and credit of the United States; however, they are generally
considered to present minimal credit risks. The yields provided by these
mortgage-related securities historically have exceeded the yields on other
types of U.S. government securities with comparable maturities in large measure
due to the risks associated with prepayment.
Adjustable rate mortgage securities ("ARMs") are a form of pass-through security
representing interests in pools of mortgage loans, the interest rates of which
are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index
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and may be subject to certain limits. The adjustment feature of ARMs tends to
make their values less sensitive to interest rate changes.
Collateralized mortgage obligations ("CMOs") are mortgage-related securities
that separate the cash flows of mortgage pools into different components called
classes or "branches." Each class of a CMO is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the collateral pool may cause the various classes of a
CMO to be retired substantially earlier than their stated maturities or final
distribution dates. The principal of, and interest on, the collateral pool may
be allocated among the several classes of a CMO in a number of different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to some of the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow is on a CMO tranche, the lower
the anticipated yield will be on that tranche at the time of issuance relative
to prevailing market yields on mortgage-related securities. Certain classes of
CMOs may have priority over others with respect to the receipt of prepayments on
the mortgages.
Each Fund considers GNMA-, Fannie Mae-, and FHLMC-issued pass-through
certificates, CMOs, and other mortgage-related securities to the U.S. Government
securities for purposes of each Fund's investment policies.
Privately Issued Mortgage-Related Securities: Mortgage-related securities
offered by private issuers include pass-through securities for pools of
conventional residential mortgage loans; mortgage pay-through obligations and
mortgage-backed bonds, which are considered to be obligations of the institution
issuing the bonds and are collateralized by mortgage loans; and bonds and CMOs
which are collateralized by mortgage-related securities issued by GNMA, Fannie
Mae, FHLMC or by pools of conventional mortgages. Each Fund limits its
investments in privately issued mortgage-related securities to "mortgage related
securities" within the meaning of the Secondary Mortgage Market Enhancement Act
of 1984, as amended.
Mortgage-related securities created by private issuers generally offer a higher
rate of interest (and greater credit and interest rate risk) than U.S.
Government and U.S. Government mortgage-related securities because they offer no
direct or indirect government guarantees of payments. However, many issuers or
servicers of mortgage-related securities guarantee, or provide insurance for,
timely payment of interest and principal on such securities.
Additional Risk Factors: Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns, based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants can produce different
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average life estimates with regard to the same security. There can be no
assurance that estimated average life will be a security's actual average life.
OPTIONS AND FUTURES TRANSACTIONS -- Each Fund may seek to hedge against a
decrease in value of its portfolio by writing (i.e., selling) covered call
options. When a Fund writes a call option, it receives a premium and gives the
purchase the right to buy the underlying security at a fixed price. A call
option is "covered" if (i) the Fund owns the optioned securities or has the
right to acquire such securities without additional consideration, (ii) the Fund
causes its custodian to segregate cash or other liquid securities having a value
sufficient to meet the Fund's obligations under the call option, or (iii) the
Fund owns an offsetting call option.
Each Fund also may write covered put options in an attempt to realize enhanced
income when it is willing to purchase the underlying debt security for its
portfolio at the exercise price. When a Fund writes a put option, it receives a
premium and gives the purchaser of the put the right to cause the Fund to buy
the underlying security at a fixed exercise price. A put option is "covered" if
the Fund causes its custodian to segregate cash or other liquid securities with
a value not less than the exercise price of the option or holds a put option on
the same underlying security. Each Fund also may purchase call options for the
purpose of acquiring the underlying securities for its portfolio and may
purchase put options for hedging purposes. Each Fund will not enter into covered
put options which, when combined with outstanding purchases of securities on a
when-issued or forward commitment basis, would exceed 5% of the Fund's total
assets.
To reduce its net interest rate risk exposure with respect to its portfolio,
each Fund may sell and, in certain circumstances, purchase, interest rate
futures contracts. An interest rate futures contract is an agreement by a Fund
to purchase or sell debt securities, usually U.S. Government securities, at a
specified date and price. When a Fund sells an interest rate futures contract,
it enters into a futures contract to sell an underlying security. Each Fund may
purchase interest rate futures contracts (i.e., enter into a futures contract to
purchase the underlying debt security) only to close out an interest rate
futures contract it has previously sold.
Each Fund will not enter into any futures contracts if the sum of the initial
margin deposits on futures contracts purchased by the Fund would exceed 5% of
the value of the Fund's total assets. Each Fund will not purchase futures
contracts if, as a result, the underlying contract amounts would exceed
one-third of the value of the Fund's total assets.
Each Fund will not engage in transactions involving interest rate futures
contracts for speculation but only as a hedge against changes in the market
values of debt securities held or intended to be purchased by the Fund and where
the transactions are appropriate to reduce the Fund's interest rate risks. There
can be no assurance that hedging transactions will be successful. A Fund also
could be exposed to risks if it could not close out its futures or options
positions because of any illiquid secondary market.
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Futures and options have effective durations which, in general, are closely
related to the effective duration of the securities which underlie them. Holding
purchased futures or call option positions (backed by segregated cash or other
liquid securities) will lengthen the duration of a Fund's portfolio.
While utilization of options and futures contracts and similar instruments may
be advantageous to a Fund, the Fund's performance will be worse than if the Fund
did not make such investments if the Adviser is not successful in employing such
instruments in managing the Fund's investments or in predicting interest rate
changes. In addition, a Fund will pay commissions and other costs in connection
with such investments, which may increase the Fund's expenses and reduce its
return.
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.
REVERSE DOLLAR ROLL TRANSACTIONS -- Each Fund may enter into reverse dollar roll
transactions, which involve a purchase by a Fund of an Eligible Security from a
financial institution concurrently with an agreement by the Fund to resell a
similar security to the institution at a later date at an agreed-upon price.
Reverse dollar roll transactions are fully collateralized in a manner similar to
loans of the Fund's portfolio securities.
REVERSE REPURCHASE AGREEMENT AND DOLLAR ROLL TRANSACTIONS -- A reverse
repurchase agreement involves a sale by a Fund of securities that it holds to a
bank, broker-dealer or other financial institution concurrently with an
agreement by the Fund to repurchase the same securities at an agreed-upon price
and date. A dollar roll transaction involves a sale by a Fund of an Eligible
Security to a financial institution concurrently with an agreement by the Fund
to repurchase a similar Eligible Security from the institution at a later date
at an agreed-upon price. Each Fund will fully collateralize its reverse
repurchase agreements and dollar roll transactions in an amount at least equal
to the Fund's obligations under the reverse repurchase agreement or dollar roll
transaction by cash or other liquid securities that the Fund's custodian
segregates from other Fund assets.
SECURITIES LENDING -- Each Fund may lend securities to brokers, dealers and
other financial organizations. These loans, if and when made, may not exceed 30%
of the value of the loaning Fund's total assets. Each Fund's loans of securities
are collateralized in an amount at least equal to the current market value of
the loaned securities, plus any accrued interest, by cash, letters of credit,
U.S. Government securities or other liquid securities that the Funds' custodian
segregates from other Fund assets. If the seller should default on its
obligation to repurchase the underlying security, a Fund may experience delay or
difficulty in exercising its rights to realize upon the security and might incur
a loss of the value of the security declines, as well as disposition costs in
liquidating the security.
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U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- Each Fund may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed delivery" basis in order to hedge against anticipated
changes in interest rates and prices. The price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date, normally seven to 15 days
later, or in the case of certain CMO issues; 45 to 60 days later. When-issued
securities and forward commitments may be sold prior to the settlement date, but
each Fund will enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be.
No income accrues on securities that have been purchased pursuant to a forward
commitment or a when-issued basis prior to delivery to the Fund. If a Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, it causes its custodian to segregate
cash or other liquid securities equal to the value of the when-issued or forward
commitment securities and
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causes the segregated assets to be marked to market daily. There is a risk that
the securities may not be delivered and that the Fund may incur a loss.
Each Fund will not purchase (but may sell) securities on a when-issued or
forward commitment basis involving delivery of the security more than 30 days
following the trade date if such purchase, when combined with the Fund's covered
put options, would exceed 5% of the Fund's total assets.
ZERO COUPON SECURITIES -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accredit. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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Trust:
TIP INSTITUTIONAL FUNDS
Fund:
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
Adviser:
TURNER INVESTMENT PARTNERS, INC.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Auditors:
ERNST & YOUNG LLP
<PAGE>
TIP INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
Investment Adviser:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") provides a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus offers Institutional Class shares of
the following mutual fund (the "Fund"), which is a separate series of the Trust:
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
This Prospectus concisely sets forth the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated March 1, 1998, has been filed with the
Securities and Exchange Commission, and is available without charge by calling
1-888-TIP-7654. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THE STRATEGIC HIGH YIELD BOND FUND INVESTS PRIMARILY, AND MAY INVEST ALL 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 BOND 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 BOND 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.
March 1, 1998
-1-
<PAGE>
TABLE OF CONTENTS
Summary .................................................................... 3
Expense Summary.............................................................. 5
The Trust and the Fund....................................................... 6
Investment Objective......................................................... 6
Investment Policies.......................................................... 6
Risk Factors................................................................. 9
Investment Limitations....................................................... 11
The Adviser.................................................................. 11
The Administrator............................................................ 13
The Transfer Agent........................................................... 13
The Distributor.............................................................. 13
Portfolio Transactions....................................................... 13
Purchase and Redemption of Shares............................................ 14
Performance.................................................................. 18
Taxes .................................................................... 18
General Information.......................................................... 20
Description of Permitted Investments and Risk Factors........................ 22
-2-
<PAGE>
SUMMARY
The following provides basic information about the Penn Capital Strategic High
Yield Bond Fund (the "Strategic High Yield Fund" or the "Fund"). The Fund is one
of the four mutual funds comprising TIP Institutional Funds (formerly, The Solon
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 is the Fund's investment objective and its primary policies?
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.
What are the risks involved with investing in the Fund? The investment policies
of the Fund entail certain risks and considerations of which investors should be
aware. The Fund may invest in securities that fluctuate in value, and investors
should expect the Fund's net asset value per share to fluctuate in value. The
value of equity securities may be affected by the financial markets as well as
by developments impacting specific issuers. The values of fixed income
securities tend to vary inversely with interest rates, and may be affected by
market and economic factors, as well as by developments impacting specific
issuers. The Fund invests in non-investment grade fixed income securities that
have speculative characteristics. These 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 Objective," "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 Fund. See "Expense Summary" and "The
Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves as the
administrator and shareholder servicing agent for the Fund. See "Expense
Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Fund's shares. See "The Distributor."
Who is the Transfer Agent? DST Systems, Inc., serves as the transfer agent and
dividend disbursing agent for the Trust. See "The Transfer Agent."
Is there a sales load? No, shares of the Fund are offered on a no-load basis.
-3-
<PAGE>
Is there a minimum investment? The Fund requires $100,000 minimum initial
investment, 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 (generally, 4:00 p.m.,
Eastern Time) the order is effective. See "Purchase and Redemption of Shares."
How are distributions paid? The Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
-4-
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases............................................None
Sales Load Imposed on Reinvested Dividends.................................None
Deferred Sales Load........................................................None
Redemption Fees (1)........................................................None
Exchange Fees..............................................................None
- --------------------------------------------------------------------------------
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------
Strategic
High Yield
Fund
- --------------------------------------------------------------------------------
Advisory Fees (1)
12b-1 Fees .55%
Other Expenses (after expense None
reimbursements, if applicable) (2) .13%
- --------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers or expense reimbursements) (3) .68%
================================================================================
- --------------------------------------------------------------------------------
(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fees to
the extent necessary to keep the "Total Operating Expenses" of the Fund
during the current fiscal year from exceeding .68%. 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 are estimated to be .58%.
(3) Absent fee waivers or expense reimbursements, "Total Operating Expenses"
for the Fund would be 1.13%, based on current expectations and assumptions.
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
You would pay the following expenses on a $1,000 investment in 1 year 3 years
the Fund assuming (1) a 5% annual return and (2) redemption at the ------ -------
end of each time period.
Strategic High Yield Fund $7 $22
</TABLE>
================================================================================
- --------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUND AFTER WAIVERS AND
REIMBURSEMENTS, AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and example
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by shareholders of the Fund. Additional
information may be found under "The Advisers" and "The Administrator."
-5-
<PAGE>
THE TRUST AND THE FUND
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") offers shares
in four mutual funds. 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 Strategic High Yield Bond Fund (the "Strategic High Yield
Fund" or the "Fund").
INVESTMENT OBJECTIVE
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.
There can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
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.
Penn Capital Management Company, Inc. (the "Adviser"), believes that the market
for high yield securities is relatively inefficient compared to other securities
due to the limited availability of information on such securities, the lack of
extensive institutional research coverage of and market making activity with
respect to many issuers of such securities, the complexity and difficulty of
evaluation of such securities, and the limited liquidity, at times, of such
securities. The Adviser intends to exploit these inefficiencies using its
knowledge and experience in the high yield market. The Adviser seeks to reduce
risk through diversification, credit analysis and attention to current
developments and trends in both the economy and financial markets.
The Fund will invest primarily in securities rated BB+ or Ba1 or lower by
Standard & Poor's Corporation ("S&P") and/or Moody's Investors Service, Inc.
("Moody's"), and may invest in non-rated securities and in securities rated in
the lowest rating category 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, the Fund
may engage in short sales against the box.
-6-
<PAGE>
For a further description of these types of instruments and the risk factors
associated with them, see "Description of Permitted Investments and Risk
Factors" in the Statement of Additional Information.
THE FUND
The 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.
The Fund may participate in a securities lending program, which entails a risk
of loss should a borrower fail financially.
The Fund may purchase Rule 144A securities. For a further description of these
securities, see "Rule 144A Securities" in the "Description of Permitted
Investments and Risk Factors."
The Fund may invest in certain instruments such as certain types of mortgage
securities and when-issued securities. The 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, 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).
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).
The 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 a nationally recognized
statistical rating organization ("NRSRO")) and shares of money market investment
companies, and may hold a portion of its assets in cash.
Additionally, the Fund may, although it has no present intention to do so,
invest a portion of its assets in derivatives, including futures contracts,
options, forwards and swaps, caps, floors and collars. 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 the 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. These investments and techniques require
the 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, the Fund may lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or meeting
other obligations and may be forced to sell other securities that it
-7-
<PAGE>
wanted to retain or to realize unintended gains or losses.
RISK FACTORS
Prospective investors in the Fund should consider the following factors as they
apply to the Fund's allowable investments and policies.
Equity Securities -- The Fund 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 the Fund invests will cause the net asset value of
the 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.
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 and/or Baa3 by
Moody's or higher, which may be regarded as having speculative characteristics
as to repayment of principal.
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
call features that many high-yield securities
-8-
<PAGE>
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/or BB+ or lower by S&P), including securities of issuers subject to
proceedings under the Federal Bankruptcy Code. The market for such securities is
relatively inefficient due to its complexity and the limited availability of
information on such securities. Most of these securities pay high current yield,
which provides a cushion against potential price volatility so long as current
payments are continued.
Securities of Foreign Issuers -- The Fund may invest to a limited extent in
securities of foreign issuers and in sponsored and unsponsored ADRs. Investments
in the securities of foreign issuers may subject the Fund to investment risks
that differ in some respects from those related to investments in securities of
U.S. issuers. Such risks include future adverse political and economic
developments, possible imposition of withholding taxes on income, possible
seizure, nationalization or expropriation of foreign deposits, possible
establishment of exchange controls or taxation at the source or greater
fluctuation in value due to changes in exchange rates. Foreign issuers of
securities often engage in business practices different from those of domestic
issuers of similar securities, and there may be less information publicly
available about foreign issuers. In addition, foreign issuers are, generally
speaking, subject to less government supervision and regulation than are those
in the United States. Investments in securities of foreign issuers are
frequently denominated in foreign currencies and the value of the Fund's assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and the Fund may incur costs
in connection with conversions between various currencies.
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. The Fund's investments in emerging markets can be considered
speculative, and therefore may offer higher potential for gains and losses than
investments in developed markets of the world. With respect to any emerging
country, there may be a greater potential for nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) which could affect
adversely the economics of such countries or investments in such countries. The
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange or currency controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade.
In addition to the risks of investing in emerging market country debt
securities, the Fund's investment in government, government-related and
restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt, and requests to extend additional
loan amounts. The
-9-
<PAGE>
Fund may have limited recourse in the event of default on such debt instruments.
Portfolio Turnover--The annual portfolio turnover rate for the Fund, under
normal circumstances, 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 Fund and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Fund. Fundamental policies cannot be changed with respect to the
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. The Fund may not: (i) purchase securities of any issuer (except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction applies to 75% of the
Fund's total assets.
2. The Fund may not purchase any securities which would cause 25% or more of the
total assets of such Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry.
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. The 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 the Fund to purchase securities or require the
Fund to segregate assets are not considered to be borrowings. Asset coverage of
at least 300% is required for all borrowings, except where the Fund has borrowed
money for temporary purposes in amounts not exceeding 5% of its total assets.
