AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 2000
File No. 33-70958
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
ALPHA SELECT FUNDS
(Exact Name of Registrant as Specified in Charter)
c/o Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
New Castle County
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (302) 636-5450
(Name and Address of Agent for Service)
STEPHEN KNEELEY
TURNER INVESTMENT PARTNERS, INC.
1235 WESTLAKES DR., SUITE 350
BERWYN, PENNSYLVANIA 19312-2414
Copies to:
JAMES W. JENNINGS, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET 1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19103
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No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
It is proposed that this filing will become effective on September 18, 2000
pursuant to Rule 488.
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ALPHA SELECT FUNDS
Cross Reference Sheet
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ITEMS REQUIRED BY FORM N-14
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Part A. Information Required in Registration Statement Heading
Prospectus
Item 1. Beginning of Registration Cover Page of Registration Statement
Statement and outside Front Cover
Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis and Risk Factors Synopsis; Comparison of the Investment Objectives
and Policies of the Alpha Select Funds and the TIP
Funds
Item 4. Information About the Transaction Synopsis; Reasons for the Reorganization; The
Reorganization Agreement; Consideration of the
Trustees of the TIP Funds; Information Relating to
the Reorganization; Agreement and Plan of
Reorganization and Liquidation
Item 5. Information About the Registrant Prospectus Cover Page; Synopsis; Reasons for the
Reorganization; Additional Information about the
Funds; Description of Alpha Select; Comparison of
Investment Objectives and Policies of the Alpha
Select Funds and the TIP Funds; Fund Transactions;
Shareholder Rights
Item 6. Information About the Company Prospectus Cover Page; Synopsis; Reasons for the
Being Acquired Reorganization; Additional Information Relating to
the Reorganization; Description of TIP Funds;
Comparison of Investment Objectives and Policies of
the Alpha Select Funds and the TIP Funds; Fund
Transactions; Shareholder Rights
Item 7. Voting Information Prospectus Cover Page; Notice of Special Meeting of
Shareholders; Synopsis; Shareholder Rights;
Agreement and Plan of Reorganization and
Liquidation
Item 8. Interest of Certain Persons and Voting on the Reorganization; Legal Matters
Experts
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Item 9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters
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<TABLE>
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Part B. Information Required in a
Statement of Additional
Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information About Incorporated by Reference to the
the Registrant Registrant's Prospectus and SAI attached as
exhibits to this filing
Item 13. Additional Information About the Incorporated by Reference to the Company's
the Company Being Acquired Prospectus and SAI attached as exhibits to
this filing
Item 14. Financial Statements Financial Statements
Part C. Other Information
Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
</TABLE>
Inapplicable
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TIP FUNDS
Target Select Equity Fund
Dear Shareholder:
A Special Meeting of Shareholders of the Target Select Equity Fund (the
"Fund") of TIP Funds (the "Trust") has been scheduled for Friday, October 13,
2000 ("Special Meeting"). If you are a Shareholder of record as of the close of
business on Friday, September 1, 2000, you are entitled to vote at the Special
Meeting and at any adjournment thereof.
While you are, of course, welcome to join us at the Special Meeting, most
Shareholders will cast their votes by filling out and signing the enclosed Proxy
Card. Whether or not you plan to attend the Special Meeting, we need your vote.
Please mark, sign, and date the enclosed Proxy Card and return it promptly in
the enclosed, postage-paid envelope so that the maximum number of shares may be
voted.
The attached Prospectus/Proxy Statement is designed to give you information
relating to the proposal upon which you will be asked to vote. The Board of
Trustees of the Trust's Target Select Equity Fund (the "Board") is recommending
that you approve a reorganization of the Fund under which the Fund would be
combined with and into a corresponding series of Alpha Select Funds ("Alpha
Select"). Assuming approval by Shareholders of the Fund, each holder of shares
of the Fund will receive a number of shares of the Alpha Select's Target Select
Equity Fund equal in dollar value of the Fund owned by such holder at the time
of the combination (the "Reorganization"). It is not anticipated that the
Reorganization will have any tax consequences for the TIP Funds or its
shareholders. As further explained in the accompanying Prospectus/Proxy
Statement, Turner Investment Partners, Inc. will continue to manage a portion of
the assets managed in the Target Select Style. The Board has recommended
approval of the combination, and we encourage you to support the recommendation
to approve the proposal.
We are proposing the Reorganization principally to provide access to
broader distribution channels and to introduce new management and advisory
structures. Alpha Select Funds will be available to investors in both retail and
institutional distribution channels. We hope that, as a part of Alpha Select,
the Target Select approach will achieve operating efficiencies, and possibly
realize economies of scale.
Your vote is important to us. Please do not hesitate to call 1-800-224-6312
if you have any questions about the proposal under consideration. Thank you for
taking the time to consider this important proposal and for your investment in
the Fund.
Sincerely,
Stephen Kneeley
President
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INFORMATION ABOUT YOUR PROSPECTUS/PROXY STATEMENT
Q. WHY AM I RECEIVING THIS PROSPECTUS/PROXY STATEMENT?
A. TIP Funds (the "Trust") seeks your approval of a reorganization (the
"Reorganization") of the Trust's Target Select Equity Fund (the "Fund").
The Trust's Board of Trustees recommends approval of the Reorganization
because it believes that it will result in a structure that more
appropriately serves the needs of shareholders.
Q. HOW WILL THE REORGANIZATION WORK?
A. The Fund will transfer all of its assets and liabilities to the Target
Select Equity Fund (the "Target Select Fund"), a series of the Alpha Select
Funds, in return for shares of the Target Select Fund having an equivalent
aggregate value pursuant to an Agreement and Plan of Reorganization and
Liquidation (the "Plan"). The assets of the Fund will be transferred at
their current value as of the Reorganization date, and the shares provided
in return will have a total value equal to the transferred net assets,
again as of the Reorganization date. Finally, the Fund will distribute the
Target Select Fund shares received by it to its shareholders in a
liquidating distribution. Shareholders of the Fund will thus effectively be
converted into shareholders of the Alpha Select Fund. If the Plan is
carried out as proposed, there will be no federal income tax consequences
to the Fund or its shareholders.
Please refer to the prospectus/proxy statement for a detailed explanation
of the proposal, and for full descriptions of the Trust, the Fund, Alpha
Select Funds, and the Target Select Fund.
Q. HOW WILL THIS AFFECT MY ACCOUNT?
A. Following the Reorganization, you will be a shareholder of the Target
Select Fund. As more fully described in the prospectus/proxy statement, the
adviser to the Target Select Fund will be Concentrated Capital Management
LP, a newly formed firm sponsored by Turner Investment Partners, Inc. and
CCM Holdings Corp., a company organized by Gregory J. Berlacher and Stephen
Marcus, that will employ a multi-manager approach to managing the Target
Select Fund's assets. The Target Select Fund's assets will be managed on a
day-to- day basis by three advisers, Fund Asset Management, doing business
as Mercury Advisors, Evergreen Investment Management Company, and Turner
Investment Partners, Inc. The Reorganization will not, however, affect the
value of your account at the time of Reorganization.
Q. WHY DO I NEED TO VOTE?
A. Your vote is needed to ensure that the proposal can be acted upon. Your
immediate response on the enclosed Proxy Card will help prevent the need
for any further solicitations for a shareholder vote. We encourage all
shareholders to participate.
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Q. HOW DOES THE BOARD OF TRUSTEES SUGGEST THAT I VOTE?
A. After careful consideration, the Board of Trustees of the Trust recommends
that you vote "FOR" the Reorganization.
Q. WHO IS PAYING FOR EXPENSES RELATED TO THE SHAREHOLDERS MEETING?
A. Turner Investment Partners, Inc., will pay the costs of the shareholder
meeting and for this prospectus/proxy statement.
Q. WHERE DO I MAIL MY PROXY CARD?
A. You may use the enclosed postage-paid envelope or mail your proxy card to:
TIP Funds
c/o ADP
53 Mercedes Way
Edgewood, NY 11717
You may also vote over the internet or by telephone. Please follow the
enclosed instructions to utilize these methods of voting.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about the proxy solicitation.
Please call us at (800) 224-6312 between 8:00 a.m. and 5:30 p.m. Eastern
Time, Monday through Friday.
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TIP FUNDS
1235 Westlakes Drive
Suite 350
Berwyn, Pennsylvania 19312
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 13, 2000
Notice is hereby given that a Special Meeting ("Special Meeting") of
Shareholders of the Target Select Equity Fund (the "Fund") of TIP Funds (the
"Trust") will be held at the offices of SEI Investments Company ("SEI"), Oaks,
Pennsylvania 19456, on Friday, October 13, 2000, at 2:00 p.m. (Eastern Time) for
the purpose of considering the proposal set forth below.
At the Special Meeting, Shareholders of the Fund will be asked to consider and
act upon a proposed Agreement and Plan of Reorganization and Liquidation,
pursuant to which the Fund will transfer all of its assets and liabilities to
the Target Select Equity Fund (the "Target Select Fund"), a portfolio of Alpha
Select Funds ("Alpha Select") with a similar investment objective and comparable
investment policies, in exchange for shares of the Target Select Fund. The
proposal, which is more fully described in the attached prospectus/proxy
statement, is as follows:
1. Approval of an Agreement and Plan of Reorganization and Liquidation between
the Trust, on behalf of the TIP Funds Target Select Equity Fund, and Alpha
Select Funds, on behalf of the Alpha Select Funds Target Select Equity
Fund.
The persons named as proxies are authorized to vote on such other business as
may properly come before the Special Meeting in accordance with their own
discretion.
All Shareholders are cordially invited to attend the Special Meeting. However,
if you are unable to attend the Special Meeting, you are requested to mark, sign
and date the enclosed Proxy Card(s) and return it promptly in the enclosed,
postage-paid envelope so that the Special Meeting may be held and a maximum
number of shares may be voted. You may also vote over the internet or by
telephone. Please follow the enclosed instructions to utilize these methods of
voting.
Shareholders of record at the close of business on Friday, September 1, 2000 are
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof.
By Order of the Board of Trustees
James W. Jennings, Secretary
October 13, 2000
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
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PROSPECTUS/PROXY STATEMENT
October 13, 2000
Relating to the Acquisition of the Assets and Liabilities of
TARGET SELECT EQUITY FUND
a Series of
TIP FUNDS
1235 Westlakes Drive
Suite 350
Berwyn, Pennsylvania 19312
(800) 224-6312
by and in Exchange for Shares of
TARGET SELECT EQUITY FUND
a Series of
ALPHA SELECT FUNDS
1235 Westlakes Drive
Suite 350
Berwyn, Pennsylvania 19312
(888) TIP-7654
This prospectus/proxy statement is furnished in connection with the solicitation
of proxies by the Board of Trustees ("Board" or "Trustees") of TIP Funds (the
"Trust") in connection with the Special Meeting of Shareholders (the "Special
Meeting") of the Trust's Target Select Equity Fund (the "Fund") to be held on
Friday, October 13, 2000, at 2:00 p.m. (Eastern Time) at the offices of SEI
Investments Company ("SEI"), One Freedom Valley Drive, Oaks, Pennsylvania 19456
(the "Proposal"). At the Special Meeting, shareholders of the Fund will be asked
to consider and approve a proposed Agreement and Plan of Reorganization and
Liquidation (the "Reorganization Agreement") between the Trust, on behalf of the
Fund, and Alpha Select Funds ("Alpha Select"), on behalf of its Target Select
Equity Fund ("Target Select Fund"), as well as the other matters contemplated
therein. A copy of the Reorganization Agreement is attached as Exhibit A.
The Reorganization Agreement provides that the Fund will transfer all of its
assets and liabilities to the Target Select Fund, in return for Class I Shares
of the Target Select Fund having an equivalent aggregate value (the
"Reorganization"). The assets of the Fund will be transferred at their current
value as of the Reorganization date, and the shares provided in return will have
a total value equal to the transferred net assets, again as of the
Reorganization date. The Fund will distribute the shares
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received by it to its shareholders in a liquidating distribution. Shareholders
of the Fund will thus effectively be converted into shareholders of the Target
Select Fund. If the Reorganization Agreement is carried out as proposed, there
will be no federal income tax consequences to the Fund or its shareholders.
The Trust is an open-end management investment company, or mutual fund. Turner
Investment Partners, Inc. ("Turner Investment Partners") provides investment
advisory services to the Fund. Turner also oversees two sub-advisers, Penn
Capital Management Company, Inc. and Clover Capital Management, Inc., who
provide, along with Turner, day-to-day investment management of certain assets
of the Fund.
Alpha Select also is an open-end management investment company, or mutual fund.
The Target Select Fund is a newly-organized series of Alpha Select. Concentrated
Capital Management, LP ("CCM"), a newly-formed adviser, provides investment
advisory services to the Target Select Fund. CCM will oversee a number of
sub-advisers who will provide day-to-day investment management of the assets of
the Target Select Fund, including Turner Investment Partners, Evergreen
Investment Management Company and Mercury Advisors.
This prospectus/proxy statement sets forth the information that a shareholder of
the Fund should know before voting on the Reorganization, and should be retained
for future reference. The following additional relevant documents have been
filed with the Securities and Exchange Commission ("SEC") and are incorporated
by reference in whole or in part:
(i) A Statement of Additional Information, dated October 13, 2000, relating
to this prospectus/proxy statement and the Reorganization is
incorporated into this prospectus/proxy statement in its entirety. A
copy of such Statement of Additional Information is available upon
request and without charge by writing to TIP Funds, P.O. Box 419805,
Kansas City, MO 64141-6805 or by calling 1-800-224-6312.
(ii) The Prospectus for the Trust relating to the Fund, dated June 30,
2000 contains a more detailed discussion of the investment objectives,
policies and risks of the Fund. It is incorporated by reference into
this prospectus/proxy statement insofar as it relates to the Fund and
not to any other fund of the Trust described therein. Copies are
available upon request and without charge by calling 1-800-224-6312.
(iii) A Statement of Additional Information for the Trust, dated January 31,
2000, is incorporated by reference into this prospectus/proxy
statement. Copies are available upon request and without charge by
calling 1-800-224-6312.
Shares represented by duly executed proxies will be voted in accordance with the
instructions given. Proxies may be revoked at any time up until voting results
are announced at the Special Meeting or any subsequent meeting resulting from an
adjournment of the Special Meeting. You can do this by
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writing to your Fund's Secretary, c/o Turner Investment Partners, 1235 Westlakes
Drive, Suite 350, Berwyn, Pennsylvania, 19312, or by voting in person at the
Special Meeting.
This prospectus/proxy statement constitutes the proxy statement of the Trust for
the Special Meeting and is expected to be sent to shareholders on or about
September 22, 2000. Only shareholders of record as of the close of business on
Friday, September 1, 2000 (the "Record Date") are entitled to notice of, and to
vote at, the Special Meeting or any adjournment thereof.
Read and keep these documents. Please read the entire prospectus/proxy
statement, along with the Target Select Fund's preliminary Prospectus, which
follows the prospectus/proxy statement, before casting your vote. These
documents contain information that is important to your proxy decision, and you
should keep them for future reference.
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YOUR VOTE IS IMPORTANT!
You can vote easily and quickly. Just follow the simple
instructions that appear on your enclosed Proxy Card.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
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SYNOPSIS........................................................................
The Reorganization.....................................................
Investment Adviser.....................................................
INFORMATION RELATING TO THE REORGANIZATION......................................
Description of the Reorganization......................................
Federal Income Taxes...................................................
Capitalization.........................................................
The Reorganization Will Have No Immediate Impact on
Your Fund's Share Price................................................
THE REORGANIZATION AGREEMENT....................................................
REASONS FOR THE REORGANIZATION..................................................
CONSIDERATIONS OF THE TRUSTEES OF TIP FUNDS.....................................
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF
THE ALPHA SELECT FUNDS AND THE TIP FUNDS.......................................
Investment Objectives and Policies.....................................
General Investment Policies............................................
Strategies, the Multi-Manager Approach and Risks and ..................
Performance............................................................
Fund Management .......................................................
Special Considerations Regarding the Multi-Adviser Approach............
Manager of Managers Option.............................................
Comparison of Fees and Expenses........................................
DESCRIPTION OF ALPHA SELECT.....................................................
DESCRIPTION OF TIP FUNDS........................................................
ADDITIONAL INFORMATION..........................................................
The Administrator......................................................
The Transfer Agent and Custodian.......................................
The Distributor........................................................
ADDITIONAL INFORMATION ABOUT THE FUNDS..........................................
Prospectuses...........................................................
Statement of Additional Information....................................
Shareholder Reports....................................................
FUND TRANSACTIONS...............................................................
SHAREHOLDER RIGHTS..............................................................
General................................................................
Shares.................................................................
Shareholder Voting.....................................................
Shareholder Meetings...................................................
Election and Term of Trustees..........................................
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Shareholder Liability..................................................
Liability of Trustees..................................................
LEGAL MATTERS...................................................................
VOTING ON THE REORGANIZATION AGREEMENT..........................................
General Information....................................................
Vote Required to Approve Reorganization Agreement......................
Outstanding Shares.....................................................
Beneficial Owners......................................................
Expenses...............................................................
OTHER BUSINESS..................................................................
SHAREHOLDER INQUIRIES...........................................................
EXHIBIT A - FORM OF AGREEMENT AND PLAN
OF REORGANIZATION AND LIQUIDATION............................................A-1
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SYNOPSIS
The following is a summary of certain key information concerning the
Reorganization Agreement. More detailed information appears throughout this
prospectus/proxy statement and is qualified by reference to the more complete
information contained herein and in the attached Exhibit A. You should read this
entire prospectus/proxy statement carefully.
THE REORGANIZATION
The Board of the Trust, including those Trustees who are not "interested
persons" within the meaning of Section 2(a)(19) of the Investment Company Act of
1940 ("1940 Act"), has unanimously approved, subject to shareholder approval,
the Trust's entry into the Reorganization Agreement on behalf of the Fund. The
Reorganization Agreement provides that the assets and liabilities of the Fund
will be transferred to the Target Select Fund at their current value on the date
of the transaction, and that the Class I Shares provided in return will have a
total value equal to the total value of the transferred net assets, again as of
the transaction date. Finally, the Reorganization Agreement calls for the Fund
to distribute the shares received by it to its shareholders in a liquidating
distribution. Shareholders of the Fund will thus effectively be converted into
shareholders of the Target Select Fund. There will be no federal income tax
consequences to the Fund or to its shareholders, and no sales charge will be
imposed in connection with this transaction.
The Board of the Trust, including the Trustees who are not "interested persons,"
has concluded that the Reorganization would be in the best interests of the Fund
and its shareholders and that the interests of existing shareholders in the Fund
would not be diluted as a result of the transaction con templated by the
Reorganization. The Board of the Trust recommends that you vote for the approval
of the Reorganization Agreement.
INVESTMENT ADVISER
Turner Investment Partners currently advises and oversees other sub-advisers,
and manages assets of the Fund directly. With the Target Select Fund, a
newly-formed adviser, CCM, will oversee the three sub-advisers, including Turner
Investment Partners. See page ___.
INFORMATION RELATING TO THE REORGANIZATION
DESCRIPTION OF THE REORGANIZATION
The following summary is qualified in its entirety by reference to the
Reorganization Agreement found in Exhibit A.
The Reorganization Agreement provides that all of the assets and liabilities of
the Fund will be transferred to the Target Select Fund, a separate series of
Alpha Select, at the close of business on October 23, 2000, or such later date
as is agreed to by the parties (the "Effective Time"). In
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exchange for the transfer of these assets, the Target Select Fund will
simultaneously issue to the Trust, at the Effective Time, a number of full and
fractional Class I Shares equal in value to the net asset value of the Fund
immediately prior to the Effective Time.
Following the transfer of assets and liabilities in exchange for Target Select
Fund shares, the Fund will distribute pro rata the shares received to its
shareholders in a liquidating distribution. Each shareholder of the Fund owning
shares at the Effective Time will receive Target Select Fund shares of equal
value. Such liquidation and distribution will be accomplished by the
establishment of accounts in the names of the Fund's shareholders on the share
records of Alpha Select's transfer agent. Each account will represent the
respective pro rata number of full and fractional Class I Shares of Alpha Select
due to the shareholders of the Fund. Alpha Select does not issue share
certificates to shareholders. Class I Shares of Target Select Fund will have no
preemptive or conversion rights. After the Reorganization, the Fund will cease
operations.
The Reorganization is subject to a number of conditions, including the receipt
of certain legal opinions described in the Reorganization Agreement (including
an opinion of counsel that the Fund shares issued in accordance with the terms
of the Reorganization Agreement will be validly issued, fully paid and
non-assessable); the receipt of certain certificates from the parties concerning
aggregate asset values; and the parties' performance in all material respects of
the agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Effective
Time of the Reorganization will be October 23, 2000, or such later date as is
agreed to by the parties.
The Reorganization Agreement and the Reorganization may be abandoned without
penalty at any time prior to the Effective Time of the Reorganization by
resolution of the Board of the Trust or of the Board of Alpha Select (or at the
discretion of any duly authorized officer of either entity) if circumstances
should develop that, in the opinion of either Board (or any such officer of
either entity), make it inadvisable to proceed with the Reorganization.
FEDERAL INCOME TAXES
The Reorganization is designed to be tax free for federal income tax purposes so
that you will not experience a taxable gain or loss when the Reorganization is
completed. Generally, the basis and holding period of your shares in the Target
Select Fund will be the same as the basis and holding period of your shares in
the Fund. Consummation of the Reorganization is subject to the receipt of a
legal opinion from counsel that under the Internal Revenue Code of 1986, as
amended, the exchange of assets of the Fund for shares of the Target Select
Fund, the transfer of such shares to the holders of the shares of the Fund, and
the dissolution of the Fund pursuant to the Reorganization Agreement will not
give rise to the recognition of a gain or loss for federal income tax purposes
to the Fund, the Target Select Fund, or the shareholders of either the Fund or
the Target Select Fund. Turner Investment Partners, on behalf of the Fund, has
not sought a tax ruling from the Internal Revenue Service. The opinion of
counsel is not binding on the Internal Revenue Service and does not preclude the
Internal Revenue Service from adopting a contrary position. Shareholders should
consult their own tax advisers concerning the potential tax consequences of the
Reorganization to them, including state and local tax consequences.
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CAPITALIZATION
The following table sets forth as of__________, 2000: (i) the capitalization of
each Fund; and (ii) the pro forma combined capitalization of the Target Select
Fund, assuming the Reorganization has been approved.
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<CAPTION>
Net Asset Value Shares
Fund Net Assets Per Share Outstanding
---- ---------- --------------- -----------
TIP FUNDS
Target Select Equity $ $
Fund
ALPHA SELECT FUNDS
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Target Select Equity $0 N/A 0
Fund
PRO FORMA ALPHA
SELECT
Target Select Equity $ $
Fund
</TABLE>
THE REORGANIZATION WILL HAVE NO IMMEDIATE IMPACT ON THE FUND'S SHARE PRICE
On the day of the Reorganization, Target Select Fund's share price will be the
same as that of the Fund. The Reorganization will not cause the Fund's share
price to go up or down, and you will own the same number of shares after the
Reorganization as you owned prior to the Reorganization. Any declared but
undistributed dividends or capital gains will carry over in the Reorganization.
THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that all of the assets and liabilities of
the Fund will be transferred to the Target Select Fund, a corresponding series
of Alpha Select, in return for Class I Shares of the Target Select Fund having
an equivalent aggregate value. The assets and liabilities of the Fund will be
transferred to Target Select Fund at their current value on the date of the
transaction, and the shares provided in return will have a total value equal to
the total value of the transferred net assets, again as of the transaction date.
Finally, the Fund will distribute the shares received by it to its shareholders
in a liquidating distribution.
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The Reorganization Agreement provides that the Trust will receive, prior to the
closing, an opinion of counsel to the effect that: (i) Alpha Select and the
Target Select Fund are duly organized and validly existing under the laws of the
State of Delaware; (ii) Alpha Select is an open-end management investment
company registered under the 1940 Act; (iii) the Agreement and the
Reorganization provided for therein and the execution of the Agreement have been
duly authorized and approved by all requisite action of Alpha Select, and has
been duly executed and delivered by Alpha Select on behalf of the Target Select
Fund and is a valid and binding obligation of the Target Select Fund, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, and similar laws or
court decisions regarding enforcement of creditors' rights generally; and (iv)
to the best of counsel's knowledge after reasonable inquiry, no consent,
approval, order or other authorization of any federal or state court or
administrative or regulatory agency is required for Alpha Select to enter into
the Reorganization Agreement or carry out its terms on behalf of the Target
Select Fund that has not been obtained other than where the failure to obtain
such consent, approval, order, or authorization would not have a material
adverse affect on the operations of the Target Select Fund.
In addition, Alpha Select shall have received, prior to the closing, an opinion
of counsel to the effect that: (i) the Trust and the Fund are duly organized and
validly existing under the laws of the Commonwealth of Massachusetts; (ii) the
Trust is an open-end management investment company registered under the 1940
Act; (iii) the Reorganization Agreement, the Reorganization provided for
therein, and the execution of the Reorganization Agreement have been duly
authorized and approved by all requisite corporate action of the Trust and the
Reorganization Agreement has been duly executed and delivered by the Trust and
is a valid and binding obligation of the Trust, subject to applicable
bankruptcy, insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally; (iv) to the best
of counsel's knowledge after reasonable inquiry, no consent, approval, order or
other authorization of any federal or state court or administration or
regulatory agency is required for the Trust to enter into the Reorganization
Agreement or carry out its terms on behalf of the Fund that has not already been
obtained, other than where the failure to obtain any such consent, approval,
order or authorization would not have a material adverse effect on the
operations of the Trust or the Fund; and (v) the Trust shares to be issued in
the Reorganization have been duly authorized and upon issuance thereof in
accordance with the Reorganization Agreement, will be validly issued, fully paid
and non-assessable.
REASONS FOR THE REORGANIZATION
The Reorganization has been proposed to enable the Fund to better focus its
marketing efforts. Specifically, Alpha Select will be available to investors in
both retail and institutional distribution channels. As a result, the Trustees
hope that the Fund will achieve operating efficiencies and will realize
economies of scale. In addition, the Trustees considered the fact that Morgan,
Lewis & Bockius LLP believes that the Reorganization will be tax-free to the
Fund's shareholders, and that the costs of the solicitation and the Special
Meeting necessary in order to carry out the transaction will be borne by Turner
Investment Partners.
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Based on the factors described above, the Trustees, including these Trustees who
are not "interested persons" of the Trust within the meaning of Section 2(a)(19)
of the 1940 Act, determined that participation in the Reorganization is in the
best interests of the Fund's shareholders and that the interest of the Fund's
existing shareholders would not be diluted as a result of the Reorganization.
Accordingly, the Trustees recommend that shareholders approve the
Reorganization. The Trustees of Alpha Select, including those Trustees who are
not "interested persons" of Alpha Select within the meaning of the 1940 Act,
also determined that participation in the Reorganization is in the best
interests of Alpha Select and the Target Select Fund.
CONSIDERATIONS OF THE TRUSTEES OF TIP FUNDS
At a meeting held on February 25, 2000, the Trustees of the Trust reviewed the
Reorganization Agreement and determined that the Reorganization is in the best
interests of the Trust and the Trust's Shareholders, and that the interests of
the Trust's Shareholders will not be diluted as a result of the Reorganization.
The Trustees determined to recommend that the Shareholders of the Fund approve
the Reorganization Agreement and the Reorganization transaction.
In making this determination, the Trustees of the Trust carefully reviewed the
terms and provisions of the Reorganization Agreement, the substantial similarity
of the objectives, policies and restrictions of the corresponding Alpha Select
Funds, the tax consequences of the Reorganization to the Alpha Select Funds and
their Shareholders, and the expense ratios of the Fund and the Target Select
Fund. In addition, the Trustees considered the nature and quality of the
services expected to be rendered to the Target Select Fund, the compensation
payable to the adviser and sub-advisors, the history, reputation, qualification
and background of the advisor and sub-advisors and the qualifications of their
personnel and financial condition, and the benefits expected to be realized by
the Shareholders of the Fund as a result of the Reorganization, including access
to broader distribution channels.
THE TRUSTEES RECOMMEND THAT THE SHAREHOLDERS OF THE TIP FUNDS
VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF
REORGANIZATION AND LIQUIDATION.
COMPARISON OF THE INVESTMENT OBJECTIVES, POLICIES, RISKS AND FEES
OF THE ALPHA SELECT FUNDS AND THE TIP FUNDS
This section tells you about:
o The Target Select Fund's investment goal
o The Target Select Fund's main investment strategies
o The risks of investing in the Target Select Fund
-5-
<PAGE>
It compares this information with similar information relating to the Trust and
the Fund. There is more information about the Target Select Fund's investment
practices in the Statement of Additional Information ("SAI") which legally is a
part of this prospectus/proxy statement. For details about how to get an SAI and
other reports and information, see the back cover of this prospectus/proxy
statement.
INVESTMENT OBJECTIVES AND POLICIES
The Target Select Fund seeks long term capital appreciation. It attempts to
achieve this objective by investing in U.S. and foreign equity securities. This
objective is identical to the objective of the Fund.
The sub-advisers of the Target Select Fund will each invest in a limited number
(as few as 10) of equity securities that are believed by each sub-adviser to
have the greatest return potential. Such a focused security-selection process
permits each sub-adviser to act on only the investment ideas that it thinks are
its strongest ones. The intent is to avoid diluting fund performance by owning
too many securities, so that the positive contributions of winning investments
(if any) will prove substantial.
The Target Select Fund brings together each sub-adviser's favorite investment
ideas, and access to differing investment styles. Each sub-adviser will apply
its own unique stock-picking style. Each sub-adviser's differing style may help
to smooth out the volatility of the Fund's overall return. Ideally, when one
style is out of favor, the other styles will offer a counterbalancing influence.
CCM is adviser to the Target Select Fund and oversees the sub-advisers. The
sub-advisers will be Turner Investment Partners, Mercury Advisors, and Evergreen
Investment Management Company. Turner Investment Partners will manage
approximately 15-35% of the Target Select Fund's assets, while Mercury Advisors
and Evergreen will manage approximately 30-70% and 15-35%, respectively. Turner
Investment Partners, as adviser to the Target Select Fund's predecessor, managed
over 50% of the Fund's portfolio. Clover Capital Management, Inc. ("Clover
Capital"), Penn Capital, and Chartwell Investment Partners ("Chartwell"), which
served as investment sub-advisers to the Fund, are not expected to manage any
assets of the Target Select Fund.
GENERAL INVESTMENT POLICIES
The Target Select Fund is designed to provide an investment that combines the
investment expertise and best investment ideas of a number of outstanding
money-management firms. Under the general supervision of the advisor, the
sub-advisers will manage a portion of the Target Select Fund's portfolio on a
day-to-day basis. Assets for investment will be allocated to each sub-adviser by
Alpha Select's Board of Trustees, based on the recommendation of CCM, as
adviser. The expectation is that the allocations will result in a portfolio
invested in a variety of equity securities with differing capitalizations and
valuations, chosen by differing investment strategies.
The Target Select Fund intends to invest primarily (and, under normal
circumstances, at least 65% of total assets) in equity securities of both U.S.
and foreign issuers. Selection of equity securities
-6-
<PAGE>
will not be restricted by market capitalization, and each Fund's sub-adviser
will employ its own proprietary investment processes in managing assets.
