AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
File No. 33-70958
File No. 811-8104
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 10
and
REGISTRATION STATEMENT UNDER
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 11
ALPHA SELECT FUNDS
(formerly, TIP Institutional Funds)
(Exact Name of Registrant as Specified in Charter)
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312-2414
(Address of Principal Executive Offices, Zip Code)
STEPHEN KNEELEY
TURNER INVESTMENT PARTNERS, INC.
1235 WESTLAKES DRIVE, SUITE 350
BERWYN, PENNSYLVANIA 19312-2414
Copies to:
JAMES W. JENNINGS, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET 1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19103
Title of Securities Being Registered...Units of Beneficial Interest
- --------------------------------------------------------------------------------
It is proposed that this filing become effective (check appropriate box):
_X_ immediately upon filing pursuant to paragraph (b)
___ on January 14, 1999, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on [date] pursuant to paragraph (a) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2)
- --------------------------------------------------------------------------------
<PAGE>
------------------------------
[GRAPHIC OMITTED] Alpha Select
Funds
------------------------------
(FORMERLY, TIP INSTITUTIONAL FUNDS)
INSTITUTIONAL CLASS SHARES
ADVISER CLASS SHARES
PROSPECTUS
JANUARY 31, 1999
-----------------------------------------------------------
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
TURNER MICRO CAP GROWTH FUND
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
-----------------------------------------------------------
INVESTMENT ADVISERS:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TURNER INVESTMENT PARTNERS, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE>
--------------------------
[GRAPHIC OMITTED] Alpha Select
Funds
--------------------------
HOW TO READ THIS PROSPECTUS
- --------------------------------------------------------------------------------
Alpha Select Funds (formerly, TIP Institutional Funds) is a mutual fund family
that offers different classes of shares in separate investment portfolios
(Funds). The Funds have individual investment goals and strategies. This
prospectus gives you important information about the Adviser and Institutional
Class Shares of the Funds that you should know before investing. Please read
this prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT
THE FUNDS, PLEASE SEE:
Penn Capital Strategic High Yield Bond Fund.....................................
Turner Micro Cap Growth Fund....................................................
Turner Short Duration Government Funds-One Year Portfolio.......................
Turner Short Duration Government Funds-Three Year Portfolio.....................
The Funds' other investments....................................................
Investment Advisers ............................................................
Purchasing, selling and exchanging Fund shares..................................
Dividends, distributions and taxes..............................................
Financial Highlights............................................................
How to obtain more information about Alpha Select Funds...............Back Cover
For information about key terms and concepts, look for our "________________"
explanations.
[INSERT ICON MAP]
2
<PAGE>
INTRODUCTION-INFORMATION COMMON TO ALL FUNDS
- --------------------------------------------------------------------------------
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal.
Each Adviser invests Fund assets in a way that it believes will help each Fund
achieve its goal. Still, investing in the Funds involves risks, and there is no
guarantee that a Fund will achieve its goal. The Advisers' judgments about the
markets, the economy, or companies may not anticipate actual market movements,
economic conditions or company performance, and may affect the return on your
investment. In fact, no matter how good a job an Adviser does, you could lose
money on your investment in a Fund, just as you could with other investments. A
Fund share is not a bank deposit, and it is not insured or guaranteed by the
FDIC or any government agency.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund's share price of a change in the value of a single security
will depend on how widely the Fund diversifies its holdings.
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other mutual funds (and most organizations around the world), the Funds
could be affected by computer problems related to the year 2000. While no one
knows if these problems will have any impact on the Funds or on financial
markets in general, the Funds are taking steps to protect investors. These
include efforts to ensure that the Funds' own systems are year 2000 compliant
and to determine that the problem will not affect the systems used by major
service providers. Whether these steps will be effective can only be known for
certain in the year 2000. In addition, year 2000 problems affect the companies
and governments whose securities the Funds purchase, which may ultimately have
an impact on the value of the Funds' shares. There is additional information on
these risks in the Statement of Additional Information.
3
<PAGE>
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
[ICON] FUND SUMMARY
INVESTMENT GOAL High current income and capital
appreciation
INVESTMENT FOCUS High yield "junk" bonds and other
high yield securities
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Attempts to identify high yield
"junk" bonds and other high yield
securities with
capital appreciation potential
INVESTOR PROFILE Investors seeking current income and
long-term growth of capital who
can withstand the share price
volatility or risk of high yield
"junk" bond investing.
- --------------------------------------------------------------------------------
[ICON] INVESTMENT STRATEGY OF THE PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
The Penn Capital Strategic High Yield Bond Fund invests primarily in fixed
income securities rated below investment grade ("junk" bonds). In selecting
investments for the Fund, Penn Capital Management chooses securities that offer
high current yields as well as capital appreciation potential, including
preferred stocks, convertible securities, zero coupon obligations,
payment-in-kind bonds, and variable rate securities. The Fund's average weighted
maturity may vary, and will generally be ten years or less. The Fund will
typically invest in securities rated BB+/Ba1 or lower, and may purchase unrated
securities and securities rated in the lowest ratings categories.
[START OF BOUNDING BOX]
[ICON] WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The prices of the Fund's fixed income securities respond to economic
developments, including interest rate changes, as well as to perceptions about
the creditworthiness of individual issuers. Since the value of securities with
longer maturities will fluctuate more in response to interest rate changes, this
risk is greater for long-term debt securities than for short-term debt
securities. Fixed income securities, regardless of credit quality, experience
price volatility, especially in reponse to interest rate changes. Generally, the
Fund's fixed income securities will decrease in value if interest rates rise and
vice versa, and the volatility of lower rated securities is even greater than
that of higher rated securities. Also, longer-term securities are generally more
volatile, so the average maturity or duration of these securities affects risk.
However, high yield "junk" bonds generally are less sensitive to interest rate
changes.
"Junk" bonds involve greater risks of default or downgrade and are more volatile
than investment grade securities. Junk bonds involve greater risk of price
declines than investment grade securities due to actual or perceived changes in
an issuer's creditworthiness. In addition, issuers of junk bonds may be more
susceptible than other issuers to economic downturns. Junk bonds are subject to
the risk that the issuer may not be able to pay interest or dividends and
ultimately to repay principal upon maturity. Discontinuation of these payments
could substantially adversely affect the market price of the security.
The Fund is subject to the risk that its particular market segment, high yield
securities, may underperform compared to other market segments or to the fixed
income markets as a whole.
[END OF BOUNDING BOX]
4
<PAGE>
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
[ICON] PERFORMANCE INFORMATION
The Fund was launched on March 1, 1998. Since the Fund does not have a full
calendar year of performance, performance results have not been provided.
- --------------------------------------------------------------------------------
[ICON] FUND FEES AND EXPENSES
Every mutual fund has operating expenses to pay for professional advisory,
shareholder, distribution, administration and custody services and other costs
of doing business. This table describes the Fund's fees and expenses that you
may pay indirectly if you hold shares of the Fund.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL CLASS SHARES ADVISER CLASS SHARES
<S> <C> <C>
Investment Advisory Fees 0.55% 0.55%
Distribution (12b-1) Fees None None
Other Expenses 1.54% 1.79%
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.09% 2.34%
Fee waivers and expense reimbursements 1.41% 1.41%
----- ------
NET TOTAL OPERATING EXPENSES 0.68%* 0.93%*
<FN>
- --------------------------------------------------------------------------------------------------
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE EXPENSES IN ORDER TO
KEEP TOTAL OPERATING EXPENSES AT THE INSTITUTIONAL AND ADVISER CLASS SHARES FROM EXCEEDING 0.68%
AND 0.93%, RESPECTIVELY, FOR A PERIOD OF ONE YEAR, RENEWABLE AT THE END OF EACH FISCAL YEAR. For
more information about these fees, see "Investment Advisers" and "Distribution of Fund Shares."
- --------------------------------------------------------------------------------------------------
</FN>
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Institutional Class Shares $69 $218 $379 $847
Adviser Class Shares $95 $296 $515 $1,143
5
<PAGE>
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
[ICON] FUND SUMMARY
INVESTMENT GOAL Capital appreciation
INVESTMENT FOCUS Micro cap U.S. common stocks
SHARE PRICE VOLATILITY Very high
PRINCIPAL INVESTMENT STRATEGY Attempts to identify micro cap U.S.
companies with strong earnings
growth potential
INVESTOR PROFILE Investors seeking long-term growth
of capital who can withstand the
share price volatility of micro cap
equity investing.
- --------------------------------------------------------------------------------
[ICON] INVESTMENT STRATEGY OF THE TURNER MICRO CAP GROWTH FUND
The Turner Micro Cap Growth Fund invests primarily in common stocks and other
equity securities of U.S. companies with very small market capitalizations
(i.e., under $500 million) that Turner Investment Partners believes have strong
earnings growth potential. The Fund will invest in securities of companies that
are diversified across economic sectors, and will attempt to maintain sector
concentrations that approximate the economic sector weightings of the smallest
1/3 of its current benchmark, the Russell 2000 Growth Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs (and thus lower performance) and
additional capital gains tax liabilities.
[START OF BOUNDING BOX]
[ICON] WHAT ARE THE RISKS OF INVESTING IN THE FUND?
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, U.S. micro capitalization growth stocks,
may underperform compared to other market segments or to the equity markets as a
whole.
The micro capitalization companies the Fund invests in may be extremely
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these very small companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Micro cap stocks also tend to be traded only in the
over-the-counter market, and may not be as liquid as larger capitalization
stocks. As a result, the prices of the micro cap stocks owned by the Fund will
be very volatile, and the price movements of the Fund's shares will reflect that
volatility.
[END OF BOUNDING BOX]
[START OF BOUNDING BOX]
TURNER'S EQUITY INVESTMENT PHILOSOPHY
Turner believes earnings expectations drive stock prices. Turner invests in
companies with strong earnings dynamics, and sells those with deteriorating
earnings prospects. Turner believes forecasts for market timing and sector
rotation are unreliable, and introduce an unacceptable level of risk. As a
result, all portfolios are fully invested and maintain sector weightings that
match those of a benchmark index. Turner believes it is imprudent to be overly
concentrated in any individual security. Therefore, portfolio exposure is
limited to a maximum of 2% in any single issue (except the securities that
comprise more than 2% of the benchmark index, in which case a Fund may hold up
to 120% of an issue's index weighting). These risk control measures allow
Turner's stock selection process to be the primary determinant of performance.
[END OF BOUNDING BOX]
6
<PAGE>
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
[ICON] PERFORMANCE INFORMATION
The Fund was launched on March 1, 1998. Since the Fund does not have a full
calendar year of performance, results have not been provided.
- --------------------------------------------------------------------------------
[ICON] FUND FEES AND EXPENSES
Every mutual fund has operating expenses to pay for professional advisory,
shareholder, distribution, administration and custody services and other costs
of doing business. This table describes the Fund's fees and expenses that you
may pay indirectly if you hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
INSTITUTIONAL
CLASS SHARES
Investment Advisory Fees 1.00%
Distribution and Service (12b-1) Fees None
Other Expenses 7.18%
------
TOTAL ANNUAL FUND OPERATING EXPENSES 8.18%
Fee waivers and expense reimbursements 6.93%
------
NET TOTAL OPERATING EXPENSES 1.25%*
- --------------------------------------------------------------------------------
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, RENEWABLE AT THE END OF EACH FISCAL YEAR. For more
information about these fees, see "Investment Advisers" and "Distribution of
Fund Shares."
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Turner Micro Cap Growth Fund $127 $397 $686 $1,511
7
<PAGE>
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
[ICON] FUND SUMMARY
INVESTMENT GOAL Total return consistent with the
preservation of capital
INVESTMENT FOCUS Fixed income securities issued or
guaranteed by the U.S. Government
SHARE PRICE VOLATILITY Low
PRINCIPAL INVESTMENT STRATEGY Attempts to identify U.S. Government
securities that are attractively
priced
INVESTOR PROFILE Investors seeking current income
with a very limited amount of share
price volatility.
- --------------------------------------------------------------------------------
[ICON] INVESTMENT STRATEGY OF THE TURNER SHORT DURATION GOVERNMENT FUNDS -
ONE YEAR PORTFOLIO
The Turner Short Duration Government Funds-One Year Portfolio invests primarily
in debt securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including mortgage-backed securities issued by agencies such
as Fannie Mae or the Government National Mortgage Association (GNMA). The Fund
may also invest to a limited extent in high grade corporate debt obligations and
cash equivalents. In selecting investments for the Fund, Turner Investment
Partners chooses U.S. Government obligations that are attractively priced
relative to the market or to similar instruments. Turner considers the
"effective duration" of the Fund's entire portfolio when selecting securities.
Effective duration is a measure of a security's price volatility or risk
associated with changes in interest rates. Although Turner manages interest rate
risk by maintaining an effective duration that is comparable to or less than
that of one-year U.S. Treasury bills, the Fund may invest in securities with any
maturity.
[START OF BOUNDING BOX]
[ICON] WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. Government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. Government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources,
and are subject to more risk.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[END OF BOUNDING BOX]
8
<PAGE>
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
[ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrates the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Institutional
Class Shares from year to year for four years.*
[In the printed document there appears a bar chart which is depicted by
the following plot points:]
7.61% 6.41% 6.30% 5.84%
1995 1996 1997 1998
[BAR CHART]
*The performance information shown above is based on a calendar year.