The 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 Management Company, Inc. ("Penn Capital"), 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 of 1940. Richard
-10-
<PAGE>
A. Hocker is a founding partner and Chief Investment Officer of Penn Capital,
which manages the investment portfolios of institutions and high net worth
individuals, and which currently has assets under management of approximately
$500 million. Penn Capital 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.
Penn Capital serves as the investment adviser for the Strategic High Yield Fund
under an investment advisory agreement (the "Advisory Agreement"). Under the
Advisory Agreement, Penn Capital makes the investment decisions for the assets
of the Fund 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, Penn Capital is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .55% of the average daily net assets of
the Strategic High Yield Fund. Penn Capital has voluntarily agreed to waive all
or a portion of its fee and to reimburse expenses of the Strategic High Yield
Fund in order to limit its total operating expenses (as a percentage of average
daily net assets on an annualized basis) to not more than .68%. Penn Capital
reserves the right, in its sole discretion, to terminate these voluntary fee
waivers and reimbursements at any time.
The Fund is managed by a team consisting of certain principals of Penn Capital,
including co-managers 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 the Delchester Bond
Fund, one of the nation's first high yield bond mutual funds, and where he
personally managed, at one point, approximately $2 billion of assets. In
addition, he was responsible for creating and managing accounts for Delaware's
first ERISA clients.
Kathleen A. News, a co-founder of the Adviser, serves as the Managing Director
of the Adviser and co-portfolio manager of the Strategic High Yield Fund. Ms.
News has over 20 years of investment experience at both the Adviser and Delaware
Management Co., including over 10 years managing high yield portfolios. While at
Delaware, Ms. News served as a portfolio manager for Delaware Cash Reserve, as
well as managing fixed income accounts for various Fortune 500 institutions.
PAST PERFORMANCE OF THE ADVISER
In December 1989, the Adviser instituted a managed "active" high yield
investment philosophy which concentrates in riskier, high yield securities and
financial instruments, and which may modestly overweigh investments in a single
industry, issuer or class of security. This "active" philosophy had been
developed over a lengthy period of time by the Adviser's portfolio managers.
The following table presents historical "composite" performance data for all
discretionary "active" high yield accounts that are managed in a manner that is
equivalent in all material respects to how the Adviser will manage the Fund.
This table also compares the performance of these accounts against the CS First
Boston High Yield Index and the Merrill Lynch High Yield Index. The computed
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.
<TABLE>
<CAPTION>
PENN CAPITAL CS FIRST BOSTON MERRILL LYNCH HIGH
TIME PERIOD HIGH YIELD COMPOSITE(1) HIGH YIELD INDEX(2) YIELD INDEX(3)
<S> <C> <C> <C>
One year ended 9/30/97: 14.66% 15.73% 14.31%
Three years ended 9/30/97: 17.13% 13.50% 13.76%
Five years ended 9/30/97: 16.00% 11.84% 11.47%
Since Inception (12/31/89): 20.34% 13.69% 13.01%
</TABLE>
(1) Penn Capital's High Yield Composite is a dollar weighted composite of
fully discretionary, separately managed "active" high yield accounts
under the Adviser's management for at least one full quarter. The Penn
Capital High Yield Composite consisted of 15 accounts with
approximately $111 million in assets as of September 30, 1997.
(2) The CS First Boston High Yield Index is an unmanaged, trader-priced
portfolio constructed to mirror the public high yield debt market.
Revisions to the Index are effected weekly. The Index reflects the
reinvestment of dividends.
(3) The Merrill Lynch High Yield Index consists of below investment grade
corporate securities tracked by Merrill Lynch. The Index reflects the
reinvestment of dividends.
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 performance figures for the
Adviser's accounts described above are net of advisory fees and expenses. The
effect of deducting operating expenses on the Fund's annualized performance,
including the compounding effect over time, may be substantial.
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.
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.
-11-
<PAGE>
For these administrative services, the Administrator is entitled to a fee from
the Fund, which is calculated daily and paid monthly, at an annual rate of .10%
of the Fund's average daily net assets up to $250 million, .08% on the next $250
million of such assets, and .07% of such assets in excess of $500 million. The
Fund is subject to a minimum annual fee of $75,000 for the first class of shares
and $15,000 for each additional class of shares, which may be reduced at the
sole discretion of the Administrator.
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 Fund's public
offering price.
PORTFOLIO TRANSACTIONS
The Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. The Adviser obtains 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 the
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 Fund and the Adviser's other clients. The
Adviser may direct commission business for the Fund to designated broker-dealers
(including the Distributor) in connection with such broker-dealers' payment of
certain Fund expenses.
Since shares of the Fund are not marketed through intermediary broker-dealers,
the Fund does not have a practice of allocating brokerage or effecting principal
transactions with broker-dealers on the basis of sales of shares which may be
made through such firms. However, the Adviser may place orders for the Fund with
qualified broker-dealers who refer clients to the Fund.
-12-
<PAGE>
Some securities considered for investment by the 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 the Fund and another of
the Adviser's accounts and/or clients are considered at or about the same time,
transactions in such securities will be allocated among the Fund and the other
accounts and/or clients in a manner deemed equitable by the Adviser.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business ("Business Day").
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: TIP Institutional Funds, P.O. Box 419805, Kansas City,
Missouri 64141-6805, by mail or wire transfer. All shareholders may place orders
by telephone; when market conditions are extremely busy, it is possible that
investors may experience difficulties placing orders by telephone and may wish
to place orders by mail. Purchases and redemptions of shares of the Fund may be
made on any Business Day.
The minimum initial investment in the Fund is $100,000, and subsequent purchases
must be at least $5,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
Certain brokers may assist their clients in the purchase or redemption of shares
and charge a fee for this service in addition to the Fund's public offering
price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Fund) for $100,000, together with a completed Account
Application to: TIP Institutional 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 the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [Penn Capital
Strategic High Yield Bond 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 1-888-TIP-7654 to be assigned an account number. The investor's
name, account number, taxpayer
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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 Institutional 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 the Fund is the Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full and fractional shares of the Fund calculated to
three decimal places. The Trust will not issue certificates representing shares
of the Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
Exchanges
Shareholders of the Fund may exchange their Institutional Class shares for
Institutional Class shares of the other TIP Institutional 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 prior 4:00 p.m., Eastern time, on any Business Day, the
exchange will be effected that day. The liability of the Fund or the Transfer
Agent for fraudulent or unauthorized telephone instructions may be limited as
described below. The Trust reserves the right to modify or terminate this
exchange offer on 60 days' notice.
Because excessive trading can hurt Fund performance and shareholders, the Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges into and out of the
Funds per calendar year. Accounts under common
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ownership or control, including accounts with the same taxpayer identification
number, will be counted together for purposes of the four exchange limit.
Redemptions
Redemption requests in good order received by the Transfer Agent (or its
authorized agent) prior to 4:00 p.m., Eastern time, on any Business Day will be
effective that day. To redeem shares of the Fund, shareholders must place their
redemption orders with the Transfer Agent (or its authorized agent) prior to
4:00 p.m., Eastern time, on any Business Day. The redemption price of shares of
the Fund is the net asset value per share of the Fund next determined after the
redemption order is effective. Payment of redemption proceeds will be made as
promptly as possible and, in any event, within seven days after the redemption
order is received, provided, however, that redemption proceeds for shares
purchased by check (including certified or cashier's checks) will be forwarded
only upon collection of payment for such shares; collection of payment may take
up to 15 days. Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Fund by
Federal Reserve wire on Federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone if they reasonably believe
those instructions to be genuine. The Trust and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine.
Such procedures may include the taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
Valuation of Shares
The net asset value per share of the Fund is determined by dividing the total
market value of the 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.
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PERFORMANCE
From time to time, the Fund 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 the Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.
The total return of the Fund refers to the average compounded rate of return on
a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Fund may periodically compare 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 Fund
may quote Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. The Fund may also
quote the Frank Russell Company or Wilshire Associates, consulting firms that
compile financial characteristics of common stocks and fixed income securities,
regarding non-performance-related attributes of the Fund's portfolio. The Fund
may use long term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Fund or its shareholders.
Shareholders are urged to consult their tax advisors regarding specific
questions as
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to federal, state and local income taxes. Further information concerning taxes
is set forth in the Statement of Additional Information.
Tax Status of the Fund:
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as the Fund qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
Tax Status of Distributions:
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from the Fund's
net investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. Any net capital gains will be distributed annually and will be
taxed to shareholders as gains from the sale of exchange of a capital asset held
for more than one year, regardless of how long the shareholder has held shares.
The Fund will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue discount
and thus do not make periodic cash interest payments. The Fund will be required
to include as part of their current income the accrued discount on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to shareholders, the Fund may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. The Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Each sale, exchange or redemption of the 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
Delaware law as a business trust under a Declaration of Trust dated October 25,
1993. 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 State of Delaware. 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 share.
In other words, each shareholder of record is entitled to one vote for each
share held on the record date for the meeting. Shareholders of a Class or a Fund
will vote separately on matters pertaining solely to the Class or the Fund. As a
Delaware business trust, the Trust is not required to hold annual meetings of
Shareholders, but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
Reporting
The Trust issues unaudited financial information semiannually and audited
financial statements annually for the Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
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Shareholder Inquiries
Shareholder inquiries should be directed to TIP Institutional Funds, P.O. Box
419805, Kansas City, Missouri 64141-6805, or by calling 1-888-TIP-7654.
Purchases, exchanges and redemptions of shares should be made through the
Transfer Agent by calling 1-888-TIP-7654.
Dividends and Distributions
Substantially all of the net investment income (excluding capital gains) of the
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 Fund are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a distribution of ordinary income
or capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable distribution or dividend.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants for the Trust.
Custodian
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Fund:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
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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 Fund may borrow money equal to 5% of its total assets for
temporary purposes to meet redemptions or to pay dividends. Although the
principal of any borrowing will be fixed, the Fund's assets may change in value
during the time the borrowing is outstanding.
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.
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES -- Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose the Fund to the
direct or indirect consequences of political, social or economic changes in the
countries that issue the securities. The ability and willingness of sovereign
obligers in developing and emerging market countries or the governmental
authorities that control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Countries such as those in which the
Fund may invest have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate or trade
difficulties and extreme poverty and unemployment. Many of these countries are
also characterized by political uncertainty or instability. Additional factors
which may influence the ability or willingness to service debt include, but are
not limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relevant size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.
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 Fund may experience difficulty in valuing certain
securities at certain times. Prices realized upon the sale of such lower rated
or unrated securities, under these circumstances, may be less than the prices
used in calculating the Fund's net asset value.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect the Fund's net asset value and
investment practices, the secondary market value for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
Credit quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days,
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securities for which there is no active secondary market, and repurchase
agreements with durations or maturities over 7 days in length.
LOAN PARTICIPATIONS AND ASSIGNMENTS -- Loan participations are interests in
loans to corporations or governments which are administered by the lending bank
or agent for a syndicate member ("intermediary bank"). In a loan participation,
the borrower will be deemed to be the issuer of the participation interest,
except to the extent the Fund derives its rights from the intermediary bank.
Because the intermediary bank does not guarantee a loan participation in any
way, a loan participation is subject to the credit risks generally associated
with the underlying borrower. In the event of the bankruptcy or insolvency of
the borrower, a loan participation may be subject to certain defenses that can
be asserted by such borrower as a result of improper conduct by the intermediary
bank. In addition, in the event the underlying borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation of such borrower. Under the terms of a loan
participation, the Fund may be regarded as a creditor of the intermediary bank,
(rather than of the underlying borrower), so that the Fund may also be subject
to the risk that the intermediary bank may become insolvent.
Loan assignments are investments in assignments of all or a portion of certain
loans from third parties. When a Fund purchases assignments from lenders it will
acquire direct rights against the borrower on the loan. Since assignments are
arranged through private negotiations between potential assignees and assignors,
however, the rights and obligations acquired by the Fund may differ from, and be
more limited than, those held by the assigning lender. Loan participations and
assignments may be considered liquid, as determined by the Fund's adviser based
on criteria approved by the Board of Trustees.
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 the 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.
RIGHTS -- Rights give existing shareholders of a corporation the right, but not
the obligation, to buy shares of the corporation at a given price, usually below
the offering price, during a specified period.
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RULE 144A SECURITIES -- Rule 144A securities are securities exempt from
registration on resale pursuant to Rule 144A under the 1933 Act. Rule 144A
securities are traded in the institutional market pursuant to this registration
exemption, and, as a result, may not be as liquid as exchange- traded securities
since they may only be resold to certain qualified institutional investors. Due
to the relatively limited size of this institutional market, these securities
may affect the Fund's liquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.
Nevertheless, Rule 144A securities may be treated as liquid securities pursuant
to guidelines adopted by the Trust's Board of Trustees.
SECURITIES LENDING -- In order to generate additional income, the Fund may lend
its securities 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. The 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.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
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
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receipts evidencing ownership and maintains the register.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a separate account with liquid securities or cash in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date, and no interest accrues to
the 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 the 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, the 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
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE>
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
Investment Grade
<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay principal and differs from the
highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal, although it is somewhat more
susceptible to adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB Debt rated 'BB' has less near-term vulnerability to default than other speculative grade debt.
However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely interest and principal payments. The
'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic conditions would
likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category also
is used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default, and is dependent on favorable
business, financial, and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt which is assigned an actual or
implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or
implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is being paid.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
D Debt is rated 'D' when the issue is in payment default, or the obligor has filed for bankruptcy. The
'D' rating is used when interest or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments will be made during
such grace period.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but may vary slightly from
AA- time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are more variable and
A- greater in periods of economic stress.
BBB+ Below average protection factors but still considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when due. Present or
BB prospective financial protection factors fluctuate according to industry conditions or company
BB- fortunes. Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due.
B Financial protection factors will fluctuate widely according to economic cycles, industry
B- conditions and/or company fortunes. Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
Investment Grade Bond
AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'.
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Speculative Grade Bond
BB Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are currently meeting debt
service requirements, the probability of continued timely payment of principal and interest reflects
the obligor's limited margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or principal seems probable over
time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD,
and D Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery value in liquidation or reorganization
of the obligor. 'DDD' represents the highest potential for recovery on these bonds, and 'D' represents
the lowest potential for recovery.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk substantially.
AA Obligations for which there is a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk, albeit not very significantly.
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
A Obligations for which there is a low expectation of investment risk. Capacity for timely repayment
of principal and interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of investment risk. Capacity for timely
repayment of principal and interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than for obligations in other
categories.
BB Obligations for which there is a possibility of investment risk developing. Capacity for timely
repayment of principal and interest exists, but is susceptible over time to adverse changes in
business, economic or financial conditions.
B Obligations for which investment risk exists. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or financial conditions.
CCC Obligations for which there is a current perceived possibility of default. Timely repayment of
principal and interest is dependent on favorable business, economic or financial conditions.
CC Obligations which are highly speculative or which have a high risk of default.
C Obligations which are currently in default.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
Investment Grade
AAA The highest category; indicates that the ability to repay principal and interest on a timely basis is
very high.
AA The second-highest category; indicates a superior ability to repay principal and interest on a timely
basis, with limited incremental risk compared to issues rated in the highest category.
A The third-highest category; indicates the ability to repay principal and interest is strong. Issues rated
"A" could be more vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
BBB The lowest investment-grade category; indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
Non-Investment Grade
BB While not investment grade, the "BB" rating suggests that the likelihood of default is considerably
less than for lower-rated issues. However, there are significant uncertainties that could affect the
ability to adequately service debt obligations.
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
B Issues rated "B" show a higher degree of uncertainty and therefore greater likelihood of default than
higher-rated issues. Adverse developments could well negatively affect the payment of interest and
principal on a timely basis.
CCC Issues rated "CCC" clearly have a high likelihood of default, with little capacity to address further
adverse changes in financial circumstances.
CC "CC" is applied to issues that are subordinate to other obligations rated "CCC" and are afforded less
protection in the event of bankruptcy or reorganization.
D Default
</TABLE>
A-6
<PAGE>
Trust:
TIP INSTITUTIONAL FUNDS
Fund:
PENN CAPITAL STRATEGIC HIGH YIELD BOND 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 INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
Investment Adviser:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") provides a
convenient and economical means of investing in professionally managed
portfolios of securities. This Prospectus offers Adviser Class shares of the
following mutual fund (the "Fund"), which is a separate series of the Trust:
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
This Prospectus concisely sets forth the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated March 1, 1998, has been filed with the
Securities and Exchange Commission, and is available without charge by calling
1-888-TIP-7654. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THE STRATEGIC HIGH YIELD BOND FUND INVESTS PRIMARILY, AND MAY INVEST ALL 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 BOND 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 BOND 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.