Assets of the Target Select Fund may also be invested in shares of other
investment companies, American Depository Receipts ("ADRs") and Real Estate
Investment Trusts ("REITs"). The Target Select Fund may also invest up to 15% of
its net assets in illiquid securities, invest up to 25% of its total assets in
convertible securities (including convertible securities rated below investment
grade) purchase unregistered securities that are eligible for re-sale pursuant
to Rule 144A under the Securities Act of 1933, as amended, and purchase fixed
income securities, including securities rated below investment grade. In
addition, the Target Select Fund may effect short sales, purchase securities on
a when-issued basis, and may enter into futures and options transactions.
The investment policies of the Fund and the Target Select Fund including the
investments and investment techniques, are substantially similar.
STRATEGIES, THE MULTI-MANAGER APPROACH AND RISKS
Strategies
In selecting investments, the sub-advisers employ different strategies: a growth
strategy that emphasizes above-average earnings potential; a global strategy
that focuses on small capitalization companies; a value strategy that is based
on investing in all capitalization companies; and a growth strategy that invests
in mid-to-large capitalization companies. Other strategies may be introduced as
additional or replacement sub-advisers are hired.
Multi-Manager Approach
The Fund's employment of a multi-manager approach is intended to take advantage
of the best investment ideas of a number of sub-advisers. Each sub-adviser
handles a portion of the Target Select Fund's assets, and is expected to select
a relatively small number of securities for its portion of the Target Select
Fund per each investment strategy. Such a focused security- selection process
permits each manager to act on only the investment ideas that it thinks have the
greatest return potential. CCM will also recommend the appointment of additional
or replacement sub-advisers to the Target Select Fund's Board of Trustees.
Risks
The Target Select Fund has its own investment goal and strategies for reaching
that goal. The Target Select Fund's sub-advisers will invest Target Select Fund
assets in a way that each believes will help the Target Select Fund achieve its
goal. Still, investing in the Target Select Fund involves risk and there is no
guarantee that the Target Select Fund will achieve its goal. The sub-advisers'
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job the sub-advisers do, you could lose money on your investment in the Target
Select Fund, just as you could with other investments. A Target Select Fund
share is not a bank deposit and it is not insured or guaranteed by the FDIC or
any government agency.
-7-
<PAGE>
The value of your investment in the Target Select Fund is based on the market
prices of the securities it holds. Since it purchases equity securities, it 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 Target Select Fund's 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
Target Select Fund. The Target Select Fund is non-diversified, which means that
it may invest in the securities of fewer issuers than a diversified fund. As a
result, it may be more susceptible to a single adverse economic or political
occurrence affecting one or more of these issuers, and may experience increased
volatility due to its investments in those securities as compared to a
diversified fund.
The Target Select Fund's investment approach seeks to generate positive returns
from the efforts of separate sub-advisers who each manage a portion of the
Fund's assets using a specific style. There is a risk, therefore, that the
combined performance of the Target Select Fund's various sub-advisers will lag
that of funds that employ a single strategy or style. There is also a risk that
a sub-adviser's performance in its chosen strategy will lag that of other
sub-advisers that utilize a similar approach. In addition, the Target Select
Fund is subject to the risk that equity securities generally may underperform
compared to debt securities and other asset classes.
Investing in issuers located in foreign countries poses additional risks since
political and economic events unique to a country or region will affect those
markets and their issuers. These events will not necessarily affect the U.S.
economy or similar issuers located in the United States. In addition,
investments in foreign countries are generally denominated in a foreign
currency. As a result, changes in the value of those currencies compared to the
U.S. dollar may affect (positively or negatively) the value of a fund's
investments. These currency movements may happen separately from and in response
to events that do not otherwise affect the value of the security in the issuer's
home country. While ADRs are denominated in U.S. dollars, they are subject to
currency risk to the extent the underlying stocks are denominated in foreign
currencies.
Any micro, small and medium capitalization companies the Target Select Fund
invests in may be more vulnerable to adverse business or economic events than
larger, more established companies. In particular, these micro, small and
mid-sized companies may have limited product lines, markets and financial
resources, and may depend upon a relatively small management group. In addition,
the share prices of micro-capitalization companies may be extremely volatile.
The Target Select Fund may also, to a limited extent, borrow money and utilize
leveraging techniques. The Target Select Fund may invest in securities that
fluctuate in value, and investors should expect the Target Select Fund's net
asset value per share to fluctuate in value. The value of equity securities may
be affected by the financial markets as well as by developments impacting
specific issuers. The values of fixed income securities tend to vary inversely
with interest rates, and may be affected by market and economic factors, as well
as by developments impacting specific issuers. The Target Select Fund's high
yield securities, if any, may be volatile and are subject to greater amounts of
credit risk than investment grade issuers.
-8-
<PAGE>
The Strategies and Risks of the Fund and Target Select Fund are substantially
similar. The multi-manager approach of the Fund and the Target Select Fund
differs in some respects. Under the Fund's multiple sub-adviser structure,
Turner was responsible for the continuous review, supervision and administration
of the Fund's investment program, which included overseeing two other
sub-advisers. In addition, Turner was also responsible for making day-to-day
investment decisions for some of the assets of the Fund. Because of this dual
role as day-to-day investment adviser and overall manager of the investment
program, Turner is essentially responsible for the Fund's performance. Under the
Target Select Fund's multiple sub-adviser structure, CCM will similarly be
responsible for the continuous review, supervision and administration of the
Target Select Fund's investment program, which includes overseeing Turner
Investment Partners as one of three sub-advisers. However, CCM will not be
responsible for making day-to-day investment decisions for the Target Select
Fund, and Turner Investment Partners will only manage approximately 15-35% of
the Target Select Fund's assets. In addition, Turner Investment Partners
employed sub-advisers that are different from those employed by CCM in managing
the Fund.
PERFORMANCE
The table below provides the average annual total return for the Fund for
selected time periods. Additional information about the Fund is contained in the
Statement of Additional Information relating to this prospectus/proxy statement,
and in the Prospectus relating to the Fund. How the Fund has performed in the
past does not necessarily indicate how the Target Select Fund will perform in
the future, especially since Alpha Select will have different advisory
arrangements than the Trust.
Average Annual Total Return for Periods Ended December 31, 1999
TIP Target Select Equity Fund
-----------------------------
1 Year 113.07%
Since Inception* 63.50%
* TIP Funds Target Select Equity Fund commenced operations on 1/1/98.
The performance information shown above is based on a calendar year. The
year-to-date return as of June 30, 2000 was 23.83%
Best Quarter Worst Quarter
43.45% -17.08%
(12/31/99) (9/30/98)
FUND MANAGEMENT
Alpha Select may utilize a "manager of managers" structure, with CCM acting as
the investment adviser and manager of managers, and overseeing specialist
sub-advisers who make investment decisions on behalf of the Target Select Fund.
-9-
<PAGE>
CCM is a professional investment management firm founded in May, 2000. It is
sponsored by Turner Investment Partners and CCM Holdings Corp. ("Holdings").
Holdings is the General Partner of CCM. Gregory J. Berlacher, is President and
Chief Executive Officer of Holdings. The principal business address of CCM is
1150 First Avenue, Park View Tower, Suite 600, King of Prussia, PA 19406-2816.
Mr. Berlacher has been in the investment banking industry for over ten years. He
formed his own firm, Emerging Growth Equities, Ltd., in September of 1999.
CCM serves as the investment adviser for the Target Select Fund under an
investment advisory agreement with Alpha Select (the "Advisory Agreement").
Under the Advisory Agreement, CCM continuously reviews, supervises and
administers the Target Select Fund's investment program, subject to the
supervision of, and policies established by, the Alpha Select Board. CCM makes
recommendations to the Alpha Select Board with respect to the identification,
retention and termination of, and the appropriate allocation of assets to, each
of the Target Select Fund's sub-advisers. For its services, CCM is entitled to a
fee, which is calculated daily and paid monthly, at an annual rate of 1.0625% of
the average daily net assets of the Target Select Fund.
Robert E. Turner is a Trustee of each of the Trust and Alpha Select and will act
as portfolio manager of the portion of the assets of the Target Select Fund
managed by Turner Investment Partners. Mr. Turner is also Chairman and Chief
Investment Officer of Turner Investment Partners. He has held this position
since the founding of Turner Investment Partners in 1990. He has been in the
investment business since 1982.
In addition to the differences in sub-advisers discussed in this
prospectus/proxy statement, the advisory fees paid to CCM by the Target Select
Fund provides for performance-based fees. The Target Select Fund will pay CCM an
advisory fee that increases if the Target Select Fund outperforms its benchmark
index by a certain percentage, and decreases if the Target Select Fund under
performs its benchmark index by an equal percentage. CCM will pay the
sub-advisers out of the fees it receives, and may pay a sub-adviser higher fees
if it outperforms its benchmark index.
SPECIAL CONSIDERATIONS REGARDING THE MULTI-ADVISER APPROACH
CCM, the adviser of the Target Select Fund, oversees the portfolio management
services provided to the Target Select Fund by each of the sub-advisers. Subject
to the review of Alpha Select's Board, CCM monitors each sub-adviser to ensure
that each is managing its segment of the Target Select Fund consistently with
the Target Select Fund's investment objective and restrictions and applicable
laws and guidelines, including, but not limited to, compliance with the
diversification requirements set forth in Subchapter M of the Internal Revenue
Code. CCM also provides the Target Select Fund with certain administrative
services, including maintenance of certain Target Select Fund records and
assistance in the preparation of the Target Select Fund's registration statement
under federal and state laws. Because each sub-adviser will be managing
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<PAGE>
its segment of the Target Select Fund independently from the other sub-advisers,
the same security may be held in two different segments of the Target Select
Fund, or may be acquired for one segment at a time when the sub-adviser of
another segment deems it appropriate to dispose of the security from that other
segment. Similarly, under some market conditions, one or more of the
sub-advisers may believe that temporary, defensive investments in short-term
instruments or cash are appropriate when it or another sub-adviser believes
continued exposure to the equity markets is inappropriate for its segment(s) of
the Target Select Fund. Because each sub-adviser directs the trading for its own
segment, and does not aggregate its transactions with those of the other
sub-advisers, the Target Select Fund may incur higher brokerage costs than would
be the case if a single adviser were managing the entire Target Select Fund.
Because each segment of the Fund may perform differently from the other segments
depending upon the investment style employed, the investments held and changing
market conditions, one segment may be larger or smaller at various times than
the other segments. Periodically, capital activity will be apportioned to
preserve the initial allocation designated for each segment's investment style.
However, the Adviser may, subject to review by the Trustees, allocate new
investment capital differently. This action may be necessary, if for example, a
Sub-Adviser determined that it desires no additional investment capital for a
segment or if an investment style becomes out of favor or more profitable than
other investment styles.
MANAGER OF MANAGERS OPTION
Alpha Select and CCM may, in the future, seek to achieve the Target Select
Fund's investment objective by using a "manager of managers" structure. Under a
manager of managers structure, CCM would act as investment adviser in much the
same way as is currently contemplated. However, as manager of managers, CCM
would be permitted, subject to direction from and oversight by the Alpha Select
Board, to allocate and reallocate assets among sub-advisers, and to recommend
that the Alpha Select Board hires, terminates or replaces sub-advisers without
shareholder approval. By reducing the number of shareholder meetings that may
have to be held to approve new or additional sub-advisers, the Target Select
Fund anticipates that there will be substantial potential cost savings, as well
as the opportunity to achieve certain management efficiencies.
Before it can operate using a manager of managers structure, Alpha Select and
CCM will have to obtain exemptive relief from the SEC to permit such an
arrangement. There is no assurance that such an order will be granted by the
SEC. The initial shareholder of the Target Select Fund voted to vest authority
to implement a manager of managers structure with the Alpha Select Board, and
such a structure may be adopted without shareholder approval. However,
shareholders of the Target Select Fund will be given at least 30 days' prior
written notice of any such change, and any such change would only be made if the
Alpha Select Board determines that it would be in the best interests of the
Target Select Fund and its shareholders. In making that determination, the
Trustees will consider, among other factors, the benefits to shareholders and/or
the opportunity to reduce costs and achieve operational efficiencies.
-11-
<PAGE>
COMPARISON OF FEES AND EXPENSES
The following table compares the annual operating expenses, including advisory
fees, of the Fund to those of the Target Select Fund.
Annual Operating Expenses
(As a percentage of average net assets)
<TABLE>
<CAPTION>
TIP Funds
Target Select Target Select Fund
Equity Fund (Class I Shares)
------------- ------------------
<S> <C> <C>
Investment Advisory Fees................ 1.05% 1.0625%*
12b-1 Fees.............................. None None
Other Expenses.......................... 9.14% 1.539%**
------- -------
Total Annual Fund Operating 10.19% 2.6015%
Expenses................................
Fee Waivers and Expense (8.89%) (1.3815%)
------- -------
Reimbursements..........................
Net Total Operating Expenses 1.30%*** 1.22%****
</TABLE>
*The advisory fee is subject to a performance adjustment based on the Target
Select Fund's performance relative to the performance of the Russell 3000 Index,
its benchmark. An index measures the market price of a specific group of
securities in a market sector. The Russell 3000 Index is a widely-recognized,
capitalization-weighted index of the 3000 largest United States companies.
If the Target Select Fund outperforms its benchmark by a set amount, CCM will
receive higher advisory fees. Conversely, if the Target Select Fund
underperforms its benchmark by the same amount, CCM will receive lower advisory
fees. Accordingly, the overall fee may vary by 0.15% either way. The Target
Select Fund's SAI contains detailed information about its benchmark, as well as
any possible performance-based adjustments to CCM fees. These performance-based
adjustments will take effect after the Target Select Fund has been in operation
for more than one year.
** Other expenses are estimated for the current year.
*** The Fund's Adviser has contractually agreed to waive fees and to reimburse
expenses in order to keep total operating expenses from exceeding 1.30% for a
period of one year, or from exceeding 1.80% in any subsequent year.
**** The Fund's Adviser has contractually agreed to waive fees and to reimburse
expenses in order to keep total operating expenses of the Shares from exceeding
1.22% for a period of one year, or from exceeding 1.50% in any subsequent year.
-12-
<PAGE>
Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in the Target Select Fund.
The example assumes that you invest $10,000 in each fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example assumes that your investment has a 5% return each year and that each
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------
<S> <C> <C> <C> <C>
TIP Funds Target
Select Equity Fund............ $132 $520 $936 $2,120
Target Select Fund
(Class I
Shares)....................... $124 $447 $792 $1,767
</TABLE>
SHAREHOLDER INFORMATION
The current purchase and redemption procedures and exchange privileges for the
Fund are substantially similar to those of the Target Select Fund. However, the
Target Select Fund offers multiple classes of shares, some of which have sales
charges and/or Rule 12b-1 or shareholder servicing plans. Specifically, the
Class A Shares of the Target Select Equity Fund are sold subject to a front-end
sales charge and a 0.25% shareholder servicing fee. The Class C shares of the
Target Select Equity Fund are sold subject to a 1.00% contingent-deferred sales
charge, and pay a 0.75% Rule 12b-1 fee and a 0.25% shareholder servicing fee.
Class I Shares of the Target Select Fund are sold without a sales charge and do
not pay any Rule 12b-1 or shareholder serving fees.
DESCRIPTION OF ALPHA SELECT
Alpha Select was organized under Delaware law as a business trust pursuant to a
Declaration of Trust dated October 25, 1993, as amended on October 7, 1998.
Alpha Select is an open-end management investment company registered under the
1940 Act, and has authorized capital consisting of an unlimited number of units
of beneficial interest without par value. Each series of Alpha Select has Class
A, Class C, and Class I Shares. The Target Select Fund is a duly organized and
validly existing separate series of Alpha Select.
DESCRIPTION OF TIP FUNDS
The Trust was organized under Massachusetts law as a business trust pursuant to
an Agreement and Declaration of Trust dated January 26, 1996, as amended on
February 21, 1997. The Trust is an open-end management investment company
registered under the 1940 Act and has authorized
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<PAGE>
capital consisting of an unlimited number of units of beneficial interest, each
with a par value of $.00001. The Fund currently has only one class of shares.
The Fund is duly organized and validly existing series of the Trust.
ADDITIONAL INFORMATION
Alpha Select and the Trust each have a different Board of Trustees. However, the
Trust has the same administrator, custodian, distributor and transfer agent as
Alpha Select, as well as the same principal executive officers.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") provides both the
Trust and Alpha Select with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
Alpha Select, which is calculated daily and paid monthly, at an annual rate of
0.09% of Alpha Select's average daily net assets up to $250 million, 0.07% on
the next $250 million of such assets, 0.06% on the next $250 million of such
assets, 0.05% of the next $1.25 billion of such assets, and 0.04% of such assets
in excess of $2 billion. Alpha Select is subject to a minimum annual
administration fee of $75,000.
The Administrator also serves as shareholder servicing agent for both the Trust
and Alpha Select under a shareholder servicing agreement with each trust.
THE TRANSFER AGENT AND CUSTODIAN
DST Systems, Inc. (the "Transfer Agent"), 330 W. 9th Street, Kansas City,
Missouri 64105, serves as the transfer agent and dividend disbursing agent for
both the Trust and Alpha Select under a transfer agency agreement with each
trust. First Union National Bank (an affiliate of Evergreen), Broad and Chestnut
Streets, P.O. Box 7618, Philadelphia, Pennsylvania 19101 acts as the custodian
(the "Custodian") of Alpha Select and the Trust.
THE DISTRIBUTOR
SEI Investments Distribution Co. ("SIDCO"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company, acts as distributor for both
the Trust and Alpha Select pursuant to a distribution agreement (the
"Distribution Agreement"). No compensation is paid to the Distributor for its
distribution services to the Trust. SIDCO will receive Rule 12b-1 fees from the
Class C Shares of Alpha Select, but Class I Shares of Alpha Select do not pay
any compensation to SIDCO.
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<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
You may obtain additional information about the Target Select Fund in the
following ways:
PROSPECTUSES
The Fund has a Prospectus that contains information about its operation and
management. The Prospectus dated January 31, 2000, is on file with the
Securities and Exchange Commission, and is incorporated herein by reference and
accompanies this prospectus/proxy statement.
STATEMENT OF ADDITIONAL INFORMATION
In addition to the Prospectus, the Fund has a Statement of Additional
Information ("SAI") that contains additional, more detailed information about
the Fund. The SAI dated June 30, 2000, is on file with the Securities and
Exchange Commission and is incorporated by reference into this prospectus/ proxy
statement.
SHAREHOLDER REPORTS
The financial statements of the Fund contained in the Trust Annual Report to
shareholders for the fiscal year ended September 30, 1999, has been audited by
Ernst & Young LLP, its independent auditors. Also, unaudited financial
statements of the Fund are contained in the Trust's most recent Semi-Annual
Report to shareholders for the period ended March 31, 2000. These financial
statements are incorporated by reference into this prospectus/proxy statement
insofar as they relate to the Fund, and not to any other portfolios that are a
part of the Trust and described therein. A copy of the Trust's Annual Report,
which includes discussions of the performance of the Fund, and the most recent
Semi-Annual Report, may be obtained by writing the Trust at P.O. Box 419805,
Kansas City, Missouri 64141-6805, or by calling 1-800-224-6312. The Trust is
subject to the informational requirements of the Securities Exchange Act of 1934
and in accordance herewith files reports and other information with the SEC.
Information about the Trust and Alpha Select, including the Prospectus, SAI, and
shareholder reports of the Fund, may be obtained from the SEC in any of the
following ways: (1) in person: you may review and copy documents in the SEC's
Public Reference Room in Washington D.C. (for information call 1-202-942-8090);
or at 7 World Trade Center, Suite 1300, New York, NY, 10048; (2) on-line: you
may retrieve information from the SEC's web site at "http://www.sec.gov"; (3)
mail: you may request documents, upon payment of a duplicating fee, by writing
to SEC, Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549; or (4)
e-mail: you may also obtain this information, upon payment of a duplicating fee,
by e-mailing the SEC at the following address: [email protected]. To aid you in
obtaining this information, the Trust's 1940 Act registration number is
811-07527 and Alpha Select's 1940 Act registration number is 811-8104.
-15-
<PAGE>
DIVIDEND POLICIES
The Fund distributes its investment income quarterly as a dividend to
shareholders. The Target Select Fund, however, will distribute its investment
income annually as a dividend to shareholders. Each fund has a policy of making
distributions of capital gains, in any, at least annually.
FUND TRANSACTIONS
The policies regarding portfolio transactions of the Trust and Alpha Select are
substantially identical. Please refer to the Prospectuses for more information.
-16-
<PAGE>
SHAREHOLDER RIGHTS
GENERAL
The Trust was established as a business trust under Massachusetts law by a
Declaration of Trust dated January 26, 1996, as amended and restated on February
21, 1997. The Fund is also governed by its By-Laws and by applicable
Massachusetts law.
Alpha Select was established as a business trust under Delaware law by a
Declaration of Trust dated October 25, 1993, as amended and restated on October
7, 1998. Alpha Select is also governed by its By-Laws and by applicable Delaware
law.
SHARES
The Trust is authorized to issue an unlimited number shares of beneficial
interest, with a par value of $.00001 per share, from an unlimited number of
series (portfolios) of shares. The shares of each TIP Fund have no preference as
to conversion, exchange, dividends, retirement or other features, and have no
preemptive rights.
Alpha Select is authorized to issue an unlimited number shares of beneficial
interest, with no par value, from an unlimited number of series (portfolios) of
shares. The shares of each Alpha Select Fund have no preference as to
conversion, exchange, dividends, retirement or other features, and have no
preemptive rights.
SHAREHOLDER VOTING
Shareholders of the Fund have identical voting rights. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares.
The shares of the Fund have non- cumulative voting rights, which means the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees if the holders choose to do so. At shareholder
meetings, the holders of 40% of a portfolio's shares entitled to vote at the
meeting generally constitute a quorum. Shareholders of a class have exclusive
voting rights regarding any matter submitted to shareholders that relates solely
to that class of shares, and separate voting rights on any other matter
submitted to shareholders in which the interests of the shareholders of that
class differ from the interests of holders of any other class.
Shareholders of Alpha Select have identical voting rights.
SHAREHOLDER MEETINGS
Annual meetings of shareholders of the Trust will not be held, but special
meetings of shareholders may be held under certain circumstances. A meeting will
be held to vote on the removal of a Trustee(s) of the Fund if requested in
writing by the holders of not less than 10% of
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the outstanding shares of the Fund. The Fund will assist in shareholder
communications in such matters to the extent required by law.
Alpha Select has similar voting provisions.
ELECTION AND TERM OF TRUSTEES
The Fund's affairs are supervised by the Trust's Board of Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. Trustees of
the Trust are elected by a majority vote of a quorum cast by written ballot at
the regular meeting of shareholders, if any, or at a special meeting held for
that purpose. Trustees hold office until their successors are duly elected and
qualified or until their death, removal or resignation. Shareholders may remove
a Trustee by vote of a majority of the votes entitled to be cast for the
election of directors and may elect a successor to fill a resulting vacancy. A
Trustee elected thereby serves for the balance of the term of the removed
Trustee.
Alpha Select has similar requirements regarding Trustees, who are governed by
the laws governing business trusts in the State of Delaware.
SHAREHOLDER LIABILITY
The shareholders of the Fund generally are not personally liable for the acts,
omissions or obligations of the Trust's Trustees or of the Trust.
Shareholders of the Target Select Fund generally are not personally liable for
acts, omissions or obligations of Alpha Select's Trustees or of Alpha Select.
LIABILITY OF TRUSTEES
The Trust's Trustees shall not be personally liable for any obligation of the
Fund. The Fund will indemnify its Trustees and officers out of Fund assets
against all liabilities and expenses except for liabilities arising from such
person's self-dealing, willful misconduct or recklessness.
Alpha Select has similar provisions regarding Alpha Select's Trustee liability.
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LEGAL MATTERS
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103, serves
as counsel to the Trust and Alpha Select.
THE BOARD OF TRUSTEES OF TIP FUNDS RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE PROPOSAL
DESCRIBED IN THIS PROSPECTUS/PROXY STATEMENT.
VOTING ON THE REORGANIZATION AGREEMENT
GENERAL INFORMATION
This prospectus/proxy statement is furnished in connection with the solicitation
of proxies by the Board of Trustees of the Trust in connection with the Special
Meeting. It is expected that the solicitation of proxies will be primarily by
mail. You may also vote over the internet or by telephone. Please follow the
enclosed instructions to utilize these methods of voting. Officers of the Fund
and Turner Investment Partners may also solicit proxies by telephone, telegraph,
facsimile or in person. The cost of solicitation and the Special Meeting will be
borne by Turner Investment Partners.
VOTE REQUIRED TO APPROVE REORGANIZATION AGREEMENT
Shareholders of the Fund on the Record Date will be entitled to one vote per
share then held and a fractional vote for each fractional share then held.
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the outstanding voting securities entitled to vote. Any shareholder
submitting a proxy may revoke it at any time before it is exercised by
submitting to the Secretary of the Fund a written notice of revocation or a
subsequently executed proxy, or by attending the Special Meeting and voting in
person.
Shares represented by a properly executed proxy will be voted in accordance with
the instructions thereon, or if no specification is made, the shares will be
voted "FOR" the approval of the Reorganization Agreement. For purposes of
determining the presence of a quorum for transacting business at the Special
Meeting, abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares on a particular
matter) will be treated as shares that are present at the Special Meeting but
which have not been voted. For this reason, abstentions and broker non-votes
will have the effect of a vote against approval of the Reorganization Agreement.
If sufficient votes in favor of the proposal are not received by the time
scheduled for the Special Meeting, the persons named as proxies may propose one
or more adjournments of the Special
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Meeting for a reasonable period of time to permit further solicitation of
proxies. Any such adjournment will require the affirmative vote of a majority of
the votes cast in person or by proxy at the session of the Special Meeting (or
any subsequent meeting as a result of any adjournments) to be adjourned. The
persons named as proxies will vote for an adjournment any proxies which they are
entitled to vote in favor of the proposal. They will vote as against any proxies
required to be voted against the proposal. The costs of any additional
solicitation and of any adjourned session will be borne by Turner Investment
Partners.
OUTSTANDING SHARES
Only shareholders of record on the Record Date are entitled to notice of and to
vote at the Special Meeting and any adjournment thereof. At the close of
business on the Record Date there were outstanding and entitled to vote:
_________ shares of the Target Select Equity Fund of TIP Funds.
BENEFICIAL OWNERS
The following table sets forth certain information as of _______, 2000,
concerning each person who owned, of record or beneficially, 5% or more of the
shares of the Fund. Turner Investment Partners may be deemed to "beneficially
own" a substantial number of shares of the Fund because their investment
advisory relationships may permit them to dispose of shares or advise
Shareholders to dispose of shares. Turner Investment Partners may be deemed to
control the Fund if it beneficially owns more than 25% of the Fund outstanding
shares. Turner does not vote shares of the Fund for any of its clients.
--------------------------------------------------------------------------------
TIP Funds Target Select Equity Fund
--------------------------------------------------------------------------------
Percentage of Shares
Owned Before
Name and Address Reorganization
--------------------------------------------------------------------------------
_______%
--------------------------------------------------------------------------------
_______%
--------------------------------------------------------------------------------
_______%
--------------------------------------------------------------------------------
* Record and Beneficial Ownership.
As of Record Date the Trustees and officers of the Trust as a group owned of the
total outstanding shares of the Fund.
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<PAGE>
EXPENSES
All costs of solicitation (including the printing and mailing of this proxy
statement, meeting notice and form of proxy, as well as any necessary
supplementary solicitations) will be paid by Turner Investment Partners. In
order to obtain the necessary quorum at the Special Meeting, additional
solicitation may be made by mail, telephone, telegraph, facsimile or personal
interview by representatives of Turner Investment Partners, SEI Investments or
the Trust. Persons holding shares as nominees will, upon request, be reimbursed
for their reasonable expenses in sending soliciting material to their
principals.
OTHER BUSINESS
The Trustees know of no other business to be brought before the Special Meeting.
However, if any other matters properly come before the Special Meeting, proxies
which do not contain specific restrictions to the contrary will be voted on such
matters in accordance with the judgment of the persons named as proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust in writing at the address on
the cover page of this Prospectus/Proxy Statement or by telephoning
1-800-224-6312.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE
REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY ALSO
VOTE OVER THE INTERNET OR BY TELEPHONE. PLEASE FOLLOW THE ENCLOSED INSTRUCTIONS
TO UTILIZE THESE METHODS OF VOTING.
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<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN
OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of February
25, 2000 (the "Agreement"), by and between the TIP Funds (the "TIP Trust"), a
Massachusetts business trust, on behalf of the TIP Target Select Equity Fund
(collectively, the "Acquired Fund"), and Alpha Select Funds ("Alpha Select
Trust"), a Delaware business trust, on behalf of the Target Select Equity Fund
(the "Acquiring Fund").
WHEREAS, TIP Trust was organized under Massachusetts law as a business
trust under a Declaration of Trust dated January 26, 1996, and amended on
February 21, 1997. TIP Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). TIP Trust has authorized capital consisting of an unlimited number of
units of beneficial interest without par value of separate series of TIP Trust.
The Acquired Fund is a duly organized and validly existing series of TIP Trust;
WHEREAS, Alpha Select Trust was organized under Delaware law as a business
trust under a Declaration of Trust dated October 25, 1993, and amended on
December 10, 1998. Alpha Select Trust is an open-end management investment
company registered under the 1940 Act. Alpha Select Trust has authorized capital
consisting of an unlimited number of units of beneficial interest with a par
value of $.00001 of separate series of Alpha Select Trust. The Acquiring Fund is
a duly organized and validly existing series of the Alpha Select Trust;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree to effect the transfer of all of the assets of the
Acquired Fund solely in exchange for the assumption by the Acquiring Fund of all
or substantially all of the liabilities of the Acquired Fund and units of
beneficial interest of the Acquiring Fund ("Acquiring Fund Shares") followed by
the distribution, at the Effective Time (as defined in Section 9 of this
Agreement), of such Acquiring Fund Shares to the holders of units of beneficial
interest of the Acquired Fund ("Acquired Fund Shares") on the terms and
conditions hereinafter set forth in liquidation of the Acquired Fund. The
parties hereto covenant and agree as follows:
1. Plan of Reorganization. At the Effective Time, the Acquired Fund will assign,
deliver and otherwise transfer all of their assets and good and marketable title
thereto, and assign all or substantially all of the liabilities as are set forth
in a statement of assets and responsibilities, to be prepared as of the
Effective Time (the "Statement of Assets and Liabilities") to the Acquiring Fund
free and clear of all liens, encumbrances and adverse claims except as provided
in this Agreement, and the Acquiring Fund shall acquire all such assets, and
shall assume all such liabilities of the Acquired Fund, in exchange for delivery
to the Acquired Fund by the Acquiring Fund of a number of Acquiring Fund Shares
(both full and fractional) equivalent in number and value to the Acquired Fund
Shares outstanding immediately prior to the Effective Time. The assets and
stated liabilities of the Acquired Fund, as set forth in the Statement of Assets
and
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Liabilities attached hereto as Exhibit A, shall be exclusively assigned to and
assumed by the Acquiring Fund. All debts, liabilities, obligations and duties of
the Acquired Fund, to the extent that they exist at or after the Effective Time
and are stated in the Statement of Assets and Liabilities, shall after the
Effective Time attach to the Acquiring Fund and may be enforced against the
Acquiring Fund to the same extent as if the same had been incurred by the
Acquiring Fund.
2. Transfer of Assets. The assets of the Acquired Fund to be acquired by the
Acquiring Fund and allocated thereto shall include, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable) as set forth in the Statement of Assets and Liabilities,
as well as any claims or rights of action or rights to register shares under
applicable securities laws, any books or records of the Acquired Fund and other
property owned by the Acquired Fund at the Effective Time.