Best Quarter Worst Quarter
2.04% 1.18%
(12/31/95) (12/31/98)
This table compares the Fund's average annual total returns for Institutional
Class Funds for the periods ended December 31, 1998 to those of the Merrill
Lynch Three-Month Treasury Bill Index.
1 YEAR SINCE INCEPTION
(3/1/94)
Turner Short Duration
Government Funds-
One Year Portfolio 5.84% 6.17%
Merrill Lynch Three-Month
Treasury Bill Index 5.23% 5.39%**
- --------------------------------------------------------------------------------
*As of December 31, 1998 there were no Adviser Class Shares outstanding.
**The inception date for the Index is February 28, 1994.
[START OF BOUNDING BOX]
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Merrill Lynch Three-Month Treasury Bill Index is an unmanaged index
of Treasury securities that assumes reinvestment of all dividends.
[END OF BOUNDING BOX]
- --------------------------------------------------------------------------------
[ICON] FUND FEES AND EXPENSES
Every mutual fund has operating expenses to pay for professional advisory,
shareholder, distribution, administration and custody services and other costs
of doing business. This table describes the Fund's fees and expenses that you
may pay indirectly if you hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
INSTITUTIONAL ADVISER
CLASS SHARES CLASS SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 10.58% 10.83%
------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 10.83% 11.08%
Fee waivers and expense reimbursements 10.47% 10.47%
------ ------
NET TOTAL OPERATING EXPENSES 0.36%* 0.61%*
- --------------------------------------------------------------------------------
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE INSTITUTIONAL AND
ADVISER CLASS SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD
OF ONE YEAR, RENEWABLE AT THE END OF EACH FISCAL YEAR. For more information
about these fees, see "Investment Advisers" and "Distribution of Fund Shares."
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Institutional Class Shares $37 $116 $202 $456
Adviser Class Shares $62 $195 $340 $762
9
<PAGE>
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
[ICON] FUND SUMMARY
INVESTMENT GOAL Total return consistent with the
preservation of capital
INVESTMENT FOCUS Fixed income securities issued or
guaranteed by the U.S. Government
SHARE PRICE VOLATILITY Low to medium
PRINCIPAL INVESTMENT STRATEGY Attempts to identify U.S. Government
securities that are attractively
priced
INVESTOR PROFILE Investors seeking current income
with a limited amount of share price
volatility.
- --------------------------------------------------------------------------------
[ICON] INVESTMENT STRATEGY OF THE TURNER SHORT DURATION GOVERNMENT FUNDS -
THREE YEAR PORTFOLIO
The Turner Short Duration Government Funds Three Year Portfolio invests
primarily in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including mortgage-backed securities issued by
agencies such as Fannie Mae or the Government National Mortgage Association
(GNMA). The Fund may also invest to a limited extent in high grade corporate
debt obligations and cash equivalents. In selecting investments for the Fund,
Turner Investment Partners chooses U.S. Government obligations that are
attractively priced relative to the market or to similar instruments. Turner
Investment Partners considers the "effective duration" of the Fund's entire
portfolio when selecting securities. Effective duration is a measure of a
security's price volatility or risk associated with changes in interest rates.
Although Turner Investment Partners manages interest rate risk by maintaining an
effective duration that is comparable to or less than that of three year U.S.
Treasury notes, the Fund may invest in securities with any maturity.
[START OF BOUNDING BOX]
[ICON] WHAT ARE THE RISKS OF INVESTING IN THE FUND?
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. Government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. Government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources,
and are subject to more risk.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[END OF BOUNDING BOX]
10
<PAGE>
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
[ICON] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrates the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Institutional
Class Shares from year to year for four years.*
[In the printed version there appears a bar chart depicted by the
following plot points:]
11.18% 5.26% 6.92% 6.93%
1995 1996 1997 1998
[BAR CHART]
*The performance information shown above is based on a calendar year.
Best Quarter Worst Quarter
3.24% 0.40%
(3/31/95) (3/31/96)
This table compares the Fund's average annual total returns for Institutional
Class Funds for the periods ended December 31, 1998, to those of the Lehman
Brothers 1-3 Year U.S. Government Bond Index.
1 YEAR SINCE INCEPTION
(3/1/94)
Turner Short Duration
Government Funds-
Three Year Portfolio 6.93% 6.51%
Lehman Brothers 1-3 Year
U.S. Government Bond Index 6.97% 6.28%**
- --------------------------------------------------------------------------------
*As of December 31, 1998, there were no Adviser Class Shares outstanding.
**The inception date for the Index is March 31, 1994.
[START OF BOUNDING BOX]
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Lehman Brothers 1-3 Year U.S. Government Bond Index is a widely
recognized index of U.S. government obligations with maturities of at least one
year.
[END OF BOUNDING BOX]
- --------------------------------------------------------------------------------
[ICON] FUND FEES AND EXPENSES
Every mutual fund has operating expenses to pay for professional advisory,
shareholder, distribution, administration and custody services and other costs
of doing business. This table describes the Fund's fees and expenses that you
may pay indirectly if you hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL ADVISER
CLASS SHARES CLASS SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 0.76% 1.49%
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.49% 1.74%
Fee waivers and expense reimbursements 1.13% 1.13%
----- -----
NET TOTAL OPERATING EXPENSES 0.36%* 0.61%*
- --------------------------------------------------------------------------------
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE INSTITUTIONAL AND
ADVISER CLASS SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD
OF ONE YEAR, RENEWABLE AT THE END OF EACH FISCAL YEAR. For more information
about these fees, see "Investment Advisers" and "Distribution of Fund Shares."
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Institutional Class Shares $37 $116 $202 $456
Adviser Class Shares $62 $195 $340 $762
11
<PAGE>
[ICON] THE FUNDS' OTHER INVESTMENTS
- --------------------------------------------------------------------------------
In addition to the investments and strategies described in this prospectus, each
Fund may also invest in other securities, use other strategies and engage
in other investment practices. These investments and strategies as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information (SAI). Of course, we cannot guarantee that any Fund will
achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that we use under normal conditions. During unusual economic or market
conditions or for temporary defensive or liquidity purposes, each Fund may
invest up to 100% of its assets in cash, repurchase agreements and short-term
obligations that would not ordinarily be consistent with the Funds' objectives.
A Fund will do so only if its Adviser believes that the risk of loss outweighs
the opportunity for capital gains or higher income.
[ICON] INVESTMENT ADVISERS
- --------------------------------------------------------------------------------
As the Investment Advisers, Turner Investment Partners, Inc. and Penn Capital
Management Company, Inc. make investment decisions for the Funds and
continuously review, supervise and administer their Funds' investment programs.
The Board of Trustees supervises the Advisers and establishes policies that each
Adviser must follow in their management activities to ensure compliance with the
Funds' investment policies and guidelines.
Turner Investment Partners, Inc. ("Turner"), an SEC-registered adviser, serves
as the Adviser to the Micro Cap Growth Fund and the Short Duration Government
Funds - One and Three Year Portfolios. As of October 31, 1998, Turner had
approximately $3 billion in assets under management. Turner is entitled to
receive investment advisory fees as follows:
Micro Cap Growth Fund.................................................. 1.00%
Short Duration Government Funds-One Year Portfolio..................... 25%
Short Duration Government Funds-Three Year Portfolio................... 25%
For the fiscal period ended September 30, 1998, the Funds paid Turner investment
advisory fees (after waivers) of:
Micro Cap Growth Fund................................................ (3.49)%
Short Duration Government Funds-One Year Portfolio................... (6.17)%
Short Duration Government Funds-Three Year Portfolio................. (.59)%
Penn Capital Management Company, Inc. ("Penn Capital"), an SEC-registered
adviser, serves as the Adviser to the Strategic High Yield Bond Fund. As of
October 31, 1998, Penn Capital had approximately $379 million in assets under
management. The Fund pays Penn Capital investment advisory fees as follows:
Penn Capital Strategic High Yield Bond Fund.............................. 55%
For the fiscal period ended September 30, 1998, the Funds paid Penn Capital
investment advisory fees (after waivers) of:
Penn Capital Strategic High Yield Bond Fund........................... (.50)%
12
<PAGE>
PORTFOLIO MANAGERS
Penn Capital Strategic High Yield Bond Fund
The Penn Capital Strategic High Yield Bond Fund is managed by a team consisting
of certain principals of Penn Capital, including co-managers Richard A. Hocker
and Kathleen A. News.
Prior to founding Penn Capital in 1987, Mr. Hocker was a shareholder and senior
portfolio manager of Delaware Investment Advisers, an investment management
firm.
Ms. News, a co-founder of the Penn Capital, serves as the senior portfolio
manager of the Adviser. Ms. News has over 20 years of investment experience at
both Penn Capital and Delaware Investment Advisers, including over 10 years
managing high yield portfolios.
Turner Micro Cap Growth Fund
Frank L. Sustersic, CFA, and Bill McVail, CFA, manage the Turner Micro Cap
Growth Fund. Mr. Sustersic, a Senior Security Analyst and Equity Portfolio
Manager at Turner, serves as lead portfolio manager to the Fund. Mr. Sustersic
joined Turner in 1994. Mr. Sustersic has 8 years of investment experience. Mr.
McVail, Senior Equity Portfolio Manager of the Adviser, serves as co-manager to
the Fund. Mr. McVail joined the Adviser in 1998. Prior to 1998, he was Portfolio
Manager at PNC Equity Advisers. He has 11 years of investment experience.
Turner Short Duration Funds - One and Three Year Portfolios
James L. Midanek, a Fixed Income Portfolio Manager of Turner Investment
Partners, Inc., is the portfolio manager of the Turner Short Duration Government
Funds - One and Three Year Portfolios. Mr. Midanek joined Turner in 1997. Prior
to joining Turner, 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 to the Fixed Income
Group of Montgomery Asset Management, L.P., where he managed four institutional
fixed income funds.
13
<PAGE>
[ICON] PURCHASING, SELLING AND EXCHANGING FUND SHARES
- --------------------------------------------------------------------------------
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.
CHOOSING ADVISER OR INSTITUTIONAL CLASS SHARES
Adviser and Institutional Class Shares have different expenses and other
characteristics. Institutional Class Shares are for institutional investors for
their own or their customers' accounts. For more information on how to open an
account and set up procedures for placing transactions call 1-800-TIP-7654.
ADVISER CLASS SHARES INSTITUTIONAL CLASS SHARES
* No sales charge * No sales charge
* Higher annual expenses * Lower annual expenses
* $10,000 minimum initial investment * $100,000 minimum initial investment
For some investors the minimum initial investment may be lower. For Adviser
Class Shares, the minimum initial investment for IRAs is $500. As of
September 30, 1998, Adviser Class Shares were not yet available to investors.
HOW TO PURCHASE FUND SHARES
You may purchase Adviser and Institutional Class Shares directly from us by:
o mail
o telephone
o wire, or
o Automated Clearing House (ACH).
[START OF BOUNDING BOX]
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares of any Fund (except the Turner Micro Cap Growth Fund) on
any day that the U.S. Bond Markets are open for business (a Business Day). For
the Turner Micro Cap Growth Fund, a Business Day is any day the New York
Stock Exchange (NYSE) is open.
[END OF BOUNDING BOX]
To purchase shares directly from us, please call 1-888-TIP-7654. Make your
check, payable in U.S. dollars, to "Alpha Select Funds" and include the name of
the appropriate Fund(s) on the check. You may mail your check to us at: Alpha
Select Funds, P.O. Box 419805, Kansas City, Missouri 64141-6805. We cannot
accept third-party checks, credit cards, credit card checks or cash.
You may also purchase shares by wiring money to the Funds as follows: 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.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for customers. If you invest
through an authorized institution, you will have to follow its procedures, which
may be different from the procedures for investing directly. Your institution
may charge a fee for its services, in addition to the fees charged by the Fund.
You will also generally have to address your correspondence or questions
regarding the Funds to your institution.
[START OF BOUNDING BOX]
FOR CUSTOMERS OF FINANCIAL INSTITUTIONS
If you purchase, sell or exchange Fund shares through a financial institution
(rather than directly from us), you may have to transmit your purchase, sale and
exchange requests to your financial institution at an earlier time for your
transaction to become effective that day. This allows the financial institution
time to process your request and transmit it to us. For more information about
how to purchase, sell or exchange Fund shares through your financial
institution, you should contact your financial institution directly.
[END OF BOUNDING BOX]
14
<PAGE>
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Funds or their shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Funds receive your purchase order. The Funds'
NAV is calculated once each Business Day at the regularly-scheduled close of
normal trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern
time). So, for you to receive the current Business Day's NAV, generally we must
receive your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
In calculating NAV, each Fund generally values its investment portfolio
securities at market price. If market prices are unavailable or we think that
they are unreliable, we may determine fair value prices using methods approved
by the Board of Trustees. Some Funds hold portfolio securities that are listed
on foreign exchanges. These securities may trade on weekends or other days when
the Funds do not calculate NAV. As a result, the value of the Funds' investments
may change on days when you cannot purchase or sell Fund shares.
[START OF BOUNDING BOX]
NET ASSET VALUE
NAV for one Fund share is the value of that share's portion of all of the net
assets in the Fund.