March 1, 1998
-1-
<PAGE>
TABLE OF CONTENTS
Summary .................................................................. 3
Expense Summary............................................................ 5
The Trust and the Fund..................................................... 6
Investment Objective....................................................... 6
Investment Policies........................................................ 6
Risk Factors................................................................ 9
Investment Limitations..................................................... 11
The Adviser................................................................ 11
The Administrator.......................................................... 13
The Transfer Agent......................................................... 13
The Distributor and Shareholder Servicing Agent............................ 13
Portfolio Transactions..................................................... 13
Purchase and Redemption of Shares.......................................... 14
Performance................................................................ 18
Taxes .................................................................. 18
General Information........................................................ 20
Description of Permitted Investments and Risk Factors...................... 22
-2-
<PAGE>
SUMMARY
The following provides basic information about Adviser Class shares of the Penn
Capital Strategic High Yield Bond Fund (the "Strategic High Yield Fund" or the
"Fund"). The Fund is one of the four mutual funds comprising TIP Institutional
Funds (formerly, The Solon 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 is the Fund's investment objective and its primary policies?
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.
What are the risks involved with investing in the Fund? The investment policies
of the Fund entail certain risks and considerations of which investors should be
aware. The Fund may invest in securities that fluctuate in value, and investors
should expect the Fund's net asset value per share to fluctuate in value. The
value of equity securities may be affected by the financial markets as well as
by developments impacting specific issuers. The values of fixed income
securities tend to vary inversely with interest rates, and may be affected by
market and economic factors, as well as by developments impacting specific
issuers. The Fund invests in non-investment grade fixed income securities that
have speculative characteristics. These 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 Objective," "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 Fund. See "Expense Summary" and "The
Adviser."
Who is the Administrator? SEI Fund Resources (the "Administrator") serves as the
administrator and shareholder servicing agent for the Fund. See "Expense
Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Fund's shares. See "The Distributor and
Shareholder Servicing Agent."
Who is the Transfer Agent? DST Systems, Inc., serves as the transfer agent and
dividend disbursing agent for the Trust. See "The Transfer Agent."
Is there a sales load? No, shares of the Fund are offered on a no-load basis.
-3-
<PAGE>
Is there a minimum investment? The Fund requires $10,000 minimum initial
investment, 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 (generally, 4:00 p.m.,
Eastern Time) the order is effective. See "Purchase and Redemption of Shares."
How are distributions paid? The Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions are
paid in additional shares unless the shareholder elects to take the payment in
cash. See "Dividends and Distributions."
-4-
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases.............................................None
Sales Load Imposed on Reinvested Dividends..................................None
Deferred Sales Load.........................................................None
Redemption Fees (1).........................................................None
Exchange Fees...............................................................None
- --------------------------------------------------------------------------------
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------
Strategic
High Yield
Fund
Advisory Fees (1)
12b-1 Fees .55%
Other Expenses (after expense None
reimbursements, if applicable) (2) .38%
Total Operating Expenses (after
fee waivers or expense reimbursements) (3)
.93%
================================================================================
- --------------------------------------------------------------------------------
(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fees to
the extent necessary to keep the "Total Operating Expenses" of the Fund
during the current fiscal year from exceeding .93%. 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 are estimated to be .83%. Other Expenses includes
a shareholder servicing fee of .25%.
(3) Absent fee waivers or expense reimbursements, "Total Operating Expenses"
for the Fund would be 1.38%, based on current expectations and assumptions.
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
You would pay the following expenses on a $1,000 investment in 1 years 3 years
the Fund assuming (1) a 5% annual return and (2) redemption at the ------- -------
end of each time period.
Strategic High Yield Fund $9 $30
</TABLE>
================================================================================
- --------------------------------------------------------------------------------
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUND AFTER WAIVERS AND
REIMBURSEMENTS, AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and example
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by shareholders of the Fund. Additional
information may be found under "The Advisers" and "The Administrator."
-5-
<PAGE>
THE TRUST AND THE FUND
TIP Institutional Funds (formerly, The Solon Funds) (the "Trust") offers shares
in four mutual funds. Each share of each mutual fund represents an undivided,
proportionate interest in that mutual fund. This Prospectus offers Adviser Class
shares of the Trust's the Penn Capital Strategic High Yield Bond Fund (the
"Strategic High Yield Fund" or the "Fund").
INVESTMENT OBJECTIVE
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.
There can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
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.
Penn Capital Management Company, Inc. (the "Adviser"), believes that the market
for high yield securities is relatively inefficient compared to other securities
due to the limited availability of information on such securities, the lack of
extensive institutional research coverage of and market making activity with
respect to many issuers of such securities, the complexity and difficulty of
evaluation of such securities, and the limited liquidity, at times, of such
securities. The Adviser intends to exploit these inefficiencies using its
knowledge and experience in the high yield market. The Adviser seeks to reduce
risk through diversification, credit analysis and attention to current
developments and trends in both the economy and financial markets.
The Fund will invest primarily in securities rated BB+ or Ba1 or lower by
Standard & Poor's Corporation ("S&P") and/or Moody's Investors Service, Inc.
("Moody's"), and may invest in non-rated securities and in securities rated in
the lowest rating category 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, the Fund
may engage in short sales against the box.
-6-
<PAGE>
For a further description of these types of instruments and the risk factors
associated with them, see "Description of Permitted Investments and Risk
Factors" in the Statement of Additional Information.
THE FUND
The 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.
The Fund may participate in a securities lending program, which entails a risk
of loss should a borrower fail financially.
The Fund may purchase Rule 144A securities. For a further description of these
securities, see "Rule 144A Securities" in the "Description of Permitted
Investments and Risk Factors."
The Fund may invest in certain instruments such as certain types of mortgage
securities and when-issued securities. The 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, 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).
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).
The 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 a nationally recognized
statistical rating organization ("NRSRO")) and shares of money market investment
companies, and may hold a portion of its assets in cash.
Additionally, the Fund may, although it has no present intention to do so,
invest a portion of its assets in derivatives, including futures contracts,
options, forwards and swaps, caps, floors and collars. 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 the 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. These investments and techniques require
the 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, the Fund may lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or meeting
other obligations and may be forced to sell other securities that it
-7-
<PAGE>
wanted to retain or to realize unintended gains or losses.
RISK FACTORS
Prospective investors in the Fund should consider the following factors as they
apply to the Fund's allowable investments and policies.
Equity Securities -- The Fund 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 the Fund invests will cause the net asset value of
the 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.
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 and/or Baa3 by
Moody's or higher, which may be regarded as having speculative characteristics
as to repayment of principal.
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
call features that many high-yield securities
-8-
<PAGE>
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/or BB+ or lower by S&P), including securities of issuers subject to
proceedings under the Federal Bankruptcy Code. The market for such securities is
relatively inefficient due to its complexity and the limited availability of
information on such securities. Most of these securities pay high current yield,
which provides a cushion against potential price volatility so long as current
payments are continued.
Securities of Foreign Issuers -- The Fund may invest to a limited extent in
securities of foreign issuers and in sponsored and unsponsored ADRs. Investments
in the securities of foreign issuers may subject the Fund to investment risks
that differ in some respects from those related to investments in securities of
U.S. issuers. Such risks include future adverse political and economic
developments, possible imposition of withholding taxes on income, possible
seizure, nationalization or expropriation of foreign deposits, possible
establishment of exchange controls or taxation at the source or greater
fluctuation in value due to changes in exchange rates. Foreign issuers of
securities often engage in business practices different from those of domestic
issuers of similar securities, and there may be less information publicly
available about foreign issuers. In addition, foreign issuers are, generally
speaking, subject to less government supervision and regulation than are those
in the United States. Investments in securities of foreign issuers are
frequently denominated in foreign currencies and the value of the Fund's assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and the Fund may incur costs
in connection with conversions between various currencies.
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. The Fund's investments in emerging markets can be considered
speculative, and therefore may offer higher potential for gains and losses than
investments in developed markets of the world. With respect to any emerging
country, there may be a greater potential for nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) which could affect
adversely the economics of such countries or investments in such countries. The
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange or currency controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade.
In addition to the risks of investing in emerging market country debt
securities, the Fund's investment in government, government-related and
restructured debt instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt, and requests to extend additional
loan amounts. The
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Fund may have limited recourse in the event of default on such debt instruments.
Portfolio Turnover--The annual portfolio turnover rate for the Fund, under
normal circumstances, 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 Fund and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of the Fund. Fundamental policies cannot be changed with respect to the
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. The Fund may not: (i) purchase securities of any issuer (except securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Fund would be invested in the
securities of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction applies to 75% of the
Fund's total assets.
2. The Fund may not purchase any securities which would cause 25% or more of the
total assets of such Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same industry.
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. The 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 the Fund to purchase securities or require the
Fund to segregate assets are not considered to be borrowings. Asset coverage of
at least 300% is required for all borrowings, except where the Fund has borrowed
money for temporary purposes in amounts not exceeding 5% of its total assets.
The 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 Management Company, Inc. ("Penn Capital" ), 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 of 1940. Richard
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A. Hocker is a founding partner and Chief Investment Officer of Penn Capital,
which manages the investment portfolios of institutions and high net worth
individuals, and which currently has assets under management of approximately
$500 million. Penn Capital 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.
Penn Capital serves as the investment adviser for the Strategic High Yield Fund
under an investment advisory agreement (the "Advisory Agreement"). Under the
Advisory Agreement, Penn Capital makes the investment decisions for the assets
of the Fund 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, Penn Capital is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .55% of the average daily net assets of
the Strategic High Yield Fund. Penn Capital has voluntarily agreed to waive all
or a portion of its fee and to reimburse expenses of the Strategic High Yield
Fund in order to limit its total operating expenses (as a percentage of average
daily net assets on an annualized basis) to not more than .93%. Penn Capital
reserves the right, in its sole discretion, to terminate these voluntary fee
waivers and reimbursements at any time.
The Fund is managed by a team consisting of certain principals of Penn Capital,
including co-managers 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 the Delchester Bond
Fund, one of the nation's first high yield bond mutual funds, and where he
personally managed, at one point, approximately $2 billion of assets. In
addition, he was responsible for creating and managing accounts for Delaware's
first ERISA clients.
Kathleen A. News, a co-founder of the Adviser, serves as the Managing Director
of the Adviser and co-portfolio manager of the Strategic High Yield Fund. Ms.
News has over 20 years of investment experience at both the Adviser and Delaware
Management Co., including over 10 years managing high yield portfolios. While at
Delaware, Ms. News served as a portfolio manager for Delaware Cash Reserve, as
well as managing fixed income accounts for various Fortune 500 institutions.
PAST PERFORMANCE OF THE ADVISER
In December 1989, the Adviser instituted a managed "active" high yield
investment philosophy which concentrates in riskier, high yield securities and
financial instruments, and which may modestly overweigh investments in a single
industry, issuer or class of security. This "active" philosophy had been
developed over a lengthy period of time by the Adviser's portfolio managers.
The following table presents historical "composite" performance data for all
discretionary "active" high yield accounts that are managed in a manner that is
equivalent in all material respects to how the Adviser will manage the Fund.
This table also compares the performance of these accounts against the CS First
Boston High Yield Index and the Merrill Lynch High Yield Index. The computed
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.
<TABLE>
<CAPTION>
PENN CAPITAL CS FIRST BOSTON MERRILL LYNCH HIGH
TIME PERIOD HIGH YIELD COMPOSITE(1) HIGH YIELD INDEX(2) YIELD INDEX(3)
<S> <C> <C> <C>
One year ended 9/30/97: 14.66% 15.73% 14.31%
Three years ended 9/30/97: 17.13% 13.50% 13.76%
Five years ended 9/30/97: 16.00% 11.84% 11.47%
Since Inception (12/31/89): 20.34% 13.69% 13.01%
</TABLE>
(1) Penn Capital's High Yield Composite is a dollar weighted composite of
fully discretionary, separately managed "active" high yield accounts
under the Adviser's management for at least one full quarter. The Penn
Capital High Yield Composite consisted of 15 accounts with
approximately $111 million in assets as of September 30, 1997.
(2) The CS First Boston High Yield Index is an unmanaged, trader-priced
portfolio constructed to mirror the public high yield debt market.
Revisions to the Index are effected weekly. The Index reflects the
reinvestment of dividends.
(3) The Merrill Lynch High Yield Index consists of below investment grade
corporate securities tracked by Merrill Lynch. The Index reflects the
reinvestment of dividends.
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 performance figures for the
Adviser's accounts described above are net of advisory fees and expenses. The
effect of deducting operating expenses on the Fund's annualized performance,
including the compounding effect over time, may be substantial.
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.
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.
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For these administrative services, the Administrator is entitled to a fee from
the Fund, which is calculated daily and paid monthly, at an annual rate of .10%
of the Fund's average daily net assets up to $250 million, .08% on the next $250
million of such assets, and .07% of such assets in excess of $500 million. The
Fund is subject to a minimum annual fee of $75,000 for the first class of shares
and $15,000 for each additional class of shares, which may be reduced at the
sole discretion of the Administrator.
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 AND SHAREHOLDER SERVICING AGENT
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 Fund's public
offering price.
The Fund has adopted a shareholder service plan for Adviser Class shares (the
"Adviser Class Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefor. Under the Adviser Class Service Plan, the Distributor may provide
those services itself, or may enter into arrangements under which third parties
provide such services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any difference between the
fee it receives and the amount it pays such third parties. In addition, the Fund
may enter into such arrangements directly. Under the Adviser Class Service Plan,
the Distributor is entitled to receive a fee at a negotiated annual rate of up
to .25% of the Fund's average daily net assets attributable to Adviser Class
shares that are subject to the arrangement in return for provision of a broad
range of shareholder and administrative services, including: maintaining client
accounts; arranging for bank wires; responding to client inquiries concerning
services provided for investments; changing dividend options; account
designations and addresses; providing sub-accounting; providing information on
share positions to clients; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and processing dividend
payments.
PORTFOLIO TRANSACTIONS
The Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. The Adviser obtains 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
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and pricing services they provide to the 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 Fund
and the Adviser's other clients. The Adviser may direct commission business for
the Fund to designated broker-dealers (including the Distributor) in connection
with such broker-dealers' payment of certain Fund expenses.
Since shares of the Fund are not marketed through intermediary broker-dealers,
the Fund does not have a practice of allocating brokerage or effecting principal
transactions with broker-dealers on the basis of sales of shares which may be
made through such firms. However, the Adviser may place orders for the Fund with
qualified broker-dealers who refer clients to the Fund.
Some securities considered for investment by the 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 the Fund and another of
the Adviser's accounts and/or clients are considered at or about the same time,
transactions in such securities will be allocated among the Fund and the other
accounts and/or clients in a manner deemed equitable by the Adviser.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business ("Business Day").
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: TIP Institutional Funds, P.O. Box 419805, Kansas City,
Missouri 64141-6805, by mail or wire transfer. All shareholders may place orders
by telephone; when market conditions are extremely busy, it is possible that
investors may experience difficulties placing orders by telephone and may wish
to place orders by mail. Purchases and redemptions of shares of the Fund may be
made on any Business Day.
The minimum initial investment in the Fund is $10,000, and subsequent purchases
must be at least $1,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
Certain brokers may assist their clients in the purchase or redemption of shares
and charge a fee for this service in addition to the Fund's public offering
price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Fund) for $10,000, together with a completed Account Application
to: TIP Institutional 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
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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 the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [Penn Capital
Strategic High Yield Bond 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 1-888-TIP-7654 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 Institutional 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 the Fund is the Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full and fractional shares of the Fund calculated to
three decimal places. The Trust will not issue certificates representing shares
of the Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
Exchanges
Shareholders of the Fund may exchange their Adviser Class shares for Adviser
Class shares of the
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other TIP Institutional 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 prior 4:00 p.m.,
Eastern time, on any Business Day, the exchange will be effected that day. The
liability of the Fund or the Transfer Agent for fraudulent or unauthorized
telephone instructions may be limited as described below. The Trust reserves the
right to modify or terminate this exchange offer on 60 days' notice.
Because excessive trading can hurt Fund performance and shareholders, the Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges into and out of the
Funds per calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted together
for purposes of the four exchange limit.
Redemptions
Redemption requests in good order received by the Transfer Agent (or its
authorized agent) prior to 4:00 p.m., Eastern time, on any Business Day will be
effective that day. To redeem shares of the Fund, shareholders must place their
redemption orders with the Transfer Agent (or its authorized agent) prior to
4:00 p.m., Eastern time, on any Business Day. The redemption price of shares of
the Fund is the net asset value per share of the Fund next determined after the
redemption order is effective. Payment of redemption proceeds will be made as
promptly as possible and, in any event, within seven days after the redemption
order is received, provided, however, that redemption proceeds for shares
purchased by check (including certified or cashier's checks) will be forwarded
only upon collection of payment for such shares; collection of payment may take
up to 15 days. Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Fund by
Federal Reserve wire on Federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone if they reasonably believe
those instructions to be genuine. The Trust and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine.
Such procedures may include the taping of telephone conversations.
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<PAGE>
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
Valuation of Shares
The net asset value per share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of the Fund. Net asset value per share
is determined daily as of the close of business of the New York Stock Exchange
(currently, 4:00 p.m., Eastern time) on any Business Day.
PERFORMANCE
From time to time, the Fund may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future yields or
returns. The yield of the Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the same amount of income generated by the investment during
that period is generated in each 30-day period over one year and is shown as a
percentage of the investment.