3. Liquidation and Dissolution of the Acquired Fund. At the Effective Time, the
Acquired Fund will liquidate and the Acquiring Fund Shares (both full and
fractional) received by the Acquired Fund will be distributed to the
shareholders of record of the Acquired Fund as of the Effective Time in exchange
for their respective Acquired Fund Shares and in complete liquidation of the
Acquired Fund. Each shareholder of the Acquired Fund will receive a number of
Acquiring Fund Shares equal in number and value to the Acquired Fund Shares held
by that shareholder, and each Acquiring Fund and Acquired Fund share will be of
equivalent net asset value per share. Such liquidation and distribution will be
accompanied by the establishment of an open account on the share records of the
Acquiring Fund in the name of each shareholder of the Acquired Fund and
representing the respective number of Acquiring Fund Shares due such
shareholder. As soon as practicable after the Effective Time, TIP Trust shall
take all steps as shall be necessary and proper to effect a complete termination
of the Acquired Fund.
4. Representations and Warranties of the Acquiring Fund. The Acquiring Fund
represents and warrants to the Acquired Fund as follows:
(a) Organization, Existence, etc. Alpha Select Trust is a business trust
duly organized and validly existing under the laws of the State of Delaware
and has the power to carry on its business as it is now being conducted.
(b) Registration as Investment Company. Alpha Select Trust is registered
under the 1940 Act as an open-end management investment company; such
registration has not been revoked or rescinded and is in full force and
effect.
(c) Financial Statements. The unaudited financial statements, if any, of
Alpha Select Trust relating to the Acquiring Fund dated as of March 31,
2000 (the "Acquiring Fund Financial Statements"), which will, if available,
be delivered to the Acquired Fund as of the Effective Time, will fairly
present the financial position of the Acquiring Fund as of the date
thereof.
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(d) Shares to be Issued Upon Reorganization. The Acquiring Fund Shares to
be issued in connection with the Reorganization have been duly authorized
and upon consummation of the Reorganization will be validly issued, fully
paid and nonassessable. Prior to the Effective Time, there shall be no
issued and outstanding Acquiring Fund Shares or any other securities issued
by the Acquiring Fund.
(e) Authority Relative to this Agreement. Alpha Select Trust, on behalf of
the Acquiring Fund, has the power to enter into this Agreement and to carry
out its obligations hereunder. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated
hereby, have been duly authorized by the Alpha Select Trust Board of
Trustees, and no other proceedings by the Acquiring Fund are necessary to
authorize its officers to effectuate this Agreement and the transactions
contemplated hereby. The Acquiring Fund is not a party to or obligated
under any charter, by-law, indenture or contract provision or any other
commitment or obligation, or subject to any order or decree, which would be
violated by its executing and carrying out this Agreement.
(f) Liabilities. There are no liabilities of the Acquiring Fund, whether or
not determined or determinable, other than liabilities disclosed or
provided for in the Acquiring Fund Financial Statements and liabilities
incurred in the ordinary course of business subsequent to the date of the
Statements and up to the Effective Time or otherwise previously disclosed
to the Acquired Fund, none of which has been materially adverse to the
business, assets or results of operations of the Acquiring Fund. The Alpha
Select Trust's Registration Statement, which is on file with the Securities
and Exchange Commission, does not contain an untrue statement of a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(g) Litigation. Except as previously disclosed to the Acquired Fund, there
are no claims, actions, suits or proceedings pending or, to the actual
knowledge of the Acquiring Fund, threatened which would materially
adversely affect the Acquiring Fund or its assets or business or which
would prevent or hinder in any material respect consummation of the
transactions contemplated hereby.
(h) Contracts. Except for contracts and agreements disclosed to the
Acquired Fund, under which no default exists, the Acquiring Fund is not a
party to or subject to any material contract, debt instrument, plan, lease,
franchise, license or permit of any kind or nature whatsoever with respect
to the Acquiring Fund.
(i) Taxes. As of the Effective Time, all Federal and other tax returns and
reports of the Acquiring Fund required by law to have been filed shall have
been filed, and all other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
the Acquiring Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any of such returns.
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5. Representations and Warranties of the Acquired Fund. The Acquired Fund
represents and warrants to the Acquiring Fund as follows:
(a) Organization, Existence, etc. TIP Trust is a business trust duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now being
conducted.
(b) Registration as Investment Company. TIP Trust is registered under the
1940 Act as an open-end management investment company; such registration
has not been revoked or rescinded and is in full force and effect.
(c) Financial Statements. The audited financial statements of the TIP Trust
relating to the Acquired Fund for the fiscal year ended September 30, 1999
and the unaudited financial statements of the Acquired Fund dated as of
March 31, 2000 (the "Acquired Fund Financial Statements"), as delivered to
the Acquiring Fund, fairly present the financial position of the Acquired
Fund as of the dates thereof, and the results of its operations and changes
in its net assets for the periods indicated.
(d) Marketable Title to Assets. The Acquired Fund will have, at the
Effective Time, good and marketable title to, and full right, power and
authority to sell, assign, transfer and deliver, the assets to be
transferred to the Acquiring Fund. Upon delivery and payment for such
assets, the Acquiring Fund will have good and marketable title to such
assets without restriction on the transfer thereof free and clear of all
liens, encumbrances and adverse claims.
(e) Authority Relative to this Agreement. TIP Trust, on behalf of the
Acquired Fund, has the power to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby,
have been duly authorized by TIP Trust's Board of Trustees, and, except for
approval by the shareholders of the Acquired Fund, no other proceedings by
the Acquired Fund are necessary to authorize its officers to effectuate
this Agreement and the transactions contemplated hereby. The Acquired Fund
is not a party to or obligated under any charter, by-law, indenture or
contract provision or any other commitment or obligation, or subject to any
order or decree, which would be violated by its executing and carrying out
this Agreement.
(f) Liabilities. There are no liabilities of the Acquired Fund, whether or
not determined or determinable, other than liabilities disclosed or
provided for in the Acquired Fund Financial Statements and liabilities
incurred in the ordinary course of business subsequent to October 23, 2000
or otherwise previously disclosed to the Acquiring Fund, none of which has
been materially adverse to the business, assets or results of operations of
the Acquired Fund. TIP Trust's Registration Statement, which is on file
with the Securities and Exchange Commission, does not contain an untrue
statement of a material fact required to be stated therein or necessary to
make the statements therein not misleading.
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(g) Litigation. Except as previously disclosed to the Acquiring Fund, there
are no claims, actions, suits or proceedings pending or, to the knowledge
of the Acquired Fund, threatened which would materially adversely affect
the Acquired Fund or its assets or business or which would prevent or
hinder in any material respect consummation of the transactions
contemplated hereby.
(h) Contracts. Except for contracts and agreements disclosed to the
Acquiring Fund, under which no default exists, the Acquired Fund, at the
Effective Time, is not a party to or subject to any material contract, debt
instrument, plan, lease, franchise, license or permit of any kind or nature
whatsoever.
(i) Taxes. As of the Effective Time, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed shall have
been filed, and all other taxes shall have been paid so far as due, or
provision shall have been made for the payment thereof, and to the best of
the Acquired Fund's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any of such returns.
6. Conditions Precedent to Obligations of the Acquiring Fund.
(a) All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time.
(b) The Acquiring Fund shall have received an opinion of counsel for the
Acquired Fund, dated as of the Effective Time, addressed to and in form and
substance satisfactory to counsel for the Acquiring Fund, to the effect
that (i) the Acquired Fund is duly organized and validly existing series of
TIP Trust under the laws of the Commonwealth of Massachusetts; (ii) TIP
Trust is an open-end management investment company registered under the
1940 Act; (iii) this Agreement and the Reorganization provided for herein
and the execution of this Agreement have been duly authorized and approved
by all requisite action of the Acquired Fund and this Agreement has been
duly executed and delivered by TIP Trust on behalf of the Acquired Fund and
is a valid and binding obligation of the Acquired Fund, subject to
applicable bankruptcy, insolvency, fraudulent conveyance and similar laws
or court decisions regarding enforcement of creditors' rights generally;
(iv) to the best of counsel's knowledge after reasonable inquiry, no
consent, approval, order or other authorization of any Federal or state
court or administrative or regulatory agency is required for the Acquired
Fund to enter into this Agreement or carry out its terms that has not been
obtained other than where the failure to obtain any such consent, approval,
order or authorization would not have a material adverse effect on the
operations of the Acquired Fund; and (v) upon consummation of this
Agreement, the Acquiring Fund shall have acquired all of the Acquired
Fund's assets listed in the Statement of Assets and Liabilities, free and
clear of all liens encumbrances or adverse claims.
(c) The Acquired Fund shall have delivered to the Acquiring Fund at the
Effective Time the Acquired Fund's Statement of Assets and Liabilities,
prepared in accordance with generally
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accepted accounting principles consistently applied, together with a
certificate of the Treasurer or Assistant Treasurer of the Acquired Fund as
to the aggregate asset value of the Acquired Fund's portfolio securities.
7. Conditions Precedent to Obligations of the Acquired Fund.
(a) All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time.
(b) The Acquired Fund shall have received an opinion of counsel for the
Acquiring Fund, dated as of the Effective Time, addressed to and in form
and substance satisfactory to counsel for the Acquired Fund, to the effect
that: (i) the Acquiring Fund is duly organized and validly existing series
of Alpha Select Trust under the laws of the State of Delaware; (ii) Alpha
Select Trust is an open-end management investment company registered under
the 1940 Act; (iii) this Agreement and the Reorganization provided for
herein and the execution of this Agreement have been duly authorized and
approved by all requisite corporate action of the Acquiring Fund and this
Agreement has been duly executed and delivered by the Acquiring Fund and is
a valid and binding obligation of the Acquiring Fund, subject to applicable
bankruptcy, insolvency, fraudulent conveyance and similar laws or court
decisions regarding enforcement of creditors' rights generally; (iv) to the
best of counsel's knowledge after reasonable inquiry, no consent, approval,
order or other authorization of any Federal or state court or
administrative or regulatory agency is required for the Acquiring Fund to
enter into this Agreement or carry out its terms that has not already been
obtained, other than where the failure to obtain any such consent,
approval, order or authorization would not have a material adverse effect
on the operations of the Acquiring Fund; and (v) the Acquiring Fund Shares
to be issued in the Reorganization have been duly authorized and upon
issuance thereof in accordance with this Agreement will be validly issued,
fully paid and nonassessable.
8. Further Conditions Precedent to Obligations of the Acquired Fund and the
Acquiring Fund. The obligations of the Acquired Fund and the Acquiring Fund to
effectuate this Agreement shall be subject to the satisfaction of each of the
following conditions:
(a) Such authority from the Securities and Exchange Commission (the "SEC")
and state securities commissions as may be necessary to permit the parties
to carry out the transactions contemplated by this Agreement shall have
been received.
(b) With respect to the Acquired Fund, TIP Trust will call a meeting of
shareholders to consider and act upon this Agreement and to take all other
actions reasonably necessary to obtain the approval by shareholders of each
of the Acquired Fund of this Agreement and the transactions contemplated
herein, including the Reorganization and the termination of the Acquired
Fund if the Reorganization is consummated. TIP Trust has prepared or will
prepare the notice of meeting, form of proxy and Proxy Statement
(collectively, "Proxy Materials") to be used in connection with such
meeting; provided that the Acquiring Fund has furnished or
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will furnish a current, effective Prospectus relating to the Acquiring Fund
Shares for incorporation within and/or distribution with the Proxy
Materials, and with such other information relating to the Acquiring Fund
as is reasonably necessary for the preparation of the Proxy Materials.
(c) The Registration Statement on Form N-1A of the Acquiring Fund shall be
effective under the Securities Act of 1933 and, to the best knowledge of
the Acquiring Fund, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the
1933 Act.
(d) The shares of the Acquiring Fund shall have been duly qualified for
offering to the public in all states of the United States, the Commonwealth
of Puerto Rico and the District of Columbia (except where such
qualifications are not required) so as to permit the transfer contemplated
by this Agreement to be consummated.
(e) The Acquired Fund and the Acquiring Fund shall have received on or
before the Effective Time an opinion of counsel satisfactory to the
Acquired Fund and the Acquiring Fund substantially to the effect,
provided the acquisition contemplated herein is carried out in accordance
with this Plan and based upon certificate of TIP Trust and the Alpha
Select Trust with regards to matters of fact, that for Federal income
tax purposes:
(1) No gain or loss will be recognized to the Acquired Fund upon the
transfer of its assets in exchange solely for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of the Acquired Fund's
stated liabilities. No opinion, however, will be expressed as to
whether any accrued market discount will be required to be recognized
as ordinary income pursuant to Section 1276 of the Code;
(2) No gain or loss will be recognized to the Acquiring Fund on its
receipt of the Acquired Fund's assets in exchange for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of the Acquired
Fund's liabilities;
(3) The basis of an Acquired Fund's assets in the Acquiring Fund's
hands will be the same as the basis of those assets in the Acquired
Fund's hands immediately before the exchange;
(4) The Acquiring Fund's holding period for the assets transferred to
the Acquiring Fund by the Acquired Fund will include the holding
period of those assets in the Acquired Fund's hands immediately before
the exchange;
(5) No gain or loss will be recognized to the Acquired Fund on the
distribution of the Acquiring Fund Shares to the Acquired Fund's
shareholders in exchange for their Acquired Fund Shares;
(6) No gain or loss will be recognized to the Acquired Fund's
shareholders as a result of the Acquired Fund's distribution of
Acquiring Fund Shares to the Acquired Fund's shareholders in exchange
for the Acquired Fund's shareholders' Acquired Fund Shares;
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(7) The basis of the Acquiring Fund Shares received by the Acquired
Fund's shareholders will be the same as the adjusted basis of the
Acquired Fund's shareholders' Acquired Fund Shares surrendered in
exchange therefor; and
(8) The holding period of the Acquiring Fund Shares received by the
Acquired Fund's shareholders will include the Acquired Fund's
shareholders' holding period for the Acquired Fund's shareholders'
Acquired Fund Shares surrendered in exchange therefor, provided that
said Acquired Fund Shares were held as capital assets on the date of
the exchange.
(f) A vote approving this Agreement and the Reorganization contemplated
hereby shall have been adopted by at least a majority of the outstanding
shares of the Acquired Fund entitled to vote at an annual or special
meeting.
(g) The Board of Trustees of Alpha Select Trust, at a meeting duly called
for such purpose, shall have authorized the issuance by the Acquiring Fund
of Acquiring Fund Shares at the Effective Time in exchange for the assets
of the Acquired Fund pursuant to the terms and provisions of this
Agreement.
9. Effective Time of the Reorganization. The exchange of the Acquired Fund's
assets for Acquiring Fund Shares shall be effective as of close of business on
October 23, 2000 or at such other time and date as fixed by the mutual consent
of the parties (the "Effective Time").
10. Termination. This Agreement and the transactions contemplated hereby may be
terminated and abandoned without penalty by resolution of the Board of Trustees
of TIP Trust or by a resolution of the Board of Trustees of Alpha Select Fund,
at any time prior to the Effective Time, if circumstances should develop that,
in the opinion of the respective Board, make proceeding with the Agreement
inadvisable.
11. Amendment. This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the parties; provided,
however, that following the Shareholders' Meeting called on behalf of the
Acquired Fund pursuant to Section 8 of this Agreement, no such amendment may
have the effect of changing the provisions for determining the number or value
of Acquiring Fund Shares to be paid to the Acquired Fund's shareholders under
this Agreement to the detriment of the Acquired Fund's shareholders without
their further approval.
12. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
13. Notices. Any notice, report, statement or demand required or permitted by
and provision of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy, certified mail or overnight express courier
addressed as follows:
if to the Acquiring Fund:
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Mr. Peter M. Moran
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
with a copy to:
James W. Jennings, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
if to the Acquired Fund:
Stephen J. Kneeley
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
with a copy to:
John H. Grady, Jr., Esquire
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
14. Fees and Expenses.
(a) Each of the Acquiring Fund and the Acquired Fund represents and
warrants to the other that there are no brokers or finders entitled to
receive any payments in connection with the transactions provided for
herein.
(b) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquired Fund
and the Acquiring Fund will be borne by Turner Investment Partners, Inc.
pursuant to a separate agreement. Such expenses include, without
limitation, (i) expenses incurred in connection with the entering into and
the carrying out of the provisions of this Agreement; (ii) expenses
associated with the preparation and filing of the Proxy Statement under the
1934 Act; (iii) registration or qualification fees and expenses of
preparing and filing such forms as are necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in
connection herewith in each state in which the Acquired Fund's shareholders
are resident as of the date of the mailing of the Proxy Statement to such
shareholders; (iv) postage; (v) printing; (iv) accounting fees; (vii) legal
fees; and (viii) solicitation costs of the transaction. Notwithstanding the
foregoing, the Acquiring Fund shall pay its own Federal and state
registration fees.
A-9
<PAGE>
15. Headings, Counterparts, Assignment.
(a) The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not effect in any way the meaning or
interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
(c) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation other than the parties
hereto and their respective successors and assigns any rights or remedies
under or by reason of this Agreement.
16. Entire Agreement. Each of the Acquiring Fund and the Acquired Fund agree
that neither party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire agreement between
the parties. The representations, warranties and covenants contained herein or
in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
17. Further Assurances. Each of the Alpha Select Trust, the Acquiring Fund, the
TIP Trust and the Acquired Fund shall take such further action as may be
necessary or desirable and proper to consummate the transactions contemplated
hereby.
18. Binding Nature of Agreement. As provided in each trust's Declaration of
Trust on file with the Secretary of State of the Commonwealth of Massachusetts
or State of Delaware, as appropriate, this Agreement was executed by the
undersigned officers of Alpha Select Trust and TIP Trust, on behalf of each of
the Acquiring Fund and the Acquired Fund, respectively, as officers and not
individually, and the obligations of this Agreement are not binding upon the
undersigned officers, nor are they binding upon the Trust's other officers and
Trustees, individually, but are binding only upon the assets and property of
each trust. Moreover, no series of a trust shall be liable for the obligations
of any other series of that trust.
Attest: TIP FUNDS,
on behalf of its series,
TIP Target Select Equity Fund
By:
------------------------ -----------------------------------
Attest: ALPHA SELECT FUNDS,
on behalf of its series,
Alpha Select Target Select Equity Fund
By:
------------------------ -----------------------------------
A-10
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
TIP TARGET SELECT EQUITY FUND
a Series of
TIP FUNDS
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312
(800) 224-6312
By and In Exchange For Shares of
TARGET SELECT EQUITY FUND
a Series of
ALPHA SELECT FUNDS
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312
(800) 224-6312
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of TIP Target Select Equity Fund
("Target Select Fund"), a series of TIP Funds, in exchange for shares of
beneficial interest of Alpha Select Funds, without par value, consists of this
cover page and the following described documents, each of which is attached
hereto and incorporated by reference herein:
(1) The Prospectus for the TIP Target Select Equity Fund dated January 31,
2000
(2) The Statement of Additional Information of TIP Funds dated June 30,
2000;
(3) The Prospectus for the Alpha Select Target Select Equity Fund
(4) The Statement of Additional Information for the Alpha Select Target
Select Equity Fund.
(5) Annual Report of TIP Target Select Equity Fund for the year ended
September 30, 1999; and
(6) Semiannual Report of TIP Target Select Equity Fund dated March 31,
2000.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of TIP Funds and Alpha Select dated October 13, 2000. A copy of the
Prospectus/Proxy Statement may be obtained without charge by calling or writing
to TIP Funds or Alpha Select, respectively, at the numbers or addresses set
forth above.
The date of this Statement of Additional Information is October 13, 2000.
<PAGE>
TIP FUNDS
PROSPECTUS
January 31, 2000
TIP TARGET SELECT EQUITY FUND
Investment Adviser
TURNER INVESTMENT PARTNERS, INC.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
Page 1 of 18
<PAGE>
How to Read Your Prospectus
TIP Funds is a mutual fund family that offers different classes of shares in
separate investment portfolios (Fund). The Fund has individual investment goals
and strategies. This prospectus gives you important information about the Fund
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 Fund. For more detailed information about
the Fund, please see:
Page
----
TIP TARGET SELECT EQUITY FUND..........................................XXX
INVESTMENTS AND PORTFOLIO MANAGEMENT...................................XXX
PURCHASING, SELLING AND EXCHANGING TIP FUNDS...........................XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES.....................................XXX
FINANCIAL HIGHLIGHTS...................................................XXX
To obtain more information about TIP Funds, please refer to the Back Cover of
the Prospectus.
Page 2 of 18
<PAGE>
INFORMATION ABOUT THE FUND
The TIP Target Select Equity Fund is a mutual fund. A mutual fund pools
shareholders' money and, using professional investment managers, invests it in
securities.
The Fund has its own investment goal and strategies for reaching that goal. The
Adviser and Sub-Advisers invest Fund assets in a way that it believes will help
the Fund achieve its goal. Still, investing in the Fund involves risk and there
is no guarantee that the Fund will achieve its goal. The Adviser's and
Sub-Advisers' judgments about the markets, the economy, or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the return on your investment. In fact, no matter
how good a job the Adviser and Sub-Advisers do, you could lose money on your
investment in the 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 the Fund is based on the market prices 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 the Fund owns and the markets in which they trade. The
effect on the Fund's share price of a change in the value of a single security
will depend on how widely the Fund diversifies its holdings.
Page 3 of 18
<PAGE>
TIP Target Select Equity Fund
Fund Summary
<TABLE>
<CAPTION>
<S> <C>
Investment Goal Long-term capital appreciation
Investment Focus Common stocks of U.S. issuers
Share Price Volatility High
Principal Investment Strategy Utilizing sub-advisers experienced in selecting
securities that have growth potential or that are
undervalued, the Fund invests in U.S. common stocks
Investor Profile Investors who want capital appreciation but who can
tolerate the risks of investing in equity securities
</TABLE>
Strategy
The TIP Target Select Equity Fund invests primarily (at least 65% of its assets)
in common stocks and other equity securities of companies regardless of their
market capitalization. The Fund uses a multi-manager approach, relying upon a
number of sub-advisers with differing investment philosophies to manage portions
of the Fund's portfolio under the general supervision of Turner. In selecting
investments for the Fund, the Adviser and the Sub-Advisers typically choose
stocks of companies that have above-average growth potential or that have been
undervalued by the market. The Fund will invest in securities of companies
operating in a broad range of industries based on their growth potential or
their relatively attractive price.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
Risks
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.
Page 4 of 18
<PAGE>
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over the counter or listed on an exchange and may
or may not pay dividends.
The Fund's investment approach, with its emphasis on stocks in a variety of
capitalization ranges, is expected to offer potentially higher returns and a
higher level of volatility relative to equity funds that invest solely in large
cap companies. In addition, because the Fund does not employ a specific "growth"
or "value" discipline, the Fund can be expected to perform differently than
funds that employ a specific investment style.
The Fund is non-diversified, which means that it may invest in the securities of
fewer issuers than a diversified fund. As a result, the Fund may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
Performance Information
The bar chart and the performance table below illustrate 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 Shares from year
to year for two years.*
1998 25.45%
1999 113.07%
* The performance information shown above is based on a calendar year.
Best Quarter Worst Quarter
43.45% (17.08)%
(12/31/99) (9/30/98)
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 3000 Index.
Since Inception
1 Year (1/1/98)
--------------------------------------------------------------------------
TIP Target Select Equity Fund 113.07% 63.50%
Russell 3000 Index 20.90% 22.51%
Page 5 of 18
<PAGE>
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 Russell 3000 Index is a widely-recognized, capitalization-weighted
(companies with larger market capitalizations have more influence than those
with smaller market capitalizations) index of the 3,000 largest U.S. companies.
Fund Fees and Expenses
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
Annual Fund Operating Expenses (expenses deducted from Fund assets)
----------------------------------------------------------------------------
Investment Advisory Fees 1.05%
Distribution (12b-1) Fees None
Other Expenses 9.14%
------
Total Annual Fund Operating Expenses 10.19%
Fee Waivers and Expense Reimbursements 8.89%
------
Net Total Operating Expenses 1.30%*
--------------------------------------------------------------------------------
* The Fund's Adviser has contractually agreed to waive fees and to reimburse
expenses in order to keep total operating expenses from exceeding 1.30% for a
period of one year, or from exceeding 1.80% in any subsequent year. In addition,
the Fund has an arrangement with certain broker-dealers who have agreed to pay
certain fund expenses in return for the direction of a percentage of the Fund's
brokerage transactions. As a result of these arrangements, it is anticipated
that the Fund's expenses will be reduced. For more information about these fees,
see "Investment Adviser."
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
------ ------- ------- --------
TIP Target Select Equity Fund $132 $520 $936 $2,120
Page 6 of 18
<PAGE>
The Fund's Other Investments
In addition to the investments and strategies described in this prospectus, the
Fund also may 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, there is no guarantee that the Fund
will achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that the Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, the 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 Fund's objectives.
The Fund will do so only if the Adviser believes that the risk of loss outweighs
the opportunity for gains.
Investment Adviser
Turner Investment Partners, Inc., an SEC-registered adviser, serves as the
Adviser to the Fund. As the Fund's Adviser, Turner makes investment decisions
for the Fund and continuously reviews, supervises and administers the Fund's
investment programs. The Adviser also ensures compliance with the Fund's
investment policies and guidelines.
As of December 31, 1999, Turner had approximately $5.6 billion in assets under
management. For its services during the most recent fiscal year, Turner received
no investment advisory fees and waived/reimbursed expenses of 7.84%. Turner pays
a portion of this fee to the Fund's sub-advisers.
Portfolio Managers
Robert E. Turner is a Trustee of the Trust and will be responsible for
monitoring the day-to-day activity of the investment managers. In addition, Mr.
Turner will act as portfolio manager of the portion of the assets of the Fund
managed by Turner Investment Partners. Mr. Turner is also Chairman and Chief
Investment Officer of Turner Investment Partners, Inc. He has held this position
since the founding of Turner Investment Partners, Inc. in 1990. He has 18 years
of investment experience.
Chartwell Investment Partners manages a portion of the assets of the Fund. Wynn
Jessup, founder of Chartwell Investment Partners, and Chairman and President of
Chartwell Dividend and Income Fund, serves as portfolio manager to the TIP
Target Select Equity Fund. Mr. Jessup has over 31 years of investment
experience.
Penn Capital Management Company, Inc. manages a portion of the assets of the
Fund. Richard Hocker, founder of Penn Capital Management, Inc., serves as
portfolio manager to the TIP Target Select Equity Fund. Prior to founding Penn
Capital in 1987, Mr. Hocker was a shareholder and Senior Portfolio Manager of
Delaware Investment Advisers, and investment management firm. He has over 36
years of investment experience.
Clover Capital Management, Inc. manages a portion of the assets of the Fund.
Michael Jones, co-founder and Managing Director of Clover Capital, serves as
portfolio manager to the TIP Target Select Equity Fund. Mr. Jones has over 20
years of investment experience.
Page 7 of 18
<PAGE>
Purchasing, Selling and Exchanging TIP Funds
--------------------------------------------------------------------------------
In order to open a new account, you must complete and mail the New Account
Application that you receive with this prospectus.
All trades must be received by the Fund's Transfer Agent by 4:00 PM EST.
Your check must be made payable to the TIP Funds.
The Fund's minimum initial investment is $2,500 with minimum subsequent
purchases of $50.
--------------------------------------------------------------------------------
Once you are a shareholder of the TIP Funds you can do the following:
--------------------------------------------------------------------------------
* Purchase, sell or exchange Fund shares by phone.
Call 1-800-224-6312 between 9:00 AM and 4:00 PM EST Monday through Friday and
press 3 to place a trade.
--------------------------------------------------------------------------------
* Purchase, sell or exchange Fund shares by mail. Shareholders can mail trade
requests to:
Regular mail Express or overnight mail
TIP Funds TIP Funds
P.O. Box 219805 c/o DST Systems Inc.
Kansas City, MO 64141-6805 330 W. 9th Street
Kansas City, MO 64105
--------------------------------------------------------------------------------
* Purchase Fund shares by wiring funds to:
United Missouri Bank of Kansas NA
ABA #101000695
Account # 9870601168
Further Credit: name of fund, shareholder name and TIP Funds
account number
--------------------------------------------------------------------------------
Page 8 of 18
<PAGE>
The TIP Target Select Equity Fund is a "no load" mutual fund, meaning you pay no
sales charge when purchasing shares of the Fund. The minimum initial investment
is $2,500 and the subsequent investments are $50. The Fund reserves the right to
waive the minimum initial investment.
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Fund.
Purchasing TIP Fund Shares
When Can You Purchase Shares?
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day).
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Fund or its shareholders.
To open an account:
o By Mail -- Please send your completed application, with a check payable to
TIP Funds, to the address listed on this page. Your check must be in U.S.
dollars and drawn on a bank located in the United States. We do not accept
third party checks, credit card checks or cash.
o By Wire -- Please call us at 1-800-224-6312 (option 3) to let us know that
you intend to make your initial investment by wire. You will be given an
account number and fax number to which you should send your completed New
Account Application. Once this is complete you will need to instruct your
bank to wire money to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [TIP Target
Select Equity Fund]. The shareholder's name and account number must be
specified in the wire.
Systematic Investment Plan
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions from your account. Please call
1-800-224-6312 for information regarding participating banks. With a $100
minimum initial investment, you may begin regularly scheduled investments once a
month.
Page 9 of 18
<PAGE>
How Fund Prices are Calculated
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order. NAV for one
Fund share is the value of that share's portion of all of the net assets in the
Fund. The Fund's NAV is calculated once each Business Day at the
regularly-scheduled close of normal trading on the NYSE (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.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
Purchasing Additional Shares
o By Mail -- Please send your check payable to TIP Funds along with a signed
letter stating the name of the TIP Target Select Equity Fund and your
account number.
o By Phone -- Current shareholders are eligible to purchase shares by phone
if they have requested that privilege by checking the appropriate box on
the New Account Application. Shareholders who have requested telephone
privileges can call 1-800-224-6312 (option 3) and give the Fund and account
number they would like to make a subsequent purchase into. They must then
instruct their bank to wire the money by following the instructions listed
on page ___.
Additional Information
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 Fund to your institution.
Selling TIP Funds
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. The sale price of
each share will be the next NAV determined after we receive your request.
You may sell shares by following procedures established when you opened your
account or accounts. If you have questions, call 1-800-224-6312. If you own
shares through an account 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.
Page 10 of 18
<PAGE>
o By Mail - If you wish to redeem shares of the TIP Target Select Equity
Fund, you should send us a letter with your name, Fund and account number
and the amount of your request. All letters must be signed by the owner(s)
of the account. All proceeds will be mailed or wired (depending on
instructions given) to the address or instructions given to us when the
account was established. If you would like the proceeds sent to either a
different bank account or address, a signature guarantee is required.
o By Phone -- When filling out a New Account Application shareholders are
given the opportunity to establish telephone redemption privileges. If
shareholders elect to take advantage of this privilege they will be able to
redeem shares of the TIP Funds by calling 1-800-224-6312 (option 3) and
informing one of our representatives.
Systematic Withdrawal Plan
If you have at least $2,500 in your account, you may use the Systematic
Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. Please
call 1-800-224-6312 for information regarding banks that participate in the
Systematic Withdrawal Plan.
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.
Redemptions in Kind
The Fund generally pays sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders) the Fund 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.
Page 11 of 18
<PAGE>
Receiving Your Money
Normally, the Fund will send your sale proceeds within three Business Days after
they receive your request, but it may take up to seven 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 days from your date of purchase).
Exchanging Fund Shares
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.