[END OF BOUNDING BOX]
MINIMUM PURCHASES
To purchase Adviser Class Shares for the first time, you must invest at least
$10,000 in any Fund that offers Adviser Class Shares. To purchase additional
Adviser Class Shares of any Fund, you must invest at least $1,000. To purchase
Institutional Class Shares for the first time, you must invest at least $100,000
in any Fund. To purchase additional Institutional Class Shares of any Fund, you
must invest at least $5,000. We may accept investments of smaller amounts at our
discretion.
[START OF BOUNDING BOX]
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
[END OF BOUNDING BOX]
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
If you own shares directly, you may sell your shares on any Business Day by
contacting us directly by mail or telephone. You may also sell your shares by
contacting your financial institution by mail or telephone.
Holders of Adviser or Institutional Class Shares may sell shares by following
procedures established when they opened their account or accounts. If you have
questions, call 1-800-TIP-7654. If you own your shares through an account
[START OF BOUNDING BOX]
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature in certain circumstances, including: (1) written
requests for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds to a bank other than the bank previously designated on the
account application; and (3) redemption requests that provide that the
redemption proceeds should be sent to an address other than the address of
record or to a person other than the registered shareholder(s) for the account.
Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. A
notarized signature is not sufficient.
[END OF BOUNDING BOX]
15
<PAGE>
with a broker or other institution, contact that broker or institution to sell
your shares.
If you would like to sell $50,000 or more of your shares, please notify us in
writing and include a signature guarantee.
The sale price of each share will be the next NAV determined after the Funds
receive you request.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within three Business Days after we
receive your request, but it may take up to seven Business Days. Your proceeds
can be wired to your bank account (subject to a $10 wire fee) or sent to you by
check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION
PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO
15 BUSINESS DAYS).
REDEMPTIONS IN KIND
The Funds generally pay sale proceeds in cash. However, under unusual conditions
that make the payment of cash unwise (and for the protection of the Funds'
remaining shareholders) the Funds might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). Although it is highly unlikely that your shares would ever
be redeemed in kind, you would probably have to pay brokerage costs to sell the
securities distributed to you, as well as taxes on any capital gains from the
sale as with any redemption.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Funds may suspend your right to sell your shares if the U.S. Bond Markets
(or the NYSE in the case of the Turner Micro Cap Fund) restrict trading, the
SEC declares an emergency or for other reasons. More information about this is
in the Statement of Additional Information.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum of $10,000, you may be
required to sell your shares. The Funds will give you notice to give you time to
add to your account and to avoid the sale of your shares.
16
<PAGE>
EXCHANGING FUND SHARES
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares on any Business Day by contacting us directly by
mail or telephone. You may also exchange shares through your financial
institution by mail or telephone. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR
THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS
CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS FROM THE DATE OF PURCHASE). This
exchange privilege may be changed or canceled at any time upon 60 days' notice.
[START OF BOUNDING BOX]
EXCHANGES
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after we receive your exchange request.
[END OF BOUNDING BOX]
ADVISER CLASS SHARES
You may exchange Adviser Class Shares of any Fund for Adviser Class Shares of
any other Fund.
INSTITUTIONAL CLASS SHARES
You may exchange Institutional Class Shares of any Fund for Institutional Class
Shares of any other Fund.
DISTRIBUTION OF FUND SHARES
SEI Investments Distribution Co. (SIDCo.) is the distributor of the shares of
the Funds. SIDCo. receives no compensation for distributing the Funds' shares.
The Funds have adopted a shareholder service plan for their Adviser Class Shares
that allows the Funds to pay service fees for services provided to shareholders.
For Adviser Class Shares, shareholder service fees, as a percentage of average
daily net assets, may be up to .25%.
Institutional Class Shares do not pay distribution or shareholder servicing
fees.
17
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Micro Cap Fund distributes its investment income at least once annually as a
dividend to shareholders. The Strategic High Yield Bond Fund and the Short
Duration Government Funds -One Year and -Three Year Portfolios distribute their
investment income monthly as a dividend to shareholders. The Funds make
distributions of capital gains, if any, at least annually.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after the Funds receive
your written notice. To cancel your election, simply send us written notice.
[START OF BOUNDING BOX]
THE "RECORD DATE"
If you own Fund shares on a Fund's record date, you will be entitled to receive
the distribution.
[END OF BOUNDING BOX]
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
[START OF BOUNDING BOX]
FUND DISTRIBUTIONS
Distributions you receive from a Fund may be taxable whether or not you reinvest
them.
[END OF BOUNDING BOX]
Each Fund will distribute substantially all of its investment income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation. Capital
gains distributions may be taxable at different rates depending on the length of
time a Fund holds its portfolio securities. EACH SALE OR EXCHANGE OF FUND SHARES
IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE SAI.
18
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables that follow present performance information about Shares of each
Fund. This information is intended to help you understand each Fund's financial
performance for the past five years, or, if shorter, the period of the Fund's
operations. Some of this information reflects financial information for a single
Fund share. The total returns in the tables represent the rate that you would
have earned (or lost) on an investment in a Fund, assuming you reinvested all of
your dividends and distributions. As of September 30, 1998, there were no
Adviser Class Shares of any Fund outstanding.
[START OF BOUNDING BOX]
FINANCIAL HIGHLIGHTS
Study these tables to see how each Fund performed since it began investment
operations.
[END OF BOUNDING BOX]
This information has been audited by Ernst & Young LLP, independent auditors.
Their report, along with each Fund's financial statements, appears in our annual
report that accompanies the Statement of Additional Information. You can obtain
the Funds' annual report, which contains more performance information, at no
charge by calling 1-888-TIP-7654.
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED SEPTEMBER 30: 1998(2)
----
Net Asset Value, Beginning of Period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.37
Net Gains (Losses) on Securities (both realized and
unrealized) (1.09)
Total From Investment Operations (0.72)
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.37)
Distributions (from capital gains) --
*************************************
Total Distributions (0.37)
Net Asset Value, End of Period $ 8.91
TOTAL RETURN(1) (7.23)%
*************************************
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 17,842
Ratio of Expenses to Average Net Assets 0.68%*
Ratio of Net Income to Average Net Assets 10.04%*
Ratio of Expenses to Average Net Assets
(excluding waivers) 2.09%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers) 8.63%*
Portfolio Turnover Rate 29.19%
- ----------
1 Returns are for the period indicated and have not been annualized.
2 The Penn Capital Strategic High Yield Fund commenced operations on
March 1, 1998.
* Annualized.
19
<PAGE>
FINANCIAL HIGHLIGHTS TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED SEPTEMBER 30, 1998: 1998(1)
----
Net Asset Value, Beginning of Period 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.04)
Net Gains (Losses) on Securities (both realized and
unrealized) (0.08)
Total From Investment Operations (0.12)
LESS DISTRIBUTIONS
Dividends (from net investment income) ---
Distributions (from capital gains) ---
*************************************
Total Distributions ---
Net Asset Value, End of Period $ 9.88
TOTAL RETURN (1.20)%+
*************************************
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 2,843
Ratio of Expenses to Average Net Assets 1.25%*
Ratio of Net Income to Average Net Assets (0.64)%*
Ratio of Expenses to Average Net Assets
(excluding waivers) 8.18%*
Ratio of Net Investment Income (Loss) to
Average Net Assets (excluding waivers) (7.57)%*
Portfolio Turnover Rate 128.53%
- ----------
1 Commenced operations on March 1, 1998.
+ Returns are for the period indicated and have not been annualized
* Annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
20
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
For the seven month period ended For the years ended
September 30: February 28:
1998(1) 1998(2) 1997 1996 1995(3)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.08 $ 10.06 $ 10.03 $ 9.99 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.35 0.60 0.60 0.64 0.53
Net Gains (Losses) on Securities (both realized and
unrealized) --- 0.02 0.03 0.05 (0.02)
Total From Investment Operations 0.35 0.62 0.63 0.69 0.51
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.33) (0.60) (0.60) (0.65) (0.52)
Distributions (from capital gains) (0.01) --- --- --- ---
*************************************
Total Distributions (0.34) (0.60) (0.60) (0.65) (0.52)
Net Asset Value, End of Period $ 10.09 $ 10.08 $ 10.06 $ 10.03 $ 9.99
TOTAL RETURN 3.50%+ 6.34% 6.32% 7.09% 5.21%
*************************************
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 991 $ 1,195 $ 864 $ 398 $ 145
Ratio of Expenses to Average Net Assets 0.00%* 0.00% 0.00% 0.00% 0.00%
Ratio of Net Income (Loss) to Average Net Assets 5.88%* 5.97% 5.91% 6.46% 5.74%
Ratio of Expenses to Average Net Assets
(excluding waivers) 10.83%* 8.83% 10.25% 16.47% 27.89%
Ratio of Net Investment Income (Loss) to
Average Net Assets (excluding waivers) (4.95)%* (2.86)% (4.34)% (10.01)% (22.15)%
Portfolio Turnover Rate 96.56% 68.80% 81.82% --- ---
<FN>
- ----------
1 On November 10, 1997 the Board of Trustees of the Fund approved a change in the Turner Short Duration Government Funds - One
Year Portfolio's year end from February 28 to September 30, effective March 1, 1998.
2 On January 22, 1998, shareholders of the Fund approved a change in the adviser from Solon Asset Management, L.P. to Turner
Investment Partners, Inc.
3 Commenced operations on March 1, 1994.
+ Returns are for the period and have not been annualized.
* Annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
For the seven month period ended For the years ended
September 30: February 28:
1998(1) 1998(2) 1997 1996 1995(3)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.10 $ 10.00 $ 10.04 $ 9.80 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.35 0.59 0.58 0.60 0.61
Net Gains (Losses) on Securities (both realized and
unrealized) 0.15 0.10 (0.01) 0.23 (0.22)
Total From Investment Operations 0.50 0.69 0.57 0.83 0.39
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.34) (0.59) (0.59) (0.59) (0.59)
Distributions (from capital gains) (0.01) --- (0.02) --- ---
*************************************
Total Distributions (0.35) (0.59) (0.61) (0.59) (0.59)
Net Asset Value, End of Period $ 10.25 $ 10.10 $ 10.00 $ 10.04 $ 9.80
TOTAL RETURN 5.09%+ 7.07% 5.45% 8.73% 4.08%
*************************************
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 12,015 $ 15,544 $ 17,809 $ 11,027 $ 7,065
Ratio of Expenses to Average Net Assets 0.24%* 0.24% 0.24% 0.24% 0.15%
Ratio of Net Income (Loss) to Average Net Assets 5.84%* 5.85% 5.80% 6.18% 6.21%
Ratio of Expenses (Loss) to Average Net Assets
(excluding waivers) 1.49%* 1.21% 1.21% 1.45% 1.18%
Ratio of Net Investment Income (Loss) to
Average Net Assets (excluding waivers) 4.59%* 4.88% 4.83% 4.97% 5.18%
Portfolio Turnover Rate 121.63% 197.03% 279.00% 251.00% 405.00%
<FN>
- ----------------
1 On November 10, 1997 the Board of Trustees of the Fund approved a change in the Turner Short Duration Government Funds - Three
Year Portfolio's year end from February 28 to September 30, effective March 1, 1998.
2 On January 22, 1998, shareholders of the Fund approved a change in the adviser from Solon Asset Management, L.P. to Turner
Investment Partners, Inc.
3 Commenced operations on March 1, 1994.
+ Returns are for the period and have not been annualized.
* Annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
22
<PAGE>
-----------------------------
Alpha Select Funds
-----------------------------
INVESTMENT ADVISERS
Penn Capital Management Company, Inc.
Turner Investment Partners, Inc.
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
- --------------------------------------------------------------------------------
The SAI dated January 31, 1999, includes more detailed information about Alpha
Select Funds. The SAI is on file with the SEC and is incorporated by reference
into this prospectus. This means that the SAI, for legal purposes, is a part of
this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
- --------------------------------------------------------------------------------
These reports list the Funds' holdings and contain information from the Funds'
managers about fund strategies and recent market conditions and trends. The
reports also contain detailed financial information about the Funds.
TO OBTAIN MORE INFORMATION:
- --------------------------------------------------------------------------------
[START OF BOUNDING BOX]
BY TELEPHONE: Call 1-888-TIP-7654
BY MAIL: Write to the Funds at:
P.O. Box 419805
Kansas City, MO 64141-6805
BY INTERNET: http://www.turner-invest.com
FROM THE SEC: You can also obtain the SAI and the Annual Report and the
Semi-Annual Report, as well as other information about Alpha Select Funds,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment of
a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549- 6009.
The Funds' Investment Company Act registration number is 811- 8104.
[END OF BOUNDING BOX]
23
<PAGE>
ALPHA SELECT FUNDS
(FORMERLY, TIP INSTITUTIONAL FUNDS)
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
TURNER MICRO CAP GROWTH FUND
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO
INVESTMENT ADVISERS:
PENN CAPITAL MANAGEMENT COMPANY, INC.
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates to the
Institutional and Adviser Class Shares of the Penn Capital Strategic High Yield
Bond Fund ("High Yield Fund"), Institutional Class Shares of the Turner Micro
Cap Growth Fund ("Micro Cap Fund"), Turner Short Duration Government Funds - One
Year Portfolio ("One Year Portfolio"), and Turner Short Duration Government
Funds - Three Year Portfolio ("Three Year Portfolio") (each a "Fund" and,
together, the "Funds"). It is intended to provide additional information
regarding the activities and operations of the Alpha Select Funds (formerly, TIP
Institutional Funds) (the "Trust"), and should be read in conjunction with the
Funds' Prospectus dated January 31, 1999. The Prospectus may be obtained without
charge by calling 1-888-TIP-7654.