The total return of the Fund refers to the average compounded rate of return on
a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Fund may periodically compare 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 Fund
may quote Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. The Fund may also
quote the Frank Russell Company or Wilshire Associates, consulting firms that
compile financial characteristics of common stocks and fixed income securities,
regarding non-performance-related attributes of the Fund's portfolio. The Fund
may use long term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark 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 Fund:
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as the Fund qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
Tax Status of Distributions:
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from the Fund's
net investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. Any net capital gains will be distributed annually and will be
taxed to shareholders as gains from the sale of exchange of a capital asset held
for more than one year, regardless of how long the shareholder has held shares.
The Fund will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue discount
and thus do not make periodic cash interest payments. The Fund will be required
to include as part of their current income the accrued discount on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to shareholders, the Fund may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser would not have chosen to sell such securities and which may result in a
taxable gain or loss.
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Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. The Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Each sale, exchange or redemption of the Fund's shares is a taxable event to the
shareholder.
GENERAL INFORMATION
The Trust
The Trust, an open-end management investment company, was organized under
Delaware law as a business trust under a Declaration of Trust dated October 25,
1993. 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 State of Delaware. 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 share.
In other words, each shareholder of record is entitled to one vote for each
share held on the record date for the meeting. Shareholders of a Class or a Fund
will vote separately on matters pertaining solely to the Class or the Fund. As a
Delaware 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
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of the Trust. In the event that such a meeting is requested, the Trust will
provide appropriate assistance and information to the Shareholders requesting
the meeting.
Reporting
The Trust issues unaudited financial information semiannually and audited
financial statements annually for the Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
Shareholder Inquiries
Shareholder inquiries should be directed to TIP Institutional Funds, P.O. Box
419805, Kansas City, Missouri 64141-6805, or by calling 1-888-TIP-7654.
Purchases, exchanges and redemptions of shares should be made through the
Transfer Agent by calling 1-888-TIP-7654.
Dividends and Distributions
Substantially all of the net investment income (excluding capital gains) of the
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 Fund are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a distribution of ordinary income
or capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable distribution or dividend.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants for the Trust.
Custodian
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
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DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Fund:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation by
the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
BORROWING -- The Fund may borrow money equal to 5% of its total assets for
temporary purposes to meet redemptions or to pay dividends. Although the
principal of any borrowing will be fixed, the Fund's assets may change in value
during the time the borrowing is outstanding.
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.
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES -- Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose the Fund to the
direct or indirect consequences of political, social or economic changes in the
countries that issue the securities. The ability and willingness of sovereign
obligers in developing and emerging market countries or the governmental
authorities that control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Countries such as those in which the
Fund may invest have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate or trade
difficulties and extreme poverty and unemployment. Many of these countries are
also characterized
-20-
<PAGE>
by political uncertainty or instability. Additional factors which may influence
the ability or willingness to service debt include, but are not limited to, a
country's cash flow situation, the availability of sufficient foreign exchange
on the date a payment is due, the relevant size of its debt service burden to
the economy as a whole, and its government's policy towards the International
Monetary Fund, the World Bank and other international agencies.
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 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 Fund 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
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<PAGE>
overall credit quality of the Fund's investment portfolio and increasing the
exposure of the Fund to the risks of high yield securities. Credit quality in
the junk bond market can change suddenly and unexpectedly, and even recently
issued credit ratings may not fully reflect the actual risks imposed by a
particular security.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days, securities for
which there is no active secondary market, and repurchase agreements with
durations or maturities over 7 days in length.
LOAN PARTICIPATIONS AND ASSIGNMENTS -- Loan participations are interests in
loans to corporations or governments which are administered by the lending bank
or agent for a syndicate member ("intermediary bank"). In a loan participation,
the borrower will be deemed to be the issuer of the participation interest,
except to the extent the Fund derives its rights from the intermediary bank.
Because the intermediary bank does not guarantee a loan participation in any
way, a loan participation is subject to the credit risks generally associated
with the underlying borrower. In the event of the bankruptcy or insolvency of
the borrower, a loan participation may be subject to certain defenses that can
be asserted by such borrower as a result of improper conduct by the intermediary
bank. In addition, in the event the underlying borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation of such borrower. Under the terms of a loan
participation, the Fund may be regarded as a creditor of the intermediary bank,
(rather than of the underlying borrower), so that the Fund may also be subject
to the risk that the intermediary bank may become insolvent.
Loan assignments are investments in assignments of all or a portion of certain
loans from third parties. When a Fund purchases assignments from lenders it will
acquire direct rights against the borrower on the loan. Since assignments are
arranged through private negotiations between potential assignees and assignors,
however, the rights and obligations acquired by the Fund may differ from, and be
more limited than, those held by the assigning lender. Loan participations and
assignments may be considered liquid, as determined by the Fund's adviser based
on criteria approved by the Board of Trustees.
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.
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<PAGE>
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which the 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.
RIGHTS -- Rights give existing shareholders of a corporation the right, but not
the obligation, to buy shares of the corporation at a given price, usually below
the offering price, during a specified period.
RULE 144A SECURITIES -- Rule 144A securities are securities exempt from
registration on resale pursuant to Rule 144A under the 1933 Act. Rule 144A
securities are traded in the institutional market pursuant to this registration
exemption, and, as a result, may not be as liquid as exchange-traded securities
since they may only be resold to certain qualified institutional investors. Due
to the relatively limited size of this institutional market, these securities
may affect the Fund's liquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.
Nevertheless, Rule 144A securities may be treated as liquid securities pursuant
to guidelines adopted by the Trust's Board of Trustees.
SECURITIES LENDING -- In order to generate additional income, the Fund may lend
its securities 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. The 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.
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
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<PAGE>
separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
U.S. TREASURY RECEIPTS -- U.S. Treasury receipts are interests in separately
traded interest and principal component parts of U.S. Treasury obligations that
are issued by banks or brokerage firms and are created by depositing U.S.
Treasury obligations into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit of the registered
owners of the certificates of receipts. The custodian arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the register.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a separate account with liquid securities or cash in
an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date, and no interest accrues to
the 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 the 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, the 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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<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE>
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
Investment Grade
<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay principal and differs from the
highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal, although it is somewhat more
susceptible to adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
BB Debt rated 'BB' has less near-term vulnerability to default than other speculative grade debt.
However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic
conditions that could lead to inadequate capacity to meet timely interest and principal payments. The
'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic conditions would
likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category also
is used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default, and is dependent on favorable
business, financial, and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt which is assigned an actual or
implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which is assigned an actual or
implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is being paid.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
D Debt is rated 'D' when the issue is in payment default, or the obligor has filed for bankruptcy. The
'D' rating is used when interest or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments will be made during
such grace period.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but may vary slightly from
AA- time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are more variable and
A- greater in periods of economic stress.
BBB+ Below average protection factors but still considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic cycles.
BB+ Below investment grade but deemed likely to meet obligations when due. Present or
BB prospective financial protection factors fluctuate according to industry conditions or company
BB- fortunes. Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due.
B Financial protection factors will fluctuate widely according to economic cycles, industry
B- conditions and/or company fortunes. Potential exists for frequent changes in the rating within this
category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as to timely payment of
principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
Investment Grade Bond
AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'.
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact on these bonds, and
therefore impair timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Speculative Grade Bond
BB Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are currently meeting debt
service requirements, the probability of continued timely payment of principal and interest reflects
the obligor's limited margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or principal seems probable over
time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD,
and D Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery value in liquidation or reorganization
of the obligor. 'DDD' represents the highest potential for recovery on these bonds, and 'D' represents
the lowest potential for recovery.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is the lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial, such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk substantially.
AA Obligations for which there is a very low expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk, albeit not very significantly.
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
A Obligations for which there is a low expectation of investment risk. Capacity for timely repayment
of principal and interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of investment risk. Capacity for timely
repayment of principal and interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than for obligations in other
categories.
BB Obligations for which there is a possibility of investment risk developing. Capacity for timely
repayment of principal and interest exists, but is susceptible over time to adverse changes in
business, economic or financial conditions.
B Obligations for which investment risk exists. Timely repayment of principal and interest is not
sufficiently protected against adverse changes in business, economic or financial conditions.
CCC Obligations for which there is a current perceived possibility of default. Timely repayment of
principal and interest is dependent on favorable business, economic or financial conditions.
CC Obligations which are highly speculative or which have a high risk of default.
C Obligations which are currently in default.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
Investment Grade
AAA The highest category; indicates that the ability to repay principal and interest on a timely basis is
very high.
AA The second-highest category; indicates a superior ability to repay principal and interest on a timely
basis, with limited incremental risk compared to issues rated in the highest category.
A The third-highest category; indicates the ability to repay principal and interest is strong. Issues rated
"A" could be more vulnerable to adverse developments (both internal and external) than obligations
with higher ratings.
BBB The lowest investment-grade category; indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
Non-Investment Grade
BB While not investment grade, the "BB" rating suggests that the likelihood of default is considerably
less than for lower-rated issues. However, there are significant uncertainties that could affect the
ability to adequately service debt obligations.
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
B Issues rated "B" show a higher degree of uncertainty and therefore greater likelihood of default than
higher-rated issues. Adverse developments could well negatively affect the payment of interest and
principal on a timely basis.
CCC Issues rated "CCC" clearly have a high likelihood of default, with little capacity to address further
adverse changes in financial circumstances.
CC "CC" is applied to issues that are subordinate to other obligations rated "CCC" and are afforded less
protection in the event of bankruptcy or reorganization.
D Default
</TABLE>
A-6
<PAGE>
Trust:
TIP INSTITUTIONAL FUNDS
Fund:
PENN CAPITAL STRATEGIC HIGH YIELD BOND 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 INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
TURNER MICRO CAP GROWTH FUND
Investment Advisers:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Penn Capital Strategic High Yield Bond Fund (the "High Yield Fund"), and the
Turner Micro Cap Growth Fund (the "Micro Cap Fund"), (each a "Fund" and,
together, the "Funds"). It is intended to provide additional information
regarding the activities and operations of the TIP Institutional Funds
(formerly, The Solon Funds) (the "Trust") and should be read in conjunction with
the Funds' Prospectus dated March 1, 1998. The Prospectus may be obtained
without charge by calling 1-888-TIP-7654.
TABLE OF CONTENTS
THE TRUST...................................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS........................................S-2
INVESTMENT LIMITATIONS......................................................S-8
THE ADVISERS...............................................................S-10
THE ADMINISTRATOR..........................................................S-11
THE DISTRIBUTOR............................................................S-12
TRUSTEES AND OFFICERS OF THE TRUST.........................................S-12
COMPUTATION OF YIELD AND TOTAL RETURN......................................S-15
PURCHASE AND REDEMPTION OF SHARES..........................................S-16
DETERMINATION OF NET ASSET VALUE...........................................S-17
TAXES......................................................................S-17
PORTFOLIO TRANSACTIONS.....................................................S-18
DESCRIPTION OF SHARES......................................................S-21
SHAREHOLDER LIABILITY......................................................S-21
LIMITATION OF TRUSTEES' LIABILITY..........................................S-21
APPENDIX ...................................................................A-1
March 1, 1998
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Penn Capital
Strategic High Yield Bond Fund (the "High Yield Fund") and the Turner Micro Cap
Growth Fund (the "Micro Cap Fund") (each a "Fund" and, together, the "Funds").
Each Fund is a separate series of the TIP Institutional Funds (formerly, The
Solon Funds) (the "Trust"), a diversified, open-end management investment
company established as a Delaware business trust under a Declaration of Trust
dated October 25, 1993. 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. The Trust also offers
Institutional Class and Adviser Class shares in the Solon Short Duration
Government Funds - One Year Portfolio and the Solon Short Duration Government
Funds - Three Year Portfolio, and Adviser Class shares of the High Yield Fund.
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
Futures Contracts and Options on Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of 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.
S-2
<PAGE>
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 and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
S-3
<PAGE>
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
portfolio 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.
S-4
<PAGE>
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Risk Factors: Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
Repurchase Agreements
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
S-5
<PAGE>
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
When-Issued and Delayed Delivery Securities
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
INVESTMENT LIMITATIONS
Fundamental Policies
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of each Fund which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of a Fund's outstanding shares, whichever is less.
No Fund may:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate fund to purchase securities or require a
Fund to segregate assets are not considered to be borrowings. Asset coverage
of a least 300% is required for all borrowings, except where a Fund has
borrowed money for temporary purposes in amounts not exceeding 5% of its
total assets. A Fund will not purchase securities while its borrowings
exceed 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that each Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
S-6
<PAGE>
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
4. Issue senior securities (as defined in the Investment Company Act of 1940
(the "1940 Act")) except as permitted by rule, regulation or order of the
Securities and Exchange Commission (the "SEC").
5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
6. Invest in interests in oil, gas, or other mineral exploration or development
programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
Non-Fundamental Policies
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings permitted
by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of security
transactions; (ii) provide initial and variation margin payments in
connection with transactions involving futures contracts and options on such
contracts; and (iii) make short sales "against the box" or in compliance
with the SEC's position regarding the asset segregation requirements imposed
by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
S-7
<PAGE>
5. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
In addition, each Fund will invest no more than 5% of its net assets in short
sales, unregistered securities, futures contracts, options and investment
company securities. Unregistered securities sold in reliance on the exemption
from registration in Section 4(2) of the 1933 Act and securities exempt from
registration on re-sale pursuant to Rule 144A of the 1933 Act may be treated as
liquid securities under procedures adopted by the Board of Trustees.
THE ADVISERS
The Trust and Penn Capital Management Company, Inc. (an "Adviser"), have entered
into an advisory agreement with the High Yield Fund (an "Advisory Agreement")
with respect to the Fund. 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 Trust and Turner Investment Partners, Inc. (an "Adviser") have entered into
an advisory agreement with Micro Cap Fund (an "Advisory Agreement"). 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.
Each Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of the Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds established limitations, the Adviser will bear the amount of such
excess. The Adviser will not be required to bear expenses of the 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 each Advisory Agreement as to the 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 the Fund, and (ii) by the vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. Each Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the
S-8
<PAGE>
Trustees of the Trust or, with respect to the Fund, by a majority of the
outstanding shares of the 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 ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interests in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors and
money managers. The Administrator and its affiliates also serve as administrator
to the following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Boston 1784
Funds(R), CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series
Fund, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R),
Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust and TIP
Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Funds. The Distributor
receives no compensation for distribution of shares of the Funds.
S-9
<PAGE>
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the State of Delaware. The Trustees and executive officers of the Trust
and their principal occupations for the last five years are set forth below.
Each may have held other positions with the named companies during that period.
The Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, Boston 1784 Funds(R), CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc, HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R), Santa Barbara
Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI Classic Variable Trust, and TIP Funds, 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.
RONALD FILANTE (DOB _________) - Trustee - Associate Professor of Finance at
Pace University, since 1987.
KATHERINE GRISWOLD (DOB _______) - Trustee - Director of Benefits Trusts at
Southern New England Telephone Company, since 1993 and the Director of the
Pension Fund from 1993-1989.
S-10
<PAGE>
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner Investment Partners, Inc., since 1992.
CYNTHIA KUNZE (DOB________) - Vice President and Assistant Secretary -
Administrator of Solon Asset Management, L.P., since 199__.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine (law firm), 1994-1995. Associate,
Winston and Strawn (law firm), 1991-1994.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm) ,
1988-1992.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President and Assistant Secretary,
Deputy General Counsel, Vice President and Assistant Secretary of SEI, Vice
President and Assistant Secretary of the Administrator and Distributor, since
1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting - Director, Funds Administration
and Accounting of SEI since 1994. Senior Audit Manager, Arthur Andersen LLP,
1986-1994.
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker, Biddle & Reath (law firm) (1994-1996). Assistant
Vice President - Operations of Delaware Service Company, Inc. (1988-1993)
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994- 1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
S-11
<PAGE>
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor, since 1995. Attorney, Aquila
Management Corporation, 1994. Rutgers University School of Law - Newark,
1991-1994.
The following table exhibits Trustee compensation for the fiscal year ended
February 28, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
From Registrant Benefits Upon From Registrant
for the Fiscal Accrued as Part Retirement and Fund
Year Ended of Fund Complex Paid to
February 28, Expenses Trustees for the
1997 Fiscal Year
Ended February
28, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ronald Filante $__________ 0 0 $__________
- --------------------------------------------------------------------------------------------------------------------
Katherine $__________ 0 0 $__________
Griswold
- --------------------------------------------------------------------------------------------------------------------
Deborah H. $__________ 0 0 $__________
Midanek*
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Resigned effective November 14, 1997. Ms. Midanek, a former employee of Solon
Asset Management, L.P., the predecessor adviser to the Funds, was an interested
person of the Trust.
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 non-interested Trustees of
the Trust. Compensation of Officers and interested Trustees of the Trust is paid
by the Adviser or the Administrator.