You may exchange your shares on any Business Day by contacting the Fund 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 days from your date of purchase). This exchange
privilege may be changed or canceled at any time upon 60 days' notice.
Other Policies:
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.
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.
Suspension of Your Right to Sell Your Shares
The Fund may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the Fund's SAI.
Page 12 of 18
<PAGE>
Involuntary Sales of Your Shares
If your account balance drops below the required minimum of $1,000, you may be
required to sell your shares. You will always be given at least 60 days' written
notice to give you time to add to your account and avoid selling your shares.
Distribution of Fund Shares
SEI Investments Distribution Co. (SIDCo.) is the distributor of the Fund.
SIDCo. receives no compensation for distributing the Fund's shares.
Dividends and Distributions
The TIP Target Select Equity Fund distributes its investment income quarterly as
a dividend to shareholders. The Fund makes distributions of capital gains, if
any, at least annually.
If you own Fund shares on the Fund's record date, you will be entitled to
receive the distribution.
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 the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after we receive
your written notice. To cancel your election, simply send the Fund written
notice.
Page 13 of 18
<PAGE>
Taxes
Please consult your tax advisor regarding your specific questions about federal,
state and local income taxes. Summarized below are some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its 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. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. Distributions you receive from the Fund may be taxable whether or not you
reinvest them. Each sale or exchange of Fund shares is a taxable event.
More information about taxes is in the SAI.
Page 14 of 18
<PAGE>
Financial Highlights
The table that follows presents performance information about shares of the
Fund. This information is intended to help you understand the 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 table represent the rate that you would
have earned (or lost) on an investment in the Fund, assuming you reinvested all
of your dividends and distributions. These Financial Highlights have been
audited by Ernst & Young LLP, independent auditors whose report, along with the
Fund's financial statements, appears in the annual report that accompanies our
SAI. You can obtain the annual report, which contains more performance
information, at no charge by calling 1-800-224-6312.
Page 15 of 18
<PAGE>
Financial Highlights
TIP Funds
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Realized Net Net
Asset Net and Distributions Distributions Asset Assets
Value Investment Unrealized from Net from Value End
Beginning Income Gains on Investment Capital End Total of Period
of Period (Loss) Investments Income Gains of Period Return(1) (000)
-------------------------------------------------------------------------------------------------------------------------------
TIP Target Select Equity Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $10.34 (0.07) 7.80 -- (0.90) $17.17 80.04% $1,839
1998(2) $10.00 -- 0.35 (0.01) -- $10.34 3.50% $ 966
<CAPTION>
Ratio of Net
Ratio of Net Ratio of Investment
Investment Expenses Income (Loss)
Ratio Income to Average to Average
of Expenses (Loss) Net Assets Net Assets Portfolio
to Average to Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
--------------------------------------------------------------------------------
TIP Target Select Equity Fund
<S> <C> <C> <C> <C>
1.30% (0.56)% 10.19% (9.45)% 1,279.40%
1.30%* 0.02%* 18.76%* (17.44)%* 803.02%
</TABLE>
* Annualized
(1) Returns are for the period indicated and have not been annualized.
(2) Commenced operations on January 1, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
Page 16 of 18
<PAGE>
TIP FUNDS
Investment Adviser
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
Distributor
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Legal Counsel
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
Statement of Additional Information (SAI)
The SAI dated January 31, 2000, includes detailed information about the Fund.
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 contain the Fund's holdings and contain information from the
Fund's managers about strategies, and recent market conditions and trends and
their impact on Fund performance. The reports also contain detailed financial
information about the Fund.
To Obtain an SAI, Annual or Semi-Annual Report, or More Information:
By Telephone: Call 1-800-224-6312
By Mail: Write to TIP Funds
P.O. Box 219805
Kansas City, MO 64141-6805
By Internet: http://www.turner-invest.com
Page 17 of 18
<PAGE>
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about TIP Funds, from the EDGAR Database on 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 on the operation of
the Public Reference Room, call 1-202-942-8090). 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 20549-0102.
You may also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected].
TIP Funds' Investment Company Act registration number is 811-07527.
Page 18 of 18
<PAGE>
TIP FUNDS
TURNER MIDCAP GROWTH FUND
TURNER SMALL CAP GROWTH FUND
TURNER MICRO CAP GROWTH FUND
TURNER SELECT GROWTH EQUITY FUND
TURNER TOP 20 FUND
TURNER TECHNOLOGY FUND
TURNER GLOBAL TOP 40 FUND
TURNER B2B E-COMMERCE FUND
TURNER WIRELESS & COMMUNICATIONS FUND
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
TURNER CORE HIGH QUALITY FIXED INCOME FUND
TIP TARGET SELECT EQUITY FUND
JUNE 30, 2000
INVESTMENT ADVISER:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Midcap Growth Fund ("Midcap Fund"), Turner Small Cap Growth Fund
("Small Cap Fund"), Turner Micro Cap Growth Fund ("Micro Cap Fund"), Turner
Select Growth Equity Fund ("Select Growth Fund"), Turner Top 20 Fund ("Top 20
Fund"), Turner Technology Fund ("Technology Fund"), Turner Global Top 40 Fund
("Global Fund"), Turner B2B E Commerce Fund ("E Commerce Fund"), Turner Wireless
& Communications Fund ("Communications Fund"), Turner Short Duration Government
Funds - One Year Fund ("One Year Portfolio"), Turner Short Duration Government
Funds-Three Year Portfolio ("Three Year Portfolio"), Turner Core High Quality
Fixed Income Fund ("Fixed Income Fund"), and the TIP Target Select Equity Fund
("Target Select Fund") (each a "Fund" and, together, the "Funds"). It is
intended to provide additional information regarding the activities and
operations of the TIP Funds (the "Trust") and should be read in conjunction with
the Turner Funds' Prospectuses dated June 30, 2000. The Prospectuses may be
obtained without charge by calling 1-800-224-6312.
TABLE OF CONTENTS
THE TRUST .................................................. S-2
INVESTMENT OBJECTIVES ...................................... S-2
INVESTMENT POLICIES ........................................ S-3
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS ...... S-11
INVESTMENT LIMITATIONS ..................................... S-24
THE ADVISER ................................................ S-27
THE ADMINISTRATOR .......................................... S-30
DISTRIBUTION AND SHAREHOLDER SERVICES ...................... S-32
TRUSTEES AND OFFICERS OF THE TRUST ......................... S-33
COMPUTATION OF YIELD AND TOTAL RETURN ...................... S-35
PURCHASE AND REDEMPTION OF SHARES .......................... S-37
DETERMINATION OF NET ASSET VALUE ........................... S-38
TAXES ...................................................... S-38
PORTFOLIO TRANSACTIONS ..................................... S-41
VOTING ..................................................... S-44
DESCRIPTION OF SHARES ...................................... S-44
SHAREHOLDER LIABILITY ...................................... S-45
LIMITATION OF TRUSTEES' LIABILITY .......................... S-45
5% SHAREHOLDERS ............................................ S-45
CUSTODIAN .................................................. S-49
EXPERTS .................................................... S-49
LEGAL COUNSEL .............................................. S-49
FINANCIAL STATEMENTS ....................................... S-49
APPENDIX ................................................... A-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Turner Midcap
Growth Fund ("Midcap Fund"), Turner Small Cap Growth Fund ("Small Cap Fund"),
Turner Micro Cap Growth Fund ("Micro Cap Fund"), Turner Select Growth Equity
Fund ("Select Growth Fund"), Turner Top 20 Fund ("Top 20 Fund"), Turner
Technology Fund ("Technology Fund"), Turner Global Top 40 Fund ("Global Fund"),
Turner B2B E Commerce Fund ("E Commerce Fund"), Turner Wireless & Communications
Fund ("Communications Fund"), Turner Short Duration Government Funds-One Year
Portfolio ("One Year Portfolio"), Turner Short Duration Government Funds-Three
Year Portfolio ("Three Year Portfolio"), Turner Core High Quality Fixed Income
Fund, ("Fixed Income Fund"), and TIP Target Select Equity Fund ("Target Select
Fund"), (each a "Fund" and, together the "Funds"). Each is a separate series of
TIP Funds (formerly, Turner Funds) (the "Trust"), an open-end management
investment company established as a Massachusetts business trust under a
Declaration of Trust dated January 26, 1996, and amended on February 21, 1997,
which consists of both diversified and non-diversified Funds. The Declaration of
Trust permits the Trust to offer separate series of units of beneficial interest
(the "shares") and separate classes of funds. Each portfolio is a separate
mutual fund and each share of each portfolio represents an equal proportionate
interest in that portfolio. Shareholders may purchase shares in the One Year
Portfolio or the Three Year Portfolio through two separate classes, Class I and
Class II, which provide for variations in distribution costs, transfer agent
fees, voting rights and dividends. All other Funds in the Trust offer only Class
I Shares. Except for differences between the Class I Shares and the Class II
Shares pertaining to distribution and shareholder servicing, voting rights,
dividends and transfer agent expenses, each share of each series represents an
equal proportionate interest in that series. Please see "Description of Shares"
for more information.
On January 29, 1999, the Micro Cap Fund and the Three Year Portfolio acquired
all of the assets and liabilities of the Alpha Select Turner Micro Cap Growth
Fund and the Alpha Select Turner Short Duration Government Funds-Three Year
Portfolio, respectively. On June 30, 1999, the One Year Portfolio acquired all
of the assets and liabilities of the Alpha Select Turner Short Duration
Government Funds - One Year Portfolio. Historical information presented for
those Funds relates to the Alpha Select Funds. The Trust also offers shares in
the Clover Max Cap Value Fund, Clover Equity Value Fund, Clover Small Cap Value
Fund, Clover Fixed Income Fund, Penn Capital Select Financial Services Fund,
Penn Capital Strategic High Yield Bond Fund, and Penn Capital Value Plus Fund.
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
INVESTMENT OBJECTIVES
TURNER MIDCAP GROWTH FUND -- The Midcap Fund seeks capital appreciation.
TURNER SMALL CAP GROWTH FUND -- The Small Cap Fund seeks capital appreciation.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund seeks capital appreciation.
TURNER SELECT GROWTH EQUITY FUND -- The Select Growth Fund seeks long-term
capital appreciation.
TURNER TOP 20 FUND -- The Top 20 Fund seeks long-term capital appreciation.
TURNER TECHNOLOGY FUND -- The Technology Fund seeks long-term capital
appreciation.
TURNER GLOBAL TOP 40 FUND -- The International Fund seeks long-term capital
appreciation.
TURNER B2B E COMMERCE FUND -- The E Commerce Fund seeks long-term capital
appreciation.
TURNER WIRELESS & COMMUNICATIONS FUND -- The Communications Fund seeks long-term
capital appreciation.
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO & 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 One
Year Portfolio seeks to maintain an average effective duration comparable to or
less than that of one-year U.S. Treasury bills. The 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
S-2
<PAGE>
security's price volatility or risk associated with changes in interest rates.
Because the Turner Investment Partners, Inc. (the "Adviser") seeks to manage
interest rate risk by limiting effective duration, each Fund may invest in
securities of any maturity.
TURNER CORE HIGH QUALITY FIXED INCOME FUND -- The Fixed Income Fund seeks total
return through current income and capital appreciation.
TIP TARGET SELECT EQUITY FUND -- The Target Select Fund seeks long-term growth
of capital primarily from investment in U.S. equity securities.
There can be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
TURNER MIDCAP GROWTH FUND--The Midcap Fund invests primarily (and, under normal
conditions, at least 65% of its total assets) in a diversified portfolio of
common stocks of issuers that, at the time of purchase, have market
capitalizations between $1 billion and $8 billion that the Adviser believes to
have strong earnings growth potential. The Midcap Fund seeks to purchase
securities that are well diversified across economic sectors and to maintain
sector concentrations that approximate the economic sector weightings comprising
the Russell Midcap Growth Index (or such other appropriate index selected by the
Adviser). Any remaining assets may be invested in securities issued by smaller
capitalization companies and larger capitalization companies, warrants and
rights to purchase common stocks, and it may invest up to 10% of its total
assets in ADRs. The Midcap Fund will only purchase securities that are traded on
registered exchanges or the over-the-counter market in the United States.
The Midcap Fund may purchase shares of other investment companies.
TURNER SMALL CAP GROWTH FUND--The Small 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 $2
billion that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Small Cap Fund will maintain a weighted
average market capitalization of less than $2 billion. The Small Cap Fund seeks
to purchase securities that are well diversified across economic sectors and to
maintain sector concentrations that approximate the economic sector weightings
comprising the Russell 2000 Growth Index (or such other appropriate index
selected by the Adviser). The Small Cap Fund may invest in warrants and rights
to purchase common stocks, and may invest up to 10% of its total assets in ADRs.
The Small Cap Fund will only purchase securities that are traded on registered
exchanges or the over-the-counter market in the United States.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $500
million that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Micro Cap Fund will maintain a weighted
average market capitalization of less than $350 million. The Micro Cap Fund will
not hold securities with market capitalizations over $1 billion. The Micro Cap
Fund seeks to purchase securities that are well diversified across economic
sectors. The Russell 2000 Growth Index is the Fund's current benchmark. The
Micro Cap Fund will typically invest in companies whose market capitalizations,
at the time of purchase, are $350 million or under. The Micro Cap 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 Micro Cap 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 Micro Cap
Fund's Adviser, they offer substantial appreciation potential for meeting
retirement and other long-term goals.
The Micro Cap 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, the Adviser expects to invest in
numerous small, publicly traded companies, representing a broad cross-section of
S-3
<PAGE>
U.S. industries.
TURNER SELECT GROWTH EQUITY FUND -- The Select Growth Fund invests primarily
(and, under normal conditions, at least 65% of its total assets) in common
stocks and other U.S. companies with very large market capitalizations (I.E.
over $10 billion) that the Adviser believes have strong earnings growth
potential. The Select Growth Fund may also purchase securities of smaller
companies that offer growth potential. The Select Growth Fund will invest in
securities of companies that are diversified across economic sectors. Portfolio
exposure is generally limited to a maximum of 2% in any single issue. However,
the Select Growth Fund may hold up to two times the Index weighting of those
securities that comprise between 1% and 5% of the Russell Top 200 Growth Index,
and up to one and one-half times the Index weighting of those securities that
comprise more than 5% of Index.
TURNER TOP 20 FUND -- The Top 20 Fund invests primarily (and, under normal
conditions, at least 80% of its total assets) in a portfolio of common stocks of
issuers with a variety of sectors and market capitalizations that the Adviser
believes to have strong earnings growth potential. Any remaining assets may be
invested in warrants and rights to purchase common stocks, convertible and
preferred stocks, and ADRs. The Top 20 Fund will generally purchase securities
that are traded on registered exchanges or the over-the-counter market in the
United States. The Top 20 Fund may also purchase shares of other investment
companies and foreign securities.
TURNER TECHNOLOGY FUND -- The Technology Fund invests primarily (and, under
normal conditions, at least 80% of its total assets) in a portfolio of common
stocks of technology companies. The Technology Fund may invest in warrants and
rights to purchase common stocks, convertible and preferred stocks, stocks of
foreign issuers and ADRs.
The Technology Fund invests in dynamic, publicly-traded technology 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 small
technology companies represented in the Technology 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. The Adviser will
seek to capture these price increases. Most of the technology companies that the
Technology Fund will invest in will be located in the U.S.
The Technology Fund's share price can move up and down significantly, even over
short periods of time, due to the volatile nature of many technology stocks. To
manage risk and improve liquidity, the Adviser expects to invest in numerous
publicly traded companies, representing a broad cross-section of U.S. and
foreign technology companies.
S-4
<PAGE>
TURNER GLOBAL TOP 40 FUND -- The Global Fund invests primarily (at least 65% of
its assets) in common stocks of companies located in the U.S. and developed
foreign markets, including most nations in western Europe and the more developed
nations in the Pacific Basin and Latin America, as well as in ADRs of those
issuers. The Adviser selects areas for investment by continuously analyzing the
U.S. market and a broad range of foreign markets in order to identify specific
country opportunities and to assess the level of return and degree of risk that
can be expected. Within countries, the Global Fund invests in companies located
in a variety of industries and business sectors that it expects to experience
rising earnings growth and to benefit from global economic trends or promising
technologies or products. The Global Fund's portfolio will consist of a limited
number of companies in a variety of market segments and countries throughout the
world, and it will typically consist of 30-50 stocks representing Turner's best
global investment ideas. The Global Fund generally does not attempt to hedge the
effects of currency fluctuations on its investments on an on-going basis.
Certain securities of non-U.S. issuers purchased by the Global Fund will be
listed on recognized foreign exchanges, but securities generally will be
purchased in over-the-counter markets, on U.S.-registered exchanges, or in the
form of sponsored or unsponsored ADRs traded on registered exchanges or NASDAQ,
or sponsored or unsponsored European Depositary Receipts ("EDRs"), Continental
Depositary Receipts ("CDRs") or Global Depositary Receipts ("GDRs"). The Global
Fund expects its investments to emphasize large, intermediate and small
capitalization companies.
The Global Fund may also invest in warrants and rights to purchase common
stocks, convertible and preferred stocks, and securities of other investment
companies. Although permitted to do so, the Global Fund does not currently
intend to invest in securities issued by passive foreign investment companies or
to engage in securities lending.
TURNER B2B E-COMMERCE FUND -- The E-Commerce Fund invests primarily (at least
65% of its assets) in common stocks of companies that develop new
business-to-business ("b2b") electronic commerce ("e-commerce") technologies and
that may experience exceptional growth in sales and earnings driven by b2b
e-commerce products and services. Stock selection will not be based on company
size, but rather on an assessment of a company's fundamental prospects. The
E-Commerce Fund's holdings will be concentrated in the b2b e-commerce sector,
and will range from small companies developing new b2b e-commerce technologies
to large, established firms with a history of developing and marketing such b2b
e-commerce technologies. These companies may include companies that develop,
produce or distribute products or services over the Internet or using other
electronic means. B2b companies may also include infrastructure, security,
payment, Internet access, networking, computer hardware and software, and
communications companies that facilitate e-commerce between companies. The
E-Commerce Fund will also invest in companies that finance b2b e-commerce
companies.
The E-Commerce Fund may invest in warrants and rights to purchase common stocks,
convertible and preferred stocks, stocks of foreign issuers, ADRs and shares of
other investment companies.
The E-Commerce Fund invests in dynamic, publicly-traded b2b e-commerce
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
small b2b e-commerce companies represented in the E-Commerce 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. The Adviser will seek to capture these price increases. Most of the
b2b e-commerce companies that the E-Commerce Fund will invest in will be located
in the U.S.
The E-Commerce Fund's share price can move up and down significantly, even over
short periods of time, due to the volatile nature of many b2b e-commerce stocks.
To manage risk and improve liquidity, the Adviser expects to invest in numerous
publicly traded companies, representing a broad cross-section of U.S. and
foreign b2b e-commerce companies.
TURNER WIRELESS & COMMUNICATIONS FUND -- The Communications Fund invests
primarily (at least 65% of its assets) in common stocks of telecommunications
companies. Stock selection will not be based on company size, but rather on an
assessment of a company's fundamental prospects. The Communications Fund's
holdings will be concentrated in the telecommunications sector, and will range
from small companies developing new telecommunications technologies to large,
established firms with a history of developing and marketing such
telecommunications technologies. These companies may include networking
companies, land-based, satellite and wireless carriers, telecommunications
equipment manufacturers, and other companies that provide
telecommunications-related products and services.
The Communications Fund may invest in warrants and rights to purchase common
stocks, convertible and preferred stocks, stocks of foreign issuers, ADRs and
shares of other investment companies.
The Communications Fund invests in dynamic, publicly-traded telecommunications
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
small telecommunications companies represented in the Communications 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. The Adviser will seek to capture these price increases. Most of the
telecommunications companies that the Communications Fund will invest in will be
S-5
<PAGE>
located in the U.S.
The Communications Fund's share price can move up and down significantly, even
over short periods of time, due to the volatile nature of many
telecommunications stocks. To manage risk and improve liquidity, the Adviser
expects to invest in numerous publicly traded companies, representing a broad
cross-section of U.S. and foreign telecommunications companies.
TURNER SHORT DURATION GOVERNMENT FUNDS - ONE YEAR PORTFOLIO & TURNER SHORT
DURATION GOVERNMENT FUNDS - THREE YEAR PORTFOLIO (TOGETHER, THE "SHORT DURATION
FUNDS") -- Under normal market conditions, each Short Duration 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 Short Duration Fund's assets may be invested in cash and
high grade debt securities, shares of other investment companies, including
privately issued mortgage-related securities and general obligation bonds and
notes of various states and their political subdivisions, rated within the three
highest grades assigned by Standard and Poor's Corporation ("S&P") (AAA, AA or
A), Moody's Investor Services ("Moody's") (Aaa, Aa or A), or Fitch Investor
Services, Inc. ("Fitch") (AAA, AA or A), or, if unrated by S&P, Moody's and/or
Fitch, judged by the Adviser to be of comparable quality. A further description
of S&P's, Moody's and Fitch's ratings is included in the Appendix to the
Statement of Additional Information.
The relative proportions of the Short Duration Funds' net assets invested in the
different types of permissible investments will vary from time to time depending
upon the Adviser's assessment of the relative market value of the sectors in
which the Short Duration Funds invest. In addition, the Short Duration Funds may
purchase securities that are trading at a discount from par when the Adviser
believes there is a potential for capital appreciation.
The Short Duration Funds may enter into forward commitments or purchase
securities on a when issued basis, and may invest in variable or floating rate
obligations.
TURNER CORE HIGH QUALITY FIXED INCOME FUND--The Fixed Income Fund invests as
fully as practicable (and, under normal conditions, at least 65% of its total
assets) in a portfolio of fixed income securities of varying levels of quality
and maturity, that, in the Adviser's opinion, are undervalued in the market. To
determine a security's fair market value, the Adviser will focus on the yield
and credit quality of particular securities based upon third-party evaluations
of quality as well as the Adviser's own research and analysis of the issuer. The
Adviser will attempt to diversify the Fixed Income Fund's holdings across the
yield curve by holding short, intermediate and long-term securities. Normally,
the Fixed Income Fund will maintain a dollar-weighted average portfolio duration
that approximates the average duration range of the Fixed Income Fund's
benchmark index, the Lehman Brothers Aggregate Bond Index (currently 4.5 years).
Duration is a measure of the expected life of a fixed income security on a cash
flow basis.
For example, assuming a portfolio duration of eight years, an increase in
interest rates of 1%, a parallel shift in the yield curve, and no change in the
spread relationships among securities, the value of the portfolio would decline
8%. Using the same assumptions, if interest rates decrease 1%, the value of the
portfolio would increase 8%. The Adviser considers duration an accurate measure
of a security's expected life and sensitivity to interest rate changes. The
Adviser may increase or decrease this average weighted duration when, in the
Adviser's opinion, market conditions warrant.
The Fixed Income Fund will purchase the following types of securities if, at the
time of purchase, such securities either have been classified as investment
grade by a nationally recognized statistical rating organization ("NRSRO") or
are determined by the Adviser to be of comparable quality: (i) obligations
issued or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities ("U.S. Government securities"); (ii) corporate
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<PAGE>
bonds and debentures of U.S. and foreign issuers rated in one of the four
highest rating categories; (iii) privately issued mortgage-backed securities
rated in the highest rating category; (iv) asset-backed securities rated in the
two highest rating categories; (v) receipts evidencing separately traded
interest and principal component parts of U.S. Government obligations
("Receipts"); (vi) commercial paper rated in one of the two highest rating
categories; (vii) obligations of U.S. commercial banks and savings and loan
institutions that have net assets of at least $500 million as of the end of
their most recent fiscal year ("bank obligations"); (viii) obligations issued or
guaranteed by the government of Canada; (ix) obligations of supranational
entities rated in one of the four highest rating categories; (x) loan
participations; (xi) repurchase agreements involving any of the foregoing
securities; and (xii) shares of other investment companies. Investment grade
bonds include securities rated BBB by S&P or Baa by Moody's, which may be
regarded as having speculative characteristics as to repayment of principal. If
a security is downgraded to below investment grade, the Adviser will review the
situation and take appropriate action. Securities rated below investment grade
will not constitute more than 5% of the Fixed Income Fund's total assets.
TIP TARGET SELECT EQUITY FUND -- The Adviser and Sub-Advisers of the Target
Select Fund will each invest in a maximum of 20 equity securities and as few as
10 that they believe have the greatest return potential. Such a focused
security-selection process permits each manager to act on only the investment
ideas that they think are their strongest ones. The intent is to avoid diluting
performance by owning too many securities, so that the positive contributions of
winning investments will prove substantial.
The Target Select Fund is designed to provide an investment that combines the
investment expertise and best investment ideas of four outstanding
money-management firms. The Adviser and Sub-Advisers will manage a portion of
the Target Select Fund's portfolio on a day-to-day basis. Assets for investment
will be allocated to each manager by the Fund's Board of Trustees, based on the
recommendation of the Adviser. The expectation is that the allocations will
result in a portfolio invested in a variety of equity securities with differing
capitalizations and valuations, chosen by differing investment strategies.
The Target Select Fund intends to invest primarily (and, under normal
circumstances, at least 65% of its total assets) in equity securities of
companies that are headquartered in the United States or do business both in the
United States and abroad. Those securities, however, will be traded principally
in the United States equity market. Selection of equity securities will not be
restricted by market capitalization, and the Target Select Fund's Adviser and
Sub-Advisers will employ their own proprietary investment processes in managing
assets.
Any remaining assets of the Target Select Fund may be invested in securities of
foreign issuers, shares of other investment companies, ADRs and real estate
investment trusts ("REITs"). The Target Select Fund may also invest up to 15% of
its net assets in illiquid securities, invest up to 25% of its total assets in
convertible securities, including convertible securities rated below investment
grade, purchase unregistered securities that are eligible for re-sale pursuant
to Rule 144A under the Securities Act, and purchase fixed income securities,
including securities rated below investment grade. In addition, the Target
Select Fund may effect short sales, purchase securities on a when-issued basis,
and may enter into futures and options transactions. Debt securities rated below
investment grade, I.E., rated lower than BBB by S&P and/or Baa by Moody's or
unrated securities of comparable quality, are also known as "junk bonds." The
maximum percentage of the Target Select Fund's assets that may be invested in
securities rated below investment grade is 25%.
Under normal circumstances, the Adviser and each of the Sub-Advisers may invest
a portion of the assets under its management in the money market instruments
described below in order to maintain liquidity, or if securities meeting the
Target Select Fund's investment objective and policies are not otherwise
reasonably available for purchase, provided that such Instruments do not exceed
25% of the Target Select Fund's total assets. For temporary defensive purposes
during periods when the Adviser determines that market conditions warrant, the
Adviser and each Sub-Adviser may invest up to 100% of the assets under their
management in money market instruments and in cash.
Currently the Target Select Fund is subject to an agreement and plan of
reorganization whereas the assets of the Target Select Fund will be reorganized
into a series of the Alpha Select Funds. It is anticipated that this
reorganization will take place sometime in the year 2000.
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GENERAL INVESTMENT POLICIES
Each Fund may purchase securities on a when-issued basis and borrow money.
Each Fund may enter into futures and options transactions.
Each Fund may invest up to 15% (10% for the Short Duration Funds) of its net
assets in illiquid securities.
Each Fund, except the Large Cap, Midcap and Short Duration Funds, may purchase
convertible securities.
Each Fund may enter into repurchase agreements.
Each Fund may purchase fixed income securities, including variable and floating
rate instruments and zero coupon securities.
Each Fund may purchase Rule 144A securities and other restricted securities.
Each Fund may purchase obligations of supranational entities.
Each Fund may, for temporary defensive purposes, 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,
repurchase agreements involving the foregoing securities), shares of money
market investment companies and cash.
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 all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
BORROWING
The Funds may borrow money equal to 5% of their total assets for temporary
purposes to meet redemptions or to pay dividends. Borrowing may exaggerate
changes in the net asset value of a Fund's shares and in the return on the
Fund's portfolio. Although the principal of any borrowing will be fixed, a
Fund's assets may change in value during the time the borrowing is outstanding.
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 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
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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., collateralized mortgage
obligations ("CMOs"), real estate mortgage investment conduits ("REMICs"),
interest-only ("IOs") and principal-only ("POs"), when issued securities and
forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (E.G., Receipts and separately
traded registered interested and principal securities ("STRIPs"), privately
issued stripped securities (E.G., TGRs, TRs, and CATs). See elsewhere in the
"Description of Permitted Investments" for discussions of these various
instruments.
EQUITY SECURITIES
Equity securities include common stocks, preferred stocks, warrants, rights to
acquire common or preferred stocks, and securities convertible into or
exchangeable for common stocks. 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 an equity Fund invests will cause the net asset value
of the Fund to fluctuate. An investment in an equity Fund may be more suitable
for long-term investors who can bear the risk of short-term principal
fluctuations.
FIXED INCOME SECURITIES
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal also affect the
value of these investments. Changes in the value of these securities will not
necessarily affect cash income derived from these securities, but will affect
the investing Fund's net asset value.
Investment grade bonds include securities rated BBB by S&P or Baa by Moody's,
which may be regarded as having speculative characteristics as to repayment of
principal. If a security is downgraded, the Adviser will review the situation
and take appropriate action.
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
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amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the Index is made; generally contracts are closed out prior to the
expiration date of the contracts.
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets and that such contracts do not exceed 15% of the Fund's
net assets. A Fund may buy and sell futures contracts and related options to
manage its exposure to changing interest rates and securities prices. Some
strategies reduce a Fund's exposure to price fluctuations, while others tend to
increase its market exposure. Futures and options on futures can be volatile
instruments and involve certain risks that could negatively impact a Fund's
return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities, equal to the market value of the futures positions held, less
margin deposits, in a segregated account with its custodian. Collateral equal to
the current market value of the futures position will be marked to market on a
daily basis.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on the
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with durations or maturities over 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. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
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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
Securities and Exchange Commission (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
Three Year Portfolio would not be comparable or less than that of a three-year
U.S. Treasury note, respectively.
LOWER-RATED SECURITIES
Lower-rated securities are lower-rated bonds commonly referred to as "junk
bonds" or high-yield securities. These securities are rated lower than Baa by
Moody's and/or lower than BBB by S&P. The Funds may invest in securities rated
in the lowest ratings categories established by Moody's or by S&P. These ratings
indicate that the obligations are speculative and may be in default. In
addition, the Funds may invest in unrated securities of comparable quality
subject to the restrictions stated in the Funds' Prospectus.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES
The descriptions below are intended to supplement the discussion in the
Prospectus.
GROWTH OF HIGH-YIELD, HIGH-RISK BOND MARKET
The widespread expansion of government, consumer and corporate debt within the
U.S. economy has made the corporate sector more vulnerable to economic downturns
or increased interest rates. Further, an economic downturn could severely
disrupt the market for lower rated bonds and adversely affect the value of
outstanding bonds and the ability of the issuers to repay principal and
interest. The market for lower-rated securities may be less active, causing
market price volatility and limited liquidity in the secondary market. This may
limit the Funds' ability to sell such securities at their market value. In
addition, the market for these securities may be adversely affected by
legislative and regulatory developments. Credit quality in the junk bond market
can change suddenly and unexpectedly, and even recently issued credit ratings
may not fully reflect the actual risks imposed by a particular security.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES
Lower rated bonds are somewhat sensitive to adverse economic changes and
corporate developments. During an economic down turn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond defaulted on its obligations to
pay interest or principal or entered into bankruptcy proceedings, the Funds may
incur losses or expenses in seeking recovery of amounts owed to it. In addition,
periods of economic uncertainty and change can be expected to result in
increased volatility of market prices of high-yield bonds and the Funds' net
asset values.
