<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 Institutional 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 16, 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 16, 1998
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TABLE OF CONTENTS
Summary..................................................... 3
Expense Summary............................................. 5
The Trust and the Funds..................................... 8
Investment Objectives....................................... 8
Investment Policies......................................... 8
Risk Factors................................................ 9
Investment Limitations...................................... 10
The Adviser................................................. 10
The Administrator........................................... 10
The Transfer Agent.......................................... 11
The Distributor............................................. 11
Portfolio Transactions...................................... 11
Purchase and Redemption of Shares........................... 11
Performance................................................. 13
Taxes....................................................... 14
General Information......................................... 15
Description of Permitted Investments and Risk Factors....... 16
2
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SUMMARY
The following provides basic information about Institutional 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 is each Fund's investment objective and its 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
in 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 administrator for the Funds and as shareholder servicing agent. See
"Expense Summary" and "The Administrator."
Who is the Distributor? SEI Investments Distribution Co. (the
"Distributor") serves as the distributor of the Funds' shares. See "The
Distributor."
Who is the Transfer Agent? DST Systems, Inc., serves as the transfer agent
and dividend disbursing agent for the Trust. See "The Transfer Agent."
Is there a sales load? No, shares of the Funds are offered on a no-load
basis.
Is there a minimum investment? The Funds require a minimum initial
investment of $100,000, which the Distributor may waive at its discretion.
Subsequent purchases must be at least $5,000.
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)
3
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receives the order and payment, by check or in readily available funds, prior to
the calculation of net asset value on any Business Day. Redemption orders
received by the Transfer Agent prior to the calculation of net asset value 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
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m., Eastern time) on each Business Day. 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."
4
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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)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SHORT DURATION SHORT DURATION
ONE YEAR THREE YEAR
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees(1)............................................ .25% .25%
12b-1 Fees.................................................. None None
Other Expenses (after reimbursements)(2).................... .11% .11%
- ---------------------------------------------------------------------------------------------
Total Operating Expenses (after reimbursements)(3).......... .36% .36%
=============================================================================================
</TABLE>
(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 .36%. The Adviser reserves the right to terminate its waivers at
any time in its sole discretion.
(2) Absent expense reimbursements, "Other Expenses" for the Short Duration One
Year and Short Duration Three Year Portfolios are estimated to be 8.42% and
.94%, respectively.
(3) Absent expense reimbursements, "Total Operating Expenses" would be 8.67% and
1.19%, respectively, for the Short Duration One Year and Short Duration
Three Year Portfolios, based on current expectations and assumptions.
EXAMPLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in a Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
Short Duration One Year Portfolio -- Institutional
Class................................................. $4 $12 $20 $46
Short Duration Three Year Portfolio -- Institutional
Class................................................. $4 $12 $20 $46
===================================================================================================
</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
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FINANCIAL HIGHLIGHTS
The following financial information for the Institutional Class Shares of the
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.
<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
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<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* ($000)............ 56 256
Average Shares Outstanding During the Year* (000)........... 1,321 901
Average Debt Per Share During the Year*($).................. 0.04 0.28
===================================================================================
</TABLE>
*Average based upon amounts outstanding at each month end.
7
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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 Institutional 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"). Adviser Class shares of the Funds are offered by a
separate prospectus.
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. Because the Adviser seeks to manage
interest rate risk by limiting effective duration, each Fund may invest in
securities of any maturity. See "Effective Duration."
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.
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.
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.
8
<PAGE>
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 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 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 was developed because the standard duration calculation does
not always properly reflect the interest rate risk of a security. 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 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.
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. 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-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."
9
<PAGE>
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.
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.
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 the Institutional Class shares of each Fund (as a
percentage of average daily net assets on an annualized basis) to not more than
.36%. 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.
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.
10
<PAGE>
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 the Fund's average daily net assets for the first year. Thereafter, each Fund
will pay 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
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company, acts as the Trust's
distributor pursuant to a distribution agreement (the "Distribution Agreement").
No compensation is paid to the Distributor for its distribution services.
PORTFOLIO TRANSACTIONS
The 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 $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 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 $100,000 or more, together
with a completed Account Application to: TIP
11
<PAGE>
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 prior to the calculation of the net asset
value on any Business Day. Otherwise, the purchase order will be effective on
the next Business Day. 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. 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 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
Institutional Class shareholders of the Funds may exchange their 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 the
calculation of net asset value on any Business Day, the exchange will be
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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 the calculation of net asset value 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 the calculation of net asset value 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 is received, provided, however, that redemption
proceeds for shares purchased by check (including certified or cashier's checks)
will be forwarded only upon collection of payment for such shares; collection of
payment may take up to 15 days. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Funds by
Federal Reserve wire on Federal holidays 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 as of the regularly-scheduled close of normal trading on the New
York Stock Exchange (normally, 4:00 p.m., Eastern time) on each 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.