S-12
<PAGE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30- day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)6 - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Currently, the weekdays on
which the Fund is closed for business are: New Year's Day, Martin Luther King,
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
S-13
<PAGE>
the right to suspend sales of shares of any Fund for any period during which the
New York Stock Exchange, the Advisers, 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. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) 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
S-14
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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 by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short-and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions will generally be eligible for the corporate dividends-received
deduction.
State Taxes
No Fund is liable for any income or franchise tax in Delaware 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 Advisers are authorized to select brokers and dealers to effect securities
transactions for the Funds. The Advisers 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 Advisers generally seek reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Advisers seek to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
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The Advisers may, consistent with the interests of the Funds, select brokers on
the basis of the research services they provide to the Advisers. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Advisers will be in addition to and not in lieu of the services required to
be performed by the Advisers under the Advisory Agreements. If, in the judgment
of the Advisers, a Fund or other accounts managed by the Advisers will be
benefitted by supplemental research services, the Advisers 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
Advisers 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 Funds or account generating the brokerage, and there can be
no guarantee that the Advisers will find all of such services of value in
advising that Fund.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for a Fund
on an exchange if a written contract is in effect between the Trust and the
Distributor expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by a Fund for exchange transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Advisers 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-16
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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.
Adviser Class Shares of the Funds are identical to Institutional Class Shares of
the Funds, except that Adviser Class Shares of the Funds are subject to a
shareholder servicing fee.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Delaware business
trust." 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.
S-17
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit
A-1
<PAGE>
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 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
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numbers 1, 1+, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1, the highest rating category, reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2, the second highest rating category,
reflect a satisfactory degree of safety regarding timely payment but not as high
as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated A1+
are supported by the highest capacity for timely repayment. Obligations rated
A2, the second highest rating, are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
A-3
<PAGE>
TIP INSTITUTIONAL FUNDS
(formerly, The Solon Funds)
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Adviser Class Shares of Turner Short Duration Government Funds - One Year
Portfolio and the Turner Short Duration Government Funds - Three Year Portfolio
(each a "Fund" and, together, the "Funds"). It is intended to provide additional
information regarding the activities and operations of the TIP Institutional
Funds (formerly, The Solon Funds) (the "Trust"), and should be read in
conjunction with the Funds' Prospectus dated March 1, 1998. The Prospectus may
be obtained without charge by calling 1-888-TIP-7654.
TABLE OF CONTENTS
THE TRUST....................................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS.........................................S-2
INVESTMENT LIMITATIONS.......................................................S-8
THE ADVISERS................................................................S-10
THE ADMINISTRATOR...........................................................S-11
THE DISTRIBUTOR.............................................................S-12
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-12
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-15
PURCHASE AND REDEMPTION OF SHARES...........................................S-16
DETERMINATION OF NET ASSET VALUE............................................S-17
TAXES.......................................................................S-17
PORTFOLIO TRANSACTIONS......................................................S-18
DESCRIPTION OF SHARES.......................................................S-21
SHAREHOLDER LIABILITY.......................................................S-21
LIMITATION OF TRUSTEES' LIABILITY...........................................S-21
APPENDIX ....................................................................A-1
March 1, 1998
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THE TRUST
This Statement of Additional Information relates only to the Adviser Class
Shares of the Turner Short Duration Government Funds - One Year Portfolio and
the Turner Short Duration Government Funds - Three Year Portfolio (each a "Fund"
and, together, the "Funds"). Each Fund is a separate series of the TIP
Institutional Funds (formerly, The Solon Funds) (the "Trust"), a diversified,
open-end management investment company established as a Delaware business trust
under a Declaration of Trust dated October 25, 1993. The Declaration of Trust
permits the Trust to offer separate series ("portfolios") of shares of
beneficial interest ("shares"). Each portfolio is a separate mutual fund, and
each share of each portfolio represents an equal proportionate interest in that
portfolio. See "Description of Shares." The Trust also offers Institutional
shares in the Turner Micro Cap Growth Fund, Adviser and Institutional Class
Shares of the Penn Capital Strategic High Yield Bond Fund, as well as in
Institutional Class Shares of the Funds in separate prospectuses. Capitalized
terms not defined herein are defined in the Prospectus offering shares of the
Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
Dollar Roll Transactions
The Funds may enter into dollar roll transactions as discussed in the Funds'
Prospectus. A dollar roll transaction involves a sale by the Fund of a security
to a financial institution concurrently with an agreement by the Funds to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories than those sold. During
the period between the sale and repurchase, the Funds will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in additional portfolio securities of the particular Fund,
and the income from these investments, together with any additional fee income
received on the sale, may or may not generate income from the Fund exceeding the
yield on the securities sold.
At the time that either Fund enters into a dollar roll transaction, it causes
the Fund's custodian to segregate cash or liquid securities having a value equal
to the repurchase price (including accrued interest) and will subsequently mark
the assets to market daily to ensure that full collateralization is maintained.
Investment Company Shares
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies,
S-2
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including advisory fees, in addition to paying Fund expenses. Under applicable
regulations, a Fund is prohibited from acquiring the securities of another
investment company if, as a result of such acquisition: (1) the Fund owns more
than 3% of the total voting stock of the other company; (2) securities issued by
any one investment company represent more than 5% of the Fund's total assets; or
(3) securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.
Mortgage-Related Securities
Adjustable Rate Mortgage-Related Securities: As the interest rate on the
mortgages underlying adjustable rate mortgage-related securities ("ARMS") are
reset periodically, yields of such portfolio securities will gradually align
themselves to reflect changes in market rates. Unlike fixed rate mortgages,
which generally decline in value during periods of rising interest rates, ARMS
allow the Funds to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and low price fluctuations. Furthermore, if prepayments of
principal are made on the underlying mortgages during periods of rising interest
rates, the Funds may be able to reinvest such amounts in securities with a
higher current rate of return. During periods of declining interest rates, of
course, the coupon rates may readjust downward, resulting in lower yields to the
Funds. Further, because of this feature, the value of ARMS are unlikely to rise
during periods of declining interest rates to the same extent as fixed rate
instruments.
Fannie Mae Securities: Fannie Mae is a federally chartered and privately owned
corporation established under the Federal National Mortgage Association Charter
Act. Fannie Mae provides funds to the mortgage market primarily by purchasing
home mortgage loans from local lenders, thereby providing them with funds for
additional lending. Fannie Mae acquires funds to purchase loans from investors
that may not ordinarily invest in mortgage loans directly, thereby expanding the
total amount of funds available for housing.
Each Fannie Mae pass-through security represents a proportionate interest in one
or more pools of loans, including conventional mortgage loans (that is, mortgage
loans that are not insured or guaranteed by any U.S. Government agency). The
loans contained in those pools consist of one or more of the following: (1)
fixed-rate level payment mortgage loans; (2) fixed-rate growing equity mortgage
loans; (3) fixed-rate graduated payment mortgage loans; (4) variable rate
mortgage loans; (5) other adjustable rate mortgage loans; and (6) fixed-rate
mortgage loans secured by multifamily projects.
Federal Home Loan Mortgage Corporation Securities: The operations of FHLMC
currently consist primarily of the purchase of first lien, conventional,
residential mortgage loans and participation interests in mortgage loan and the
resale of the mortgage loans in the form of mortgage-backed securities.
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The mortgage loans underlying FHLMC securities typically consist of fixed rate
or adjustable rate mortgage loans with original terms to maturity of between 10
to 30 years, substantially all of which are secured by first liens on
one-to-four-family residential properties or multifamily projects. Each mortgage
loan must include whole loans, participation interests in whole loans and
undivided interests in whole loans and participation in another FHLMC security.
Government National Mortgage Association Securities: GNMA is a wholly owned
corporate instrumentality of the U.S. Government within the Department of
Housing and Urban Development. In order to meet its obligations under a
guarantee, GNMA is authorized to borrow from the U.S. Treasury with no
limitations as to amount.
GNMA pass-through securities may represent a proportionate interest in one or
more pools of the following types of mortgage loans: (1) fixed-rate level
payment mortgage loans; (2) fixed rate graduated payment mortgage loans; (3)
fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured
by manufactured (mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (8) mortgage loans that provide for
adjustments on payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (9) mortgage-backed serial notes.
Privately Issued Mortgage-Related Securities: The Funds may invest in
mortgage-related securities offered by private issuers including pass-through
securities comprised of pools of conventional residential mortgage loans;
mortgage-backed bonds which are considered to be obligations of the institution
issuing the bonds and are collateralized mortgage obligations ("CMOs"), provided
such securities are "mortgage related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984, as amended.
The Funds may invest in, among other things, "parallel pay" CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which like the other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds are parallel pay CMOs that generally
require payments of a specified amount of principal on each payment date; the
required principal payment on PAC Bonds have the highest priority after interest
has been paid to all classes.
Options and Futures Contracts
The Funds may write (i.e., sell) covered put and call options on debt
securities. A covered call option is an option for which the Funds, in return
for a premium, gives another party the right to buy specified debt securities
owned by the Funds at a specified future date and price set at the time of the
contract. A covered call option serves as a partial hedge against the price
decline of
S-4
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the underlying security. However, by writing a covered call option, the Funds
give up the opportunity, while the option is in effect, to realize gain from any
price increase in the underlying debt security above the option exercise price.
In addition, the Fund's ability to sell the underlying debt security will be
limited while the option is in effect unless the Fund effects a closing purchase
transaction.
There can be no assurance that higher than anticipated trading activity or other
unforeseen events might not at times, render certain of the facilities of the
Options Clearing Corporation inadequate and thereby result in the institution by
an exchange of special procedures which may interfere with the execution of the
Funds' orders.
The Funds may purchase put and call options on securities in which it has
invested. The Funds may purchase and sell options that are traded on U.S.
exchanges. The Funds also may enter into closing sale transactions in order to
realize gains or minimize losses on options it has purchased.
The Funds normally will purchase call options in anticipation of an increase in
the market value of securities of the type in which they may invest. The
purchase of a call option would entitle the Funds, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund may purchase and sell options that are traded on U.S.
exchanges.
Under certain circumstances, the Funds also may write covered put options which
give the holder of the option the right to sell the underlying debt security to
the Funds at the stated exercise price. The Funds will receive a premium for
writing a put option but will be obligated to purchase the underlying debt
security at a price that may be higher than the market value of that debt
security at the time of exercise for as long as the option is outstanding. In
order to "cover" the put options that it has written, the Funds cause their
custodian or a designated subcustodian, to segregate cash or other liquid
securities with a value equal to or greater than the exercise price of the
underlying securities. Neither Fund will write put options in the aggregate
value of the obligations underlying the put, together with outstanding purchases
of securities on a when-issued or delayed delivery basis, shall exceed 5% of
such Fund's total assets.
There can be no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time. For some options,
the secondary market on an exchange may exist. In such event, it might not be
possible to effect closing transactions in particular options, with the result
that the Funds would have to exercise its options in order to realize any profit
and would incur transaction costs upon the purchase or sale of underlying
securities.
Secondary markets or an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v)
S-5
<PAGE>
inadequate facilities of an exchange or the Options Clearing Corporation to
handle current trading volume at all times; or (vi) discontinuance in the future
by one or more exchanges, for economic or other reasons, of trading of options
(or of a particular class or series of options).
The Funds may enter into standardized contracts for the purchase or, in certain
circumstances, sale for future delivery of debt securities. U.S. futures
contracts have been designed by exchanges which have been designated "contracts
markets" by the Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant or brokerage firm that is a
member of the relevant contract market. Futures contracts trade on a number of
exchange markets, and through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The Funds may enter into futures contracts that are based on U.S.
government securities such as long-term U.S. Treasury Bonds, Treasury Notes,
GNMA modified pass-through mortgage-related securities and three-month U.S.
Treasury Bills.
The Funds will use futures contracts and related options for bona fide hedging
purposes within the meaning of CFTC regulations, provided that the Funds may
hold positions in futures contracts and related options that do not fall within
the definition of bona fide hedging transactions if the aggregate initial margin
and premiums required to establish such positions will not exceed 5% of each
Fund's net assets (after taking into account unrealized profits and unrealized
losses on any such positions) and that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded
from such 5%.
At the same time that a futures contract is purchased or sold, the Funds must
allocate cash or securities as a deposit payment ("initial margin"). Thereafter,
the futures contract is valued daily and the payment of "variation margin" may
be required, since each day the Funds would provide or receive cash that
reflects any decline or increase in the contracts value.
At the time of delivery of securities pursuant to such a contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate from that specified in the contract.
In some (but not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on an exchange market an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, the Funds will incur brokerage fees when it
purchases or sells futures contracts.
S-6
<PAGE>
The purpose of the acquisition or sale of a futures contract in the case of the
Funds, which may hold or acquire fixed-income securities, is to attempt to
protect the Funds from fluctuations in interest rates without actually buying or
selling fixed-income securities. For example, when it is expected that interest
rates may decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher prices. Since the
fluctuations in the value of futures contracts should be similar to those of
debt securities, the Funds could take advantage of the anticipated rise in the
value of debt securities without actually buying them until the market had
stabilized. At that time, the futures contracts would be liquidated and the
Funds could then buy securities on the cash market. To the extent the Funds
enter into futures contracts for this purpose, the Funds cause their custodian
to segregate assets to cover the Funds' obligations with respect to such futures
contracts will consist of cash or other liquid securities from its portfolio in
an amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Funds with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial and variation
margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the initial margin requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction in the futures market.
In addition, futures contracts entail risks. Although the Funds believe that use
of such contracts will benefit the Funds, if the Adviser's investment judgment
about the general discretion of interest rates is incorrect, the Funds' overall
performance would be poorer than if the Funds had not entered into any such
contracts. For example, if the Funds have hedged against the possibility of a
decrease in interest rates which would adversely affect the price of debt
securities they wish to purchase for their portfolios and interest rates
increase instead, the Funds would lose part or all of the benefit of the
decreased purchase price of the debt securities which it has hedged because it
would have offsetting losses in its future positions. In addition, in such
situations, if either Fund has insufficient cash, it may have to sell securities
from its portfolio to meet daily variation margin requirements. Such sales of
securities may, but will not necessarily, be at increased prices that reflect
the rising market. The Funds may have to sell securities at a time when it may
be disadvantageous to do so. Loss from investing in leveraged futures
transactions by the Funds is potentially unlimited.
S-7
<PAGE>
Repurchase Agreements
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
Reverse Repurchase Agreements
The Funds may enter into reverse repurchase agreements as set forth in the
Prospectus. The Funds typically will invest the proceeds of a reverse repurchase
agreement in money market instruments or repurchase agreements maturing not
later than the expiration of the reverse repurchase agreement. This use of
proceeds involves leverage. The Funds will enter into a reverse repurchase
agreement for leveraging purposes only when the Adviser believes that the
interest income to be earned from the investment of the proceeds or the gain for
the security to be obtained by effecting the transaction would be greater than
the interest expense of the transaction. The Funds also may use the proceeds of
reverse repurchase agreements to provide liquidity to meet redemption requests
when the sale of the Funds' securities is considered to be disadvantageous.
Securities Lending
Each Fund may lend its portfolio securities having a value of up to 30% of its
total assets in order to generate additional income. Such loans may be made to
broker-dealers or other financial
S-8
<PAGE>
institutions whose creditworthiness is acceptable to the Adviser and subject to
certain terms and conditions. These loans are required to be secured
continuously by collateral, including cash or other liquid securities,
maintained on a current basis (i.e., marked to market daily) at an amount at
least equal to 100% of the market value of the securities loaned plus accrued
interest. The Funds may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the income earned on
the cash to the borrower or placing broker. Loans are subject to termination at
the option of the Funds or the borrower at any time. Upon such termination, the
Funds are entitled to obtain the return of the securities loaned within five
business days.
For the term of the loan, the particular Fund continues to receive the
equivalent of the interest paid by the issuer on the securities loaned, receives
proceeds from the investment of the collateral and continues to retain any
voting rights with respect to the securities. As with other extensions of
credit, there are risks of delay in recovery or even losses of rights in the
securities loaned should the borrower of the securities fail financially.
However, the loans are made only to borrowers deemed by the Adviser to be
creditworthy, and only when, in the judgment of the Adviser, the income which
can be earned currently from such loans justifies the attendant risk.
U.S. Government Securities
U.S. Government securities in which the Funds may invest include debt
obligations of varying maturities issued by the U.S. Treasury or issued or
guaranteed by certain agencies or instrumentalities of the U.S. Government,
including GNMA, Fannie Mae, FHLMC, Federal Farm Credit Bank, Farm Credit System
Financial Assistance Corporation, Federal Home Loan Banks, Financing
Corporation, Federal Home Loan Bank, Maritime Administration, Resolution Funding
Corporation, Small Business Administration (SBA loan pools and the guaranteed
portions of single loan sales), Student Loan Marketing Association and
Washington Metropolitan Area Transit Authority. Direct obligations of the U.S.
Treasury include a variety of securities that differ primarily in their interest
rates, maturities and dates of issuance. Because the U.S. Government is not
obligated by law to provide support to an instrumentality that it sponsors, the
Funds will not invest in obligations issued by an instrumentality of the U.S.