PAYMENT EXPECTATIONS
High-yield, high-risk bonds may contain redemption or call provisions. If an
issuer exercised these provisions in a declining interest rate market, the Funds
would have to replace the securities with a lower yielding security, resulting
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in a decreased return for investors. Conversely, a high-yield, high-risk bond's
value will decrease in a rising interest rate market, as will the value of the
Funds' assets. If the Funds experience significant unexpected net redemptions,
this may force them to sell high-yield, high-risk bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Funds' rates of return.
LIQUIDITY AND VALUATION
There may be little trading in the secondary market for particular bonds, which
may affect adversely the Funds' ability to value accurately or dispose of such
bonds. Adverse publicity and investor perception, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yield,
high-risk bonds, especially in a thin market.
TAXES
The Funds may purchase debt securities (such as zero-coupon, pay-in-kind or
other types of securities) that contain original issue discounts. Original issue
discount that accrues in a taxable year is treated as earned by each Fund and
therefore is subject to the distribution requirements of the tax code even
though such Fund has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Funds in a
taxable year may not be represented by cash income, the Funds may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
MONEY MARKET INSTRUMENTS
Money market securities are high-quality, dollar-denominated, short-term debt
instruments. They consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. banks and U.S. branches
of foreign banks; (ii) U.S. Treasury obligations and obligations issued or
guaranteed by the agencies and instrumentalities of the U.S. Government; (iii)
high-quality commercial paper issued by U.S. and foreign corporations; (iv) debt
obligations with a maturity of one year or less issued by corporations with
outstanding high-quality commercial paper ratings; and (v) repurchase agreements
involving any of the foregoing obligations entered into with highly-rated banks
and broker-dealers.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional fifteen- and thirty-year
fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages,
and balloon mortgages. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
Prepayment of mortgages which underlie securities purchased at a premium often
results in capital losses, while prepayment of mortgages purchased at a discount
often results in capital gains. Because of these unpredictable prepayment
characteristics, it is often not possible to predict accurately the average life
or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the GNMA, Fannie Mae and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC as GNMA certificates are, but Fannie
Mae and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, Fannie Mae and FHLMC each guarantee timely
distributions of interest to certificate holders. GNMA and Fannie Mae also each
guarantee timely distributions of scheduled principal.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
CMOS: CMOs are debt obligations of multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
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a series of a CMO in a variety of ways. Each class of a CMO is issued with a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae of FHLMC represent beneficial ownership interests in a
REMIC trust consisting principally or mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates.
STRIPPED MORTGAGE-BACKED SECURITIES("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments, while the other class may receive all of the principal
payments. SMBs are extremely sensitive to changes in interest rates because of
the impact thereon of prepayment of principal on the underlying mortgage
securities. The market for SMBs is not as fully developed as other markets; SMBs
therefore may be illiquid.
NON-DIVERSIFICATION
The Target Select, Top 20 and Focused Funds are non-diversified companies, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
which means that a relatively high percentage of assets of each Fund may be
invested in the obligations of a limited number of issuers. Although the Adviser
or the Sub-Advisers generally do not intend to invest more than 5% of a Fund's
assets in any single issuer (with the exception of securities which are issued
or guaranteed by a national government), the value of the shares of each Fund
may be more susceptible to a single economic, political or regulatory occurrence
than the shares of a diversified investment company would be. The Funds intend
to satisfy the diversification requirements necessary to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), which requires that each Fund be diversified (I.E., not invest more
than 5% of its assets in the securities in any one issuer) as to 50% of its
assets.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
Obligations of supranational entities are obligations of entities established
through the joint participation of several governments, such as the Asian
Development Bank, the Inter-American Development Bank, International Bank of
Reconstruction and Development (World Bank), African Development Bank, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
OPTIONS
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, a Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If a Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of securities that the Fund may seek to purchase in the future.
A Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
portfolio and as a means of providing limited protection against decreases in
its market value. When a Fund sells an option, if the underlying securities do
not increase or decrease to a price level that would make the exercise of the
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option profitable to the holder thereof, the option generally will expire
without being exercised and the Fund will realize as profit the premium
received for such option. When a call option written by a Fund is exercised, the
Fund will be required to sell the underlying securities to the option holder at
the strike price, and will not participate in any increase in the price of such
securities above the strike price. When a put option written by a Fund is
exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.
A Fund may purchase and write options on an exchange or over the counter. Over
the counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are generally illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
Custodian consisting of cash or liquid, high grade debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
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 Short Duration Fund's
portfolio.
RISK FACTORS: Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
PORTFOLIO TURNOVER
An annual portfolio turnover rate in excess of 100% may result from the
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Adviser's investment strategy. Portfolio turnover rates in excess of 100% may
result in higher transaction costs, including increased brokerage commissions,
and higher levels of taxable capital gain.
RECEIPTS
Receipts are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on a security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments.
REITS
The Funds may invest in REITs, which pool investors' funds for investment in
income producing commercial real estate or real estate related loans or
interests.
A REIT is not taxed on income distributed to its shareholders or unitholders if
it complies with regulatory requirements relating to its organization,
ownership, assets and income, and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
for each taxable year. Generally, REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents
and capital gains from appreciation realized through property sales. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs. A shareholder in a Fund
should realize that by investing in REITs indirectly through the Fund, he or she
will bear not only his or her proportionate share of the expenses of the Fund,
but also indirectly, similar expenses of underlying REITs.
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in their underlying properties and
by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in financing a limited number of properties. REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income under the Code or its
failure to maintain exemption from registration under the 1940 Act.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take 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
S-15
<PAGE>
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 AGREEMENT AND DOLLAR ROLL TRANSACTIONS
A reverse repurchase agreement involves a sale by a Fund of securities that it
holds to a bank, broker-dealer or other financial institution concurrently with
an agreement by the Fund to repurchase the same securities at an agreed-upon
price and date. A dollar roll transaction involves a sale by a Fund of an
eligible security to a financial institution concurrently with an agreement by
the Fund to repurchase a similar eligible security from the institution at a
later date at an agreed-upon price. Each Fund will fully collateralize its
reverse repurchase agreements and dollar roll transactions in an amount at least
equal to the Fund's obligations under the reverse repurchase agreement or dollar
roll transaction by cash or other liquid securities that the Fund's custodian
segregates from other Fund assets.
RIGHTS
Rights give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the 1933 Act. Rule 144A securities are traded in the
institutional market pursuant to this registration exemption, and, as a result,
may not be as liquid as exchange-traded securities since they may only be resold
to certain qualified institutional investors. Due to the relatively limited size
of this institutional market, these securities may affect the Fund's liquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing such securities. Nevertheless, Rule 144A securities
may be treated as liquid securities pursuant to guidelines adopted by the
Trust's Board of Trustees.
SECURITIES LENDING
In order to generate additional income, a Fund may lend its securities pursuant
to agreements requiring that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. Government or its agencies equal to
at least 100% of the market value of the loaned securities. A Fund continues to
receive interest on the loaned securities while simultaneously earning interest
on the investment of cash collateral. Collateral is marked to market daily.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially or
become insolvent.
SECURITIES OF FOREIGN ISSUERS
The Funds may invest in securities of foreign issuers with a strong U.S. trading
presence and in sponsored and unsponsored ADRs. Investments in the securities of
foreign issuers may subject the Funds to investment risks that differ in some
respects from those related to investments in securities of U.S. issuers. Such
risks include future adverse political and economic developments, possible
imposition of withholding taxes on income, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or greater fluctuation in value due to changes in
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities, and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
S-16
<PAGE>
of a 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 Funds may incur costs in connection with conversions between various
currencies. Moreover, investments in emerging market nations may be considered
speculative, and there may be a greater potential for nationalization,
expropriation or adverse diplomatic developments (including war) or other events
which could adversely effect the economies of such countries or investments in
such countries.
SHORT SALES
A short sale is "against the box" if at all times during which the short
position is open, a 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
U.S. Government Securities are bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS
U.S. Treasury Obligations are bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interested and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery 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 and its service providers do not appear to have been adversely
affected by computer problems related to the transition to the year 2000.
However, there remains a risk that such problems could arise or be discovered in
the future. Year 2000 related problems also may negatively affect issuers whose
S-17
<PAGE>
securities the Trust purchases, which could have an impact on the value of your
investment.
ZERO COUPON SECURITIES
Zero coupon obligations are debt securities that do not bear any interest, but
instead are issued at a deep discount from par. The value of a zero coupon
obligation increases over time to reflect the interest accredit. Such
obligations will not result in the payment of interest until maturity, and will
have greater price volatility than similar securities that are issued at par and
pay interest periodically.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
No Fund may:
1. (i) Purchase securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities)
if, as a result, more than 5% of the total assets of the Fund would be
invested in the securities of such issuer; or (ii) acquire more than
10% of the outstanding voting securities of any one issuer. This
restriction applies to 75% of each Fund's total assets and does not
apply to the SELECT GROWTH, Top 20 and Target Select Funds.
2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities. This limitation does not apply to the Technology Fund or
the E-Commerce Fund. It also does not apply to the Communications Fund,
to the extent that the Communications Fund's investments are
concentrated in issuers conducting business in the same industry, the
Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that industry in
greater proportion than funds that are more diversified by industry.
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 the Fund to purchase securities or
require the Fund to segregate assets are not considered to be
borrowings. Asset coverage of at least 300% is required for all
borrowings, except where the Fund has borrowed money for temporary
purposes in amounts not exceeding 5% of its total assets. Each 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
REITs), 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 1940 Act except as permitted
by rule, regulation or order of the SEC.
S-18
<PAGE>
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.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
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.
6. Enter into futures contracts and options on futures contracts except as
permitted by guidelines in the Funds' Statement of Additional
Information.
The Wireless Communications Fund and the Technology Fund have investment
policies that allow each Fund to concentrate investments in a particular
industry. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same industry, each Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that industry in greater proportion than funds that are more
diversified by industry.
In addition, each Fund will invest no more than 5% of its net assets in short
sales, unregistered securities, futures contracts, options and investment
company securities. Unregistered securities sold in reliance on the exemption
from registration in Section 4(2) of the 1933 Act and securities exempt from
registration on re-sale pursuant to Rule 144A of the 1933 Act may be treated as
liquid securities under procedures adopted by the Board of Trustees.
THE ADVISER
Turner Investment Partners, Inc., 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 the
Adviser. As of May 31, 2000, the Adviser had discretionary management authority
with respect to approximately $8 billion of assets. The Adviser has provided
investment advisory services to investment companies since 1992.
The Adviser serves as the investment adviser for each Fund under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers each Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust. The Adviser makes recommendations to the Trustees with respect to the
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<PAGE>
appropriate allocation of assets to each of the Target Select Fund's
Sub-Advisers, and directly manages assets of the Fund not allocated to the
Sub-Advisers.
The Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of the Fund are
registered, the Adviser will bear the amount of such excess. The Adviser will
not be required to bear expenses of any Fund to an extent which would result in
the Fund's inability to qualify as a regulated investment company under
provisions of the Code.
The continuance of the Advisory Agreement as to any Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Fund, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to any Fund,
by a majority of the outstanding shares of that Fund, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid
(had reimbursed) the following advisory fees:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Advisory Fees Paid Advisory Fees Waived
-----------------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Midcap Fund $0 $ 92,465 $521,612 $13,244 $ 42,799 $2,444
-----------------------------------------------------------------------------------------------------------------
Small Cap Fund $762,604 $1,458,689 $1,940,749 $73,594 $ 226,626 $66,830
-----------------------------------------------------------------------------------------------------------------
Micro Cap Fund * ($97,006) ($63,745) * $ 16,354 $67,820
-----------------------------------------------------------------------------------------------------------------
Select Growth Fund * * * * * *
-----------------------------------------------------------------------------------------------------------------
Top 20 Fund * * $7,100 * * $18,763
-----------------------------------------------------------------------------------------------------------------
Technology Fund * * ($6,578) * * $12,267
-----------------------------------------------------------------------------------------------------------------
Global Fund * * * * * *
-----------------------------------------------------------------------------------------------------------------
E Commerce Fund * * * * * *
-----------------------------------------------------------------------------------------------------------------
Communications Fund * * * * * *
-----------------------------------------------------------------------------------------------------------------
One Year Portfolio Fiscal Year Fiscal Period ($116,124) Fiscal Year Fiscal Period $4,624
Ended 2/28/98 Ended 9/30/98 Ended 2/28/98 Ended 9/30/98
($ 94,700) ($67,178) $ 2,792 $ 1,596
-----------------------------------------------------------------------------------------------------------------
Three Year Portfolio Fiscal Year Fiscal Period ($165,234) Fiscal Year Fiscal Period $50,673
Ended 2/28/98 Ended 9/30/98 Ended 2/28/98 Ended 9/30/98
($117,540) ($80,828) $ 41,761 $ 20,056
-----------------------------------------------------------------------------------------------------------------
Fixed Income Fund * * ($15,843) * * $12,322
-----------------------------------------------------------------------------------------------------------------
Target Select Fund * ($47,875) ($104,563) * $6,656 $13,999
-----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during the period.
<PAGE>
As described in the prospectus, the Select Growth, Top 20, Technology, Global, E
Commerce and Communications Funds are subject to base investment advisory fees
that may be adjusted if a Fund out- or under-performs a stated benchmark. Set
forth below is information about the advisory fee arrangements of these Funds:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Fund Benchmark Required Base Advisory Highest Lowest
Excess Fee Possible Possible
Performance Advisory Fee Advisory Fee
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Select Growth
Fund S&P 500 Index +/- 2.5% 1.00% 1.30% .70%
-----------------------------------------------------------------------------------------------------
Top 20 Fund S&P 500 Index +/- 2.5% 1.10% 1.50% .70%
-----------------------------------------------------------------------------------------------------
Technology Fund PSE Technology Index +/- 2.0% 1.10% 1.50% .70%
-----------------------------------------------------------------------------------------------------
Global
Fund MSCI EAFE Index +/- 2.0% 1.00% 1.30% .70%
-----------------------------------------------------------------------------------------------------
E Commerce Fund
-----------------------------------------------------------------------------------------------------
Communications Fund
-----------------------------------------------------------------------------------------------------
</TABLE>
The performance adjustment works as follows: If the Top 20 Fund outperforms the
S&P 500 Index by more than 2.5%, Turner's advisory fees will increase from 1.10%
to 1.50%. If, however, the Fund underperforms its benchmark by 2.5%, Turner's
advisory fees would go down to 0.70%. These performance-based fees will only be
charged once a Fund has been in operation for at least one year, and will comply
with all applicable SEC rules.
THE SUB-ADVISERS
The Target Select Fund currently has two Sub-Advisers -- Clover Capital
Management, Inc. and Penn Capital Management Company, Inc. (each a "Sub-Adviser"
and collectively, the "Sub-Advisers"). Each Sub-Adviser will manage a portion of
the Fund's assets, which allocation is determined by the Trustees upon the
recommendation of the Adviser. Each Sub-Adviser makes the investment decisions
for the assets of the Fund allocated to it, and continuously reviews, supervises
and administers a separate investment program, subject to the supervision of,
and policies established by, the Trustees of the Trust. For its services, each
of the Sub-Advisers is entitled to receive a fee from Turner Investment
Partners, which is calculated daily and paid monthly, at an annual rate of 0.80%
of the average daily net assets of the Fund allocated to it. Currently, the
Adviser and each Sub-Adviser has been allocated assets in the range of 15-30% of
the Fund's total assets.
CLOVER CAPITAL MANAGEMENT, INC. ("Clover Capital"), 11 Tobey Village Office
Park, Pittsford, New York 14354, is a professional investment management firm
founded in 1984 by Michael Edward Jones, CFA, and Geoffrey Harold Rosenberger,
CFA, who are Managing Directors of Clover Capital and who control all of Clover
Capital's outstanding voting stock. Michael Jones, Managing Director of Clover
Capital, is the portfolio manager of the portion of the Fund's assets managed by
Clover Capital. As of December 31, 1999, Clover Capital had discretionary
management authority with respect to approximately $1.4 billion of assets. In
addition to sub-advising the Fund and the Clover Funds, separate investment
portfolios of the Trust, Clover provides advisory services to pension plans,
religious and educational endowments, corporations, 401(k) plans, profit sharing
plans, individual investors and trusts and estates. For the fiscal year ended
September 30, 1999, Clover received investment sub-advisory fees of 0.00%.
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. Richard A. Hocker is a founding partner and Chief
Investment Officer of Penn Capital and portfolio manager of the portion of the
assets of the Fund managed by Penn Capital, an investment management firm that
manages the investment portfolios of institutions and high net worth
individuals. As of December 31, 1999, Penn Capital had assets under management
of approximately $450 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. In addition, Penn Capital
serves as investment adviser to the Penn Capital Funds, three separate
portfolios of the Trust. For the fiscal year ended September 30, 1999, Penn
Capital received investment subadvisory fees of 0.00%.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three (3) years
after the effective date of the agreement and shall continue in effect for
successive periods of one (1) year unless terminated by either party on not less
than 90 days' prior written notice to the other party.
The continuance of the Administration Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) by the vote
of a majority of the Trustees of the Trust who are not parties to the
Administration Agreement or an "interested person" (as that term is defined in
the 1940 Act) of any party thereto, cast in person at a meting called for the
purpose of voting on such approval. The Administration Agreement is terminable
at any time as to any Fund without penalty by the Trustees of the Trust, by a
vote of a majority of the outstanding shares of the Fund or by the Manager on
not less than 30 days' nor more than 60 days' written notice.
The Administrator, a Massachusetts 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, Alpha Select Funds,
Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds(R), CNI Charter Funds, CUFUND, The Expedition Funds,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The Nevis Fund,
Inc., Oak Associates Funds, The Parkstone Advantage Fund, The PBHG 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 UAM Funds, Inc. II.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid the
following administrative fees (net of waivers):
--------------------------------------------------------------------------------
Administrative Fees Paid
--------------------------------------------------------------------------------
1997 1998 1999
--------------------------------------------------------------------------------
Midcap Fund $9,404 $46,823 $70,403
--------------------------------------------------------------------------------
Small Cap Fund $98,104 $181,597 $175,795
--------------------------------------------------------------------------------
Micro Cap Fund * $42,470 $68,309
--------------------------------------------------------------------------------
Select Growth Fund * * *
--------------------------------------------------------------------------------
Top 20 Fund * * $6,411
--------------------------------------------------------------------------------
Technology Fund * * $6,411
--------------------------------------------------------------------------------
Global Fund * * *
--------------------------------------------------------------------------------
E Commerce Fund * * *
--------------------------------------------------------------------------------
Communications Fund * * *
--------------------------------------------------------------------------------
One Year Portfolio Fiscal Year Fiscal Period $16,902
Ended 2/28/98 Ended 9/30/98
$802 $510
--------------------------------------------------------------------------------
Three Year Portfolio Fiscal Year Fiscal Period $46,462
Ended 2/28/98 Ended 9/30/98
$11,964 $6,418
--------------------------------------------------------------------------------
Fixed Income Fund * * $6,411
--------------------------------------------------------------------------------
Target Select Fund * $0 $85,433
--------------------------------------------------------------------------------
* Not in operation during the period.
DISTRIBUTION AND SHAREHOLDER SERVICES
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 Short Duration Funds have adopted a shareholder service plan for Shares (the
"Class II Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefore. Under the Class II 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 Class II Service
Plan, the Distributor is entitled to receive a fee at an annual rate of up to
0.25% of each Fund's average daily net assets attributable to Class II 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.
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule
17j-1 under the Investment Company Act of 1940. In addition, the Investment
Adviser, Sub-Adviser and Distributor have adopted Codes of Ethics pursuant to
Rule 17j-1. These Codes of Ethics apply to the personal investing activities of
trustees, officers and certain employees ("access persons"). Rule 17j-1 and the
Codes are designed to prevent unlawful practices in connection with the purchase
or sale of securities by access persons. Under each Code of Ethics, access
persons are permitted to engage in personal securities transactions, but are
required to report their personal securities transactions for monitoring
purposes. In addition, certain access persons are required to obtain approval
before investing in initial public offerings or private placements. Copies of
these Codes of Ethics are on file with the Securities and Exchange Commission,
and are available to the public.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees 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 and
their principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select
Funds, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds(R), CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Huntington Funds, The Nevis Fund, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The Parkstone Group of Funds, The PBHG
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
and STI Classic Variable Trust, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and distributed by SEI Investments Distribution Co.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. ("Turner"), since 1990.
RICHARD A. HOCKER (DOB 07/21/46) - Trustee* - CEO and Chairman of the Board of
Covenant Bank, 1988-1997. Director of Bedminister Bioconversion Corporation
(technology company), since 1988. Chief Investment Officer and Senior Vice
President of Penn Capital Management Co., Inc., since 1987.
MICHAEL E. JONES (DOB 12/24/54) - Trustee* - Senior Vice President, Investment
Adviser and Portfolio Manager with Clover Capital Management Inc., since 1984.
Principal of CCM Securities Inc.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee** - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
JANET F. SANSONE (DOB 08/11/45) - Trustee** - Corporate Vice President of Human
Resources of Frontier Corporation (telecommunications company), retired.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee** - Professor, Loyola Marymount
University, since 1984.
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner, since 1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner, since 1992.
EDWARD T. SEARLE (DOB 04/03/54) - Vice President and Assistant Secretary -
Employed by SEI Investments since August 1999. Vice President and Assistant
Secretary of the Administrator and Distributor since December 1999. Associate at
Drinker Biddle & Reath LLP, 1998-1999. Associate at Ballard, Andrews &
Ingersoll, LLP, 1995-1998.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine, 1994-1995. Associate, Winston and
Strawn, 1991-1994.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting of SEI since 1994. Senior Audit
Manager, Arthur Andersen LLP (accounting company), 1986-1994.
LYDIA A. GAVALIS (DOB 06/05/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Manager and the Distributor since 1998.
Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
KATHY HEILIG (DOB 12/21/58) - Vice President and Assistant Secretary - Treasurer
of SEI Investments Company since 1997; Assistant Controller of SEI Investment
since 1995; Vice President of SEI Investments Company since 1991.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP, counsel to the Trust, Turner, 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, Turner, the Administrator and the Distributor.
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Aggregate Pension or Estimated Total Compensation From
Compensation From Retirement Annual Registrant and Fund
Name of Person, Registrant for the Benefits Accrued Benefits Complex Paid to Trustees
Position Fiscal Year Ended as Part of Fund Upon for the Fiscal Year Ended
September 30, 1999 Expenses Retirement September 30, 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert Turner* $0 N/A N/A $0 for service on two Boards
-------------------------------------------------------------------------------------------------------------
Richard A. Hocker* $0 N/A N/A $0 for service on one Board
-------------------------------------------------------------------------------------------------------------
Michael E. Jones* $0 N/A N/A $0 for service on one Board
-------------------------------------------------------------------------------------------------------------
Alfred C. Salvato** $8,000 N/A N/A $14,000 for service on two Boards
-------------------------------------------------------------------------------------------------------------
Janet F. Sansone** $9,775 N/A N/A $9,775 for service on one Board
-------------------------------------------------------------------------------------------------------------
John T. Wholihan** $10,538 N/A N/A $10,538 for service on one Board
-------------------------------------------------------------------------------------------------------------
</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.
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)6 - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
Based on the foregoing, the 30-day yield for the Funds for the 30-day period
ended September 30, 1999 were as follows:
--------------------------------------------------------------------------------
Fund Class 30-Day Yield
--------------------------------------------------------------------------------
Midcap Fund Class I 0.00%
--------------------------------------------------------------------------------
Small Cap Fund Class I 0.00%
--------------------------------------------------------------------------------
Micro Cap Fund Class I 0.00%
--------------------------------------------------------------------------------
Select Growth Fund Class I *
--------------------------------------------------------------------------------
Top 20 Fund Class I 0.00%
--------------------------------------------------------------------------------
Technology Fund Class I 0.00%
--------------------------------------------------------------------------------
Global Fund Class I *
--------------------------------------------------------------------------------
E Commerce Fund Class I *
--------------------------------------------------------------------------------
Communications Fund Class I *
--------------------------------------------------------------------------------
One Year Portfolio Class I 5.30%
--------------------------------------------------------------------------------
One Year Portfolio Class II 5.04%
--------------------------------------------------------------------------------
Three Year Portfolio Class I 5.85%
--------------------------------------------------------------------------------
Three Year Portfolio Class II 5.62%
--------------------------------------------------------------------------------
Fixed Income Fund Class I 5.96%
--------------------------------------------------------------------------------
Target Select Fund Class I 0.00%
--------------------------------------------------------------------------------
*Not in operation during the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period.
Based on the foregoing, the average annual total return for the Funds from
inception through September 30, 1999, and for the one and five year periods
ended September 30, 1999, were as follows:
--------------------------------------------------------------------------------
Average Annual Total Return
--------------------------------------------------------------------------------
Class One Year Five Year Since Inception
--------------------------------------------------------------------------------
Midcap Fund Class I 84.07% * 38.93%
--------------------------------------------------------------------------------
Small Cap Fund Class I 59.14% 29.26% 26.63%
--------------------------------------------------------------------------------
Micro Cap Fund Class I 113.46% * 59.94%
--------------------------------------------------------------------------------
Select Growth Fund Class I * * *
--------------------------------------------------------------------------------
Top 20 Fund Class I * * 39.90%**
--------------------------------------------------------------------------------
Technology Fund Class I * * 40.60%**
--------------------------------------------------------------------------------
Global Fund Class I * * *
--------------------------------------------------------------------------------
E Commerce Fund Class I * * *
--------------------------------------------------------------------------------
Communications Fund Class I * * *
--------------------------------------------------------------------------------
One Year Portfolio Class I 5.34% 6.33% 6.08%
--------------------------------------------------------------------------------
One Year Portfolio Class II 5.00% * 5.22%
--------------------------------------------------------------------------------
Three Year Portfolio Class I 2.89% 6.56% 6.02%
--------------------------------------------------------------------------------
Three Year Portfolio Class II * * 5.64%**
--------------------------------------------------------------------------------
Fixed Income Fund Class I * * 0.48%**
--------------------------------------------------------------------------------
Target Select Fund Class I 80.04% * 42.77%
--------------------------------------------------------------------------------
*Not in operation during the period.
**These returns have not been annualized.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the DST, 330 West 9th Street,
Kansas City, Missouri 64105, (the "Transfer Agent") on days when the New York
Stock Exchange is open for business. Currently, the weekdays on which the Fund
is closed for business are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Shares of each Fund are offered on a
continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued by the Administrator. The Administrator
may use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as on trade quotations obtained from third parties. However, the pricing service
may use a matrix system to determine valuations of fixed income securities. This
system considers such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. The procedures used by the pricing service and its valuation are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
If there is no readily ascertainable market value for a security, the
Administrator will make a good faith determination as to the "fair value" of the
security.
Some Funds may 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 these investments may change on days
when you cannot purchase or sell Fund shares.
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.
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 is only a summary of certain additional federal tax considerations
generally affecting the Funds and their shareholders that are not discussed in
the Funds' Prospectus. No attempt is made to present a detailed explanation of
the federal, state or local tax treatment of the Funds or their shareholders and
the discussion here and in the Funds' Prospectus is not intended as a substitute
for careful tax planning.
The 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 issuers.
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), the
Funds 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.
Each Fund intends to make sufficient distributions to avoid liability for the
federal excise tax. A Fund may in certain circumstances be required to liquidate
Fund investments in order to make sufficient distributions to avoid federal
excise tax liability at a time when the investment advisor might not otherwise
have chosen to do so, and liquidation of investments in such circumstances may
affect the ability of a Fund to satisfy the requirements for qualification as a
RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of a
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than one year, and otherwise will be treated as
short-term capital gain or loss. However, if shares on which a shareholder has
received a net capital gain distribution are subsequently sold, exchanged or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the net
capital gain distribution. Long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates.
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 may generally be eligible for the corporate dividends-received
deduction.
Funds may, in certain circumstances involving tax-free reorganizations, accept
securities that are appropriate investments as payment for Fund shares (an
"In-Kind Purchase"). An In-Kind Purchase may result in adverse tax consequences
under certain circumstances to either the investors transferring securities for
shares (an "In-Kind Investors") or to investors who acquire shares of the Fund
after a transfer ("new shareholders"). As a result of an In-Kind Purchase, the
Funds may acquire securities that have appreciated in value or depreciated in
value from the date they were acquired. If appreciated securities were to be
sold after an In-Kind Purchase, the amount of the gain would be taxable to new
shareholders as well as to In-Kind Investors. The effect of this for new
shareholders would be to tax them on a distribution that represents a return of
the purchase price of their shares rather than an increase in the value of their
investment. The effect on In-Kind Investors would be to reduce their potential
liability for tax on capital gains by spreading it over a larger asset base. The
opposite may occur if the Funds acquire securities having an unrealized capital
loss. In that case, In-Kind Investors will be unable to utilize the loss to
offset gains, but, because an In-Kind Purchase will not result in any gains, the
inability of In-Kind Investors to utilize unrealized losses will have no
immediate tax effect. For new shareholders, to the extent that unrealized losses
are realized by the Funds, new shareholders may benefit by any reduction in net
tax liability attributable to the losses. The Adviser cannot predict whether
securities acquired in any In-Kind Purchase will have unrealized gains or losses
on the date of the In-Kind Purchase. Consistent with its duties as investment
adviser, the Adviser will, however, take tax consequences to investors into
account when making decisions to sell portfolio assets, including the impact of
realized capital gains on shareholders of the Funds.
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 Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The Adviser may, consistent with the interests of the Funds, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Fund or other accounts managed by the Adviser will be benefitted
by supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Fund.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for a Fund
on an exchange if a written contract is in effect between the Trust and the
Distributor expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by a Fund for exchange transactions not exceed "usual and customary"
brokerage commissions. The rules define "usual and customary" commissions to
include amounts which are "reasonable and fair compared to the commission, fee
or other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who recommend a
Fund's shares to clients, and may, when a number of brokers and dealers can
provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds'
portfolio turnover rates were as follows:
Portfolio Turnover Rate
--------------------------------------------------------------------------------
Portfolio Turnover Rate
--------------------------------------------------------------------------------
1997 1998 1999
--------------------------------------------------------------------------------
Midcap Fund 348.29% 304.29% 290.79%
--------------------------------------------------------------------------------
Small Cap Fund 130.68% 167.73% 223.61%
--------------------------------------------------------------------------------
Micro Cap Fund * 128.53% 239.32%
--------------------------------------------------------------------------------
Select Growth Fund * * *
--------------------------------------------------------------------------------
Top 20 Fund * * 369.11%
--------------------------------------------------------------------------------
Technology Fund * * 317.32%
--------------------------------------------------------------------------------
Global Fund * * *
--------------------------------------------------------------------------------
E Commerce Fund * * *
--------------------------------------------------------------------------------
Communications Fund * * *
--------------------------------------------------------------------------------
One Year Portfolio - For the Fiscal For the Fiscal Period 154.33%
Class I Shares Year Ended 2/28/98 Ended 9/30/98
68.80% 96.56%
--------------------------------------------------------------------------------
One Year Portfolio - * * 154.33%
Class II Shares
--------------------------------------------------------------------------------
Three Year Portfolio - For the Fiscal Year For the Fiscal Period 257.98%
Class I Shares Ended 2/28/98 Ended 9/30/98
197.03% 121.63%
--------------------------------------------------------------------------------
Three Year Portfolio - * * 257.98%
Class II Shares
--------------------------------------------------------------------------------
Fixed Income Fund * * 39.70%
--------------------------------------------------------------------------------
Target Select Fund * 803.02% 1,279.40%
--------------------------------------------------------------------------------
* Not in operation during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The brokerage commissions paid for each Fund for the fiscal years ended
September 30, 1997, 1998, and 1999 were as follows:
--------------------------------------------------------------------------------
Total Dollar Amount of Brokerage Commissions Paid
--------------------------------------------------------------------------------
1997 1998 1999
--------------------------------------------------------------------------------
Midcap Fund $17,029 $123,834 $352,280
--------------------------------------------------------------------------------
Small Cap Fund $235,029 $465,825 $546,802
--------------------------------------------------------------------------------
Micro Cap Fund * $6,974 $36,683
--------------------------------------------------------------------------------
Select Growth Fund * * *
--------------------------------------------------------------------------------
Top 20 Fund * * $57,574
--------------------------------------------------------------------------------
Technology Fund * * $13,527
--------------------------------------------------------------------------------
Global Fund * * *
--------------------------------------------------------------------------------
E Commerce Fund * * *
--------------------------------------------------------------------------------
Communications Fund * * *
--------------------------------------------------------------------------------
One Year Portfolio N/A N/A $69
--------------------------------------------------------------------------------
Three Year Portfolio N/A N/A $141
--------------------------------------------------------------------------------
Fixed Income Fund * * $64
--------------------------------------------------------------------------------
Target Select Fund * $13,856 $28,450
--------------------------------------------------------------------------------
*Not in operation during the period.