TABLE OF CONTENTS
THE TRUST ..................................................................S-2
INVESTMENT OBJECTIVES AND POLICIES...........................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS........................S-6
INVESTMENT LIMITATIONS......................................................S-24
THE ADVISERS................................................................S-28
THE ADMINISTRATOR...........................................................S-31
DISTRIBUTION AND SHAREHOLDER SERVICING......................................S-32
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-33
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-35
PURCHASE AND REDEMPTION OF SHARES...........................................S-36
DETERMINATION OF NET ASSET VALUE............................................S-37
TAXES.......................................................................S-38
PORTFOLIO TRANSACTIONS......................................................S-39
DESCRIPTION OF SHARES.......................................................S-43
SHAREHOLDER LIABILITY.......................................................S-43
LIMITATION OF TRUSTEES' LIABILITY...........................................S-43
5% SHAREHOLDERS.............................................................S-44
CUSTODIAN...................................................................S-46
LEGAL COUNSEL...............................................................S-46
FINANCIAL STATEMENTS........................................................S-46
APPENDIX.....................................................................A-1
January 31, 1999
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates to the Adviser and
Institutional Class Shares of the Penn Capital Strategic High Yield Bond Fund
("High Yield Fund"), the Institutional Class Shares of the Turner Micro Cap
Growth Fund ("Micro Cap Fund") and the Adviser and Institutional Class Shares of
the Turner Short Duration Government Funds - One Year Portfolio ("One Year
Portfolio") and the Turner Short Duration Government Funds - Three Year
Portfolio ("Three Year Portfolio") (each a "Fund" and, together, the "Funds").
Each Fund is a separate series of the Alpha Select Funds (formerly, 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, and amended and restated on
October 8, 1998. The Declaration of Trust permits the Trust to offer separate
series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
PENN CAPITAL STRATEGIC HIGH YIELD BOND FUND
The Strategic High Yield Fund seeks to maximize income through high current
yield and, as a secondary objective, to produce above average capital
appreciation.
The Strategic High Yield Fund invests primarily (and, under normal conditions,
at least 65% of its total assets) in a diversified portfolio of high yield
securities (otherwise known as "junk bonds"). Securities and other financial
instruments of issuers that may or may not be paying interest on a current basis
and that are currently experiencing financial difficulties including,
potentially, companies which are undergoing or are likely to undergo financial
restructuring or liquidation, both under and outside of Federal Bankruptcy Code
proceedings, are also included in the high yield universe and may be acquired by
the Fund. The Fund invests primarily in publicly traded securities, and, to a
lesser extent, privately placed restricted securities and other financial
instruments for which there is a more limited trading market.
Penn Capital Management Company, Inc. ("Penn Capital"), believes that the market
for high yield securities is relatively inefficient compared to other securities
due to the limited availability of information on such securities, the lack of
extensive institutional research coverage of and market making activity with
respect to many issuers of such securities, the complexity and difficulty of
evaluation of such securities, and the limited liquidity, at times, of such
securities. Penn Capital intends to exploit these inefficiencies using its
knowledge and experience in the high yield market. Penn Capital seeks to reduce
risk through diversification, credit analysis and attention to current
developments and trends in both the economy and financial markets.
S-2
<PAGE>
The Fund will invest primarily in securities rated BB+ or Ba1 or lower by
Standard & Poor's Corporation ("S&P") and/or Moody's Investors Service, Inc.
("Moody's"), and may invest in non-rated securities and in securities rated in
the lowest rating category established by S&P and/or Moody's. Securities in the
lowest ratings categories may be in default. See Appendix A for a discussion of
these ratings. Any remaining assets may be invested in equity securities and
investment grade fixed income securities. In addition, the Fund may engage in
short sales against the box.
TURNER MICRO CAP GROWTH FUND
The Micro Cap Fund seeks capital appreciation.
The Micro Cap Fund invests primarily (and, under normal conditions, at least 65%
of its total assets) in a diversified portfolio of common stocks of issuers with
market capitalizations of not more than $500 million at the time of purchase
that the Adviser believes to have strong earnings growth potential. Under normal
market conditions, the Fund will maintain a weighted average market
capitalization of less than $350 million. The Fund will not hold securities with
market capitalizations over $1 billion. The Fund seeks to purchase securities
that are well diversified across economic sectors. The Micro Cap Fund will
typically invest in companies whose market capitalizations, at the time of
purchase, are $350 million or under. The Fund may invest in warrants and rights
to purchase common stocks, and may invest up to 10% of its total assets in micro
cap stocks of foreign issuers and in ADRs.
The Micro Cap Fund invests in some of the smallest, most dynamic publicly-traded
companies. These emerging growth companies are typically in the early stages of
a long-term development cycle. In many cases, these companies offer unique
products, services or technologies and often serve special or expanding market
niches. Because of their small size, and less frequent trading activity, the
companies represented in the Fund's portfolio may be overlooked or not closely
followed by investors. Accordingly, their prices may rise either as a result of
improved business fundamentals, particularly when earnings grow faster than
general expectations, or as more investors appreciate the full extent of a
company's underlying business potential. Thus in the opinion of the Fund's
Adviser, they offer substantial appreciation potential for meeting retirement
and other long-term goals.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of micro capitalization stocks. To
manage risk and improve liquidity, Turner expects to invest in numerous small,
publicly traded companies, representing a broad cross-section of U.S.
industries.
The Fund may invest in repurchase agreements, which entail a risk of loss should
the seller default on its obligation to repurchase the security which is the
subject of the transaction. The Fund may participate in a securities lending
program, which entails a risk of loss should a borrower fail financially. The
Fund may purchase Rule 144A securities. The Fund may invest in certain
instruments such as certain types of when-issued securities, and may borrow
money and sell securities
S-3
<PAGE>
short. In addition, the Fund may, although it has no present intention to do so,
invest a portion of its assets in derivatives, including futures, options,
forwards and swaps, caps, floors and collars.
The Fund may also invest in investment grade corporate bonds, foreign
securities, zero coupon, pay-in-kind and deferred payment bonds, shares of other
investment companies and cash equivalents. The Fund may invest up to 15% of its
net assets in illiquid securities, and for temporary defensive purposes, may
invest up to 100% of its total assets in money market instruments (including
U.S. Government securities, bank obligations, commercial paper rated in the
highest rating category by an NRSRO) and shares of money market investment
companies and may hold a portion of its assets in cash.
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO AND
TURNER SHORT DURATION GOVERNMENT FUNDS - 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 Funds' Adviser seeks to
manage interest rate risk by limiting effective duration, each Fund may invest
in securities of any maturity. See "Effective Duration."
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 S&P (AAA, AA or A), 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.
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
Fund Adviser's assessment of the relative
S-4
<PAGE>
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 Funds' Adviser
determines that market conditions warrant, each Fund may invest up to 100% of
its assets in Money Market Instruments and in cash.
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 Funds'
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
S-5
<PAGE>
interest rates than is the one-year U.S. Treasury bill, the Funds' 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.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear
S-6
<PAGE>
all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
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.
BORROWING
Each Fund may borrow money from banks in an aggregate amount not to exceed
one-third of the value of the Fund's total assets, and the Fund may pledge its
assets in connection with such borrowings. In addition, each Fund considers
reverse repurchase agreements and dollar roll transactions to be borrowings and
accordingly, limits its borrowings from all sources to no more than one-half of
the value of the Fund's total assets. Under most normal market conditions,
however, each Fund expects that borrowings from all sources only occasionally
will exceed one third of the value of its total assets.
The Funds may borrow money equal to 5% of their total assets for temporary
purposes to meet redemptions or to pay dividends. Borrowing may exaggerate
changes in the net asset value of the Fund's shares and in the return on the
Fund's portfolio. Although the principal of any borrowing will be fixed, the
Fund's assets may change in value during the time the borrowing is outstanding.
The Funds may be required to liquidate portfolio securities at a time when it
would be disadvantageous to do so in order to make payments with respect to any
borrowing. The Funds may be required to
S-7
<PAGE>
segregate liquid assets in an amount sufficient to meet their obligations in
connection with such borrowings. In an interest rate arbitrage transaction, a
Fund borrows money at one interest rate and lends the proceeds at another,
higher interest rate. These transactions involve a number of risks, including
the risk that the borrower will fail or otherwise become insolvent or that there
will be a significant change in prevailing interest rates.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
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.
DOLLAR ROLL TRANSACTIONS
The Short Duration Funds may enter into dollar roll transactions. 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 a 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.
S-8
<PAGE>
EQUITY SECURITIES
The High Yield Bond and Micro Cap Funds may invest in public and privately
issued equity securities, including common and preferred stocks, warrants,
rights to subscribe to common stock and convertible securities. Investments in
equity securities in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a Fund invests will
cause the net asset value of that Fund to fluctuate. An investment in such funds
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
FIXED INCOME SECURITIES
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Changes in the value of these securities will not necessarily affect
cash income derived from these securities, but will affect the investing Fund's
net asset value.
Investment grade bonds include securities rated BBB by S&P and/or Baa by
Moody's, which may be regarded as having speculative characteristics as to
repayment of principal. If a security is downgraded, the Fund's Adviser will
review the situation and take appropriate action.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
S-9
<PAGE>
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the Index is made; generally contracts are closed out prior to the
expiration date of the contracts.
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
To reduce its net interest rate risk exposure with respect to its portfolio,
each Short Duration 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 Short Duration 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 Short Duration 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.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities equal to the market value
S-10
<PAGE>
of the futures positions held, less margin deposits, in a segregated account
with its custodian. Collateral equal to the current market value of the futures
position will be marked to market on a daily basis.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES
Investing in fixed and floating rate high yield foreign sovereign debt
securities will expose the High Yield Bond Fund to the direct or indirect
consequences of political, social or economic changes in the countries that
issue the securities. The ability and willingness of sovereign obligers in
developing and emerging market countries or the governmental authorities that
control repayment of their external debt to pay principal and interest on such
debt when due may depend on general economic and political conditions within the
relevant country. Countries such as those in which the Fund may invest have
historically experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate or trade difficulties and extreme
poverty and unemployment. Many of these countries are also characterized by
political uncertainty or instability.
HIGH YIELD, HIGH RISK SECURITIES
Securities rated below investment grade are often referred to as "junk bonds."
Fixed income securities are subject to the risk of an issuer's ability to meet
principal and interest payments on the obligation (credit risk), and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (market risk). Lower rated or unrated (i.e., high yield) securities
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which primarily react to movements in the
general level of interest rates. The market values of fixed-income securities
tend to vary inversely with the level of interest rates. Yields and market
values of high yield securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest rates.
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities are not generally meant for
short-term investing.
Adverse economic developments can disrupt the market for high yield securities,
and severely affect the ability of issuers, especially highly leveraged issuers,
to service their debt obligations or to repay
S-11
<PAGE>
their obligations upon maturity which may lead to a higher incidence of default
on such securities. In addition, the secondary market for high yield securities,
which is concentrated in relatively few market makers, may not be as liquid as
the secondary market for more highly rated securities. As a result, the High
Yield Bond Fund's Adviser could find it more difficult to sell these securities
or may be able to sell the securities only at prices lower than if such
securities were widely traded. Furthermore the Fund may experience difficulty in
valuing certain securities at certain times. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less
than the prices used in calculating the Fund's net asset value.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect the Fund's net asset value and
investment practices, the secondary market value for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
Credit quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on a
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with maturities over seven days in length.
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
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.
S-12
<PAGE>
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.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Loan participations are interests in loans to corporations or governments which
are administered by the lending bank or agent for a syndicate member
("intermediary bank"). In a loan participation, the borrower will be deemed to
be the issuer of the participation interest, except to the extent the High Yield
Bond Fund derives its rights from the intermediary bank. Because the
intermediary bank does not guarantee a loan participation in any way, a loan
participation is subject to the credit risks generally associated with the
underlying borrower. In the event of the bankruptcy or insolvency of the
borrower, a loan participation may be subject to certain defenses that can be
asserted by such borrower as a result of improper conduct by the intermediary
bank. In addition, in the event the underlying borrower fails to pay principal
and interest when due, the Fund may be subject to delays, expenses and risks
that are greater than those that would have been involved if the Fund had
purchased a direct obligation of such borrower. Under the terms of a loan
participation, the Fund may be regarded as a creditor of the intermediary bank,
(rather than of the underlying borrower), so that the Fund may also be subject
to the risk that the intermediary bank may become insolvent.
Loan assignments are investments in assignments of all or a portion of certain
loans from third parties. When a Fund purchases assignments from lenders it will
acquire direct rights against the borrower on the loan. Since assignments are
arranged through private negotiations between potential assignees and assignors,
however, the rights and obligations acquired by the Fund may differ from, and be
more limited than, those held by the assigning lender. Loan participations and
assignments may be
S-13
<PAGE>
considered liquid, as determined by the Fund's adviser based on criteria
approved by the Board of Trustees.