Government unless the Adviser determines that the instrumentality's credit risk
makes its securities suitable for investment by the Funds.
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.
S-9
<PAGE>
INVESTMENT LIMITATIONS
Fundamental Policies
The following policies and investment restrictions have been adopted by the
Funds and (unless otherwise noted) are fundamental and cannot be changed without
the affirmative vote of a majority of the Funds' outstanding voting securities
as defined in the 1940 Act.
No Fund may:
1. Purchase any common stocks or other equity securities, except that the Funds
may invest in securities of other investment companies as described above
and consistent with restriction number 7 below.
2. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objective and policies, (b) through the
lending of up to 30% of its portfolio securities as described above, or (c)
to the extent the entry into a repurchase agreement or reverse dollar
transaction is deemed to be a loan.
3. (a) Borrow money, except for temporary or emergency purposes from a bank, or
pursuant to permissible reverse repurchase agreements or dollar roll
transactions as described in the Prospectus or this SAI. Except for reverse
repurchase agreements or dollar roll transactions for which the Funds'
custodian has segregated assets, any such borrowing will be made only if
immediately thereafter there is an asset coverage of at least 300% of all
borrowings, and borrowings from all sources, including reverse repurchase
agreements and dollars for which the Fund's custodian has segregated assets,
will net exceed 50% of the Fund's total assets. No additional investments
may be made while any borrowings (excluding reverse repurchase agreements
and dollar roll transactions against which assets have been segregated) are
in excess of 5% of the Funds' total assets.
(b) Mortgage, pledge or hypothecate any of its assets except in connection
with permissible borrowings, reverse repurchase agreements and dollar roll
transactions.
4. Except in connection with permissible forward commitment or futures or
options activities as described in the Prospectus of this SAI, purchase
securities on margin or underwrite securities; however, the Funds may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of its portfolio securities.
5. Buy or sell real estate or commodities or, except in connection with
permissible futures or options activities as described in the Prospectus or
this SAI, commodity contracts;
S-10
<PAGE>
however, the Funds may invest in marketable securities secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein.
6. Buy or sell interests in oil, gas or mineral exploration or development
leases and programs; however, the Funds may invest in marketable securities
of issuers engaged in such activities.
7. Invest in securities of other investment companies, except to the extent
permitted by the 1940 Act or discussed in the Funds' Prospectus or this SAI,
or as such securities may be acquired as part of a merger, consolidation or
acquisition of assets.
8. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Funds from (a) making any
permissible borrowings, mortgages or pledges, or (b) entering into
permissible reverse repurchase or dollar roll transactions, in each case as
described in the Prospectus or this SAI.
9. Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that each Fund may invest up to 100% of its assets in
securities of the U.S. Government, its agencies or instrumentalities in
accordance with its investment objective and policies.
Non-Fundamental Policies
The Funds have adopted the following restrictions as operating policies, which
are not fundamental policies, and which may be changed without shareholder
approval in accordance with applicable regulations.
No Fund may:
1. Invest in the aggregate, more than 10% of its net assets in illiquid
securities, including (under current SEC interpretations) securities which
are not readily marketable and repurchase agreements that mature in more
than seven days.
2. Invest in any issuer for purposes of exercising control or management of the
issuer.
3. Except in connection with permissible forward commitment or futures or
options activities as described in the Funds' Prospectus or this SAI, write,
purchase or sell straddles, spreads or combinations thereof.
4. Except in connection with permissible forward commitment or options or
futures transactions, as described in the Funds' Prospectus or this SAI,
engage in short sales of securities.
S-11
<PAGE>
5. Enter into a futures or an option on a futures contract if, as a result
thereof, more than 5% of the particular Fund's total assets (taken at market
value at the time of entering into the contract and excluding the
in-the-money amount of an option that was in-the-money at the time of
purchase) would be committed to initial deposits and premiums on open
futures contracts and options on such contracts.
6. Invest in real estate limited partnerships or issuers that qualify as real
estate investment trusts under Federal tax laws.
To the extent these restrictions reflect matters of operating policy which may
be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice of shareholders.
If a percentage restriction is adhered to a the time of investment, a subsequent
increase or decrease in a percentage resulting from a change in the values of
assets will not constitute a violation of that restriction, except as otherwise
noted.
THE ADVISER
The Trust and Turner Investment Partners, Inc. (an "Adviser"), have entered into
an advisory agreement (an "Advisory Agreement"). 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.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of the Funds (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds established limitations, the Adviser will bear the amount of such
excess. The Adviser will not be required to bear expenses of the Funds 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 the Funds 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 the Funds, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to the Funds,
by a majority of the outstanding shares of the Funds, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
S-12
<PAGE>
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. The Administration Agreement shall
remain in effect for a period of three (3) years after the effective date of the
agreement and shall continue in effect for successive periods of one (1) year
unless terminated by either party on not less than 90 days' prior written notice
to the other party.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interests in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors and
money managers. The Administrator and its affiliates also serve as administrator
to the following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Boston 1784
Funds(R), CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series
Fund, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R),
Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust and TIP
Funds.
THE DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement (the "Distribution
Agreement") with respect to shares of the Funds. The Distributor receives no
compensation for distribution of shares of the Funds.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding
S-13
<PAGE>
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 State of Delaware.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, Boston 1784 Funds(R), CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc, HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R), Santa Barbara
Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI Classic Variable Trust, and TIP Funds, 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.
RONALD FILANTE (DOB _________) - Trustee - Associate Professor of Finance at
Pace University, since 1987.
KATHERINE GRISWOLD (DOB _______) - Trustee - Director of Benefits Trusts at
Southern New England Telephone Company, since 1993 and the Director of the
Pension Fund from 1993-1989.
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner Investment Partners, Inc., since 1992.
CYNTHIA KUNZE (DOB________) - Vice President and Assistant Secretary -
Administrator of Solon Asset Management, L.P., since 199__.
S-14
<PAGE>
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine (law firm), 1994-1995. Associate,
Winston and Strawn (law firm), 1991-1994.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President and Assistant Secretary,
Deputy General Counsel, Vice President and Assistant Secretary of SEI, Vice
President and Assistant Secretary of the Administrator and Distributor, since
1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting - Director, Funds Administration
and Accounting of SEI since 1994. Senior Audit Manager, Arthur Andersen LLP,
1986-1994.
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker, Biddle & Reath (law firm) (1994-1996). Assistant
Vice President - Operations of Delaware Service Company, Inc. (1988-1993).
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989-1994).
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser,
S-15
<PAGE>
Administrator and Distributor, since 1995. Attorney, Aquila Management
Corporation, 1994. Rutgers University School of Law - Newark, 1991-1994.
----------------------
The following table exhibits Trustee compensation for the fiscal year ended
February 28, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
From Registrant Benefits Upon From Registrant
for the Fiscal Accrued as Part Retirement and Fund
Year Ended of Fund Complex Paid to
February 28, Expenses Trustees for the
1997 Fiscal Year
Ended February
28, 1997
Ronald Filante $__________ 0 0 $__________
Katherine
Griswold $__________ 0 0 $__________
Deborah H.
Midanek* $__________ 0 0 $__________
</TABLE>
* Resigned effective November 14, 1997. Ms. Midanek, a former employee of Solon
Asset Management, L.P., the predecessor adviser to the Funds, was an interested
person of the Trust.
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 non-interested Trustees 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:
S-16
<PAGE>
Yield = 2[((a-b)/cd + 1)6 - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Currently, the weekdays on
which the Fund is closed for business are: New Year's Day, Martin Luther King,
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. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
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<PAGE>
Corporate debt securities and mortgage-related securities held by the Funds are
valued on the basis of valuations provided by dealers in those instruments or by
an independent pricing service, approved by the Board of Trustees. Any such
pricing service, in determining value, will use information with respect to
transactions in the securities being valued, quotations from dealers, market
transactions in comparable securities, analyses and evaluations of various
relationships between securities and yield to maturity information.
An option that is written by the Funds is generally valued at the last sale
price or, in the absence of the last sale price, the last offer price. An option
that is purchased by the Funds is generally valued at the last bid price. The
value of a futures contract equals the unrealized gain or loss on the contract
that is determined by marking the contract to the current settlement price for a
like contract on the valuation date of the futures contract. When a settlement
price cannot be used, futures contracts will be valued at their fair market
value as determined by or under the direction of the Trust's Board of Trustees.
If any securities held by the Funds are restricted as to resale or do not have
readily available market quotations, the Adviser determines their fair value for
purposes of determining market-based value, following procedures approved by
the Board of Trustees. The Trustees periodically review such procedures. The
fair value of such securities is generally determined as the amount which the
Funds could reasonably expect to realize from an orderly disposition of such
securities over a reasonable period of time. The valuation procedures applied in
any specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Funds in connection with disposition). In
addition, specific factors are also generally considered, such as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.
All other assets of the Funds are valued in such manner as the Board of Trustees
in good faith deems appropriate to reflect their fair value.
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.
S-18
<PAGE>
Federal Income Tax
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) 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 by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
S-19
<PAGE>
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions will generally be eligible for the corporate dividends-received
deduction.
State Taxes
No Fund is liable for any income or franchise tax in Delaware 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
In all purchases and sales of securities for the Funds, the primary
consideration is to be obtained the most favorable price and execution
available. Pursuant to the Agreements, the Adviser determines which securities
are to be purchased and sold by each Fund and which broker-dealers are eligible
to execute the Funds' portfolio transactions, subject to the instructions of the
review by the Funds and the Trust's Board of Trustees.
Purchases of portfolio securities for the Funds may be made directly from
issuers or from underwriters. Where possible, purchase and sale transactions
will be effected through dealers (including banks) which specialize in the types
of securities which the Funds will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principals for
their own accounts. Purchases from underwriters will include a commission paid
by the issuer to the underwriter and purchases from dealers will include the
spread between the bid and the asked price. If the execution and price offered
by more than one dealer or underwriter are comparable, the order may be
allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Adviser will use its best efforts to
choose a broker-dealer capable of providing the services necessary to obtain the
most favorable price and execution available. The full range and quality of
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operational facilities
of the firm involved, the firm's risk in positioning a block of securities, and
other factors.
In those instances where it is reasonably determined that more than one
broker-dealer can offer the services needed to obtain the most favorable price
and execution available and the transaction involves a brokerage commission,
consideration may be given to those broker-dealers which furnish or supply
research and statistical information to the Adviser or its affiliates that they
may lawfully and appropriately use in their investment advisory capacity for the
Funds and for other accounts, as well as provide other services in addition to
execution services. The Adviser considers such information, which is in addition
to, and not in lieu of, the services required to be
S-20
<PAGE>
performed by it under the agreement, to be useful in varying degrees, but of
indeterminable value. The Adviser anticipates that these opportunities will
arise infrequently if at all.
The placement of portfolio transactions with broker-dealers who sell shares of
the Funds is subject to rules adopted by the National Association of Securities
Dealers, Inc. ("NASD"). Provided the Trust's officers are satisfied that the
Funds are receiving the most favorable price and execution available, the
Adviser may also consider the sale of the Funds' shares as a factor in the
selection of broker-dealers to execute their portfolio transactions.
While the Funds' general policy is to seek first to obtain the most favorable
price and execution available, in selecting a broker-dealer to execute portfolio
transactions, weight may also be given to the ability of a broker-dealer to
furnish brokerage, research and statistical services to the Funds or to the
Adviser, even if the specific services were not imputed just to the Funds and
may be lawfully and appropriately used by the Adviser in advising other clients.
The Adviser considers such information, which is in addition to, and not in lieu
of, the services required to be performed by it under the agreements, to be
useful in varying degrees, but of indeterminable value. In negotiating any
commissions with a broker, the Funds may therefore pay a higher commission than
would be the case if no weight were given to the furnishing of these
supplemental services, provided that the amount of such commission has been
determined in good faith by the Funds and the Adviser to be reasonable in
relation to the value of the brokerage and/or research services provided by such
broker-dealer, which services either produce a direct benefit to the Funds or
assist the Adviser in carrying out its responsibilities to the Funds. The
standard of reasonableness is to be measured in light of the Adviser and the
Adviser's overall responsibilities to the Funds.
Investment decisions for the Funds are made independently from those of other
client accounts of the Adviser. Nevertheless, it is possible that at times the
same securities will be acceptable for the Funds and for one or more of such
client accounts. To the extent any of these client accounts and one or both of
the Funds seeks to acquire the same security at the same time, the individual
Fund may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price or obtain a lower yield for such
security. Similarly, the Funds may not be able to obtain as high a price for, or
as large an execution of, an order to sell any particular security at the same
time. If one or more of such client accounts simultaneously purchases or sells
the same security one or both of the Funds is purchasing or selling, each day's
transactions in such security will be allocated between the particular Funds and
all such client accounts in a manner deemed equitable by the Adviser, taking
into account the respective sizes of the accounts, the amount being purchased or
sold and other factors deemed relevant by the Adviser. It is recognized that in
some cases this system could have a detrimental effect on the price or value of
the security insofar as the Funds are concerned. In other cases, however, it is
believed that the ability of the Funds to participate in volume transactions may
produce better trade execution for the Funds.
S-21
<PAGE>
The Funds may use the Distributor as a broker to execute portfolio transactions.
In accordance with the 1940 Act, the Trust has adopted certain procedures which
are designed to provide that commissions payable to the Distributor are
reasonable and fair as compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on securities or options exchanges during a comparable period
of time. The Funds do not deem it practicable and in their best interest to
solicit competitive bids for commission rates on each transaction. However,
consideration is regularly given to information concerning the prevailing level
of commissions charged on comparable transactions by other qualified brokers.
The Board of Trustees reviews the procedures adopted by the Trust with respect
to the payment of brokerage commissions at least annually to ensure their
continuing appropriateness, and determines, on at least a quarterly basis, that
all such transactions during the preceding quarter were effected in compliance
with such procedures.
Depending on the Adviser's view of market conditions, the Funds may or may not
purchase securities with the expectation of holding them to maturity. The Funds
may, however, sell securities prior to maturity to meet redemptions or as a
result of a revised evaluation of market conditions or of the issuer.
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.
Adviser Class Shares of the Funds are indentical to Institutional Class Shares
of the Funds, except that Adviser Class Shares of the Funds are subject to a
shareholder servicing fee.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Delaware business
trust." The Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Trust, and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
S-22
<PAGE>
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment adviser, 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 STATEMENTS
The Trust's financial statements for the Institutional Class Shares for the
fiscal year ended February 28, 1997, including notes thereto and the report of
Ernst & Young LLP thereon, are herein incorporated by reference. A copy of the
1997 Annual Report must accompany the delivery of this Statement of Additional
Information.
S-23
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit
A-1
<PAGE>
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 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.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1 +, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a "very
strong" degree of safety regarding timely payment. Those rated A-2, the second
highest rating category, reflect a satisfactory degree of safety regarding
timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
A-2
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
<TABLE>
(a) Financial Statements:
Part A - Not Applicable
Part B - Not Applicable
<S> <C> <C> <C>
(b) Additional Exhibits:
(1)(a) Agreement and Declaration of Trust dated October 25, 1993, is incorporated
by reference to Registrant's Registration Statement as filed with the Securities
and Exchange Commission on October 27, 1993.
(1)(b) Certificate of Amendment of Agreement and Declaration of Trust dated
December 11, 1993, is incorporated by reference to Registrant's Registration
Statement as filed with the Securities and Exchange Commission on January
25, 1994.
(1)(c) Certificates of Amendment of Agreement and Declaration of Trust and
Certificate of Trust dated June 13, 1994, is incorporated by reference to
Registrant's Registration Statement as filed with the Securities and Exchange
Commission on September 1, 1994.
(1)(d) Certificate of Amendment of Agreement and Declaration of Trust dated
November 10, 1997, is filed herewith.
(2) By-Laws are incorporated by reference to Registrant's Registration Statement
as filed with the Securities and Exchange Commission on October 27, 1993.
(3) Not applicable
(4) Not applicable
(5)(a) Investment Management Agreement is incorporated by reference to
Registrant's Post-Effective Amendment No. 3 as filed with the Securities and
Exchange Commission on June 28, 1996.
(5)(b) Sub-Advisory Agreement is incorporated by reference to Registrant's Post-
Effective Amendment No. 3 as filed with the Securities and Exchange
Commission on June 28, 1996.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
(5)(c) Form of Investment Advisory Agreement between the Registrant and
Turner Investment Partners, Inc., on behalf of the Short Duration Funds
- One Year Portfolio and the Short Duration Funds - Three Year Portfolio,
is filed herewith.
(5)(d) Form of Investment Advisory Agreement between the Registrant and Turner
Investment Partners, Inc., is filed herewith.
(5)(e) Form of Investment Advisory Agreement between the Registrant and Penn
Capital Management Company, Inc., is filed herewith.
(6)(a) Underwriting Agreement is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 as filed with the Securities and Exchange Commission on June
28, 1996.
(6)(b) Form of Distribution Agreement between the Registrant and SEI Investments
Distribution Co., is filed herewith.