The total amount of securities of each Broker/Dealer held by each Fund for the
fiscal year ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Total Amount of
Name of Securities Held by Each
Fund Broker/Dealer Fund Type of
Security
-----------------------------------------------------------------------------------------------------
<S> <C>
Midcap Fund J.P. Morgan $ 4,451,363.63 Repurchase Agreement
Lehman Brothers $1,509,127.50 Common Stock
-----------------------------------------------------------------------------------------------------
Small Cap Fund J. P. Morgan $ 12,767,113.96 Repurchase Agreement
Hambrecht and Quist $3,220,576.88 Common Stock
Legg Mason Inc. $1,263,163.13 Common Stock
Raymond James Fin. Corp. $1,026,980.63 Common Stock
-----------------------------------------------------------------------------------------------------
Micro Cap Fund Morgan Stanley $ 413,708.25 Repurchase Agreement
-----------------------------------------------------------------------------------------------------
</TABLE>
VOTING
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.
Where the Trust's Prospectuses or Statements of Additional Information state
that an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (i) 67% or more of the
affected Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the affected Fund's outstanding shares, whichever is less.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a PRO RATA share in the net assets of the
portfolio, after taking into account additional distribution and shareholder
servicing expenses attributable to the Class II Shares. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Trustees of the
Trust may create additional series of shares or separate classes of funds. All
consideration received by the Trust for shares of any portfolio or separate
class and all assets in which such consideration is invested would belong to
that portfolio or separate class and would be subject to the liabilities related
thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust, and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
As of January 3, 2000, 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>
PERCENTAGE
NAME AND ADDRESS NUMBER OF OF FUND'S
FUND OF BENEFICIAL OWNER SHARES SHARES
---------------------------------------------------------------------------------------
<S> <C> <C>
Turner Midcap Growth Fund Charles Schwab & Co. Inc. 3,837,971.6920 41.82%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Copeland Associates 696,786.5820 7.59%
Smith Barney Corporate Trust Co.
2 Tower Center Blvd., Box 1063
East Brunswick, NJ 08816-3155
Turner Small Cap
Growth Fund Charles Schwab & Co. Inc. 5,208,084.2850 56.95%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Turner Micro Cap
Growth Institutional
Class Charles Schwab & Co. Inc. 562,123.9250 29.24%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Donaldson Lufkin Jenrette 123,944.9990 6.45%
SECS Corp.
Pershing Division
P. O. Box 2052
Jersey City, NJ 07399
National Investors Services Corp. 410,344.6040 21.35%
FBBO Our Customers
55 Water Street, Floor 12
New York, NY 10041-3299
Turner Top 20 Fund Charles Schwab & Co Inc. 1,305,403.5240 40.36%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO, 80209
National Investors Services Corp 198,893.0500 6.15%
FBBO Our Customers
55 Water Street, Fl. 12
New York, NY 10041-1299
Turner Technology Fund Charles Schwab and Co. Inc 794,322.0860 52.04%
Attn: Mutual Funds/ Team S
4500 Cherry Creek Dr. S., Fl. 3
Denver, CO 80209
National Investors Services Corp 210,006.4770 13.76%
FBBO Our Customers
55 Water St. Fl 32
New York, NY, 10041-3299
Turner Short Duration
Government Funds - One
Year Portfolio Class I Charles Schwab & Co. Inc. 432,182.9190 91.84%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Turner Short Duration
Government Funds-One
Year Portfolio-Class II NFSC FBBO # 179-397470 43,944.8840 6.69%
Utah Festival Opera Company
59 S 100 W
Logan, UT, 84321-4515
NFSC FBBO # 379-070386 54,422.7980 8.28%
BSA Utah National Parks Council
250 W 500 N
Provo, UT, 84501-2819
NFSC FBBO # 379-536272 89,197.2250 13.58%
UTA/ATO
Malecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0820
NFSC Cort Brambled Brent HA 110,215.6880 16.77%
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0830
NFSC FBBO # 379-503940 79,558.2560 12.11%
C. Bramble D B Hales Jay E JE
C. Bramble/ D. Hales/ J. Jensen TTS
U/A 12/15/1993
P.O. Box 30810
Salt Lake City, UT, 84130-0830
Turner Short Duration
Government Funds-Three
Year Portfolio-Class I Turner Investment Partners 844,278.8210 21.18%
FBO Teamsters Local #837
Attn: Bob Gunning
12275 Townsend Rd.
Philadelphia, PA, 19154-1204
First Union National Bank Trust 1,976,308.6850 49.57%
FBO Sheet Metal Workers #19
A/C # 1546002688
CHGJ64 NC1151
1525 West WT Harris Blvd.
Charlotte, NC, 28262
Bryn Mawr 861,246.7990 21.60%
Attn: Jerry Berenson
101 N. Merion Ave
Bryn Mawr, PA, 19010-2899
Charles Schwab & Co. 236,351.4490 5.93%
101 Montgomery St
San Francisco, CA, 94104-4122
Turner Short Duration
Government Funds-Three
Year Portfolio-Class II NFSC FBBO #379-503916 35,264.1030 14.42%
Curt Brambled Brent MA
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
NFSC FBBO # 379-503940 24,782.2720 10.13%
C. Bramble, D.B. Hales, Jay E. JE
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
NFSC FBBO # 379-527793 115,823.4120 47.35%
B.H. Bastian Foundation
Bruce Bastian/Brent Erkelens
U/A 02/19/1999
51 W. Center St. #755
Orem, UT, 84057-4605
NFSC FBBO # 379-536172 44,855.9670 18.34%
UYA/ATU
N. Halecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0810
Turner Core High Quality
Fixed Income Fund Oxford Foundation Inc. 259,563.6740 25.30%
2 S. Decatur St.
Strasburg, PA, 17579-1403
Banc of America Securities LLC 765,207.4200 74.60%
Attn: Mutual Funds-4th Floor
808-96071-16
600 Montgomery St
San Francisco, CA, 94131-2702
TIP Target Select
Equity Fund Charles Schwab & Co. Inc. 23,811.6980 16.27%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Carolyn Turner TR 45,257.0300 30.92%
U/A Robert E. Turner Jr., Trust
9 Horseshoe Lane
Paoli, PA 19301-1909
Robert & Carolyn Turner Foundation 23,954.2260 16.36%
9 Horseshoe Lane
Paoli, PA 19301-1909
</TABLE>
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 1940 Act.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information and the Financial Highlights included in the prospectuses
have been audited by Ernst & Young LLP, 2001 Market Street, Philadelphia,
Pennsylvania 19103, independent auditors, as indicated by their report, with
respect thereto, and are included herein in reliance on their report given on
their authority as experts in accounting and auditing.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended September 30, 1999,
including notes thereto and the report of Ernst & Young LLP thereon, are herein
incorporated by reference. A copy of the 1999 Annual Report must accompany the
delivery of this Statement of Additional Information.
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+. Bonds rated A by Fitch
are considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. Bonds rated BBB by Fitch are considered to be
investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1, 1 +, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1, the highest rating category, reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2, the second highest rating category,
reflect a satisfactory degree of safety regarding timely payment but not as high
as A-1. Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged
by Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated A1+
are supported by the highest capacity for timely repayment. Obligations rated
A2, the second highest rating, are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
<PAGE>
ALPHA SELECT FUNDS
Class A Shares
Class C Shares
Class I Shares
PROSPECTUS
______, 2000
TARGET SELECT EQUITY FUND
Investment Adviser:
CONCENTRATED CAPITAL MANAGEMENT, LP
Investment Sub-Advisers:
EVERGREEN INVESTMENT MANAGEMENT COMPANY
MERCURY ADVISORS
TURNER INVESTMENT PARTNERS, INC.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Page 1 of 24
<PAGE>
How to Read Your Prospectus
Alpha Select Funds is a mutual fund family that offers different classes of
shares in separate investment portfolios. At this time, the Funds offer only one
portfolio, the Target Select Equity Fund (the "Fund"). This prospectus gives you
important information about the Class A, Class C, and Class I Shares of the Fund
that you should know before investing. Please read this prospectus and keep it
for future reference.
Choosing Class A, Class C or Class I Shares
Class A, Class C and Class I Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have it
invested, and whether you plan to make additional investments.
Class A Shares
o Front-end sales charge
o Lower annual expenses
o $1,000 minimum initial investment
Class C Shares
o Contingent deferred sales charge
o Higher distribution expenses
o $1,000 minimum initial investment
Class I Shares
o No sales charge
o No distribution expenses
o $500,000 minimum initial investment
Page 2 of 24
<PAGE>
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 Fund. For more detailed information about
the Fund, please see:
Page
----
FUND SUMMARY..........................................................XXX
INVESTMENTS AND PORTFOLIO MANAGEMENT..................................XXX
PURCHASING, SELLING AND EXCHANGING ALPHA SELECT FUNDS.................XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................XXX
FINANCIAL HIGHLIGHTS..................................................XXX
To obtain more information about Alpha Select Funds, please refer to the Back
Cover of the Prospectus.
Page 3 of 24
<PAGE>
Fund Summary
Investment Goal Long-term capital appreciation
Investment Focus Common stocks of U.S. and foreign issuers
Share Price Volatility High
Principal Investment Strategy Utilizing sub-advisers experienced in
selecting securities that have growth
potential or that are undervalued, the Fund
invests in U.S. and foreign companies
Investor Profile Investors seeking capital appreciation who
can withstand the share price volatility of
equity investing
Principal Strategy
The Target Select Equity Fund invests primarily in U.S. and foreign common
stocks and other equity securities of companies regardless of their market
capitalization. The Fund will invest in securities of companies operating in a
broad range of industries located in the U.S. and overseas.
The Fund uses a multi-manager approach, relying upon a number of sub-advisers
with differing investment philosophies to manage portions of the Fund's
portfolio under the general supervision of the Fund's adviser, Concentrated
Capital Management, LP ("CCM"). In selecting investments, the sub-advisers
employ different investment strategies: a growth strategy that emphasizes
above-average earnings potential; a global strategy that focuses on small
capitalization companies; a value strategy that is based on investing in all
capitalization companies; and a growth strategy that invests in mid-to large
capitalization companies. Other strategies may be introduced as additional or
replacement sub-advisers are hired.
Multi-Manager Approach
The Fund intends to employ a multi-manager approach to take advantage of the
best investment ideas of a number of sub-advisers. Each sub-adviser manages a
portion of the Fund's assets, and is expected to select a relatively small
number of securities, as few as 10, for its portion of the Fund per each
investment strategy. Such a focused security-selection process permits each
sub-adviser to act on only the investment ideas that it thinks have the greatest
return potential. CCM will ensure that the sub-advisers comply with the Fund's
investment policies and guidelines. CCM will also recommend the appointment of
additional or replacement sub-advisers to the Fund's Board of Trustees (the
"Board").
Risks
The Fund has its own investment goal and strategies for reaching that goal. The
Fund's advisers will invest Fund assets in a way that each believes will help
the Fund achieve its goal. Still, investing in the Fund involves risk and there
is no guarantee that the 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 these judgments may
Page 4 of 24
<PAGE>
affect the return on your investment. In fact, no matter how good a job the
advisers do, you could lose money on your investment in the 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 the Fund is based on the market prices of the
securities the Fund holds. 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 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. In addition, the Fund is subject to
the risk that equity securities generally may underperform compared to debt
securities and other asset classes. These factors contribute to price
volatility, which is the principal risk of investing in the Fund. The Fund is
non-diversified, which means that it may invest in the securities of fewer
issuers than a diversified fund. As a result, the Fund may be more susceptible
to a single adverse economic or political occurrence affecting one or more of
these issuers, and may experience increased volatility due to its investments in
those securities as compared to a diversified fund.
The Fund's investment approach seeks to generate positive returns from the
efforts of separate sub-advisers who each manage a portion of the Fund's assets
using a specific style. There is a risk, therefore, that the combined
performance of the Fund's various sub-advisers will lag that of funds that
employ a single strategy or style. There is also a risk that a sub-adviser's
performance in its chosen strategy will lag that of other advisers that utilize
a similar approach.
Investing in issuers located in foreign countries poses additional risks since
political and economic events unique to a country or region will affect those
markets and their issuers. These events will not necessarily affect the U.S.
economy or similar issuers located in the United States. In addition,
investments in foreign countries are generally denominated in a foreign
currency. As a result, changes in the value of those currencies compared to the
U.S. dollar may affect (positively or negatively) the value of a Fund's
investments. These currency movements may happen separately from and in response
to events that do not otherwise affect the value of the security in the issuer's
home country. While ADRs are denominated in U.S. dollars, they are subject to
currency risk to the extent the underlying stocks are denominated in foreign
currencies.
Any micro, small and medium capitalization companies the Fund invests in may be
more vulnerable to adverse business or economic events than larger, more
established companies. In particular, these micro, small and mid-sized companies
may have limited product lines, markets and financial resources, and may depend
upon a relatively small management group. In addition, the share prices of
micro-capitalization companies may be extremely volatile.
Performance Information
The Fund may engage in frequent and active trading of portfolio securities to
achieve its investment objective. A high portfolio turnover rate involves
greater expenses to the Fund, including brokerage commissions and other
transaction costs, and may generate more short-term gains for shareholders.
The bar chart and the performance table below illustrate 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.
Page 5 of 24
<PAGE>
The performance shown is for the TIP Funds' TIP Target Select Equity Fund (the
"TIP Fund"), the Fund's predecessor. The Target Select Equity Fund became part
of the Alpha Select Funds on ______, 2000.
The performance information below reflects the performance of Turner Investment
Partners, Inc., ("Turner") the TIP Fund's principal investment adviser, and
several sub-advisers. Under the TIP Fund's multiple sub-adviser structure,
Turner was responsible for the continuous review, supervision and administration
of the TIP Fund's investment program, which included overseeing two other
sub-advisers. In addition, Turner was also responsible for making day-to-day
investment decisions for some of the assets of the TIP Fund. Because of this
dual role as day-to-day investment adviser and overall manager of the investment
program, Turner is essentially responsible for the TIP Fund's performance
reflected below. Under the Fund's multiple sub-adviser structure, CCM will
similarly be responsible for the continuous review, supervision and
administration of the Fund's investment program, which includes overseeing
Turner as one of three sub-advisers. However, CCM will not be responsible for
making day-to-day investment decisions for the Fund, and Turner will only manage
approximately 15-35% of the Fund's assets. In addition, Turner employed
sub-advisers that are different from those employed by CCM in managing the Fund.
As a result of these differences, this performance information represents some
indication of the risks and volatility of an investment in the Fund, and should
be reviewed recognizing these material differences.
This bar chart shows changes in the performance of the Fund's Shares from year
to year for two years.*
1998 25.45%
1999 113.07%**
* The performance information shown above is based on a calendar year. The
year-to-date return as of June 30, 2000 was 23.83%. Performance would have been
lower if Turner had not waived fees and reimbursed expenses in 1998 and 1999.
**The Fund's favorable performance in 1999 was affected by a number of factors
that may not have the same effect on the Fund's performance in the future. These
factors include participation in the initial public offerings, unusual market
conditions and the relatively small size of the fund compared with any one
investment.
Best Quarter Worst Quarter
43.45% -17.08%
(12/31/99) (9/30/98)
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 3000 Index.
Since Inception
1 Year (1/1/98)
------- ---------------
TIP Funds' Target Select Equity Fund 113.07% 63.50%
Russell 3000 Index 20.90% 22.51%
Page 6 of 24
<PAGE>
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 Russell 3000 Index is a widely-recognized, capitalization-weighted
(companies with larger market capitalizations have more influence than those
with smaller market capitalizations) index of the 3,000 largest U.S. companies.
Fund Fees and Expenses
This table describes the shareholder fees that you may pay if you buy and hold
Fund Shares. You would pay these fees directly from your investment in the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class I Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price)* 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of
net asset value)** None 1.00% None
</TABLE>
* This sales charge varies depending upon how much you invest. See
"Purchasing Fund Shares."
** This sales charge is imposed if you sell Class C Shares within one year of
your purchase. See "Selling Fund Shares."
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
Annual Fund Operating Expenses (expenses deducted from Fund assets)
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class I Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Investment Advisory Fees 1.0625%* 1.0625%* 1.0625%*
Distribution (12b-1) Fees None 0.75% None
Other Expenses 1.789%** 1.789%** 1.539%**
------ ------ ------
Total Annual Fund Operating Expenses 2.8515%*** 3.6015%*** 2.6015%***
Fee Waivers and Expense Reimbursements (1.3815%) (1.3815%) (1.3815%)
------ ------ ------
Net Total Operating Expenses 1.47% 2.22% 1.22%
</TABLE>
* The advisory fee is subject to a performance adjustment based on the Fund's
performance relative to the performance of the Russell 3000 Index after the
Fund's first year of operations.
** Other Expenses are estimated for the current year.
*** The Fund's Adviser has contractually agreed to waive fees and to reimburse
expenses in order to keep total operating expenses of the Class A, Class C
and Class I Shares from exceeding 1.47%, 2.22% and 1.22%, respectively, for
a period of one year, or from exceeding 1.75%, 2.50% and 1.50%,
respectively, in any subsequent year.
For more information about these fees, see "Investment Adviser" and
"Distribution of Fund Shares."
Page 7 of 24
<PAGE>
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 and then redeem all of
your shares at the end of those periods. The Example also assumes that each year
your investment has a 5% return and Fund operating 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:
If you sell your shares at the end of the period:
1 Year 3 Years
------ -------
Class A Shares $691 $1045
Class C Shares $325 $752
Class I Shares $124 $447
If you do not sell your shares at the end of the period:
1 Year 3 Years
------ -------
Class A Shares $691 $1045
Class C Shares $225 $752
Class I Shares $124 $447
Page 8 of 24
<PAGE>
The Fund's Other Investments
In addition to the investments and strategies described in this prospectus, the
Fund also may 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, there is no guarantee that the Fund
will achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that the Fund uses under normal conditions. During unusual economic or market
conditions, or for temporary defensive purposes, the 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 Fund's objectives. The Fund may also
invest a portion of its assets in cash for liquidity purposes as necessary. The
Fund will make investments inconsistent with its objectives only if the Adviser
believes that the risk of loss outweighs the opportunity for gains.
Investment Adviser
CCM, an SEC-registered adviser, serves as the Adviser to the Fund. CCM makes
recommendations to the Trustees with respect to the appropriate allocation of
assets to each of the Fund's Sub-Advisers. Also as the Fund's Adviser, CCM is
authorized to make investment decisions for the Fund and continuously review,
supervise and administer the Fund's investment program. The Adviser also ensures
compliance with the Fund's investment policies and guidelines. In the future,
the Trust expects to operate as a "manager of managers" fund under an SEC
exemptive order. This type of order will permit the Adviser to hire or replace
Sub-Advisers with Board (rather than shareholder) approval. We will notify you
if we make this change.
CCM was formed on May 19, 2000. For its services, CCM is entitled to base
investment advisory fees of 1.0625%. However, these fees may be higher or lower
depending on the Fund's performance relative to a benchmark. If the Fund
outperforms its benchmark by a set amount, CCM will receive higher advisory
fees. Conversely, if a Fund underperforms its benchmark by the same amount, CCM
will receive lower advisory fees. Accordingly, the overall fee may vary by 0.15%
either way. The Fund's SAI contains detailed information about the Fund's
benchmark, as well as any possible performance-based adjustments to CCM fees.
These performance-based adjustments will take effect after the Fund has been in
operation for more than one year.
Sub-Advisers
At the outset of operations, CCM will employ three sub-advisers who will use
approximately four investment styles to manage the Fund. Each style will be
employed with regards to approximately 15-35% of the Fund's total assets.
Periodically, the Fund will be rebalanced to preserve this approximate 15-35%
allocation. CCM will oversee the sub-advisers who manage the separate portfolios
of the Fund. The three sub-advisers will be Turner, Mercury Advisors, and
Evergreen Investment Management Company ("Evergreen").
Turner will employ a growth style that emphasizes investments in equities
securities in companies with above average earnings growth prospects. It will
employ an earnings momentum
Page 9 of 24
<PAGE>
strategy that concentrates on companies with more volatile and accelerating
growth rates. Turner will focus on a relatively small number of securities
issues without distinction as to capitalization. Robert E. Turner serves as
portfolio manager of the portion of the Fund's assets devoted to this strategy.
Mercury Advisors will employ two strategies. One strategy will adopt a global
approach by investing at least 66% of the assets in small capitalization equity
securities from at least three different countries, including the United States.
The securities will be small capitalization. The balance of the assets, if any,
may be invested in larger cap companies or debt securities. Kenneth L. Chiang
serves as the portfolio manager of the portion of the Fund's assets devoted to
this strategy.
The other strategy employed by Mercury will involve a value approach that seeks
capital appreciation by investing in a concentrated portfolio of undervalued
equity securities of companies that are believed by Mercury to be currently
mispriced in the marketplace relative to their future operating prospects. Often
these equities are experiencing some temporary operational difficulties that
have caused them to become out-of-favor. The portfolio is expected to have
valuation ratios, (i.e., price-to-earnings or price-to-book values) below those
of the broader market. Robert Martorelli serves as the Portfolio Manager of the
portion of the Fund's assets devoted to this strategy.
Evergreen will employ a growth style of investing and will invest in a
relatively small number of issuers of primarily mid to large-capitalizations.
Evergreen emphasizes earnings growth in its selection of issuers. It will select
companies that it believes have recorded a consistent record of earnings growth
and/or have the potential for an acceleration of earnings growth. Maureen
Cullinane serves as the portfolio manager of the portion of the Fund's assets
devoted to this strategy.
Page 10 of 24
<PAGE>
Purchasing, Selling and Exchanging Fund Shares
In order to open a new account, you must complete and mail the New Account
Application that you receive with this prospectus.
All trades must be received by the Fund's Transfer Agent by 4:00 PM EST. Your
check must be made payable to the Alpha Select Funds or wires must be sent to
the instructions below.
The minimum initial investment for Class A Shares is $1,000. The minimum initial
investment for Class C Shares is $1,000 ($500 for retirement plans). The minimum
subsequent investment for Class A and Class C Shares is $100. The minimum
initial investment for Class I Shares is $500,000. The minimum subsequent
investment for Class I Shares is $5,000.
--------------------------------------------------------------------------------
Once you are a shareholder of the Alpha Select Funds you may do the following:
--------------------------------------------------------------------------------
* Purchase, sell or exchange Fund shares by phone. Call 1-888-847-7654
between 9:00 AM and 4:00 PM EST Monday through Friday and press 3 to place
a trade.
--------------------------------------------------------------------------------
* Purchase, sell or exchange Fund shares by mail. Shareholders can mail trade
requests to:
By regular mail By express or overnight mail
Alpha Select Funds Alpha Select Funds
P.O. Box 219805 c/o DST Systems Inc.
Kansas City, MO 64121-6805 330 W. 9th Street
Kansas City, MO 64105
--------------------------------------------------------------------------------
* Purchase Fund shares by wiring funds to:
United Missouri Bank of Kansas NA
ABA #101000695
Account # 9870601168
Further Credit: Target Select Equity Fund, shareholder name and Alpha
Select Funds account number
Page 11 of 24
<PAGE>
The minimum initial investment for Class A Shares is $1,000. The minimum initial
investment for Class C Shares is $1,000 ($500 for retirement plans). The minimum
subsequent investment for Class A and Class C Shares is $100. The minimum
initial investment for Class I Shares is $500,000. The minimum subsequent
investment for Class I Shares is $5,000. The Fund reserves the right to waive
the minimum initial investment, and may do so for financial intermediaries who
purchase shares through a brokerage firm or a mutual fund marketplace.
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Fund.
Purchasing Alpha Select Fund Shares
When Can You Purchase Shares?
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day).
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Fund or its shareholders.
To open an account:
o By Mail Please send your completed application, with a check payable to
Alpha Select Funds, to the address listed on this page. Your check must be
in U.S. dollars and drawn on a bank located in the United States. We do not
accept third party checks, credit card checks or cash.
o By Wire Please call us at 1-888-847-7654 (option 3) to let us know that you
intend to make your initial investment by wire. You will be given an
account number and fax number to which you should send your completed New
Account Application. Once this is complete, you will need to instruct your
bank to wire money to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7060-116-8; Further Credit: [Target
Select Equity Fund]. The shareholder's name and account number must be
specified in the wire.
Systematic Investment Plan
If you have a checking or savings account with a bank, you may purchase Class A
or Class C Shares automatically through regular deductions from your account.
Please call 1-888-847-7654 for information regarding participating banks. With a
$250 minimum initial investment, you may begin regularly scheduled investments
from $50 up to $250 once or twice a month.
Page 12 of 24
<PAGE>
Sales Charges
Front-End Sales Charges -- Class A Shares
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
Your Sales Charge as a Percentage of Your Sales Charge as a Percentage
If Your Investment is: of Offering Price of Your Net Investment
--------------------------------- ------------------------------------ ---------------------------------
<S> <C> <C>
Less than $25,000 5.50% 5.82%
$25,000 but less than $50,000 5.25% 5.54%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 3.00% 3.10%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over None
</TABLE>
Waiver of Front-End Sales Charge -- Class A Shares
The front-end sales charge will be waived on Class A Shares purchased: (1)
through reinvestment of dividends and distributions; (2) through an asset
allocation account opened by a financial intermediary; (3) by persons
repurchasing shares they redeemed within the last 60 days (see "Repurchase of
Class A Shares"); (4) by employees, affiliates, and members of the immediate
family, of firms that have entered into a selling agreement with the
Distributor; (5) by persons reinvesting distributions from qualified employee
benefit retirement plans and rollovers from individual retirement accounts
("IRAs") previously with firms that have entered into a selling agreement with
the Distributor; (6) by persons investing an amount less than or equal to the
value of an account distribution when an account for which a bank affiliated
with firms that have entered into a selling agreement with the Distributor acted
in a fiduciary, administrative, custodial or investment advisory capacity is
closed; or (7) through dealers, retirement plans, asset allocation programs and
financial institutions that, under their dealer agreements with the Distributor
or otherwise, do not receive any or receive a reduced portion of the front-end
sales charge. The Fund may also enter into waiver arrangements with various
other financial intermediaries who sell Class A Shares of the Fund.
Currently the only fund offered by the Alpha Select Funds is the Fund. If
additional Alpha Select funds are offered, purchases of Class A Shares of all
such funds will be aggregated for purposes of determining sales charge waivers.
Repurchase of Class A Shares
You may repurchase any amount of Class A Shares of any Alpha Select fund at net
asset value per share (NAV) (without the normal front-end sales charge), equal
to or less than the value of any amount of Class A Shares (for which you paid a
front-end sales charge) that you redeemed within the past 60 days. NAV for one
Fund share is the value of that share's portion of all of the net assets of the
Fund. In effect, this allows you to repurchase shares that you may have had to
redeem, without repaying the front-end sales charge. To exercise this privilege,
we must receive
Page 13 of 24
<PAGE>
your purchase order within 60 days of your redemption. In addition, you must
notify us when you send in your purchase order that you are repurchasing shares.
Reduced Sales Charges -- Class A Shares
Rights of Accumulation. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. We will combine the value of your
current purchases with the current value of any Class A Shares you purchased
previously for (i) your account, (ii) your spouse's account, (iii) a joint
account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust or
estate may also use this right of accumulation. We will only consider the value
of Class A Shares purchased previously that were sold subject to a sales charge.
To be entitled to a reduced sales charge based on shares already owned, you must
ask us for the reduction at the time of purchase. You must provide us with your
account number(s) and, if applicable, the account numbers for your spouse and/or
children (and provide the children's ages). We may amend or terminate this right
of accumulation at any time.
Letter of Intent. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of a Fund over a 13-month period and receive the same sales charge as
if you had purchased all the shares at the same time. We will only consider the
value of Class A Shares sold subject to a sales charge. To be entitled to a
reduced sales charge based on shares you intend to purchase over the 13-month
period, you must send us a Letter of Intent. Class A Shares purchased with
dividends or distributions will not be included in the calculation. In
calculating the total amount of purchases you may include in your letter
purchases made up to 90 days before the date of the Letter. The 13-month period
begins on the date of the first purchase, including those purchases made in the
90-day period before the date of the Letter. Please note that the purchase price
of these prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
us to hold in escrow [5]% of the total amount you intend to purchase. If you do
not complete the total intended purchase at the end of the 13-month period, the
transfer agent will redeem the necessary portion of the escrowed shares to make
up the difference between the reduced rate sales charge (based on the amount you
intended to purchase) and the sales charge that would normally apply (based on
the actual amount you purchased).
Combined Purchase/Quantity Discount Privilege. When calculating the appropriate
sales charge rate, we will combine same day purchases of Class A Shares (that
are subject to a sales charge) made by you, your spouse and your minor children
(under age 21). This combination also applies to Class A Shares you purchase
with a Letter of Intent.
Page 14 of 24
<PAGE>
Contingent Deferred Sales Charges -Class C Shares
If you sell your Class C Shares within the first year after your purchase, you
will pay a contingent deferred sales charge equal to Class C Shares of either
(1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next
calculated after we receive your sale request, whichever is less. The maximum
deferred sales charge as a percentage of the net amount invested is 1.00%. The
sales charge does not apply to Class C Shares you purchase through reinvestment
of dividends or distributions. So you never pay a deferred sales charge on any
increase in your investment above the initial offering price. The sales charge
does not apply to exchanges of Class C Shares of the Fund for Class C Shares of
another Alpha Select Fund. Currently, the only fund offered by Alpha Select
Funds is the Fund.
The contingent deferred sales charge will be waived if you sell your Class C
Shares for the following reasons: (1) to make certain withdrawals from a
retirement plan (not including IRAs); (2) because of death or disability; or (3)
for certain payments under the Systematic Withdrawal Plan (discussed below).
How Fund Prices are Calculated
The price per share (the offering price) will be the NAV next determined after
the Fund receives your purchase order plus, in the case of Class A Shares, the
applicable front-end sales charge. The Fund's NAV is calculated once each
Business Day at the regularly-scheduled close of normal trading on the NYSE
(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.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board.
Purchasing Additional Shares
o By Mail Please send your check payable to Alpha Select Funds along with a
signed letter stating the name of the Target Select Equity Fund and your
account number.
o By Phone Current shareholders are eligible to purchase shares by phone if
they have requested that privilege by checking the appropriate box on the
New Account Application. Shareholders who have requested telephone
privileges can call 1-888-847-7654 (option 3) and give the Fund and account
number they would like to make a subsequent purchase into. They must then
instruct their bank to wire the money by following the instructions listed
on page 11.