PERFORMANCE
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future yields or
returns. The yield of a Fund refers to the annualized income generated by an
investment in 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 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
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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
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
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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.
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 advisors 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 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
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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.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
Dividends and other distributions of the Funds are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If shares
are purchased shortly before the record date for a distribution of ordinary
income or capital gains, a shareholder will pay the full price for the shares
and receive some portion of the price back as a taxable distribution or
dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants for the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Funds:
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.
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
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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
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 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
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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 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 "tranches." 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
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different 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
purchaser 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.
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.
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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.
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
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<PAGE>
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 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.
21
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Trust:
TIP Institutional Funds
P.O. Box 419805
Kansas City, MO 64141-6805
Investment Advisor:
Turner Investment Partners, Inc.
Distributor:
SEI Investments Distribution Co.
Administrator:
SEI Fund Resources
Legal Counsel:
Morgan, Lewis & Bockius LLP
Independent Public Accountants:
Ernst & Young LLP
To open an account, receive account information, make inquiries or request
literature:
1-888-TIP-7654
TPI-F-004-01
PROSPECTUS
MARCH 16, 1998
[LOGO]
- --------------------------------------------------------------------------------
TURNER SHORT DURATION
GOVERNMENT FUNDS --
ONE YEAR PORTFOLIO
INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION
GOVERNMENT FUNDS --
THREE YEAR PORTFOLIO
INSTITUTIONAL CLASS
<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 Institutional 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 16, 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-10
THE ADVISER.................................................................S-12
THE ADMINISTRATOR...........................................................S-13
THE DISTRIBUTOR.............................................................S-13
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-14
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-16
PURCHASE AND REDEMPTION OF SHARES...........................................S-17
DETERMINATION OF NET ASSET VALUE............................................S-17
TAXES ...................................................................S-18
PORTFOLIO TRANSACTIONS......................................................S-20
DESCRIPTION OF SHARES.......................................................S-22
SHAREHOLDER LIABILITY.......................................................S-22
LIMITATION OF TRUSTEES' LIABILITY...........................................S-22
FINANCIAL STATEMENTS........................................................S-23
APPENDIX ....................................................................A-1
March 16, 1998
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Institutional 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
Class Shares of the Turner Micro Cap Growth Fund and Adviser and Institutional
Class Shares of the Penn Capital Strategic High Yield Bond Fund, as well as
Adviser 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 a Fund of a security to
a financial institution concurrently with an agreement by the Fund 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, a Fund 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. 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
S-2
<PAGE>
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.
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
S-3
<PAGE>
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 a Fund, in return for a
premium, gives another party the right to buy specified debt securities owned by
the Fund 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 the
underlying security. However, by writing a covered call option, a Fund gives up
the opportunity, while the option is in effect, to realize gain from any price
increase in the underlying debt
S-4
<PAGE>
security above the option exercise price. In addition, a 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 Funds may purchase and sell options that are traded on U.S.
exchanges.
Under certain circumstances, a Fund also may write covered put options, which
give the holder of the option the right to sell the underlying debt security to
the Fund 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) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current
S-5
<PAGE>
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 at 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 (the "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, 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.
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.
S-13
<PAGE>
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, 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,
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 Santa Barbara Group of Mutual
Funds, Inc., are distributed by SEI Investments Distribution Co.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. ("Turner"), since 1990.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee** - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
RONALD FILANTE (DOB 11/19/45) - Trustee - Associate Professor of Finance, Pace
University, since 1987.
KATHERINE GRISWOLD (DOB 10/28/56) - Trustee - Director of Benefits Trusts,
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.
S-14
<PAGE>
CYNTHIA KUNZE (DOB 12/15/56) - Vice President and Assistant Secretary -
Administrator of Solon Asset Management, L.P., since 1996. Post Production and
Assistant to the Producer, Twentieth Century Fox, 1989-1995.
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.
JOSEPH M. O'DONNELL (DOB 11/13/54) - Vice President, Assistant Secretary - Vice
President and General Counsel of FPS Services, Inc., from 1993 to 1997, and a
Staff Counsel and Secretary of Provident Mutual Family of Funds from 1990 to
1993.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor, since 1995. Attorney, Aquila
Management Corporation, 1994. Rutgers University School of Law - Newark,
1991-1994.
S-15
<PAGE>
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 $3,000 0 0 $3,000
- -------------------------------------------------------------------------------------------------------------------
Katherine $3,000 0 0 $3,000
Griswold
- -------------------------------------------------------------------------------------------------------------------
Deborah H. $0 0 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.
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.
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<PAGE>
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.
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,
S-17
<PAGE>
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.
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.
S-18
<PAGE>
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.
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.
S-19
<PAGE>
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 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
S-20
<PAGE>
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.
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
S-21
<PAGE>
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.
Institutional Class Shares of the Funds are identical to Adviser 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 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
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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.
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APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit
A-1
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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