(7) Not applicable
(8) Custodian Agreements: incorporated by reference to Registrant's Registration
Statement as filed with the Securities and Exchange Commission on June 29,
1995.
(9)(a) Administrative Services Contract is incorporated by reference to Registrant's
Post-Effective Amendment No. 3 as filed with the Securities and Exchange
Commission on June 28, 1996.
(9)(b) Services Agreement is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 as filed with the Securities and Exchange Commission on
June 28, 1996.
(9)(c) Form of Administrative Agreement between the Registrant and SEI Fund Resources,
is filed herewith.
(10) Not applicable
(13) Letter of Understanding re: Initial Shares is incorporated by reference to
Registrant's Registration Statement as filed with the Securities and Exchange
Commission on January 25, 1994.
(14) Model Retirement Plan Documents: incorporated by reference to Registrant's
Registration Statement as filed with the Securities and Exchange
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Commission on June 29, 1995.
(15) Not applicable
(16) Performance Computation is incorporated by reference to Registrant's
Registration Statement as filed with the Securities and Exchange
Commission on September 1, 1994.
(17) Not applicable
(24) Powers of Attorney for Katherine Griswold and Ronald Filante are
filed herewith.
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant:
See the Prospectus and the Statement of Additional Information
regarding the Registrant's control relationships. SEI Investments Management
Corporation (formerly, SEI Financial Management Corporation) is the owner of all
beneficial interest in the Administrator and is a subsidiary of SEI Investments
Company, which also controls the distributor of the Registrant, SEI Investments
Distribution Co. (formerly, SEI Financial Services Company), as well as to other
corporations engaged in providing various financial and record keeping services,
primarily to bank trust departments, pension plan sponsors, and investment
managers.
Item 26. Number of Holders of Securities, as of December 1, 1997:
Turner Short Duration Government Fund 8
-One Year Portfolio (Institutional Class) ---
Turner Short Duration Government Fund 21
-Three Year Portfolio (Institutional Class) ---
Turner Short Duration Government Fund 0
-One Year Portfolio (Adviser Class) ---
Turner Short Duration Government Fund 0
-Three Year Portfolio (Adviser Class) ---
Turner Micro Cap Growth Fund 0
---
Penn Capital Strategic High Yield Bond Fund 0
---
- (Institutional Class)
Penn Capital Strategic High Yield Bond Fund 0
- (Adviser Class) ---
Item 27. Indemnification:
Article VII of the Agreement and Declaration of Trust empowers the
Trustees of the Trust, to the full extent permitted by law, to purchase with
Trust assets insurance for indemnification
C-3
<PAGE>
from liability and to pay for all expenses reasonably incurred or paid or
expected to be paid by a Trustee or officer in connection with any claim,
action, suit or proceeding in which he or she becomes involved by virtue of his
or her capacity or former capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is and other amounts or
was an agent of the Trust, against expenses, judgments, fines, settlement and
other amounts actually and reasonable incurred in connection with such
proceeding if that person acted in good faith and reasonably believed his or her
conduct to be in the best interests of the Trust. Indemnification will not be
provided in certain circumstances, however, including instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the duties
involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, 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 a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser:
ADVISERS
Turner Investment Partners, Inc.
- --------------------------------
Turner Investment Partners, Inc. ("Turner") is the investment adviser for the
Turner Ultra Large Cap Growth, Turner Growth Equity, Turner Midcap Growth,
Turner Small Cap Growth, Turner Fixed Income and TIP Target Select Equity 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).
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<PAGE>
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. Penn Capital Management Company, Inc. is the
sub-adviser for the TIP Target Select Equity Fund. The principal address of Penn
Capital Management Company, Inc., is 52 Haddonfield-Berlin Road, Suite 1000,
Cherry Hill, NJ 08034.
The list required by this Item 28 of officers and directors of Penn Capital
Management Company, Inc., together with information as to any other business
profession, vocation, or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated by reference to
Schedules A and D of Form ADV filed by Penn Capital Management Company, Inc.
under the Advisers Act of 1940 (SEC File No. 801-31452).
Item 29. Principal Underwriter:
(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. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds(R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
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<PAGE>
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
TIP Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
SEI Investments provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in
the answer to Item 21 of Part B. Unless otherwise noted, the business
address of each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ------------------- ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & President-Investment --
Advisory Group
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President- --
Investment Services Division
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
David G. Lee Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & Vice President,
Secretary Assistant Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C> <C>
Marc H. Cahn Vice President & Assistant Secretary Vice President,
Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President,
Assistant Secretary
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President & Treasurer --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Joanne Nelson Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President,
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President,
Assistant Secretary
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President,
Assistant Secretary
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
C-7
<PAGE>
(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
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 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.
Registrant hereby undertakes to file a post-effective amendment,
including financial statements which need not be certified for the Penn Capital
Strategic High Yield Bond and Turner Micro Cap Growth Funds within 4-6 months
from the effective date of the Registrant's Post- Effective Amendment No. 5.
C-8
<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. 5 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on
the 12th day of December 1997.
TIP INSTITUTIONAL FUNDS
By: /s/ Stephen J. Kneeley
-----------------------------------
Stephen J. Kneeley
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee December 12, 1997
- ----------------------------
Ronald W. Filante
* Trustee December 12, 1997
- ----------------------------
Katherine R. Griswold
/s/ Stephen J. Kneeley President & Chief December 12, 1997
- ---------------------------- Executive Officer
Stephen J. Kneeley
/s/ Robert DellaCroce Controller and December 12, 1997
- ---------------------------- Chief Financial
Robert DellaCroce Officer
* By: /s/ Stephen J. Kneeley
--------------------------
Stephen J. Kneeley
Attorney-in-Fact
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Name Exhibit
- ---- -------
<S> <C>
Agreement and Declaration of Trust of the Ex-99.B1(a)
Registrant, dated October 25, 1993,
(incorporated herein by reference to
Registration Statement filed on October
27, 1993).
Certificate Amendment to the Agreement Ex-99.B1(b)
and Declaration of Trust of the Registrant, dated
December 11, 1993, (incorporated herein in by reference
to Registration Statement filed on January 25, 1994)
Certificate Amendment to the Agreement Ex-99.B1(c)
and Declaration of Trust of the Registrant, dated
June 13, 1994, (incorporated herein in by reference
to Registration Statement filed on September 1, 1994)
Certificate Amendment to the Agreement Ex-99.B1(d)
and Declaration of Trust of the Registrant, dated
November 10, 1997, is filed herewith.
By-Laws of the Registrant, (incorporated herein Ex-99.B2
by reference to Registration Statement
filed on October 27, 1993)
Investment Management Agreement Ex-99.B5(a)
(incorporated herein by reference to Post-Effective
Amendment No. 3 filed on June 28, 1996)
Investment Sub-Advisory Agreement Ex-99.B5(b)
(incorporated herein by reference to Post-Effective
Amendment No. 3 filed on June 28, 1996)
Form of Investment Advisory Agreement between Ex-99.B5(c)
the Registrant and Turner Investment Partners, Inc.,
on behalf of the Short Duration Funds - One Year
Portfolio and the Short Duration Funds - Three Year
Portfolio, is filed herewith.
Form of Investment Advisory Agreement between Ex-99.B5(d)
the Registrant and Turner Investment Partners, Inc.,
is filed herewith.
Form of Investment Advisory Agreement between Ex-99.B5(e)
the Registrant and Penn Capital Management
Company, Inc., is filed herewith.
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C>
Underwriting Agreement Ex-99.B6(a)
(incorporated herein by reference to Post-Effective
Amendment No. 3 filed on June 28, 1996)
Form of Distribution Agreement between the Ex-99.B6(b)
Registrant and SEI Investments Distribution Co.,
is filed herewith.
Custodian Agreement (incorporated herein Ex-99.B8
by reference to Registrant's Registration Statement
filed on June 29, 1995)
Administration Services Contract (incorporated Ex-99.B9(a)
herein by reference to Post-Effective Amendment
No. 3 filed on June 28, 1996)
Services Agreement (incorporated herein by reference Ex-99.B9(b)
to Post-Effective Amendment No. 3 filed on June 28, 1996)
Form of Administrative Agreement between the Ex-99.B9(c)
Registrant and SEI Fund Resources, is filed herewith.
Opinion and Consent of Counsel Ex-99.B10
Letter of Understanding re: Initial Shares (incorporated Ex-99.B13
herein by reference to Registrant's Registration
Statement filed on January 25, 1994)
Model Retirement Plan Documents (incorporated Ex-99.B14
herein by reference to Registrant's Registration
Statement filed June 29, 1995)
Performance Calculations Ex-99.B16
(incorporated herein by reference to Registrant's
Registration Statement filed September 1, 1994)
Powers of Attorney for Katherine Griswold and Ex-99.B24
Ronald Filante are filed herewith
</TABLE>
C-11
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
THE SOLON FUNDS
Ronald W. Filante and Katherine R. Griswold certify that:
1. They constitute a majority of the Trustees of The Solon Funds, a business
trust filed under and in accordance with the provisions of the Delaware
Business Trust Act (12 Del. C. ss.ss.3801 et seq.).
2. They hereby adopt the following amendment to the Agreement and Declaration
of Trust:
ARTICLE I, Section 1 is amended to read as follows:
"The Trust shall be known as the TIP Institutional Funds, and the
Trustees shall conduct the business of the Trust under that name or any
other name as they shall from time to time determine."
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Date: November 10, 1997
/s/ Ronald W. Filante
------------------------------
Ronald W. Filante, Trustee
/s/ Katherine R. Griswold
------------------------------
Katherine R. Griswold, Trustee
<PAGE>
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of ________, 1997, by and between TIP
Institutional Funds, a Delaware business trust (the "Trust"), and Turner
Investment Partners, Inc. (the "Adviser").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended, consisting of
several series of units of beneficial interest ("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 series set forth in the attached
schedule and such other series 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 each 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 offer and sale, the
Adviser shall bear such excess cost. However, the Adviser will not
bear expenses of any Portfolio
<PAGE>
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, 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
<PAGE>
interested in the Trust as a shareholder or otherwise. The Adviser
agrees that neither it nor any of its directors, partners, officers
or employees will take any short position in the shares of the
Funds. This prohibition shall not prevent the purchase of such
shares by any of the directors, officers and partners or bona fide
employees of the Adviser or any trust, pension, profit-sharing or
other benefit plan for such persons or affiliates thereof, at a
price not less than the net asset value thereof at the time of
purchase, as allowed pursuant to rules promulgated under the 1940
Act. 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 respective
<PAGE>
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 1235 Westlakes Drive, Suite
350, Berwyn, PA 19312.
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 State of Delaware and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State
of Delaware, 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 State of Delaware, 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 INSTITUTIONAL FUNDS
By:_____________________________
Attest:_________________________
TURNER INVESTMENT PARTNERS, INC.
By:_____________________________
Attest:_________________________
<PAGE>
Schedule A dated ___________, 1997
to the
Investment Advisory Agreement
dated ____________ 1997
between
TIP Institutional Funds
and
Turner Investment Partners, Inc.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
<TABLE>
<CAPTION>
Portfolio Fee (in basis points)
- ---------------------- ---------------------
<S> <C>
Solon Short Duration Government Funds .25% of the average daily net assets
-One Year Portfolio
Solon Short Duration Government Funds .25% of the average daily net assets
-Three Year Portfolio
</TABLE>
<PAGE>
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of ________, 1997, by and between TIP
Institutional Funds, a Delaware business trust (the "Trust"), and Turner
Investment Partners, Inc. (the "Adviser").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended, consisting of
several series of units of beneficial interest ("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 series set forth in the attached
schedule and such other series 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 each 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.
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
1
<PAGE>
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 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
2
<PAGE>
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, 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.
3
<PAGE>
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 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 1235 Westlakes Drive, Suite
350, Berwyn, PA 19312.
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
4
<PAGE>
be affected thereby.
15. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State
of Delaware, 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 State of Delaware, 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 INSTITUTIONAL FUNDS
By:_____________________________
Attest:_________________________
TURNER INVESTMENT PARTNERS, INC.
By:_____________________________
Attest:_________________________
5
<PAGE>
Schedule A dated ___________, 1997
to the
Investment Advisory Agreement
dated ____________ 1997
between
TIP Institutional Funds
and
Turner Investment Partners, Inc.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
- --------------------- ---------------------
Micro Cap Growth Fund ____% of the average daily net assets
6
<PAGE>
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of ________, 1997, by and between TIP
Institutional Funds, a Delaware business trust (the "Trust"), and Penn Capital
Management Company, Inc. (the "Adviser").
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended, consisting of
several series of units of beneficial interest ("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 series set forth in the attached
schedule and such other series 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 each 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.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers
1
<PAGE>
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 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
2
<PAGE>
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, 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.
3
<PAGE>
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 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 One
Freedom Valley Road, Oaks, Pennsylvania 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
4
<PAGE>
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 State of Delaware and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State
of Delaware, 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 State of Delaware, 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 INSTITUTIONAL FUNDS
By:_____________________________
Attest:_________________________
PENN CAPITAL MANAGEMENT COMPANY, INC.
By:_____________________________
Attest:_________________________
5
<PAGE>
Schedule A dated ___________, 1997
to the
Investment Advisory Agreement
dated ____________ 1997
between
TIP Institutional Funds
and
Penn Capital Management Company, Inc.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
<TABLE>
<CAPTION>
Portfolio Fee (in basis points)
- --------------------- ---------------------
<S> <C>
Penn Capital Strategic High Yield Bond Fund ____% of the average daily net assets
</TABLE>
6
<PAGE>
FORM OF
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of the _____ day of ___________, 1997 by and
between TIP Institutional Funds (the "Trust"), a Delaware business trust, and
SEI Investments Distribution Co. (the "Distributor"), a Pennsylvania
corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended ("1940 Act"), and its shares are registered with the SEC
under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. Sale of Shares. The Trust grants to the Distributor the
exclusive right to sell units (the "Shares") of the portfolios (the
"Portfolios") of the Trust at the net asset value per Share, plus any applicable
sales charges in accordance with the current prospectuses, as agent and on
behalf of the Trust, during the term of this Agreement and subject to the
registration requirements of the 1933 Act, the rules and regulations of the SEC
and the laws governing the sale of securities in the various states (the "Blue
Sky Laws").
ARTICLE 2. Solicitation of Sales. In consideration of these rights
granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the distribution
of Shares of the Trust; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as a
broker or dealer under the Blue Sky Laws of any jurisdiction when it determines
it would be uneconomical for it to do so or to maintain its registration in any
jurisdiction in which it is now registered nor obligate the Distributor to sell
any particular number of Shares.
ARTICLE 3. Compensation. As compensation for providing the services
under this Agreement:
(a) The Distributor shall receive from the Trust:
(1) all distribution and service fees, as applicable, at the rate
and under the terms and conditions set forth in each Distribution
and Shareholder Services Plan adopted by each of the Portfolios, as
such Plans may be amended from time to time, and subject
1
<PAGE>
to any further limitations on such fees as the Board of Trustees of
the Trust may impose;
(2) all contingent deferred sales charges ("CDSC") applied on
redemptions of any CDSC class shares of each Portfolio on the terms
and subject to such waivers as are described in the Trust's
Registration Statement and current prospectuses, as amended from
time to time, or as otherwise required pursuant to applicable law;
and
(3) all front-end sales charges, if any, on purchases of shares of
each Portfolio sold subject to such charges as described in the
Trust's Registration Statement and current prospectuses, as amended
from time to time. The Distributor, or brokers, dealers and other
financial institutions and intermediaries that have entered into
sub-distribution agreements with the Distributor, may collect the
gross proceeds derived from the sale of such shares, remit the net
asset value thereof to the Trust upon receipt of the proceeds and
retain the applicable sales charge.
(b) The Distributor may reallow any or all of the distribution or
service fees, contingent deferred sales charges and front-end sales
charges which it is paid by the Trust to such brokers, dealers and
other financial institutions and intermediaries as the Distributor may
from time to time determine.
ARTICLE 4. Authorized Representations. The Distributor is not
authorized by the Trust to give any information or to make any representations
other than those contained in the current registration statements and
prospectuses of the Trust filed with the SEC or contained in Shareholder reports
or other material that may be prepared by or on behalf of the Trust for the
Distributor's use. The Distributor may prepare and distribute sales literature
and other material as it may deem appropriate, provided that such literature and
materials have been prepared in accordance with applicable rules and
regulations.
ARTICLE 5. Registration of Shares. The Trust agrees that it will take
all action necessary to register Shares under the federal and state securities
laws so that there will be available for sale the number of Shares the
Distributor may reasonably be expected to sell and to pay all fees associated
with said registration. The Trust shall make available to the Distributor such
number of copies of its currently effective prospectuses and statements of
additional information as the Distributor may reasonably request. The Trust
shall furnish to the Distributor copies of all information, financial statements
and other papers which the Distributor may reasonably request for use in
connection with the distribution of Shares of the Trust.