Page 15 of 24
<PAGE>
Additional Information
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 Fund to your institution.
Selling Alpha Select Funds
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. The sale price of
each share will be the next NAV determined after we receive your request less,
in the case of Class C Shares, any applicable deferred sales charge.
If you are a holder of Class A and/or Class C Shares, you may sell shares by
following procedures established when you opened your account or accounts. If
you have questions, you should call 1-888-847-7654. If you own shares through an
account with a broker or other institution, you should contact that broker or
institution to sell your shares. If you would like to sell $50,000 or more of
your shares, you should notify us in writing and include a signature guarantee.
o By Mail If you wish to redeem shares of the Fund, you should send us a
letter with your name, Fund name and account number and the amount of your
request. All letters must be signed by the owner(s) of the account. All
proceeds will be mailed or wired (depending on instructions given) to the
address or instructions given to us when the account was established. If
you would like the proceeds sent to either a different bank account or
address, a signature guarantee is required.
o By Phone When filling out a New Account Application shareholders are given
the opportunity to establish telephone redemption privileges. If
shareholders elect to take advantage of this privilege they will be able to
redeem shares of the Alpha Select Funds by calling 1-888-847-7654 (option
3) and informing one of our representatives.
Systematic Withdrawal Plan
If you have at least $10,000 in your account, you may use the Systematic
Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $50 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. Please
call 1-888-847-7654 for information regarding banks that participate in the
Systematic Withdrawal Plan.
Page 16 of 24
<PAGE>
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 credit union, 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.
Redemptions in Kind
The Fund generally pays sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders) the Fund 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.
Receiving Your Money
Normally, the Fund will send your sale proceeds within three Business Days after
they receive your request, but it may take up to seven 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, proceeds
from the redemption may not be available until your check has cleared (which may
take up to 15 days from your date of purchase).
Exchanging Fund Shares
When you exchange shares, you are really selling your shares and buying other
Alpha Select Fund shares. So, your sale price and purchase price will be based
on the NAV next calculated after we receive your exchange request. You should
recognize, however, that the Alpha Select Funds currently offer no other funds.
You may exchange your shares on any Business Day by contacting the Alpha Select
Funds 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 days from your date of purchase).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.
Page 17 of 24
<PAGE>
Class A Shares
You may exchange Class A Shares of the Fund for Class A Shares of any other
Alpha Select Fund. If you exchange shares that you purchased without a sales
charge or with a lower sales charge into a fund with a sales charge or with a
higher sales charge, the exchange is subject to an incremental sales charge
(e.g., the difference between the lower and higher applicable sales charges). If
you exchange shares into a fund with the same, lower or no sales charge there is
no incremental sales charge for the exchange.
Class C Shares
You may exchange Class C Shares of the Fund for Class C Shares of any other
Alpha Select Fund. You will not pay a contingent deferred sales charge on
exchanges of Class C Shares.
Class I Shares
You may exchange Class I Shares of the Fund for Class I Shares of any other
Alpha Select Fund.
Presently, only the Fund exists as a series of the Alpha Select Funds.
Other Policies
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.
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.
Suspension of Your Right to Sell Your Shares
The Fund may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the Fund's SAI.
Page 18 of 24
<PAGE>
Involuntary Sales of Your Shares
If your account balance drops below the required minimum of $1,000 for Class A
or Class C Shares because of redemptions, you may be required to sell your
shares. You will always be given at least 60 days' written notice to give you
time to add to your account and avoid selling your shares.
Distribution and Shareholder Servicing of Fund Shares
SEI Investments Distribution Co. (SIDCO.) is the distributor of the Fund. SIDCO.
receives no compensation for distributing the Fund's shares.
The Fund has adopted a plan for its Class C Shares that allows the Fund to pay
distribution and shareholder service fees for the servicing of shareholder
accounts, and the sale and distribution of its shares. In addition, the Fund has
adopted a plan for its Class A and C Shares that allows the Fund to pay
shareholder servicing fees for provision of a broad range of shareholder and
administrative services. Because these fees are paid out of the Fund's assets
continuously, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
For Class C Shares, the distribution fee, as adopted pursuant to Rule 12b-1, is
0.75% of the average daily net assets of the Fund. In addition, Class C Shares
pay a shareholder servicing fee of 0.25% of average daily net assets.
For Class A Shares, shareholder servicing fees, as a percentage of average daily
net assets, are 0.25%.
Class I Shares do not pay distribution or shareholder servicing fees.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs from dealers, which will be paid for by the
Distributor. Under any such program, the Distributor may provide incentives, in
the form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to dealers selling shares of the Fund.
Dividends and Distributions
The Fund distributes its investment income annually as a dividend to
shareholders (the "Distributor"). The Fund makes distributions of capital gains,
if any, at least annually.
If you own Fund shares on the Fund's record date, you will be entitled to
receive the distribution.
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 the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after we receive
your written notice. To cancel your election, simply send the Fund written
notice.
Page 19 of 24
<PAGE>
Taxes
Please consult your tax advisor regarding your specific questions about federal,
state and local income taxes. Summarized below are some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its 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. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. Distributions you receive from the Fund may be taxable whether or not you
reinvest them. Each sale or exchange of Fund shares is a taxable event.
More information about taxes is in the SAI.
Page 20 of 24
<PAGE>
Financial Highlights
The table that follows presents performance information about shares of the TIP
Funds' TIP Target Select Equity Fund, the Fund's predecessor. The Fund became
part of the Alpha Select Funds in _______, 2000. This information is intended to
help you understand the Fund's financial performance for the period of the
Fund's operations. Some of this information reflects financial information for a
single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in the Fund, assuming you
reinvested all of your dividends and distributions. The Financial Highlights for
each period ended September 30, have been audited by Ernst & Young LLP,
independent auditors whose report, along with the Fund's financial statements,
appears in the TIP Funds' TIP Target Select Equity Fund annual report that
accompanies our SAI. The Financial Highlights for the period ended March 31,
2000 are unaudited and appear in the TIP Funds' TIP Target Select Equity Fund
semi-annual report. You can obtain the TIP Funds' TIP Target Select Equity Fund
semi-annual and annual reports, which contain more performance information, at
no charge by calling 1-888-847-7654.
Page 21 of 24
<PAGE>
Financial Highlights
TIP Funds
For a Share Outstanding Throughout each Period Ended September 30;
<TABLE>
<CAPTION>
Ratio of Net
Net Realized Net Net Investment
Asset Net and Distributions Distributions Asset Assets Ratio Income
Value Investment Unrealized from Net from Value End of Expenses (Loss)
Beginning Income Gains on Investment Capital End Total of Period to Average to Average
of Period (Loss) Investments Income Gains of Period Return(1) (000) Net Assets Net Assets
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TIP Target Select Equity Fund*
Interim $17.17 (0.01) 11.10 -- (6.01) $22.25 77.72% $4,058 1.30% (0.30)%
6-month
2000
financial
highlights
(unaudited)
1999 $10.34 (0.07) 7.80 -- (0.90) $17.17 80.04% $1,839 1.30% (0.56)%
1998(2) $10.00 -- 0.35 (0.01) -- $10.34 3.50% $ 966 1.30%** 0.02%**
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
---------------------------------------------------
<S> <C> <C> <C>
TIP Target Select Equity Fund*
Interim 5.89% (4.89)% 525.82%
6-month
2000
financial
highlights
(unaudited)
1999 10.19% (9.45)% 1,279.40%
1998(2) 18.76%** (17.44)%** 803.02%
</TABLE>
* The Fund was managed by Turner Investment Partners, Inc. under a manager of
managers approach and used several sub-advisers. Turner managed
substantially all the assets of the Fund under this approach.
** Annualized
(1) Returns are for the period indicated and have not been annualized.
(2) Commenced operations on January 1, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
Page 22 of 24
<PAGE>
ALPHA SELECT FUNDS
Investment Adviser
Concentrated Capital Management
1150 First Avenue
Park View Tower, Suite 600
King of Prussia, PA 19406-2816
Investment Sub-Advisers
Evergreen Investment Management Company
200 Berkeley Street
Boston, MA 02116
Mercury Advisors
800 Scudders Mill Road
Plainsboro, NJ 08536
Turner Investment Partners, Inc.
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
Distributor
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Legal Counsel
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
More information about the Fund is available without charge through the
following:
Statement of Additional Information (SAI)
The SAI dated ____, 2000, includes detailed information about the Fund. 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.
Page 23 of 24
<PAGE>
Annual and Semi-Annual Reports
These reports contain the Fund's holdings and contain information from the
Fund's managers about strategies, and recent market conditions and trends and
their impact on Fund performance. The reports also contain detailed financial
information about the Fund.
To Obtain an SAI, Annual or Semi-Annual Report, or More Information, Including
Responses to Shareholder Inquiries:
By Telephone: Call 1-888-847-7654
By Mail: Write to Alpha Select Funds
P.O. Box 219805
Kansas City, Missouri 64121-6805
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual reports
of the TIP Funds, TIP Target Select Equity Fund, the Fund's predecessor as well
as other information about Alpha Select Funds, from the EDGAR Database on 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 on the operation of
the Public Reference Room, call 1-202-942-8090). 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 20549-0102.
You may also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected].
Alpha Select Funds' Investment Company Act registration number is 811-8104.
Page 24 of 24
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ALPHA SELECT FUNDS
TARGET SELECT EQUITY FUND
INVESTMENT ADVISER:
CONCENTRATED CAPITAL MANAGEMENT
INVESTMENT SUB-ADVISERS:
EVERGREEN INVESTMENT MANAGEMENT COMPANY
MERCURY ADVISORS
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Target Select Equity Fund (the "Fund"). It is intended to provide additional
information regarding the activities and operations of the Alpha Select Funds
(the "Trust"), and should be read in conjunction with the Fund's Prospectus
dated [ ], 2000. The Prospectus may be obtained without charge by calling
1-888-847-7654.
[ ], 2000
<PAGE>
TABLE OF CONTENTS
THE TRUST....................................................................S-2
INVESTMENT OBJECTIVES........................................................S-2
INVESTMENT POLICIES..........................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS.........................................S-3
INVESTMENT LIMITATIONS......................................................S-27
PORTFOLIO TURNOVER..........................................................S-30
THE ADVISER.................................................................S-31
THE SUB-ADVISERS............................................................S-33
THE ADMINISTRATOR...........................................................S-35
THE DISTRIBUTOR.............................................................S-36
CODE OF ETHICS..............................................................S-37
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-37
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-40
PURCHASE AND REDEMPTION OF SHARES...........................................S-41
DETERMINATION OF NET ASSET VALUE............................................S-41
TAXES.......................................................................S-42
PORTFOLIO TRANSACTIONS......................................................S-45
VOTING......................................................................S-47
DESCRIPTION OF SHARES.......................................................S-48
SHAREHOLDER LIABILITY.......................................................S-48
LIMITATION OF TRUSTEES' LIABILITY...........................................S-49
INDEPENDENT AUDITORS........................................................S-49
CUSTODIAN...................................................................S-49
LEGAL COUNSEL...............................................................S-49
APPENDIX.....................................................................A-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to Class A, Class C, and
Class I shares of the Target Select Equity Fund (the "Fund"). The Fund is a
non-diversified separate series of the Alpha Select Funds (the "Trust"), an
open-end management investment company established as a Delaware business trust
under a Declaration of Trust dated October 25, 1993, and amended on December 10,
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 that Fund represents an equal
proportionate interest in that portfolio. See "Description of Shares."
Currently, only the Fund exists as a portfolio of the Trust.
On [ ], 2000, the Fund acquired all the assets and liabilities of the TIP Funds'
TIP Target Select Equity Fund. Capitalized terms not defined herein are defined
in the Prospectus offering shares of the Fund.
INVESTMENT OBJECTIVES
Target Select Equity Fund -- The Fund seeks long term growth of capital
primarily from investment in U.S. and foreign equity securities.
INVESTMENT POLICIES
Target Select Equity Fund -- Under the general supervision of the Adviser, and
for each investment strategy, the Sub-Advisers will invest in a minimum of 10
equity securities that it believes have the greatest return potential. Such a
focused security-selection process permits each manager to act on only the
investment ideas that they think are their strongest ones. The intent is to
avoid diluting performance by owning too many securities, so that the positive
contributions of winning investments will prove substantial.
The Fund is designed to provide an investment that combines the investment
expertise and best investment ideas of the initial three outstanding
money-management firms. The Sub-Advisers will manage a portion of the Fund's
portfolio on a day-to-day basis. Assets for investment will be allocated to each
Sub-Adviser by the Fund's Board of Trustees, based on the recommendation of the
Adviser. The expectation is that the allocations will result in a portfolio
invested in a variety of equity securities with differing capitalizations and
valuations, chosen by differing investment strategies.
The Fund intends to invest primarily (and, under normal circumstances, at least
65% of its total assets) in equity securities of both U.S. and foreign issuers.
Selection of equity securities will not be restricted by market capitalization,
and the Fund's Sub-Advisers will employ their own proprietary investment
processes in managing assets.
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Assets of the Fund may also be invested in shares of other investment companies,
ADRs and real estate investment trusts ("REITs"). The Fund may also invest up to
15% of its net assets in illiquid securities, invest up to 25% of its total
assets in convertible securities, including convertible securities rated below
investment grade, purchase unregistered securities that are eligible for re-sale
pursuant to Rule 144A under the Securities Act of 1933, as amended, and purchase
fixed income securities, including securities rated below investment grade. In
addition, the Fund may effect short sales, purchase securities on a when-issued
basis, and may enter into futures and options transactions. Debt securities
rated below investment grade, i.e., rated lower than BBB by S&P and/or Baa by
Moody's or unrated securities of comparable quality, are also known as "junk
bonds." The maximum percentage of the Fund's assets that may be invested in
securities rated below investment grade is 25%, although Fund management
currently does not expect its investment in junk bonds to be significant.
Under normal circumstances, each of the Sub-Advisers may invest a portion of the
assets under its management in the money market instruments described below in
order to maintain liquidity, or if securities meeting the Fund's investment
objective and policies are not otherwise reasonably available for purchase,
provided that such instruments do not exceed 25% of the Fund's total assets. For
temporary defensive purposes or during periods when the Adviser determines that
market conditions warrant, each Sub-Adviser may invest up to 100% of the assets
under its management in cash, repurchase agreements and short-term obligations
that would not ordinarily be consistent with the Fund's objectives.
DESCRIPTION OF PERMITTED INVESTMENTS
Small and Mid-Capitalization Companies. The Fund may invest some of its assets
in equity securities of small and mid-capitalization companies, which involves
greater risk than is customarily associated with investments in more established
companies. The securities of smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies or the market
average in general. These companies may have limited product lines, markets or
financial resources, or they may be dependent on a limited management group. In
addition, these companies may be more vulnerable to adverse business or economic
events than larger, more established companies. Because of these factors, the
Fund believes that its shares may be suitable for investment by persons who can
invest without concern for current income and who are in a financial position to
assume above-average investment risk in search of above-average long-term
reward. It is not intended as a complete investment program but is designed for
those long-term investors who are prepared to experience above-average
fluctuations in net asset value.
While the small and mid-capitalization issuers may offer greater
opportunities for capital appreciation than large capitalization issuers,
investments in smaller companies may involve greater risks and thus may be
considered speculative. Fund management believes that properly selected
companies of this type have the potential to increase their
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earnings or market valuation at a rate substantially in excess of the general
growth of the economy. Full development of these companies and trends frequently
takes time and, for this reason, the Fund should be considered as a long-term
investment and not as a vehicle for seeking short-term profits.
The securities of small and mid-capitalization companies may be traded only
in the over-the-counter market or on a regional securities exchange and may not
be traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Fund of portfolio securities to
meet redemptions or otherwise may require the Fund to sell these securities at a
discount from market prices or during periods when in management's judgment such
disposition is not desirable or to make many small sales over a lengthy period
of time.
While the process of selection and continuous supervision by Fund
management does not, of course, guarantee successful investment results, it does
provide access to an asset class not available to the average individual due to
the time and cost involved. Careful initial selection is particularly important
in this area as many new enterprises have promise but lack certain of the
fundamental factors necessary to prosper. Investing in small companies requires
specialized research and analysis. In addition, many investors cannot invest
sufficient assets in such companies to provide wide diversification.
Small companies are generally little known to most individual investors
although some may be dominant in their respective industries. Fund management
believes that relatively small companies will continue to have the opportunity
to develop into significant business enterprises. The Fund may invest in
securities of small issuers in the relatively early stages of business
development that have a new technology, a unique or proprietary product or
service, or a favorable market position. Such companies may not be counted upon
to develop into major industrial companies, but management believes that
eventual recognition of their special value characteristics by the investment
community can provide above-average long-term growth to the portfolio.
Equity securities of specific small and mid-capitalization issuers may
present different opportunities for long-term capital appreciation during
varying portions of economic or securities markets cycles, as well as during
varying stages of their business development. The market valuation of small and
mid-capitalization issuers tends to fluctuate during economic or market cycles,
presenting attractive investment opportunities at various points during these
cycles.
Smaller companies, due to the size and kinds of markets that they serve,
may be less susceptible than large companies to intervention from the Federal
government by means of price controls, regulations or litigation.
S-4
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Foreign Investment Risks
Foreign Market Risk. Since the Fund may invest in foreign securities, it
offers the potential for more diversification than an investment only in the
United States. This is because securities traded on foreign markets have often
(though not always) performed differently than securities in the United States.
However, such investments involve special risks not present in U.S. investments
that can increase the chances that the Fund will lose money. In particular, the
Fund is subject to the risk that because there are generally fewer investors on
foreign exchanges and a smaller number of shares traded each day, it may make it
difficult for the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may fluctuate more than prices of
securities traded in the United States.
Foreign Economy Risk. The economies of certain foreign markets often do not
compare favorably with that of the United States with respect to such issues as
growth of gross national product, reinvestment of capital, resources, and
balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by governmental actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer the Fund's assets or income back
into the United States, or otherwise adversely affect the Fund's operations.
Other foreign market risks include foreign exchange controls, difficulties in
pricing securities, defaults on foreign government securities, difficulties in
enforcing favorable legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain foreign countries
may be less extensive than those available to investors in the United States or
other foreign countries.
Currency Risk and Exchange Risk. Securities in which the Fund invests may
be denominated or quoted in currencies other than the U.S. dollar. Changes in
foreign currency exchange rates will affect the value of the Fund's portfolio.
Generally, when the U.S. dollar rises in value against a foreign currency, a
security denominated in that currency loses value because the currency is worth
fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against
a foreign currency, a security denominated in that currency gains value because
the currency is worth more U.S. dollars. This risk, generally known as "currency
risk," means that a stronger U.S. dollar will reduce returns for U.S. investors
investing overseas while a weak U.S. dollar will increase those returns.
European Economic and Monetary Union. For a number of years, certain
European countries have been seeking economic unification that would, among
other things, reduce barriers between countries, increase competition among
companies, reduce
S-5
<PAGE>
government subsidies in certain industries, and reduce or eliminate currency
fluctuations among these European countries. The Treaty on European Union (the
"Maastricht Treaty") sets out a framework for the European Economic and Monetary
Union ("EMU") among the countries that comprise the European Union ("EU"). EMU
established a single common European currency (the "euro") that was introduced
on January 1, 1999 and is expected to replace the existing national currencies
of all EMU participants by July 1, 2002.Certain securities issued in
participating EU countries (beginning with government and corporate bonds) were
redenominated in the euro, and are listed, traded and make dividend and other
payments only in euros.
No assurance can be given that EMU will take full effect, that all of the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will not be completed, or will be completed but
then partially or completely unwound. Because any participating country may opt
out of EMU within the first three years, it is possible that a significant
participant could choose to abandon EMU, which would diminish its credibility
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of the participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause disruption of
the financial markets as securities that have been redenominated in euros are
transferred back into that country's national currency, particularly if the
withdrawing country is a major economic power. Such developments could have an
adverse impact on the Fund's investments in Europe generally or in specific
countries participating in EMU. Gains or losses resulting from the euro
conversion may be taxable to Fund shareholders under foreign or, in certain
limited circumstances, U.S. tax laws.
Governmental Supervision and Regulation/Accounting Standards. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Some countries may not have laws to
protect investors the way that the U.S. securities laws do. For example, some
foreign countries may have no laws or rules against insider trading. Insider
trading occurs when a person buys or sells a company's securities based on
non-public information about that company. Accounting standards in other
countries are not necessarily the same as in the United States. If the
accounting standards in another country do not require as much detail as U.S.
accounting standards, it may be harder for the Fund management to completely and
accurately determine a company's financial condition. Also, brokerage
commissions and other costs of buying or selling securities often are higher in
foreign countries than they are in the United States. This reduces the amount
the Fund can earn on its investments.
S-6
<PAGE>
Certain Risks of Holding Fund Assets Outside the United States. The Fund
generally holds its foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's ability to recover its assets if
a foreign bank or depository or issuer of a security or any of their agents goes
bankrupt. In addition, it is often more expensive for the Fund to buy, sell and
hold securities in certain foreign markets than it is in the U.S. The increased
expense of investing in foreign markets reduces the amount the Fund can earn on
its investments and typically results in higher operating expense ratio for the
Fund than investment companies invested only in the U.S.
Settlement Risk. Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign settlement
procedures and trade regulations also may involve certain risks (such as delays
in payment for or delivery of securities) not typically generated by the
settlement of U.S. investments. Communications between the United States and
emerging market countries may be unreliable, increasing the risk of delayed
settlements or losses of security certificates. Settlements in certain foreign
countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Fund to carry out
transactions. If the Fund cannot settle or is delayed in settling a purchase of
securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If the
Fund cannot settle or is delayed in settling a sale of securities, it may lose
money if the value of the security then declines or, if it has contracted to
sell the security to another party, the Fund could be liable to that party for
any losses incurred.
Portfolio Turnover. An annual portfolio turnover rate in excess of 100% may
result from the Fund's investment strategy. Portfolio turnover rates in excess
of 100% may result in higher transaction costs, including increased brokerage
commissions, and higher levels of taxable capital gain.
Convertible Securities. Convertible securities entitle the holder to
receive interest payments paid on corporate debt securities or the dividend
preference on a preferred stock until such time as the convertible security
matures or is redeemed or until the holder elects to exercise the conversion
privilege.
The characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock increases, the
relatively high yield received from dividend or interest payments as compared to
common stock dividends and decreased risks of decline in value relative to the
underlying common stock due to their fixed-income nature. As a result of the
conversion feature, however, the interest rate or dividend preference on a
convertible security is generally less than would be the case if the securities
were issued in non-convertible form.
S-7
<PAGE>
In analyzing convertible securities, the Investment Adviser will consider
both the yield on the convertible security relative to its credit quality and
the potential capital appreciation that is offered by the underlying common
stock, among other things.
Convertible securities are issued and traded in a number of securities
markets. Even in cases where a substantial portion of the convertible securities
held by the Fund are denominated in United States dollars, the underlying equity
securities may be quoted in the currency of the country where the issuer is
domiciled. With respect to convertible securities denominated in a currency
different from that of the underlying equity securities, the conversion price
may be based on a fixed exchange rate established at the time the security is
issued. As a result, fluctuations in the exchange rate between the currency in
which the debt security is denominated and the currency in which the share price
is quoted will affect the value of the convertible security.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security.
Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security under certain
circumstances.
Debt Securities. The Fund may hold convertible and nonconvertible debt
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<PAGE>
securities and preferred securities. The Fund has established no rating criteria
for the debt securities in which it may invest and such securities may not be
rated at all for creditworthiness. In purchasing such securities, the Fund will
rely on the Investment Adviser's judgment, analysis and experience in evaluating
the creditworthiness of an issuer of such securities. The Investment Adviser
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Junk Bonds. Junk bonds are debt securities that are rated below investment
grade by the major rating agencies or are unrated securities that Fund
management believes are of comparable quality. Although junk bonds generally pay
higher rates of interest than investment grade bonds, they are high risk
investments that may cause income and principal losses for the Fund. The major
risks in junk bond investments include the following:
Junk bonds may be issued by less creditworthy companies. These securities
are vulnerable to adverse changes in the issuer's industry and to general
economic conditions. Issuers of junk bonds may be unable to meet their interest
or principal payment obligations because of an economic downturn, specific
issuer developments or the unavailability of additional financing.
The issuers of junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations. The
issuer's ability to pay its debt obligations also may be lessened by specific
issuer developments, or the unavailability of additional financing.
Junk bonds are frequently ranked junior to claims by other creditors. If
the issuer cannot meet its obligations, the senior obligations are generally
paid off before the junior obligations. Junk bonds frequently have redemption
features that permit an issuer to repurchase the security from the Fund before
it matures. If an issuer redeems the junk bonds, the Fund may have to invest the
proceeds in bonds with lower yields and may lose income.
Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds than
on other higher rated fixed income securities.
Junk bonds may be less liquid than higher rated fixed income securities
even under normal economic conditions. There are fewer dealers in the junk bond
market, and there may be significant differences in the prices quoted for junk
bonds by the dealers. Because they are less liquid, judgment may play a greater
role in valuing certain of the Fund's portfolio securities than in the case of
securities trading in a more liquid market.
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The Fund may incur expenses to the extent necessary to seek recovery upon
default or to negotiate new terms with a defaulting issuer.
Illiquid or Restricted Securities. The Fund may invest up to 15% of its net
assets in securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act. Restricted securities may be sold in
private placement transactions between issuers and their purchasers and may be
neither listed on an exchange nor traded in other established markets. In many
cases, privately placed securities may not be freely transferable under the laws
of the applicable jurisdiction or due to contractual restrictions on resale. As
a result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded securities.
To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity,
could be less than those originally paid by the Fund or less than their fair
market value. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by the Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Fund may
be required to bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less seasoned issuers, which may involve greater
risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. In making
investments in such securities, the Fund may obtain access to material nonpublic
information which may restrict the Fund's ability to conduct portfolio
transactions in such securities.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Trustees has determined to treat as liquid Rule
144A securities that are either freely tradable in their primary markets
offshore or have been determined to be liquid in accordance with the policies
and procedures adopted by the Board of Trustees. The Board of Trustees has
adopted guidelines and delegated to the [Investment Adviser] the daily function
of determining and monitoring liquidity of restricted securities. The
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Board of Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold and offered
under Rule 144A will continue to develop, the Board of Trustees will carefully
monitor the Fund's investments in these securities. This investment practice
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these securities.
Investment Company Shares. The Fund may invest in shares of other
investment companies to the extent permitted by applicable law and subject to
certain restrictions. The 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, the 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.
American Depositary Receipts ("ADRs"). The Fund may invest up to 10% of its
total assets in the securities of non-U.S. issuers in the form of ADRs. ADRs are
receipts issued by a U.S. bank or trust company that evidence ownership of
underlying securities issued by a non-U.S. corporation. The Fund may invest in
unsponsored ADRs.
Holders of an unsponsored depositary receipt generally bear all the costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Real Estate Investment Trusts ("REITs"). REITs are a type of pooled
investment vehicle that invests primarily in income producing real estate or
real estate related loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly or indirectly in real
property and derive income primarily from the collection of rents. Equity REITs
can also realize capital gains by selling properties that have appreciated in
value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Like RICs
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with certain requirements of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will indirectly bear its proportionate
share of expenses incurred by the REITs in which the Fund invests in addition to
the expenses incurred directly by the Fund.
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Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, may not be diversified
geographically or by property type, and are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs must also meet
certain requirements under the Code in order to avoid entity level tax and to
pass-through certain tax attributes of their income to shareholders. REITs are
consequently subject to the risk of failing to meet these requirements for
favorable tax treatment and failing to maintain their exemptions from
registration under the Investment Company Act. REITs are also subject to changes
in the Code, including changes involving their tax status.
REITs (especially mortgage REITS) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in limited volume and may be subject to
more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the Standard
& Poor's 500 Index. The management of a REIT may be subject to conflicts of
interest with respect to the operation of the business of the REIT and may be
involved in real estate activities competitive with the REIT. REITs may own
properties through joint ventures or in other circumstances in which the REIT
may not have control over its investments. REITs may incur significant amounts
of leverage.
When Issued Securities, Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or sell securities that it is entitled to
receive on a when issued basis. The Fund may also purchase or sell securities on
a delayed delivery basis. The Fund may also purchase or sell securities through
a forward commitment. These transactions involve the purchase or sale of
securities by the Fund at an established price with payment and delivery taking
place in the future. The Fund enters into these transactions to obtain what is
considered an advantageous price to the Fund at the time of entering into the
transaction. The Fund has not established any limit on the percentage of its
assets that may be committed in connection with these transactions. When the
Fund purchases securities in these transactions, the Fund segregates an account
with its custodian of cash, cash equivalents, U.S. Government securities or
other liquid securities in an amount equal to the amount of its purchase
commitments.
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There can be no assurance that a security purchased on a when issued basis
will be issued or that a security purchased or sold through a forward commitment
will be delivered. The value of securities in these transactions on the delivery
date may be more or less than the Fund's purchase price. The Fund may bear the
risk of a decline in the value of the security in these transactions and may not
benefit from an appreciation in the value of the security during the commitment
period.
Derivatives. The Fund may use instruments referred to as Derivatives.
Derivatives are financial instruments the value of which is derived from another
security, a commodity (such as gold or oil) or an index (a measure of value or
rates, such as the Standard & Poor's 500 Index or the prime lending rate).
Derivatives allow the Fund to increase or decrease the level of risk to which
the Fund is exposed more quickly and efficiently than transactions in other
types of instruments.
Hedging. The Fund may use Derivatives for hedging purposes including
participatory hedges. Hedging is a strategy in which a Derivative is used to
offset the risk that other fund holdings may decrease in value. Losses on the
other investment may be substantially reduced by gains on a Derivative that
reacts in an opposite manner to market movements. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than anticipated by the Fund or if the cost of the Derivative outweighs
the benefit of the hedge. Hedging also involves the risk that changes in the
value of the Derivative will not match those of the holdings being hedged as
expected by the Fund, in which case any losses on the holdings being hedged may
not be reduced.
The Fund may use Derivative instruments and trading strategies including
the following:
Indexed and Inverse Securities. The Fund may invest in securities the
potential return of which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the current value of an
interest rate index, such as the prime rate. The Fund may also invest in a debt
security which returns principal at maturity based on the level of a securities
index or a basket of securities, or based on the relative changes of two
indices. In addition, the Fund may invest in securities the potential return of
which is based inversely on the change in an index (that is, a security the
value of which will move in the opposite direction of changes to an index). For
example, the Fund may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of interest (or do not
fully return principal) when the value of the index increases. If the Fund
invests in such securities, it may be subject to reduced or eliminated interest
payments or loss of principal in the event of an adverse movement in the
relevant index or indices. Indexed and inverse securities involve credit risk,
and certain indexed and inverse securities may involve currency risk, leverage
risk and liquidity risk. The Fund may invest in indexed and inverse securities
for hedging purposes only. When used for hedging purposes, indexed and inverse
securities involve correlation risk.
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Options on Securities and Securities Indices.