MICRO CAPITALIZATION STOCKS
The Micro Cap Fund may invest to a significant degree in equity securities of
smaller institutions. Any investment in a smaller capitalization company
involves greater risk than that customarily associated with investments in
larger, more established companies. This increased risk may be due to the
greater business risks of smaller size, limited markets and financial resources,
narrow product lines and lack of depth of management. The securities of smaller
companies are often traded in the over-the-counter market, and if listed on a
national securities exchange, may not be traded in volumes typical for that
exchange. Thus, the securities of smaller companies are likely to be less
liquid, and subject to more abrupt or erratic market movements than securities
of larger, more established companies. In addition, in order to sell this type
of holding, the Fund may need to discount the securities from recent prices or
dispose of the securities over a longer period of time. Also, because micro-cap
companies normally have fewer shares outstanding and these shares trade less
frequently than large companies, it may be more difficult for the Fund to buy
and sell significant amounts of such shares without an unfavorable impact on
prevailing market prices.
Micro cap companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than the large companies.
Some of the companies in which the Micro Cap Fund may invest may distribute,
sell or produce products which have recently been brought to market and may be
dependent on key personnel. The prices of small company securities are often
more volatile than prices associated with large company issues, and can display
abrupt or erratic movements at times, due to limited trading volumes and less
publicly available information.
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.
S-14
<PAGE>
MORTGAGE-RELATED SECURITIES
A mortgage-related security is an interest in a pool of mortgage loans. Most
mortgage-related securities are pass-through securities, which means that
investors receive payments consisting of a pro rata share of both principal and
interest (less servicing and other fees), as well as unscheduled prepayments, as
mortgages in the underlying mortgages pool are paid off by the borrowers.
AGENCY-MORTGAGE-RELATED SECURITIES: The dominant issuers or guarantors of
mortgage-related securities today are GNMA, Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA creates pass-through securities from pools
of U.S. government guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks and
savings associations. Fannie Mae and FHLMC issue pass-through securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages obtained from various entities, including savings associations,
savings banks, commercial banks, credit unions and mortgage bankers.
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 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.
S-15
<PAGE>
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.
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. As the interest rates on the mortgages
underlying 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.
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.
S-16
<PAGE>
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.
The Short Duration Funds consider GNMA-, Fannie Mae-, and FHLMC-issued
pass-through certificates, CMOs, and other mortgage-related securities to be
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.
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.
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
S-17
<PAGE>
is necessarily subjective, and thus different market participants can produce
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 CONTRACTS
Each Fund may seek to hedge against a decrease in value of its portfolio by
writing (i.e., selling) covered call options. When a Fund writes a call option,
it receives a premium and gives the purchase the right to buy the underlying
security at a fixed price. A call option is "covered" if (i) the Fund owns the
optioned securities or has the right to acquire such securities without
additional consideration, (ii) the Fund causes its custodian to segregate cash
or other liquid securities having a value sufficient to meet the Fund's
obligations under the call option, or (iii) the Fund owns an offsetting call
option.
Each Fund also may write covered put options in an attempt to realize enhanced
income when it is willing to purchase the underlying debt security for its
portfolio at the exercise price. When a Fund writes a put option, it receives a
premium and gives the purchaser of the put the right to cause the Fund to buy
the underlying security at a fixed exercise price. A put option is "covered" if
the Fund causes its custodian to segregate cash or other liquid securities with
a value not less than the exercise price of the option or holds a put option on
the same underlying security. Each Fund also may purchase call options for the
purpose of acquiring the underlying securities for its portfolio and may
purchase put options for hedging purposes. Each Fund will not enter into covered
put options which, when combined with outstanding purchases of securities on a
when-issued or forward commitment basis, would exceed 5% of the Fund's total
assets.
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.
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 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.
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,
S-18
<PAGE>
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 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).
PORTFOLIO TURNOVER
An annual portfolio turnover rate in excess of 100% may result from the
Adviser's investment strategy or from prevailing market conditions. Portfolio
turnover rates in excess of 100% may result in higher transaction costs,
including increased brokerage commissions, and higher levels of taxable capital
gain.
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.
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
S-19
<PAGE>
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 DOLLAR ROLL TRANSACTIONS
Each Short Duration Fund may enter into reverse dollar roll transactions, which
involve a purchase by a Fund of an eligible security from a financial
institution concurrently with an agreement by the Fund to resell a similar
security to the institution at a later date at an agreed-upon price. Reverse
dollar roll transactions are fully collateralized in a manner similar to loans
of the Fund's portfolio securities.
REVERSE REPURCHASE AGREEMENTS
The Short Duration Funds may enter into reverse repurchase agreements. 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.
RIGHTS
Rights give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
S-20
<PAGE>
RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the 1933 Act. Rule 144A securities are traded in the
institutional market pursuant to this registration exemption, and, as a result,
may not be as liquid as exchange-traded securities since they may only be resold
to certain qualified institutional investors. Due to the relatively limited size
of this institutional market, these securities may affect the Fund's liquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Nevertheless, Rule 144A securities
may be treated as liquid securities pursuant to guidelines adopted by the
Trust's Board of Trustees.
SECURITIES LENDING
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 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.
SECURITIES OF FOREIGN ISSUERS
The High Yield Bond Fund may invest to a limited extent in securities of foreign
issuers and in sponsored and unsponsored ADR's. Investments in the securities of
foreign issuers may subject the Fund to investment risks that differ in some
respects from those related to investments in securities of U.S. issuers. Such
risks include future adverse political and economic developments, possible
imposition of withholding taxes on income, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or greater fluctuation in value due to changes in
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities, and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally
S-21
<PAGE>
speaking, subject to less government supervision and regulation than are those
in the United States. Investments in securities of foreign issuers are
frequently denominated in foreign currencies and the value of the Fund's assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and the Fund may incur costs
in connection with conversions between various currencies.
SHORT SALES
A short sale is "against the box" if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities that are sold short.
U.S. GOVERNMENT AGENCY OBLIGATIONS
Certain Federal agencies, such as the 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. 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.
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").
S-22
<PAGE>
U.S. TREASURY RECEIPTS
U.S. Treasury receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Treasury obligations into a
special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
of receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed delivery" basis in order
to hedge against anticipated changes in interest rates and prices. The price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date,
normally seven to 15 days later, or in the case of certain CMO issues; 45 to 60
days later. When-issued securities and forward commitments may be sold prior to
the settlement date, but each Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be.
No income accrues on securities that have been purchased pursuant to a forward
commitment or a when-issued basis prior to delivery to the Fund. If a Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, it causes its custodian to segregate
cash or other liquid securities equal to the value of the when-issued or forward
commitment securities and 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.
S-23
<PAGE>
Each Short Duration 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.
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, business and individuals around
the world, the Trust could be adversely affected if the computer systems used by
its service providers do not properly process dates on and after January 1, 2000
and distinguish between the year 2000 and the year 1900. The Trust has asked its
service providers whether they expect to have their computer systems adjusted
for the year 2000 transition, and received assurances from each that its system
is expected to accommodate the year 2000 without material adverse consequences
to the Trust. The Trust and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Trust does
business.
ZERO COUPON PAY-IN-KIND 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 accrued. Upon maturity,
the holder is entitled to receive the par value of the security. While interest
payments are not made on such securities, holders of such securities are deemed
to have received "phantom income" annually. Because the High Yield Bond Fund
will distribute its "phantom income" to shareholders, to the extent that
shareholders elect to receive dividends in cash rather than reinvesting such
dividends in additional shares, the Fund will have fewer assets with which to
purchase income producing securities. In the event of adverse market conditions,
zero coupon, pay-in-kind and deferred payment securities may be subject to
greater fluctuations in value and may be less liquid than comparably rated
securities paying cash interest at regular interest payment periods.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of each Fund which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of a Fund's outstanding shares, whichever is less.
The High Yield Bond and Micro Cap Funds may not:
1. (i) Purchase securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such
securities) if, as a result, more than 5% of the total assets of the
Fund would be invested in the securities of such issuer; or (ii)
acquire more than 10% of the outstanding voting securities of any one
issuer. This restriction applies to 75% of the Fund's total assets.
S-24
<PAGE>
2. Purchase any securities which would cause 25% or more of the total
assets of such Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry. This limitation does not apply to obligations issued or
guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such
securities.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate fund to purchase securities or
require a Fund to segregate assets are not considered to be
borrowings. Asset coverage of a least 300% is required for all
borrowings, except where a Fund has borrowed money for temporary
purposes in amounts not exceeding 5% of its total assets. A Fund will
not purchase securities while its borrowings exceed 5% of its total
assets.
4. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that each Fund may (i)
purchase or hold debt instruments in accordance with its investment
objective and policies; (ii) enter into repurchase agreements; and
(iii) lend its securities.
5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable
securities issued by companies which own or invest in real estate
(including real estate investment trusts), commodities, or
commodities contracts; and (ii) commodities contracts relating to
financial instruments, such as financial futures contracts and
options on such contracts.
6. Issue senior securities (as defined in the Investment Company Act of
1940 (the "1940 Act")) except as permitted by rule, regulation or
order of the Securities and Exchange Commission (the "SEC").
7. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
The Short Duration Government Funds may not:
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.
S-25
<PAGE>
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; 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.
S-26
<PAGE>
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.
The High Yield Bond and Micro Cap Funds may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against
the box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
5. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or
less (which term includes repurchase agreements and time deposits
maturing in more than seven days) if, in the aggregate, more than 15%
of its net assets would be invested in illiquid securities.
In addition, each Fund anticipates investing no more than 5% of its net assets
in short sales, unregistered securities, futures contracts, options and
investment company securities during the current year. Unregistered securities
sold in reliance on the exemption from registration in Section 4(2) of the 1933
Act and securities exempt from registration on re-sale pursuant to Rule 144A of
the 1933 Act may be treated as liquid securities under procedures adopted by the
Board of Trustees.
The Short Duration Funds may not:
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.
S-27
<PAGE>
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.
5. Enter into a futures or an option on a futures contract if, as a
result thereof, more than 5% of the particular Fund's total assets
(taken at market value at the time of entering into the contract and
excluding the in-the-money amount of an option that was in-the-money
at the time of purchase) would be committed to initial deposits and
premiums on open futures contracts and options on such contracts.
6. Invest in real estate limited partnerships or issuers that qualify as
real estate investment trusts under Federal tax laws.
To the extent these restrictions reflect matters of operating policy which may
be changed without shareholder vote, these restrictions may be amended upon
approval by the Board of Trustees and notice of shareholders.
If a percentage restriction is adhered to a the time of investment, a subsequent
increase or decrease in a percentage resulting from a change in the values of
assets will not constitute a violation of that restriction, except as otherwise
noted.
THE ADVISERS
The Trust and Turner Investment Partners, Inc. and Penn Capital Management
Company, Inc. (each an "Adviser"), have entered into advisory agreements (each
an "Advisory Agreement"). Each Advisory Agreement provides that the Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in carrying out its
duties, but shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
Each Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of the 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 Advisers will not be required to bear expenses of the Funds to an
extent which would result in the Funds' inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code of 1986, as
amended (the "Code").
S-28
<PAGE>
The continuance of each 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. Each 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.
PENN CAPITAL MANAGEMENT COMPANY, INC.
Penn Capital Management Company, Inc. ("Penn Capital"), 52 Haddonfield-Berlin
Road, Suite 1000, Cherry Hill, New Jersey 08034, is a professional investment
management firm founded in 1987 and registered as an investment adviser under
the Investment Advisers Act of 1940. Richard A. Hocker is a founding partner and
Chief Investment Officer of Penn Capital, which manages the investment
portfolios of institutions and high net worth individuals, and which currently
has assets under management of approximately $374 million. Penn Capital employs
a staff of 17 and manages monies in a variety of investment styles through
either separate account management or one of its private investment funds.
Penn Capital serves as the investment adviser for the Strategic High Yield Bond
Fund under an investment advisory agreement. Under its Advisory Agreement, Penn
Capital makes the investment decisions for the assets of the Fund and
continuously reviews, supervises and administers the Funds' investment programs,
subject to the supervision of, and policies established by, the Trustees of the
Trust.
For its services, Penn Capital is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .55% of the average daily net assets of
the Strategic High Yield Bond Fund. Penn Capital has contractually agreed to
waive all or a portion of its fee and to reimburse expenses of the Strategic
High Yield Bond Fund in order to limit its total operating expenses (as a
percentage of average daily net assets on an annualized basis) to not more than
.68% (.93% for Adviser Class Shares).
TURNER INVESTMENT PARTNERS, INC.
Turner Investment Partners, Inc. ("Turner"), 1235 Westlakes Drive, Suite 350,
Berwyn, Pennsylvania 19312, is a professional investment management firm founded
in March, 1990. Robert E. Turner is the Chairman and controlling shareholder of
Turner. As of September 30, 1998, Turner had discretionary management authority
with respect to approximately $3 billion of assets. Turner has provided
investment advisory services to investment companies since 1992.
Turner serves as the investment adviser for the Micro Cap and Short Duration
Funds under an investment advisory agreement. Under its Advisory Agreement,
Turner makes the investment
S-29
<PAGE>
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, Turner is entitled to a fee, which is calculated daily and
paid monthly, at an annual rate of 1.00% of the average daily net assets of the
Micro Cap Fund. Turner has contractually agreed to waive all or a portion of its
fee and to reimburse expenses of the Micro Cap Fund in order to limit its total
operating expenses (as a percentage of average daily net assets on an annualized
basis) to not more than 1.25%.