ARTICLE 6. Indemnification of Distributor. The Trust agrees to
indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who controls the Distributor within the
meaning of Section 15 of the 1933 Act against any loss, liability, claim,
damages or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damages, or expense and reasonable counsel
fees and disbursements incurred in
2
<PAGE>
connection therewith), arising by reason of any person acquiring any Shares,
based upon the ground that the registration statement, prospectus, Shareholder
reports or other information filed or made public by the Trust (as from time to
time amended) included an untrue statement of a material fact or omitted to
state a material fact required to be stated or necessary in order to make the
statements made not misleading. However, the Trust does not agree to indemnify
the Distributor or hold it harmless to the extent that the statements or
omission was made in reliance upon, and in conformity with, information
furnished to the Trust by or on behalf of the Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect
the Distributor against any liability to the Trust or its Shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to the Distributor or any person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Trustees
in connection with the issuance or sale of any of its Shares.
ARTICLE 7. Indemnification of Trust. The Distributor covenants and
agrees that it will indemnify and hold harmless the Trust and each of its
Trustees and officers and each person, if any, who controls the Trust within the
meaning of Section 15 of the Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) based upon the 1933 Act or any other statute or common
law and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees
3
<PAGE>
or alleging that the registration statement, prospectus, Shareholder reports or
other information filed or made public by the Trust (as from time to time
amended) included an untrue statement of a material fact or omitted to state a
material fact required to be stated or necessary in order to make the statements
not misleading, insofar as the statement or omission was made in reliance upon
and in conformity with information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Distributor in favor of the
Trust or any other person indemnified to be deemed to protect the Trust or any
other person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after the
Trust or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Trust or any
person against whom the action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Trusts' Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for two
years from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
securities of the Trust, and (ii) the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or the Trust's Distribution Plan
or interested persons of any such party ("Qualified Trustees"), cast in person
at a meeting called for the purpose of voting on the approval. This Agreement
shall automatically terminate in the event of its assignment. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities",
"assignment" and "interested person" shall have the respective meanings
specified in the 1940 Act. In addition, this Agreement may at any time be
terminated without penalty by the Distributor, by a vote of a majority
4
<PAGE>
of Qualified Trustees or by vote of a majority of the outstanding voting
securities of the Trust upon not less than 60 days prior written notice to the
other party.
ARTICLE 9. Notices. 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 One Freedom Valley Road, Oaks, Pennsylvania, 19456,
and if to the Distributor, at One Freedom Valley Road, Oaks, Pennsylvania 19456.
ARTICLE 10. Limitation of Liability. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of State of the State of Delaware,
and notice is hereby given that this Agreement is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees, officers or
unitholders of the Trust individually but binding only upon the assets and
property of the Trust. Further, obligations of the Trust with respect to any one
Portfolio shall not be binding upon any other Portfolio.
ARTICLE 11. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Delaware and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the State of
Delaware, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 12. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
TIP INSTITUTIONAL FUNDS
By: ___________________________________________
Attest: _______________________________________
SEI INVESTMENTS DISTRIBUTION CO.
By: ___________________________________________
Attest: _______________________________________
5
<PAGE>
FORM OF
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this __ day of _______, 1997, by and
between TIP Institutional Funds, a Delaware business trust, (the "Trust"), and
SEI Fund Resources (the "Administrator"), a Delaware business trust.
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of units of beneficial interest (herein,
"shares"); and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Trust as the Trust and the Administrator may agree on
("Portfolios") and as listed on the schedules attached hereto ("Schedules") and
made a part of this Agreement, on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Trust hereby retains the
Administrator to act as the administrator of the Portfolios and to furnish the
Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. Administrative and Accounting Services. The Administrator
shall perform or supervise the performance by others of other administrative
services in connection with the operations of the Portfolios, and, on behalf of
the Trust, will investigate, assist in the selection of and conduct relations
with custodians, depositories, accountants, legal counsel, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Trust with such reports
regarding investment performance and compliance with investment policies and
applicable laws, rules and regulations as they may reasonably request but shall
have no responsibility for supervising the performance by any investment adviser
or sub-adviser of its responsibilities. The Administrator may appoint a
sub-administrator to perform certain of the services to be performed by the
Administrator hereunder.
The Administrator shall provide the Trust with administrative services,
regulatory reporting, fund accounting and related portfolio accounting services,
all necessary office space, equipment, personnel, compensation and facilities
(including facilities for Shareholders' and Trustees' meetings) for
1
<PAGE>
handling the affairs of the Portfolios and such other services as the Trustees
may, from time to time, reasonably request and the Administrator shall, from
time to time, reasonably determine to be necessary to perform its obligations
under this Agreement. In addition, at the request of the Trust's Board of
Trustees (the "Trustees"), the Administrator shall make reports to the Trustees
concerning the performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator shall:
(A) calculate contractual Trust expenses and control all
disbursements for the Trust, and as appropriate compute the Trust's
yields, total return, expense ratios, portfolio turnover rate and,
if required, portfolio average dollar-weighed maturity;
(B) assist Fund counsel with the preparation of prospectuses,
statements of additional information, registration statements, and
proxy materials;
(C) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities law)
as may be necessary or desirable to register the Trust's shares
with state securities authorities, monitor sale of Trust shares for
compliance with state securities laws, and file with the
appropriate state securities authorities the registration
statements and reports for the Trust and the Trust's shares and all
amendments thereto, as may be necessary or convenient to register
and keep effective the Trust and the Trust's shares with state
securities authorities to enable the Trust to make a continuous
offering of its shares;
(D) develop and prepare communications to shareholders, including
the annual report to shareholders, coordinate mailing prospectuses,
notices, proxy statements, proxies and other reports to Trust
shareholders, and supervise and facilitate the solicitation of
proxies solicited by the Trust for all shareholder meetings,
including tabulation process for shareholder meetings;
(E) coordinate with Fund counsel the preparation and negotiation
of, and administer contracts on behalf of the Trust with, among
others, the Trust's investment adviser, distributor, custodian, and
transfer agent;
(F) maintain the Trust's general ledger and prepare the Trust's
financial statements, including expense accruals and payments,
determine the net asset value of the Trust's assets and of the
Trust's shares, and supervise the Trust's transfer agent with
respect to the payment of dividends and other distributions to
shareholders;
(G) calculate performance data of the Trust and its portfolios for
dissemination to information services covering the investment
company industry;
(H) coordinate and supervise the preparation and filing of the
Trust's tax returns;
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(I) examine and review the operations and performance of the
various organizations providing services to the Trust or any
Portfolio of the Trust, including, without limitation, the Trust's
investment adviser, distributor, custodian, transfer agent, outside
legal counsel and independent public accountants, and at the
request of the Trustees, report to the Trustees on the performance
of organizations;
(J) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing of
the Trust's semi-annual and annual reports to shareholders;
(K) provide internal legal and administrative services as requested
by the Trust from time to time;
(L) assist with the design, development, and operation of the
Trust, including new portfolio and class investment objectives,
policies and structure;
(M) provide individuals acceptable to the Trustees for nomination,
appointment, or election as officers of the Trust, who will be
responsible for the management of certain of the Trust's affairs as
determined by the Trustees;
(N) advise the Trust and its Trustees on matters concerning the
Trust and its affairs;
(O) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Trust in
accordance with the requirements of Rules 17g-1 and 17d-1(7) under
the 1940 Act as such bonds and policies are approved by the Trust's
Board of Trustees;
(P) monitor and advise the Trust and its Portfolios on their
registered investment company status under the Internal Revenue
Code of 1986, as amended;
(Q) perform all administrative services and functions of the Trust
and each Portfolio to the extent administrative services and
functions are not provided to the Trust or such Portfolio pursuant
to the Trust's or such Portfolio's investment advisory agreement,
distribution agreement, custodian agreement and transfer agent
agreement;
(R) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the Trust
and the Administrator shall determine desirable; and
(S) prepare and file with the SEC the semi-annual report for the
Trust on Form N-SAR and all required notices pursuant to Rule
24f-2.
Also, the Administrator will perform other services for the Trust as agreed from
time to time, including,
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but not limited to performing internal audit examinations; mailing the annual
reports of the Portfolios; preparing an annual list of shareholders; and mailing
notices of shareholders' meetings, proxies and proxy statements, for all of
which the Trust will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Trust as well as all Trustees of the
Trust who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Trust retained by the Trustees of the Trust
to perform services on behalf of the Trust.
(B) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including, without
limitation, organizational costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of pricing
services, the costs of custodial services, the cost of initial and ongoing
registration of the Shares under Federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are not affiliated persons of the
Administrator or the investment adviser to the Trust or any affiliated
corporation of the Administrator or the investment Adviser, the costs of
Trustees' meetings, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Trust.
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Trust shall pay to the Administrator compensation at an annual
rate specified in the Schedules. Such compensation shall be calculated and
accrued daily, and paid to the Administrator monthly. The Trust shall also
reimburse the Administrator for its reasonable out-of-pocket expenses, including
the travel and lodging expenses incurred by its officers and employees in
connection with attendance at meetings of the Trust's Board of Trustees.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) Compensation from Transactions. The Trust hereby authorizes any
entity or person
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associated with the Administrator which is a member of a national securities
exchange to effect any transaction on the exchange for the account of the Trust
which is permitted by Section 11 (a) of the Securities Exchange Act of 1934, and
the Trust hereby consents to the retention of compensation for such
transactions.
(C) Survival of Compensation Rates. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator 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
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "Administrator" shall include directors, officers, employees and other
agents of the Administrator as well as that corporation itself.)
So long as the Administrator, or its agents, acts in good faith and
with due diligence the Trust assumes full responsibility and shall indemnify the
Administrator and hold it harmless from and against any and all actions, suits
and claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of said administration, transfer agency, and
dividend disbursing relationships to the Trust or any other service rendered to
the Trust hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Trust shall be entitled to participate at its own expense or, if it
so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Trust elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the Trust
and satisfactory to the Administrator, whose approval shall not be unreasonably
withheld. In the event that the Trust elects to assume the defense of any suit
and retain counsel, the Administrator shall bear the fees and expenses of any
additional counsel retained by it. If the Trust does not elect to assume the
defense of a suit, it will reimburse the Administrator for the reasonable fees
and expenses of any counsel
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retained by the Administrator.
The Administrator may apply to the Trust at any time for instructions
and may consult counsel for the Trust or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. Nor shall the Administrator be held to have
notice of any change of authority of any officers, employee or agent of the
Trust until receipt of written notice thereof from the Trust.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that Trustees, officers, employees
and Shareholders of the Trust are or may be or become interested in the
Administrator, as directors, officers, employees and shareholders or otherwise
and that directors, officers, employees and shareholders of the Administrator
and its counsel are or may be or become similarly interested in the Trust, and
that the Administrator may be or become interested in the Trust as a Shareholder
or otherwise.
ARTICLE 7. Confidentiality. The Administrator agrees on behalf of
itself and its employees to treat confidentially all records and other
information relative to the Trust and its prior, present or potential
Shareholders and relative to the Adviser and its prior, present or potential
customers, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Administrator may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
ARTICLE 8. Equipment Failures. In the event of equipment failures
beyond the Administrator's control, the Administrator shall, at no additional
expense to the Trust, take reasonable steps to minimize service interruptions
but shall have no liability with respect thereto. The Administrator shall
develop and maintain a plan for recovery from equipment failures which may
include contractual arrangements with appropriate parties making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
ARTICLE 9. Compliance With Governmental Rules and Regulations. The
Administrator undertakes to comply with all applicable requirements of the 1933
Act, the 1934 Act, the 1940 Act and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by the Administrator hereunder.
ARTICLE 10. Duration and Termination of this Agreement. This Agreement
shall become effective on the date set forth in the Schedules and shall remain
in effect for the initial term of the Agreement (the "Initial Term") and each
renewal term thereof (each, a "Renewal Term"), each as set
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forth in the Schedules, unless terminated in accordance with the provisions of
this Article 10. This Agreement may be terminated only: (a) by the mutual
written agreement of the parties; (b) by either party hereto on 90 days' written
notice, as of the end of the Initial Term or the end of any Renewal Term; (c) by
either party hereto on such date as is specified in written notice given by the
terminating party, in the event of a material breach of this Agreement by the
other party, provided the terminating party has notified the other party of such
breach at least 45 days prior to the specified date of termination and the
breaching party has not remedied such breach by the specified date; (d)
effective upon the liquidation of the Administrator; or (e) as to any Portfolio
or the Trust, effective upon the liquidation of such Portfolio or the Trust, as
the case may be. For purposes of this Article 10, the term "liquidation" shall
mean a transaction in which the assets of the Administrator, the Trust or a
Portfolio are sold or otherwise disposed of and proceeds therefrom are
distributed in cash to the shareholders in complete liquidation of the interests
of such shareholders in the entity.
This Agreement shall not be assignable by the Administrator, without
the prior written consent of the Trust, except to an entity that is controlled
by, or under common control, with, the Administrator.
ARTICLE 11. Amendments. This Agreement or any part hereof may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
ARTICLE 12. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Trust and follow the Trust's
instructions as to permitting or refusing such inspection; provided that the
Administrator may exhibit such records to any person in any case where it is
advised by its counsel that it may be held liable for failure to do so, unless
(in cases involving potential exposure only to civil liability) the Trust has
agreed to indemnify the Administrator against such liability.
ARTICLE 13. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 14. 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 One Freedom Valley Road, Oaks, Pennsylvania, 19456,
and if to the Administrator, at One Freedom Valley Road, Oaks, Pennsylvania,
19456.
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ARTICLE 15. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Delaware and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the State of
Delaware, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 16. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 17. Limitation of Liability. The Administrator is hereby
expressly put on notice of the limitation of liability as set forth in Article
XI of the Trust's Declaration of Trust and agrees that the obligations pursuant
to this Agreement of a particular Portfolio and of the Trust with respect to
that Portfolio shall be limited solely to the assets of that Portfolio, and the
Administrator shall not seek satisfaction of any such obligation from any other
Portfolio, the shareholders of any Portfolio, the Trustees, officers, employees
or agents of the Trust, or any of them.
ARTICLE 18. Binding Agreement. This Agreement, and the rights and
obligations of the parties and the Portfolios hereunder, shall be binding on,
and inure to the benefit of, the parties and the Portfolios and the respective
successors and assigns of each of them.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
TIP INSTITUTIONAL FUNDS
By:___________________________
Attest:_______________________
SEI FUND RESOURCES
By:___________________________
Attest:_______________________
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SCHEDULE
TO THE ADMINISTRATION AGREEMENT
DATED AS OF ______________, 1997
BETWEEN
TIP INSTITUTIONAL FUNDS
AND
SEI FUND RESOURCES
Portfolios: This Agreement shall apply to all Portfolios of TIP Institutional
Trust, either now in existence or in the future created. The
following is a listing of the current portfolios of the Trust;
Solon Short Duration Government Funds One Year Portfolio and Solon
Short Duration Government Funds Three Year Portfolio,
(collectively, the "Existing Portfolios").
Fees: Pursuant to Article 4, Section A, for the first year of the
Agreement the Trust shall pay the Administrator compensation for
services rendered to the Existing Portfolios at an annual rate,
which is calculated daily and paid monthly, at a maximum
administrative fee equal to .08% of each Portfolio's average daily
net assets. The Trust shall pay the Administrator compensation for
services rendered to newly created Portfolios and to the Existing
Portfolios after the first year of this Agreement at an annual
rate, which is calculated daily and paid monthly according to the
following schedule:
FEE (ON AVERAGE ANNUAL ASSETS) ASSETS IN TRUST
-------------------------------------------------------------
.10% to $250 Million
.08% Next $250 Million
.07% Over $500 Million
The annual minimum fee will be waived for the first year with
respect to the Existing Portfolios and for all newly created
Portfolios and subsequent to the first year for the Existing
Portfolios the annual minimum fee for each Portfolio will be
$75,000, payable monthly.
Term: This Agreement shall become effective on ___________, 1997 and
shall remain in effect for an Initial Term of three (3) years from
such date and, thereafter, for successive Renewal Terms of three
(3) years each, unless and until this Agreement is terminated in
accordance with the provisions of Article 10 hereof.
<PAGE>
TIP INSTITUTIONAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Institutional Funds (formerly, The Solon Funds) (the "Trust"), a
business trust organized under the laws of The State of Delaware, hereby
constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W. Jennings
and John H. Grady, Jr., and each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity indicated
below, to sign any or all amendments (including post-effective amendments) to
the Trust's Registration Statement on Form N-1A under the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, each such Act as
amended, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, acting alone, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Ronald Filante Date: 11/10/97
- ------------------------ --------
Ronald Filante, Trustee
<PAGE>
TIP INSTITUTIONAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of TIP Institutional Funds (formerly, The Solon Funds) (the "Trust"), a
business trust organized under the laws of The State of Delaware, hereby
constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W. Jennings
and John H. Grady, Jr., and each of them singly, her true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for her and in her name, place and stead, and in the capacity indicated
below, to sign any or all amendments (including post-effective amendments) to
the Trust's Registration Statement on Form N-1A under the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, each such Act as
amended, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, acting alone, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Katherine Griswold Date:
- ------------------------------ ------------------
Katherine Griswold, Trustee