For its services, Turner 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
Short Duration Fund. Turner has contractually agreed to waive all or a portion
of its fee and to reimburse expenses of the Short Duration Funds in order to
limit the 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%, and of the Adviser Class shares of each Fund (as a percentage of
average daily net assets on an annualized basis) to not more than .61%.
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
--------------------------------------------- ----------------------------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Penn Capital * * $ (61,917) * * $ 39,982
Strategic High Yield
Bond Fund
Micro Cap Fund * * $ (97,006) * * $ 16,354
Short Duration Fiscal Year Fiscal Year Fiscal Period Fiscal Year Fiscal Fiscal
Government Funds- Ended Ended Ended Ended Year Period
One Year Portfolio 2/28/97 2/28/98 9/30/98 2/28/97 Ended Ended
$0 $ (94,700) $ (67,178) $ 1,671 2/28/98 9/30/98
$ 2,792 $ (1,596)
Short Duration Fiscal Year Fiscal Year Fiscal Period Fiscal Year Fiscal Fiscal
Government Funds- Ended Ended Ended Ended Year Period
Three Year Portfolio 2/28/97 2/28/98 9/30/98 2/28/97 Ended Ended
$0 $ (117,540) $ (80,828) $ 32,092 2/28/98 9/30/98
$41,761 $ (20,056)
</TABLE>
- ---------------
* Not in operation during the period.
S-30
<PAGE>
THE ADMINISTRATOR
The Funds' Administrator, SEI Investments Mutual Funds Services, 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
interest 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 or
sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Armada Funds,
Bishop Street Funds, Boston 1784 Funds(R), CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, and TIP Funds.
For the fiscal years ended September 30, 1996, 1997, and 1998, the Funds paid
the following administrative fees (net of waivers):
<TABLE>
<CAPTION>
Administrative Fees Paid
-------------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Penn Capital Strategic High * * $42,740
Yield Bond Fund
Micro Cap Fund * * $42,470
Short Duration Government Fiscal Year Fiscal Year Fiscal Period
Funds-One Year Portfolio Ended 2/28/97 Ended 2/28/98 Ended 9/30/98
$497 $802 $510
Short Duration Government Fiscal Year Fiscal Year Fiscal Period
Funds-Three Year Portfolio Ended 2/28/97 Ended 2/28/98 Ended 9/30/98
$8,986 $11,964 $6,418
</TABLE>
- ----------------
* Not in operation during the period.
S-31
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING
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.
The Funds have adopted a shareholder service plan for Adviser Class shares (the
"Adviser Class Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefor. Under the Adviser Class Service Plan, the Distributor may provide
those services itself, or may enter into arrangements under which third parties
provide such services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any difference between the
fee it receives and the amount it pays such third parties. In addition, the
Funds may enter into such arrangements directly. Under the Adviser Class Service
Plan, the Distributor is entitled to receive a fee at an annual rate of up to
.25% of each Fund's average daily net assets attributable to Adviser Class
shares that are subject to the arrangement in return for provision of a broad
range of shareholder and administrative services, including: maintaining client
accounts; arranging for bank wires; responding to client inquiries concerning
services provided for investments; changing dividend options; account
designations and addresses; providing sub-accounting; providing information on
share positions to clients; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and processing dividend
payments.
S-32
<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 Massachusetts. The Trustees have approved contracts under
which, as described above, certain companies provide essential management
services to the Trust.
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 the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer as it applies to the Trust is SEI Investments Company, Oaks,
Pennsylvania 19456. Certain officers of the Trust also serve as officers of some
or all of the following: The Achievement Funds Trust, The Advisors' Inner Circle
Fund, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds(R), CrestFunds, Inc., CUFUND, The Expedition Funds, First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Monitor Funds, The Nevis Fund, Inc., Oak Associates Funds,
The Parkstone Group of Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc.,
PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust,
SEI Institutional Investments Trust, SEI Institutional Managed 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 Investments Mutual Funds Services or its affiliates and, except
for PBHG Advisor Funds, Inc., distributed by SEI Investments Distribution Co.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. (the Adviser) since 1990.
ALFRED C. SALVATO (DOB 01/09/58)** - Trustee - Treasurer, Thomas Jefferson
University, since 1995, and Assistant Treasurer, 1988-1995.
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 Assistant Secretary - 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-33
<PAGE>
CYNTHIA KUNZE (DOB 12/15/56) - Vice President and Assistant Secretary -
Administrator, Turner Investment Partners, Inc., since 1998; Administrator of
Solon Asset Management, L.P., 1996- 1997. 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 Investments, the Manager 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 Manager and Distributor since 1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President and General Counsel of SEI Investments, the Manager and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Manager and Distributor 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law
firm) , 1988-1992.
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. Staff
Counsel and Secretary of Provident Mutual Family of Funds from 1990 to 1993.
LYDIA A. GAVALIS (DOB 06/05/64) - Vice President, Assistant Secretary -
Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange from 1989-1998.
LYNDA J. STRIEGEL (DOB 10/30/48) - Vice President, Assistant Secretary - Vice
President of SEI Investments. Senior Asset Management Counsel, Barnett Banks,
Inc., from 1997-1998. Prior to that, she was a Partner at Groom and Nordberg,
Charted from 1996-1997 and Associate General Counsel at Riggs Bank, N.A. from
1991-1995.
KATHY HEILIG (DOB 12/21/58) - Vice President, Assistant Secretary - Treasurer of
SEI Investments Company since 1997, was Assistant Controller of SEI Investments
Company since 1995. Vice President of SEI Investments Company since 1991.
Director of Taxes of SEI Investments Company from 1987 to 1991. Tax Manager,
Arthur Andersen LLP prior to 1987.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting - Director, Funds Administration
and Accounting of SEI since 1994. Senior Audit Manager, Arthur Andersen LLP,
1986-1994.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania, 19103, Partner, Morgan, Lewis & Bockius LLP, Counsel
to the Trust, the Adviser, the Administrator and the Distributor.
S-34
<PAGE>
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania, 19103, Associate, Morgan, Lewis & Bockius LLP,
Counsel to the Trust, the Adviser, the Administrator and the Distributor, since
1995. Attorney, Aquila Management Corporation, 1994.
--------------------------
The following table exhibits Trustee compensation for the fiscal period ended
September 30, 1998.
<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or From Registrant and
Compensation From Retirement Estimated Fund Complex Paid to
Registrant for the Benefits Accrued Annual Trustees for the Fiscal
Name of Person, Fiscal Year Ended as Part of Fund Benefits Upon Year Ended
Position September 30, 1998 Expenses Retirement September 30, 1998
-------------- ------------------ ---------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Robert Turner $0 N/A N/A $0 for service on two
Boards
Ronald Filante $4,757 N/A N/A $4,757 for service on one
Board
Katherine Griswold $4,000 N/A N/A $4,000 for service on one
Board
Alfred Salvato $4,500 N/A N/A $12,500 for service on
two Boards
</TABLE>
- ----------------
*Messrs. Robert Turner, Richard Hocker and Michael Jones are Trustees who may
be deemed to be "interested persons" of the Trust as the term is defined in the
1940 Act. The Trust pays fees only to the Trustees who are not interested
persons of the Trust. Compensation of Officers and interested persons of the
Trust is paid by the adviser or the manager.
**Member of the Audit Committee.
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
S-35
<PAGE>
during the period that were entitled to receive dividends; and d = the maximum
offering price per share on the last day of the period.
For the 30-day period ended September 30, 1998, the High Yield, One Year
Portfolio and Three-Year Portfolio Funds' yields were 10.00%, 5.95%, and 5.62%,
respectively.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)/n = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
For the period from March 1, 1998 (commencement of operations of the Penn
Capital Strategic High Yield Fund) through September 30, 1998, the total return
for the High Yield Fund was (7.23)%. For the period from February 27, 1998
(commencement of operations for the Turner Micro Cap Growth Fund) through
September 30, 1998, the total return for the Micro Cap Fund was (1.20)%
(cumulative since inception).For the fiscal year ended September 30, 1998, and
for the period from March 1, 1994 (commencement of operations of the Turner
Short Duration Government Funds - One Year Portfolio) through September 30,
1998, the total return for the One Year Portfolio was 6.22% and 6.25%,
respectively. For the fiscal year ended September 30, 1998, and for the period
from March 1, 1994 (commencement of operations of the Turner Short Duration
Government Funds - Three Year Portfolio) through September 30, 1998, the total
return for the Three Year Portfolio was 8.07% and 6.72%, respectively.
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)
S-36
<PAGE>
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 U.S. Bond Markets ( the New York Stock
Exchange in the case of the Turner Micro Cap Fund), 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, market
transactions in comparable securities, analyses and evaluations of various
relationships between securities and yield to maturity information.
Securities with remaining maturities of 60 days or less will be valued by the
amortized cost method, which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization of maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by this method, is higher or lower than the
price the Trust would receive if it sold the instrument.
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
S-37
<PAGE>
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.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer, or of two or more issuers which are
engaged in the same, similar or related trades or business if the Fund owns at
least 20% of the voting power of such issuer.
S-38
<PAGE>
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.
The Funds may use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.
STATE TAXES
No Fund is liable for any income or franchise tax in Delaware if it qualifies as
a RBC 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.
S-39
<PAGE>
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 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
S-40
<PAGE>
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 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.
For the fiscal years ended September 30, 1996, 1997, and 1998, the Funds
portfolio turnover rates were as follows:
S-41
<PAGE>
<TABLE>
<CAPTION>
Portfolio Turnover Rate
-----------------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Penn Capital Strategic High * * 29.19%
Yield Bond Fund
Micro Cap Fund * * 128.53%
Short Duration Government 0% 81.82% 96.56%
Funds-One Year Portfolio
Short Duration Government 251.00% 279.00% 121.63%
Funds-Three Year Portfolio
</TABLE>
- ---------------
*Not in operation during the period.
The brokerage commissions paid for each Fund for the fiscal years ended
September 30, 1996, 1997, and 1998 were as follows:
<TABLE>
<CAPTION>
Total Dollar Amount of Brokerage Commissions Paid
--------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Micro Cap Fund * * $6,974
</TABLE>
- ---------------
*Not in operation during the period.
The total amount of securities held by each Broker/Dealer for each Fund for the
fiscal year ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
Total Amount of
Name of Securities Held by Each
Broker/Dealer Broker/Dealer Type of Security
------------- ----------------------- ----------------
<S> <C> <C> <C>
Penn Capital Strategic High Morgan Stanley $ 3,000 Repurchase Agreement
Yield Bond Fund
Turner Micro Cap Growth Morgan Stanley $ 114,000 Repurchase Agreement
Fund
</TABLE>
S-42
<PAGE>
DESCRIPTION OF SHARES
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 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 Massachusetts business trust, the Trust is not required to hold
annual meetings of Shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
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
S-43
<PAGE>
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties.
5% SHAREHOLDERS
As of January 5, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF PERCENTAGE OF
FUND OWNER SHARES FUND'S SHARES
---- ------------------------------ --------- -------------
<S> <C> <C> <C>
Penn Capital Strategic Batrus & Co. 694,956.1700 15.34%
High Yield C/o Bankers Trust Company
P.O. Box 9005
New York, NY 10087-9005
Central Maine Power 834,153.6760 18.42%
Company Pension Trust
The Bank of New York
c/o Magaly Formoso
1 Wall Street Ct Fl 12
New York, NY 10286
Byrd & Co. 430,088.1740 9.50%
c/o First Union National Bank
Mutual Funds Dividend
Processing PA4905
530 Walnut St.
Philadelphia, PA 19106-3620
Turner Micro Cap Growth Charles Schwab & Co. Inc. 79,930.5400 23.20%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Robert E. Turner 20,530.3850 5.96%
Carolyn W. Turner JTWROS
9 Horseshoe Ln
Paoli, PA 19301-1909
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF PERCENTAGE OF
FUND OWNER SHARES FUND'S SHARES
---- ------------------------------ --------- -------------
<S> <C> <C> <C>
Carolyn Turner TR 20,000.0000 5.80%
Robert E. Turner Jr. Trust
9 Horseshoe Ln.
Paoli, PA 19301-1909
John C. Weber Jr. TR 50,001.2550 14.51%
John C. Weber Trust
8000 N. MacArthur Blvd.,
Apt. 2024
Irving, TX 75063-4101
Christina Weber TR 50,000.0000 14.51%
Christina Weber Trust
DTD 00/00/00
117 W. 12th St.
New York, NY 10011-8200
Chester C. Weber TR 47,214.3530 13.70%
U/A 7/30/1993
Chester C. Weber Trust
P.O. Box 2108
Ocala, FL 34478-2108
Turner Short Duration Solon Asset Management Corp. 14,876.8240 25.08%
Government Funds - One 1981 N. Broadway, Ste. 325
Year Portfolio Walnut Creek, CA 95496-3873
James I. Midanek 3,320.4430 5.60%
375 La Casa Via
Walnut Creek, CA 94598-4842
Charles Schwab & Co. Inc. 37,633.3430 63.45%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Turner Short Duration Donaldson Bryn Mar 814,837.0940 74.07%
Government Funds-Three Attn: Jerry Berenson
Year Portfolio 101 N. Merion Ave.
Bryn Mawr, PA 19010-2899
Charles Schwab & Co. Inc. 200,202.3260 18.20%
101 Montgomery St.
San Francisco, CA 94104-4122
</TABLE>
S-45
<PAGE>
CUSTODIAN
First Union National Bank, 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").
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the Funds for the fiscal period ended
September 30, 1998, including notes thereto and the report of Ernst & Young LLP
thereon, are herein incorporated by reference. A copy of the 1998 Annual Report
must accompany the delivery of this Statement of Additional Information.
S-46
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
A-1
<PAGE>
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely impair
capacity or willingness to pay interest and repay principal. The 'B'
rating category also is used for debt subordinated to senior debt that
is assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B'
or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt is rated 'D' when the issue is in payment default, or the obligor
has filed for bankruptcy. The 'D' rating is used when interest or
principal payments are not made on the date due, even if the applicable
A-2
<PAGE>
grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA- but may vary slightly from time to time because of economic
conditions.
A+ Protection factors are average but adequate. However, risk factors
A- are more variable and greater in periods of economic stress.
BBB+ Below average protection factors but still considered sufficient for
BBB- prudent investment. Considerable variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors fluctuate
BB- according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not
B be met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
INVESTMENT GRADE BOND
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'.
Because bonds rated in the 'AAA' and 'AA' categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated 'F-1+'.
A-3
<PAGE>
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
SPECULATIVE GRADE BOND
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, Bonds are in default on interest and/or principal payments. Such
AND D bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. 'DDD' represents the highest potential for recovery on these
bonds, and 'D' represents the lowest potential for recovery.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
substantially.
AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very
significantly.
A-4
<PAGE>
A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic
or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic or financial conditions.
B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic or financial conditions.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic or financial conditions.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
INVESTMENT GRADE
AAA The highest category; indicates that the ability to repay principal
and interest on a timely basis is very high.
AA The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.
A The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations
with higher ratings.
BBB The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are,
however, more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
NON-INVESTMENT GRADE
BB While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated
issues. However, there are significant uncertainties that could
affect the ability to adequately service debt obligations.
A-5
<PAGE>
B Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse
developments could well negatively affect the payment of interest and
principal on a timely basis.
CCC Issues rated "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial
circumstances.
CC "CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of
bankruptcy or reorganization.
D Default
A-6
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits:
(a)(1) Agreement and Declaration of Trust dated October
25, 1993, is incorporated by reference to Exhibit
a(1) of the Registrant's Post-Effective Amendment
No. 9 as filed on November 24, 1998.
(a)(2) Certificate of Amendment of Agreement and
Declaration of Trust of Corona Investment Trust
dated December 11, 1993, is incorporated by
reference to Exhibit a(2) of the Registrant's
Post-Effective Amendment No. 9 as filed on
November 24, 1998.
(a)(3) Certificates of Amendment of Agreement and
Declaration of Trust and Certificate of Trust of
the Solon Funds dated June 13, 1994, is
incorporated by reference to Exhibit a(3) of the
Registrant's Post-Effective Amendment No. 9 as
filed on November 24, 1998.
(a)(4) Certificate of Amendment of Agreement and
Declaration of Trust dated November 10, 1997,
incorporated by reference to Exhibit 1(d) of the
Registrant's Registration Statement as filed with
the Securities and Exchange Commission on
December 16, 1997.
(a)(5) Amended and Restated Agreement and Declaration of
Trust dated October 8, 1998, is incorporated by
reference to Exhibit a(5) of the Registrant's
Post-Effective Amendment No. 9 as filed on
November 24, 1998.
(a)(6) Certificate of Amendment and Declaration of Trust
dated December 10, 1998 is filed herewith.
(b) By-Laws are incorporated by reference to Exhibit
b of the Registrant's Post-Effective Amendment
No. 9 as filed on November 24, 1998.
(c) Not applicable.
(d)(1) Investment Management Agreement, is incorporated
by reference to Exhibit 5(a) of the Registrant's
Post-Effective Amendment No. 3 as filed with the
Securities and Exchange Commission on June 28,
1996.
(d)(2) Sub-Advisory Agreement, is incorporated by
reference to Exhibit 5(b) of the Registrant's
Post-Effective Amendment No. 3 as filed with the
Securities and Exchange Commission on June 28,
1996.
(d)(3) Investment Advisory Agreement between the
Registrant and Turner Investment Partners, Inc.,
on behalf of the Short Duration Funds - One Year
Portfolio and the Short Duration Funds - Three
Year Portfolio, is incorporated by reference to
the Registrant's Post-Effective Amendment No. 7
as filed with the Securities and Exchange
Commission on October 1, 1998.
C-1
<PAGE>
(d)(4) Investment Advisory Agreement between the
Registrant and Turner Investment Partners, Inc.,
is incorporated by reference to the Registrant's
Post-Effective Amendment No. 7 as filed with the
Securities and Exchange Commission on October 1,
1998.
(d)(5) Investment Advisory Agreement between the
Registrant and Penn Capital Management Company,
Inc., is incorporated by reference to the
Registrant's Post-Effective Amendment No. 7 as
filed with the Securities and Exchange Commission
on October 1, 1998.
(e)(1) Underwriting Agreement, is incorporated by
reference to Exhibit 6(a) of the Registrant's
Post-Effective Amendment No. 3 as filed with the
Securities and Exchange Commission on June 28,
1996.
(e)(2) Distribution Agreement between the Registrant and
SEI Investments Distribution Co., is incorporated
by reference to the Registrant's Post-Effective
Amendment No. 7 as filed with the Securities and
Exchange Commission on October 1, 1998.
(f) Not applicable.
(g)(1) Custodian Agreement, is incorporated by reference
to Exhibit 8 of the Registrant's Post-Effective
Amendment No. 2 as filed with the Securities and
Exchange Commission on June 30, 1995.
(g)(2) Form of Custodian Agreement by and between the
Registrant and First Union National Bank, is
incorporated by reference to the Registrant's
Post-Effective Amendemnt No. 8 as filed with the
Securities and Exchange Commission on November
24, 1998.
(h)(1) Administrative Services Contract, is incorporated
by reference to Exhibit 9(a) of the Registrant's
Post-Effective Amendment No. 3 as filed with the
Securities and Exchange Commission on June 28,
1996.
(h)(2) Services Agreement, is incorporated by reference
to Exhibit 9(b) of the Registrant's
Post-Effective Amendment No. 3 as filed with the
Securities and Exchange Commission on June 28,
1996.
(h)(3) Administration Agreement between the Registrant
and SEI Fund Resources, is incorporated by
reference to the Registrant's Post-Effective
Amendment No. 7 as filed with the Securities and
Exchange Commission on October 1, 1998.
C-2
<PAGE>
(h)(4) Transfer Agency Agreement between the Registrant
and DST Systems, Inc., is incorporated by
reference to the Registrant's Post-Effective
Amendment No. 7 as filed with the Securities and
Exchange Commission on October 1, 1998.
(i) Opinion and Consent of Counsel, is incorporated
by reference to Exhibit 10 of the Registrant's
Post-Effective Amendment No. 5 as filed with the
Securities and Exchange Commission on December
17, 1997.
(j) Consent of Independent Auditors, Ernst & Young,
LLP, is filed herewith.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Financial data schedules are filed herewith.
(o) Not applicable.
(p) Powers of Attorney for Robert E. Turner, Alfred
C. Salvato, Katherine R. Griswold, Ronald W.
Filante, Stephen J. Kneeley, and Robert
DellaCroce are filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant:
See the Prospectus and the Statement of Additional
Information regarding the Registrant's control relationships. SEI Investments
Management Corporation (formerly, SEI Financial Management Corporation) is the
owner of all beneficial interest in the Administrator and is a subsidiary of SEI
Investments Company, which also controls the distributor of the Registrant, SEI
Investments Distribution Co. (formerly, SEI Financial Services Company), as well
as to other corporations engaged in providing various financial and record
keeping services, primarily to bank trust departments, pension plan sponsors,
and investment managers.
Item 25. Indemnification:
Article VII of the Agreement and Declaration of Trust
empowers the Trustees of the Trust, to the full extent permitted by law, to
purchase with Trust assets insurance for indemnification from liability and to
pay for all expenses reasonably incurred or paid or expected to be paid by a
Trustee or officer in connection with any claim, action, suit or proceeding in
which he or she becomes involved by virtue of his or her capacity or former
capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the
Trust shall indemnify any person who was or is a party or is threatened to be
made a party to any proceeding by reason of the fact that such person is and
other amounts or was an agent of the Trust, against expenses, judgments, fines,
settlement and other amounts actually and reasonable incurred in connection with
such proceeding if that person acted in good faith and reasonably believed his
or her conduct to be in the best interests of the Trust. Indemnification will
not be provided in certain circumstances, however, including instances of
willful misfeasance, bad faith, gross negligence, and reckless disregard of the
duties involved in the conduct of the particular office involved.
C-3
<PAGE>
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to the Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable in the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Adviser:
ADVISERS
TURNER INVESTMENT PARTNERS, INC.
Turner Investment Partners, Inc. ("Turner") is the investment adviser for the
Turner Micro Cap Growth, Turner Growth, Turner Short Duration Government Funds -
One Year Portfolio, and Turner Short Duration Government Funds - Three Year
Portfolio Funds. The principal address of Turner is 1235 Westlakes Drive, Suite
350, Berwyn, PA 19312. Turner is an investment adviser registered under the
Advisers Act.
<TABLE>
<CAPTION>
NAME AND POSITION WITH POSITION WITH OTHER
COMPANY OTHER COMPANY COMPANY
- ---------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
Stephen J. Kneeley -- --
Chief Operating Officer, Secretary,
Treasurer
James I. Midanek -- --
CIO-Fixed Income
Janet Rader Rote -- --
Director of Compliance
Michael R. Thompson -- --
Marketing Director, Assistant
Secretary
Thomas R. Trala
Director of Finance -- --
Mark D. Turner
President, Director of Fixed Income -- --
Robert E. Turner, Jr.
Chairman, CIO -- --
</TABLE>
PENN CAPITAL MANAGEMENT COMPANY, INC.
Penn Capital Management Company, Inc. is the investment adviser for the Penn
Capital Strategic High Yield Bond Fund. Penn Capital Management Company, Inc. is
the sub-adviser for the TIP Target Select Equity Fund.
C-4
<PAGE>
The principal address of Penn Capital Management Company, Inc., is 52
Haddonfield-Berlin Road, Suite 1000, Cherry Hill, NJ 08034.
<TABLE>
<CAPTION>
NAME AND POSITION WITH CONNECTION WITH OTHER
COMPANY OTHER COMPANY COMPANY
- --------------------------------- ------------------------------ --------------------------------
<S> <C> <C>
John J. Gallagher, Jr. Valley Forge Military Academy & Chairman of Board of Trustees
Trustee College
Kimberley Hocker
Trustee ---- ----
Kirsten Hocker
Trustee ---- ----
Marcia Ann Hocker MAH Inc. Secretary/Treasurer
President, COO, Trustee
Richard Alan Hocker
CIO ---- ----
Kathleen Ann News
Managing Director ---- ----
Michael F. Swallow
Secretary, Treasurer ---- ----
</TABLE>
Item 27. Principal Underwriters:
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a
principal underwriter, distributor or investment adviser.
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
C-5
<PAGE>
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect
to each director, officer or partner of each principal underwriter
named in the answer to Item 21 of Part B. Unless otherwise noted, the
business address of each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel --
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President &
Assistant Secretary
C-6
<PAGE>
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary Vice President &
Assistant Secretary
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President &
Assistant Secretary
Sandra K. Orlow Vice President & Secretary Vice President &
Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Lynda J. Striegel Vice President & Assistant Secretary Vice President &
Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
Item 28. Location of Accounts and Records.
Books or other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records will be
maintained at the offices of Registrant's Custodian:
First Union National Bank
Broad & Chestnut Streets
P.O. Box 7618
Philadelphia, Pennsylvania 19101
C-7
<PAGE>
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required
books and records are maintained at the offices of Registrant's
Administrator:
SEI Investments Mutual Funds Services
Oaks, Pennsylvania 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and
31a-1(f), the required books and records are maintained at the
principal offices of the Registrant's Advisers:
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312
Penn Capital Management Company, Inc.
52 Haddonfield-Berlin Road
Suite 1000
Cherry Hill, New Jersey 08034
Item 29. Management Services: None
Item 30. Undertakings: None
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 10 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on
the 22nd day of January 1999.
ALPHA SELECT FUNDS
By: /s/ Stephen J. Kneeley
------------------------------------
Stephen J. Kneeley
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee January 22, 1999
- ------------------------------
Robert E. Turner
* Trustee January 22, 1999
- ------------------------------
Alfred C. Salvato
* Trustee January 22, 1999
- ------------------------------
Ronald W. Filante
* Trustee January 22, 1999
- ------------------------------
Katherine R. Griswold
/s/ Stephen J. Kneeley President & Chief January 22, 1999
- ------------------------------ Executive Officer
Stephen J. Kneeley
/s/ Robert DellaCroce Controller and January 22, 1999
- ------------------------------ Chief Financial
Robert DellaCroce Officer
</TABLE>
* By: /s/ Stephen J. Kneeley
-------------------------------
Stephen J. Kneeley
Attorney-in-Fact
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Name Exhibit
--------------------------------------------------------------------------------------------
<S> <C> <C>
Agreement and Declaration of Trust of the Registrant, dated Ex-99.a(1)
October 25, 1993, (incorporated herein by reference to
Exhibit a(1) of the Post-Effective Amendment filed November
24, 1998).
Certificate Amendment to the Agreement and Declaration Ex-99.a(2)
of Trust of the Registrant, dated December 11, 1993,
(incorporated herein by reference to Exhibit a(2) of the
Post-Effective Amendment filed November 24, 1998).
Certificate Amendment to the Agreement and Declaration Ex-99.a(3)
of Trust of the Registrant, dated June 13, 1994,
(incorporated herein by reference to Exhibit a(3) of the
Post-Effective Amendment filed November 24, 1998).
Certificate Amendment to the Agreement and Declaration of Ex-99.a(4)
Trust of the Registrant, dated November 10, 1997,
(incorporated by reference to Exhibit 1(d) of the
Registrant's Registration Statement as filed with the
Securities and Exchange Commission on December 16, 1997).
Amended and Restated Agreement and Declaration of Trust Ex-99.a(5)
dated October 8, 1998, (incorporated herein by reference to
Exhibit a(5) of the Post-Effective Amendment filed November
24, 1998).
Certificate Amendment to the Agreement and Declaration Ex-99.a(6)
of Trust of the Registrant, dated December 10, 1998, is
filed herewith.
By-Laws of the Registrant, (incorporated herein by Ex-99.b
reference to Exhibit b of the Post-Effective Amendment
filed November 24, 1998).
Investment Management Agreement (incorporated herein by Ex-99.d(1)
reference to Exhibit 5(a) of the Post-Effective Amendment
No. 3 filed on June 28, 1996).
Investment Sub-Advisory Agreement (incorporated herein Ex-99.d(2)
by reference to Exhibit 5(b) of the Post-Effective
Amendment No. 3 filed on June 28, 1996).
<PAGE>
<S> <C> <C>
Investment Advisory Agreement between the Registrant Ex-99.d(3)
and Turner Investment Partners, Inc., on behalf of the
Short Duration Funds - One Year Portfolio and the Short
Duration Funds - Three Year Portfolio, (incorporated herein
by reference to the Post-Effective Amendment No. 7 filed on
October 1, 1998).
Investment Advisory Agreement between the Registrant Ex-99.d(4)
and Turner Investment Partners, Inc., (incorporated herein
by reference to the Post-Effective Amendment No. 7 filed on
October 1, 1998).
Investment Advisory Agreement between the Registrant Ex-99.d(5)
and Penn Capital Management Company, Inc., (incorporated
herein by reference to the Post-Effective Amendment No. 7
filed on October 1, 1998).
Underwriting Agreement, (incorporated herein by reference Ex-99.e(1)
to Exhibit 6(a) of the Post-Effective Amendment No. 3 filed
on June 28, 1996).
Distribution Agreement between the Registrant and SEI Ex-99.e(2)
Investments Distribution Co., (incorporated herein by
reference to the Post-Effective Amendment No. 7 filed on
October 1, 1998).
Custodian Agreement, (incorporated herein by reference Ex-99.g(1)
to Exhibit 8 of the Post-Effective Amendment No. 2 filed on
June 30, 1995).
Form of Custodian Agreement by and between the Registrant Ex-99.g(2)
and First Union National Bank, (incorporated by reference to
the Registrant's Post-Effective Amendemnt No. 8 as
filed with the Securities and Exchange Commission on
November 24, 1998).
Administration Services Contract, (incorporated herein by Ex-99.h(1)
reference to Exhibit 9(a) of Post-Effective Amendment No. 3
filed on June 28, 1996).
Services Agreement, (incorporated herein by reference Ex-99.h(2)
to Exhibit 9(b) of Post-Effective Amendment No. 3 filed on
June 28, 1996).
Administration Agreement between the Registrant and SEI Ex-99.h(3)
Fund Resources, (incorporated herein by reference to the
Post-Effective Amendment filed on October 1, 1998).
Opinion and Consent of Counsel, (incorporated herein by Ex-99.i
reference to Exhibit 10 of the Registration Statement filed
on December 16, 1997).
<PAGE>
<S> <C> <C>
Consent of Independent Auditors, Ernst & Young, LLP, Ex-99.j
is filed herewith.
Financial data schedule for Penn Capital Strategic High Ex-27.n(1)
Yield Bond Fund Institutional Class is filed herewith.
Financial data schedule for Turner Micro Cap Growth Fund Ex-27.n(2)
is filed herewith.
Turner Short Duration Government Funds-One Year Portfolio Ex-27.n(3)
is filed herewith.
Turner Short Duration Government Funds-Three Year Portfolio Ex-27.n(4)
is filed herewith.
Powers of Attorney for Robert E. Turner, Alfred C. Salvato, Ex-99.p
Katherine R. Griswold, Ronald W. Filante, Stephen J. Kneeley,
and Robert DellaCroce are filed herewith.
</TABLE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
OF
TIP INSTITUTIONAL FUNDS
Robert E. Turner, Alfred C. Salvato, Ronald W. Filante, Katherine R. Griswold
certify that:
1. They constitute the Board of Trustees of TIP Institutional Funds, a
business trust filed under and in accordance with the provisions of the
Delaware Business Trust Act (12 Del. C. ss.ss.3801 et seq.).
2. They hereby adopt the following amendment to the Amended and Restated
Agreement and Declaration of Trust:
ARTICLE I, Section 1 is amended to read as follows:
"The Trust shall be known as the Alpha Select Funds, and the
Trustees shall conduct the business of the Trust under that
name or any other name as they shall from time to time
determine."
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Date: November 23, 1998
/s/ Robert E. Turner /s/ Katherine R. Griswold
- ------------------------------ ---------------------------
Robert E. Turner, Trustee Katherine R. Griswold
/s/ Alfred C. Salvato /s/ Ronald W. Filante
- ------------------------------ ---------------------------
Alfred C. Salvato, Trustee Ronald W. Filante, Trustee
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statements of
Additional Information and to the incorporation by reference in Post Effective
Amendment No. 10 to the Registration Statement (Form N-1A No. 33-70958) of the
Alpha Select Funds (formerly, the TIP Institutional Funds) of our reports dated
November 2, 1998 included in the September 30, 1998 Annual Reports to
Shareholders of the Penn Capital Strategic High Yield Bond Series, the Turner
Micro Cap Growth Series, the Turner Short Duration Government Funds -- One Year
Portfolio Series, and the Turner Short Duration Government Funds -- Three Year
Portfolio Series.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young, LLP
Philadelphia, Pennsylvania
January 25, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914243
<NAME> TIP INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 030
<NAME> PENN CAPITAL HIGH YIELD BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 19701
<INVESTMENTS-AT-VALUE> 17424
<RECEIVABLES> 0
<ASSETS-OTHER> 418
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17842
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20869
<SHARES-COMMON-STOCK> 2001
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> (757)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2277)
<NET-ASSETS> 17842
<DIVIDEND-INCOME> 20
<INTEREST-INCOME> 758
<OTHER-INCOME> 0
<EXPENSES-NET> (50)
<NET-INVESTMENT-INCOME> 728
<REALIZED-GAINS-CURRENT> (757)
<APPREC-INCREASE-CURRENT> (2277)
<NET-CHANGE-FROM-OPS> (2306)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (721)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20615
<NUMBER-OF-SHARES-REDEEMED> (141)
<SHARES-REINVESTED> 395
<NET-CHANGE-IN-ASSETS> 17842
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 40
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 152
<AVERAGE-NET-ASSETS> 12598
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> (1.090)
<PER-SHARE-DIVIDEND> (.37)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.91
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914243
<NAME> TIP INSTITUTIONAL FUND
<SERIES>
<NUMBER> 040
<NAME> TURNER MICRO CAP GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 11887
<INVESTMENTS-AT-VALUE> 12123
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12123
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108
<TOTAL-LIABILITIES> 108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11693
<SHARES-COMMON-STOCK> 1172
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 76
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 236
<NET-ASSETS> 12015
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> (21)
<NET-INVESTMENT-INCOME> (11)
<REALIZED-GAINS-CURRENT> (47)
<APPREC-INCREASE-CURRENT> (57)
<NET-CHANGE-FROM-OPS> (115)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3087
<NUMBER-OF-SHARES-REDEEMED> (129)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 92
<AVERAGE-NET-ASSETS> 2829
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914243
<NAME> TIP INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 010
<NAME> TURNER SHORT DURATION - ONE YEAR PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1021
<INVESTMENTS-AT-VALUE> 1023
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1023
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32
<TOTAL-LIABILITIES> 32
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 984
<SHARES-COMMON-STOCK> 98
<SHARES-COMMON-PRIOR> 119
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2
<NET-ASSETS> 991
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 37
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 38
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (35)
<DISTRIBUTIONS-OF-GAINS> (1)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5
<NUMBER-OF-SHARES-REDEEMED> (247)
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> (204)
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 3
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78
<AVERAGE-NET-ASSETS> 1089
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .350
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> (.010)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000914243
<NAME> TIP INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 020
<NAME> TURNER SHORT DURATION - THREE YEAR PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 11887
<INVESTMENTS-AT-VALUE> 12123
<RECEIVABLES> 0
<ASSETS-OTHER> 108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12231
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11693
<SHARES-COMMON-STOCK> 1172
<SHARES-COMMON-PRIOR> 1540
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 76
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 236
<NET-ASSETS> 12231
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 488
<OTHER-INCOME> 0
<EXPENSES-NET> (19)
<NET-INVESTMENT-INCOME> 469
<REALIZED-GAINS-CURRENT> 74
<APPREC-INCREASE-CURRENT> 119
<NET-CHANGE-FROM-OPS> 662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (461)
<DISTRIBUTIONS-OF-GAINS> (10)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 666
<NUMBER-OF-SHARES-REDEEMED> (4862)
<SHARES-REINVESTED> 476
<NET-CHANGE-IN-ASSETS> 12015
<ACCUMULATED-NII-PRIOR> 967
<ACCUMULATED-GAINS-PRIOR> 54
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19
<AVERAGE-NET-ASSETS> 13683
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> .350
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> (.34)
<PER-SHARE-DISTRIBUTIONS> (.010)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> .24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit P
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), a business trust organized under the laws of The State of Delaware,
hereby constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W.
Jennings and John H. Grady, Jr., each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity indicated
below, to sign any and all Registration Statements and all amendments thereto
relating to the offering of the Trust's shares under the provisions of the
Investment Company Act of 1940 and/or the Securities Act of 1933, each such Act
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Robert E. Turner Date: November 20, 1998
- ---------------------------- -----------------------
Robert E. Turner, Trustee
<PAGE>
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), a business trust organized under the laws of The State of Delaware,
hereby constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W.
Jennings and John H. Grady, Jr., each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity indicated
below, to sign any and all Registration Statements and all amendments thereto
relating to the offering of the Trust's shares under the provisions of the
Investment Company Act of 1940 and/or the Securities Act of 1933, each such Act
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Alfred C. Salvato Date: November 20, 1998
- ---------------------------- -------------------------
Alfred C. Salvato, Trustee
<PAGE>
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), each a business trust organized under the laws of The State of
Delaware, hereby constitutes and appoints Stephen J. Kneeley, Kevin P. Robins,
James W. Jennings and John H. Grady, Jr., each of them singly, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
acting alone, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Katherine R. Griswold Date: November 20, 1998
- -------------------------------- -------------------------
Katherine R. Griswold, Trustee
<PAGE>
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), a business trust organized under the laws of The State of Delaware,
hereby constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W.
Jennings and John H. Grady, Jr., each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity indicated
below, to sign any and all Registration Statements and all amendments thereto
relating to the offering of the Trust's shares under the provisions of the
Investment Company Act of 1940 and/or the Securities Act of 1933, each such Act
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Ronald W. Filante Date: November 20, 1998
- --------------------------------- -------------------------
Ronald W. Filante, Trustee
<PAGE>
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), a business trust organized under the laws of The State of Delaware,
hereby constitutes and appoints Kevin P. Robins, James W. Jennings and John H.
Grady, Jr., each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and all
Registration Statements and all amendments thereto relating to the offering of
the Trust's shares under the provisions of the Investment Company Act of 1940
and/or the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Stephen J. Kneeley Date: November 20, 1998
- -------------------------------- ------------------------
Stephen J. Kneeley, President
<PAGE>
ALPHA SELECT FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee
and/or officer of Alpha Select Funds (formerly, TIP Institutional Funds) (the
"Trust"), a business trust organized under the laws of The State of Delaware,
hereby constitutes and appoints Stephen J. Kneeley, Kevin P. Robins, James W.
Jennings and John H. Grady, Jr., each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity indicated
below, to sign any and all Registration Statements and all amendments thereto
relating to the offering of the Trust's shares under the provisions of the
Investment Company Act of 1940 and/or the Securities Act of 1933, each such Act
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/ Robert DellaCroce Date: November 19, 1998
- --------------------------------- ------------------------
Robert DellaCroce, Controller and
Chief Financial Officer