Purchasing Put Options. The Fund may purchase put options on securities
held in its portfolio or on securities or interest rate indices which are
correlated with securities held in its portfolio. When the Fund purchases a put
option, in consideration for an up front payment (the "option premium") the Fund
acquires a right to sell to another party specified securities owned by the Fund
at a specified price (the "exercise price") on or before a specified date (the
"expiration date"), in the case of an option on securities, or to receive from
another party a payment based on the amount a specified securities index
declines below a specified level on or before the expiration date, in the case
of an option on a securities index. The purchase of a put option limits the
Fund's risk of loss in the event of a decline in the market value of the
portfolio holdings underlying the put option prior to the option's expiration
date. If the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the option
premium and will consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put. Purchasing a put
option may involve correlation risk, and may also involve liquidity and credit
risk. The Fund will not purchase put options on securities if, as a result of
such purchase, the aggregate cost of all outstanding options on securities held
by the Fund would exceed 5% of the market value of the Fund's total assets.
Purchasing Call Options. The Fund may also purchase call options on
securities it intends to purchase or securities or interest rate indices, which
are correlated with the types of securities it intends to purchase. When the
Fund purchases a call option, in consideration for the option premium the Fund
acquires a right to purchase from another party specified securities at the
exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a
specified securities index increases beyond a specified level on or before the
expiration date, in the case of an option on a securities index. The purchase of
a call option may protect the Fund from having to pay more for a security as a
consequence of increases in the market value for the security during a period
when the Fund is contemplating its purchase, in the case of an option on a
security, or attempting to identify specific securities in which to invest in a
market the Fund believes to be attractive, in the case of an option on an index
(an "anticipatory hedge"). In the event the Fund determines not to purchase a
security underlying a call option, however, the Fund may lose the entire option
premium. Purchasing a call option involves correlation risk, and may also
involve liquidity and credit risk.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Call Options. The Fund may write (i.e., sell) call options on
securities
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held in its portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When the Fund writes a call
option, in return for an option premium, the Fund gives another party the right
to buy specified securities owned by the Fund at the exercise price on or before
the expiration date, in the case of an option on securities, or agrees to pay to
another party an amount based on any gain in a specified securities index beyond
a specified level on or before the expiration date, in the case of an option on
a securities index. In the event the party to which the Fund has written an
option fails to exercise its rights under the option because the value of the
underlying securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the receipt
of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities, and gives up the opportunity to
profit from any increase in the value of the underlying securities beyond the
exercise price, while the option remains outstanding. Writing a call option may
involve correlation risk.
Writing Put Options. The Fund may also write put options on securities or
securities indices. When the Fund writes a put option, in return for an option
premium the Fund gives another party the right to sell to the Fund a specified
security at the exercise price on or before the expiration date, in the case of
an option on a security, or agrees to pay to another party an amount based on
any decline in a specified securities index below a specified level on or before
the expiration date, in the case of an option on a securities index. In the
event the party to which the Fund has written an option fails to exercise its
rights under the option because the value of the underlying securities is
greater than the exercise price, the Fund will profit by the amount of the
option premium. By writing a put option, however, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the market
value of the security at the time of exercise as long as the put option is
outstanding, in the case of an option on a security, or make a cash payment
reflecting any decline in the index, in the case of an option on an index.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund would be willing
to purchase the security at the exercise price for investment purposes (in the
case of an option on a security) or is writing the put in connection with
trading strategies involving combinations of options -- for example, the sale
and purchase of options with identical expiration dates on the same security or
index but different exercise prices (a technique called a "spread"). Writing a
put option may involve substantial leverage risk.
The Fund is also authorized to sell put or call options in connection with
closing out call or put options it has previously purchased.
Other than with respect to closing transactions, the Fund will write only
call or put options that are "covered." A call or put option will be considered
covered if the Fund has segregated assets with respect to such option in the
manner described in "Risk Factors in
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Derivatives" below. A call option will also be considered covered if the Fund
owns the securities it would be required to deliver upon exercise of the option
(or, in the case of an option on a securities index, securities that
substantially correlate with the performance of such index) or owns a call
option, warrant or convertible instrument which is immediately exercisable for,
or convertible into, such security.
Types of Options. The Fund may engage in transactions in options on
securities or securities indices on exchanges and in the over-the-counter
("OTC") markets. In general, exchange-traded options have standardized exercise
prices and expiration dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and the
seller, but generally do not require the parties to post margin and are subject
to greater credit risk. OTC options also involve greater liquidity risk. See
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below.
Futures. The Fund may engage in transactions in futures and options
thereon. Futures are standardized, exchange-traded contracts which obligate a
purchaser to take delivery, and a seller to make delivery, of a specific amount
of an asset at a specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing or selling a
futures contract the Fund is required to deposit collateral ("margin") equal to
a percentage (generally less than 10%) of the contract value. Each day
thereafter until the futures position is closed, the Fund will pay additional
margin representing any loss experienced as a result of the futures position the
prior day or be entitled to a payment representing any profit experienced as a
result of the futures position the prior day. Futures involve substantial
leverage risk.
The sale of a futures contract limits the Fund's risk of loss through a
decline in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract's expiration date. In the event the
market value of the portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will realize a loss on the
futures position and a lower return on the portfolio holdings than would have
been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value for such
securities during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be attractive. In
the event that such securities decline in value or the Fund determines not to
complete an anticipatory hedge transaction relating to a futures contract,
however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying asset is a
currency or securities or interest rate index) purchased or sold for hedging
purposes (including anticipatory
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hedges). The Fund will further limit transactions in futures and options on
futures to the extent necessary to prevent the Fund from being deemed a
"commodity pool" under regulations of the Commodity Futures Trading Commission.
Swaps. The Fund is authorized to enter into equity swap agreements, which
are OTC contracts in which one party agrees to make periodic payments based on
the change in market value of a specified equity security, basket of equity
securities or equity index in return for periodic payments based on a fixed or
variable interest rate or the change in market value of a different equity
security, basket of equity securities or equity index. Swap agreements may be
used to obtain exposure to an equity or market without owning or taking physical
custody of securities in circumstances in which direct investment is restricted
by local law or is otherwise impractical.
The Fund will enter into an equity swap transaction only if, immediately
following the time the Fund enters into the transaction, the aggregate notional
principal amount of equity swap transactions to which the Fund is a party would
not exceed 5% of the Fund's net assets.
Swap agreements entail the risk that a party will default on its payment
obligations to the Fund thereunder. The Fund will seek to lessen the risk to
some extent by entering into a transaction only if the counterparty meets the
current credit requirement for OTC option counterparties. Swap agreements also
bear the risk that the Fund will not be able to meet its obligations to the
counterparty. The Fund, however, will deposit in a segregated account with its
custodian, liquid securities or cash or cash equivalents or other assets
permitted to be so segregated by the Commission in an amount equal to or greater
than the market value of the liabilities under the swap agreement or the amount
it would cost the Fund initially to make an equivalent direct investment, plus
or minus any amount the Fund is obligated to pay or is to receive under the swap
agreement.
In a typical cap or floor agreement, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specific interest
rate exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed-upon level. An interest rate collar combines elements of buying
a cap and selling a floor. In swap agreements, if the Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the Fund's
investment and their share price and yield.
Foreign Exchange Transactions.
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency
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futures and related options thereon (collectively, "Currency Instruments") for
purposes of hedging against the decline in the value of currencies in which its
portfolio holdings are denominated against the U.S. dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange
transactions are OTC contracts to purchase or sell a specified amount of a
specified currency or multinational currency unit at a price and future date set
at the time of the contract. Spot foreign exchange transactions are similar but
require current, rather than future, settlement. The Fund will enter into
foreign exchange transactions only for purposes of hedging either a specific
transaction or a portfolio position. The Fund may enter into a forward foreign
exchange transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security transaction at a
future date or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign exchange
transaction for purposes of hedging a portfolio position by selling forward a
currency in which a portfolio position of the Fund is denominated or by
purchasing a currency in which the Fund anticipates acquiring a portfolio
position in the near future. The Fund may also hedge portfolio positions through
currency swaps, which are transactions in which one currency is simultaneously
bought for a second currency on a spot basis and sold for the second currency on
a forward basis. Forward foreign exchange transactions involve substantial
currency risk, and also involve credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above. Currency futures involve substantial currency risk, and also involve
leverage risk.
Currency Options. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration for
an option premium the writer of a currency option is obligated to sell (in the
case of a call option) or purchase (in the case of a put option) a specified
amount of a specified currency on or before the expiration date for a specified
amount of another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. See "Types of Options" above and
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below. Currency options involve substantial currency risk, and may
also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates purchasing,
which are denominated in such currency. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a
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"cross-hedge"). The Fund will only enter into a cross-hedge if the Investment
Adviser believes that (i) there is a demonstrable high correlation between the
currency in which the cross-hedge is denominated and the currency being hedged,
and (ii) executing a cross-hedge through the currency in which the cross-hedge
is denominated will be significantly more cost-effective or provide
substantially greater liquidity than executing a similar hedging transaction by
means of the currency being hedged.
Risk Factors in Hedging Foreign Currency. Hedging transactions involving
Currency Instruments involve substantial risks, including correlation risk.
While the Fund's use of Currency Instruments to effect hedging strategies is
intended to reduce the volatility of the net asset value of the Fund's shares,
the net asset value of the Fund's shares will fluctuate. Moreover, although
Currency Instruments will be used with the intention of hedging against adverse
currency movements, transactions in Currency Instruments involve the risk that
anticipated currency movements will not be accurately predicted and that the
Fund's hedging strategies will be ineffective. To the extent that the Fund
hedges against anticipated currency movements which do not occur, the Fund may
realize losses, and decrease its total return, as the result of its hedging
transactions. Furthermore, the Fund will only engage in hedging activities from
time to time and may not be engaging in hedging activities when movements in
currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to
enter into a hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which Currency
Instruments are not available and it is not possible to engage in effective
foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
o Credit risk -- the risk that the counterparty on a derivative
transaction will be unable to honor its financial obligation to the
Fund.
o Currency risk -- the risk that changes in the exchange rate between
two currencies will adversely affect the value (in U.S. dollar terms)
of an investment.
o Leverage risk -- the risk associated with certain types of investments
or trading strategies (such as borrowing money to increase the amount
of investments) that relatively small market movements may result in
large changes in the value of an investment. Certain investments or
trading strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
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o Liquidity risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the
price that the seller believes the security is currently worth.
Use of derivatives for hedging purposes involves correlation risk. If the
value of the derivative moves more or less than the value of the hedged
instruments, the Fund will experience a gain or loss which will not be
completely offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving derivatives only if
there appears to be a liquid secondary market for such instruments or, in the
case of illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under "Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC Derivatives." However, there can be
no assurance that, at any specific time, either a liquid secondary market will
exist for a derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be possible to close a
position in a derivative without incurring substantial losses, if at all.
Certain transactions in derivatives (such as futures transactions or sales
of put options) involve substantial leverage risk and may expose the Fund to
potential losses, which exceed the amount originally invested by the Fund. When
the Fund engages in such a transaction, the Fund will deposit in a segregated
account at its custodian liquid securities with a value at least equal to the
Fund's exposure, on a marked-to-market basis, to the transaction (as calculated
pursuant to requirements of the Commission). Such segregation will ensure that
the Fund has assets available to satisfy its obligations with respect to the
transaction, but will not limit the Fund's exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of
OTC Derivatives
Certain derivatives traded in OTC markets, including indexed securities,
swaps and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also
make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price
at which the instrument may be terminated or sold, or (ii) for which the
Investment Adviser anticipates the Fund can receive on each business day at
least two independent bids or offers, unless a quotation from only one dealer is
available, in which case that dealer's quotation may be used.
Because derivatives traded in OTC markets are not guaranteed by an exchange
or clearing corporation and generally do not require payment of margin, to the
extent that the Fund has unrealized gains in such instruments or has deposited
collateral with its counterparty, the Fund is at risk that its counterparty will
become bankrupt or otherwise
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fail to honor its obligations. The Fund will attempt to minimize the risk that a
counterparty will become bankrupt or otherwise fail to honor its obligations by
engaging in transactions in Derivatives traded in OTC markets only with
financial institutions which have substantial capital or which have provided the
Fund with a third-party guaranty or other credit enhancement.
Securities Lending. The Fund may lend securities with a value not exceeding
33 1/3 % of its total assets to banks, brokers and other financial institutions.
In return, the Fund receives collateral in cash or securities issued or
guaranteed by the U.S. Government which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. During the period of such a loan, the Fund typically receives the
income on both the loaned securities and the collateral and thereby increases
its yield. In certain circumstances, the Fund may receive a flat fee for its
loans. Such loans are terminable at any time and the borrower, after notice, is
required to return borrowed securities within five business days. The Fund may
pay reasonable finder's, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Fund
could experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent the value of the collateral falls below the market
value of the borrowed securities.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This insulates the Fund
from fluctuations in the market value of the underlying security during such
period, although, to the extent the repurchase agreement is not denominated in
U.S. dollars, the Fund's return may be affected by currency fluctuations. The
Fund may not invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days (together with other illiquid securities).
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
The Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a repurchase
agreement, instead of the contractual fixed rate of return, the rate of return
to the Fund shall be dependent upon intervening fluctuations of the market value
of such security and the accrued interest on the security. In such event, the
Fund would have rights against the seller for breach of contract with respect to
any losses arising from market fluctuations following the failure of the seller
to perform.
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Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. The Fund 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 Fund will enter into a reverse repurchase
agreement for leveraging purposes only when the Investment 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 Fund also may use the proceeds
of reverse repurchase agreements to provide liquidity to meet redemption
requests when the sale of the Fund's securities is considered to be
disadvantageous.
Borrowing and Leverage. The use of leverage by the Fund creates an
opportunity for greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net asset value of
Fund shares and in the yield on the Fund's portfolio. Although the principal of
such borrowings will be fixed, the Fund's assets may change in value during the
time the borrowings are outstanding. Borrowings will create interest expenses of
the Fund that can exceed the income from the assets purchased with the
borrowings. To the extent the income or capital appreciation derived from
securities purchased with borrowed funds exceeds the interest the Fund will have
to pay on the borrowings, the Fund's return will be greater than if leverage had
not been used. Conversely, if the income or capital appreciation from the
securities purchased with such borrowed funds is not sufficient to cover the
cost of borrowing, the return to the Fund will be less than if leverage had not
been used, and therefore the amount available for distribution to shareholders
as dividends and other distributions will be reduced. In the latter case, the
Investment Adviser in its best judgment nevertheless may determine to maintain
the Fund's leveraged position if it expects that the benefits to the Fund's
shareholders of maintaining the leveraged position will outweigh the current
reduced return.
Certain types of borrowings by the Fund may result in the Fund being
subject to covenants in credit agreements relating to asset coverage, portfolio
composition requirements and other matters. It is not anticipated that
observance of such covenants would impede the Investment Adviser from managing
the Fund's portfolio in accordance with the Fund's investment objectives and
policies. However, a breach of any such covenants not cured within the specified
cure period may result in acceleration of outstanding indebtedness and require
the Fund to dispose of portfolio investments at a time when it maybe
disadvantageous to do so.
The Fund at times may borrow, including from affiliates, provided that the
terms of such borrowings are no less favorable than those available from
comparable sources of funds in the marketplace.
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Warrants. The Fund may invest in warrants, which are securities permitting,
but not obligating, the warrant holder to subscribe for other securities. Buying
a warrant does not make the Fund a shareholder of the underlying stock. The
warrant holder has no right to dividends or votes on the underlying stock. A
warrant does not carry any right to assets of the issuer, and for this reason
investment in warrants may be more speculative than other equity-based
investments.
Global Depository Receipts ("GDRs"). GDRs are issued globally and evidence
a similar ownership interest in a security or a pool of securities issued by
either a U.S. or foreign issuer. GDRs are designed for trading in non-U.S.
securities markets. GDRs may be available for investment through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depository, whereas an
unsponsored facility may be established by a depository without participation by
the issuer of the receipt's underlying security.
Money Market Instruments. Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper ratings;
and (v) repurchase agreements involving any of the foregoing obligations entered
into with highly-rated banks and broker-dealers.
Asset-Backed Securities. Asset-backed securities are "pass-through"
securities, meaning that principal and interest payments made by the borrower on
the underlying assets (such as credit card receivables) are passed through to
the Fund. The value of asset-backed securities, like that of traditional fixed
income securities, typically increases when interest rates fall and decreases
when interest rates rise. However, asset-backed securities differ from
traditional fixed income securities because of their potential for prepayment.
The price paid by the Fund for its asset-backed securities, the yield the Fund
expects to receive from such securities and the average life of the securities
are based on a number of factors, including the anticipated rate of prepayment
of the underlying assets. In a period of declining interest rates, borrowers may
prepay the underlying assets more quickly than anticipated, thereby reducing the
yield to maturity and the average life of the asset-backed securities. Moreover,
when the Fund reinvests the proceeds of a prepayment in these circumstances, it
will likely receive a rate of interest that is lower than the rate on the
security that was prepaid. To the extent that the Fund purchases asset-backed
securities at a premium, prepayments may result in a loss to the extent of the
premium paid. If the Fund buys such securities at a discount, both scheduled
payments and unscheduled prepayments will increase current and total returns and
will accelerate the recognition of income which, when distributed to
shareholders, will be taxable as ordinary income. In a period of rising interest
rates, prepayments of the underlying assets may occur at a slower than expected
rate, creating maturity extension risk. This particular
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risk may effectively change a security that was considered short or intermediate
term at the time of purchase into a longer term security. Since longer term
securities generally fluctuate more widely in response to changes in interest
rates than shorter term securities, maturity extension risk could increase the
inherent volatility of the Fund.
Mortgage-Related Securities. Mortgage-backed securities are "pass-through"
securities, meaning that principal and interest payments made by the borrower on
the underlying mortgages are passed through to the Fund. The value of
mortgage-backed securities, like that of traditional fixed-income securities,
typically increases when interest rates fall and decreases when interest rates
rise. However, mortgage-backed securities differ from traditional fixed-income
securities because of their potential for prepayment without penalty. The price
paid by the Fund for its mortgage-backed securities, the yield the Fund expects
to receive from such securities and the average life of the securities are based
on a number of factors, including the anticipated rate of prepayment of the
underlying mortgages. In a period of declining interest rates, borrowers may
prepay the underlying mortgages more quickly than anticipated, thereby reducing
the yield to maturity and the average life of the mortgage-backed securities.
Moreover, when the Fund reinvests the proceeds of a prepayment in these
circumstances, it will likely receive a rate of interest that is lower than the
rate on the security that was prepaid.
To the extent that the Fund purchases mortgage-backed securities at a
premium, mortgage foreclosures and principal prepayments may result in a loss to
the extent of the premium paid. If the Fund buys such securities at a discount,
both scheduled payments of principal and unscheduled prepayments will increase
current and total returns and will accelerate the recognition of income which,
when distributed to shareholders, will be taxable as ordinary income. In a
period of rising interest rates, prepayments of the underlying mortgages may
occur at a slower than expected rate, creating maturity extension risk. This
particular risk may effectively change a security that was considered short or
intermediate-term at the time of purchase into a long-term security. Since
long-term securities generally fluctuate more widely in response to changes in
interest rates than shorter-term securities, maturity extension risk could
increase the inherent volatility of the Fund.
Obligations of Supranational Entities. Supranational entities are entities
established through the joint participation of several governments, including
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank. The governmental members, or "stock holders" usually make initial capital
contributions to the supranational entity and, in many cases, are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings.
Receipts. Receipts are sold as zero coupon securities, which means that
they are sold at a substantial discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. This
discount is accredited over the life of
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the security, and such accretion will constitute the income earned on a security
for both accounting and tax purposes. Because of these features, such securities
may be subject to greater interest rate volatility than interest paying
investments.
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.
Short-Term Obligations. Commercial paper (including variable amount master
demand notes), bankers' acceptances, certificates of deposit, repurchase
agreements, obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations.
U.S. Government Securities. U.S. Government securities in which the Fund
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 Fund will not invest in obligations issued by an
instrumentality of the U.S. Government unless the Investment Adviser determines
that the instrumentality's credit risk makes its securities suitable for
investment by the Fund.
U.S. Treasury Obligations. U.S. Treasury Obligations are bills, notes and
bonds issued by the U.S. Treasury, and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interested and Principal
Securities ("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES").
Variable and Floating Rate Instruments. Certain obligations may carry
variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly or some
other reset period, and may have a floor or ceiling on interest rate changes.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates. A demand instrument with a
demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
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Yankee Obligations. Yankee Obligations ("Yankees") are U.S.
dollar-denominated instruments of foreign issuers who either register with the
SEC or issue under Rule 144A under the Securities Act of 1933. These obligations
consist of debt securities (including preferred or preference stock of
non-governmental issuers), certificates of deposit, fixed time deposits and
bankers' acceptances issued by foreign banks, and debt obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities. Some securities issued by foreign
governments or their subdivisions, agencies and instrumentalities may not be
backed by the full faith and credit of the foreign government.
The Yankee obligations selected for the Fund will adhere to the same
quality standards as those utilized or the selection of domestic debt
obligations.
Zero Coupon Securities. STRIPS and Receipts (TRs, TIGRs, LYONS and CATS)
are sold as zero coupon securities, that is, fixed income securities that have
been stripped of their unmatured interest coupons. Zero coupon securities are
sold at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The amount
of this discount is accredited over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, the market prices of zero coupon securities
are generally more volatile than the market prices of securities that have
similar maturity but that pay interest periodically. Zero coupon securities are
likely to respond to a greater degree to interest rate changes that are non-zero
coupon securities with similar maturity and credit qualities. The Fund may have
to dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing cash to satisfy
income distribution requirements. The Fund accrues income with respect to the
securities prior to the receipt of cash payments. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities.
Deferred payment securities are securities that remain zero coupon securities
until a predetermined date, at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals.
Corporate Zero Coupon Securities - Corporate zero coupon securities are:
(i) notes or debentures which do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debentures that pay no
current interest until a stated date one or more years into the future, after
which date the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance, and may
also make interest payments in kind (e.g., with identical zero coupon
securities). Such corporate zero coupon securities, in addition to the risks
identified above, are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the obligation.
Suitability. The economic benefit of an investment in the Fund depends upon
many factors beyond the control of the Fund, the Investment Adviser, the
Sub-Advisers and their affiliates. The Fund should be considered a vehicle for
diversification and not
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as a balanced investment program. The suitability for any particular investor of
a purchase of shares in the Fund will depend upon, among other things, such
investor's investment objectives and such investor's ability to accept the risks
associated with investing in equity securities, including the risk of loss of
principal.
Other Special Considerations. During unusual economic or market conditions,
or for temporary defensive or liquidity purposes, the 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 Fund's objectives. Short-term
investments and temporary defensive positions may limit the potential for growth
in the value of shares of the Fund.
Non-Diversification
The Fund is a non-diversified company, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), which means that a relatively high
percentage of assets of the Fund may be invested in the obligations of a limited
number of issuers. Although the Adviser and the Sub-Advisers generally do not
intend to invest more than 5% of the Fund's assets in any single issuer (with
the exception of securities which are issued or guaranteed by a national
government), as a non-diversified investment company, it may make more
investments of that type than a diversified investment company is permitted to
make, and the value of the shares of the Fund may be more susceptible to any
single economic, political or regulatory occurrence than the shares of a
diversified investment company would be. The Fund intends to satisfy the
diversification requirements necessary to qualify as a regulated investment
company under the Code, which requires that the Fund be diversified (i.e., not
invest more than 5% of its assets in the securities in any one issuer) as to 50%
of its assets.
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 the
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 the Fund's shares present at a meeting, if more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
The Fund may not:
1. Make any investment inconsistent with the diversification requirement
under the Code necessary to qualify as a regulated investment company.
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2. Invest more than 25% of its total assets, taken at market value, in
the securities of issuers in any particular industry (excluding the
U.S. Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or management.
Investments by the Fund in wholly-owned investment entities created
under the laws of certain countries will not be deemed the making of
investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein (including
real estate investment trusts).
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
governmental obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers' acceptances, repurchase agreements
or any similar instruments shall not be deemed to be the making of a
loan, and except further that the Fund may lend its portfolio
securities, provided that the lending of portfolio securities may be
made only in accordance with applicable law and the guidelines set
forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3 % of
its total assets (including the amount borrowed), (ii) the Fund may
borrow up to an additional 5% of its total assets for temporary
purposes, (iii) the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities and (iv) the Fund may purchase securities on margin to the
extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by
the Fund's investment policies as set forth in its Prospectus and
Statement of Additional Information, as they may be amended from time
to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act, in
selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
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the extent that the Fund may do so in accordance with applicable law
and the Fund's Prospectus and Statement of Additional Information, as
they may be amended from time to time, and without registering as a
commodity pool operator under the Commodity Exchange Act.
For purposes of fundamental investment policy (2), "industry: is determined
by reference to the Standard Industrial Classification ("SIC") codes, as defined
by the Department of Commerce and published by the Securities and Exchange
Commission (and as amended from time to time). Each defined SIC code is
identified by a four-digit number. For purposes of this investment policy,
companies are considered to be in the same industry if they have the same
four-digit SIC code.
In addition, although the Fund is classified as a non-diversified fund
under the Investment Company Act and is not subject to the diversification
requirements of the Investment Company Act, the Fund is required to comply with
certain requirements under the Code.
In addition, the Trust has adopted non-fundamental restrictions that may be
changed by the Board of Trustees without shareholder approval. Under the non
fundamental restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Invest in securities that cannot be readily resold because of legal or
contractual restrictions or that cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities that mature
within seven days or securities that the Trustees of the Trust have
otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities
Act (which are restricted securities that can be resold to qualified
institutional buyers, but not to the general public) and determined to
be liquid by the Trustees of the Trust are not subject to the
limitations set forth in this investment restriction.
c. Make any additional investments if the amount of its borrowings
exceeds 5% of its total assets. Borrowings do not include the use of
investment techniques that may be deemed to create leverage,
including, but not limited to, such techniques as dollar rolls,
when-issued securities, options and futures.
d. Lend its portfolio securities, if, as a result, more than 33% of its
total assets would be lent to other parties.
If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from
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changing values will not be considered a violation.
The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Trust has adopted an investment
policy pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transactions, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceed 15% of the net assets of
the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if an OTC
option is sold by the Fund or Portfolio to a primary U.S. Government securities
dealer recognized by the Federal Reserve Bank of New York and if the Fund has
the unconditional contractual right to repurchase such OTC option from the
dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price that is generally based on
a multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Trustees without the approval of
the shareholders. However, the Trustees will not change or modify this policy
prior to the change or modification by the Commission staff of its position.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Adviser or its affiliates or any of their trustees, directors,
general partners, officers or employees, acting as principal, unless pursuant to
a rule or exemptive order under the Investment Company Act.
Portfolio Turnover
The fund will effect portfolio transactions without regard to holding
period only if, in its management's judgment, such transactions are advisable in
light of a change in circumstances of a particular company or within a
particular industry or in general marker, economic of financial conditions. As a
result of the Fund's investment policies, under certain market conditions, the
Fund's portfolio turnover may be higher than that of other investment companies.
Accordingly, it is impossible to predict portfolio turnover rates.
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The portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of purchases
or sales of securities whose maturities at the time of acquisition were one year
or less) by the monthly average value of the securities in the portfolio during
the year. A high rate of portfolio turnover results in correspondingly higher
brokerage commission expenses and may also result in negative tax consequences,
such as an increase in capital gains dividends or in ordinary income dividends.
For the fiscal years ended September 30, 1998, and 1999 the portfolio
turnover rates of the Fund's predecessor, the TIP Funds' TIP Target Select
Equity Fund, were 803.02% and 1,279.4%, respectively.
THE ADVISER
The Trust and Concentrated Capital Management (the "Adviser"), have entered into
an advisory agreement (the "Advisory Agreement"). Concentrated Capital
Management, LP is a professional investment management firm founded on May 19,
2000. Greg Berlacher is the Chairman and a shareholder of the Adviser. Under the
Advisory Agreement, the Adviser continuously reviews, supervises and administers
the Fund's investment program, subject to the supervision of, and policies
established by, the Board of Trustees of the Trust (the "Trustees"). The Adviser
makes recommendations to the Trustees with respect to the appropriate allocation
of assets to each of the Fund's Sub-Advisers. The Advisory Agreement provides
that the Adviser shall not be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in
carrying out its duties, but shall not be protected against any liability to the
Trust or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The continuance of the Advisory Agreement as to the Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of the Fund, and (ii) by the vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees or, with respect to the Fund, by a majority
of the outstanding shares of the Fund, on not less than 30 days' nor more than
60 days' written notice to the Adviser, or by the Adviser on 90 days' written
notice to the Trust.
The Adviser's investment advisory fee may be adjusted based on the Fund's total
return performance as compared to the Fund's benchmark, the Russell 3000 Index.
Under the schedule set forth below, the Adviser's base advisory fee for the Fund
will be increased or decreased if the Fund outperforms or under performs its
stated benchmark. The Fund will pay the Adviser its base fee on a monthly basis.
The Adviser pays the
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Sub-Advisers (quarterly) out of the advisory fees it receives from the Fund.
Commencing one year from the Funds beginning of operations, the Adviser's fee
will be paid by including an increase or decrease in the basic fee based on the
Fund's performance.
For purposes of the performance adjustments, the investment performance of the
Fund for any period is expressed as a percentage of the Fund's net asset value
per share at the beginning of the period. This percentage is equal to the sum of
(i) the change in the Fund's net asset value per share during the period; (ii)
the value of the Fund's cash distributions per share having an ex-dividend date
occurring within the period; and (iii) the per share amount of capital gains
taxes paid or accrued during the period by the Fund for undistributed realized
long-term capital gains. The investment record for a specific index is expressed
as a percentage of the starting level of that index at the beginning of the
period, as modified by the change in the level of the index during the period
and by the value computed consistently with the index, of cash distributions
having an ex-dividend date occurring within the period made by issuers whose
securities are included in the index.
--------------------------------------------------------------------------------
Advisory Fee
Fund Name
-----------------------------------------------
Low Base High
--------------------------------------------------------------------------------
Target Select Equity 0.9125% 1.0625% 1.2125%
--------------------------------------------------------------------------------
For fiscal years ended September 30, 1998 and 1999, the Turner Investment
Partners, Inc. (adviser to the Fund's predecessor, the TIP Funds' TIP Target
Select Equity Fund) reimbursed advisory fees of $47,875 and $104,563,
respectively, and waived advisory fees of $6,656 and $13,999, respectively.
Expenses were voluntarily reimbursed and fees were voluntarily waived in order
to keep total operating expenses of the TIP Funds Target Select Equity Fund from
exceeding _______.
Special Considerations Regarding the Multi-Adviser Approach
The Adviser oversees the portfolio management services provided to the Fund by
each of its Sub-Advisers. Subject to the review of the Trustees, the Adviser
monitors each Sub-Adviser to assure that the Sub-Adviser is managing its segment
of the Fund consistently with the Fund's investment objective and restrictions
and applicable laws and guidelines, including, but not limited to, compliance
with the diversification requirements set forth in Subchapter M of the Code. The
Adviser also provides the Fund with certain administrative services, including
maintenance of certain Fund records and assistance in the preparation of the
Fund's registration statement under federal and state laws. Because each
Sub-Adviser will be managing its segment of the Fund independently from the
other Sub-Advisers, the same security may be held in two different segments of
the Fund, or may be acquired for one segment of the Fund at a time when the
Sub-Adviser of another segment deems it appropriate to dispose of the security
from that other segment. Similarly, under some market conditions, one or more of
the Sub-Advisers may believe that temporary, defensive investments in short-term
instruments or cash are appropriate when another Sub-Adviser believes continued
exposure to the equity markets is appropriate for their segments of the Fund.
Because each Sub-Adviser directs the trading for its own segment of the Fund,
and does not aggregate its transactions
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with those of the other Sub-Advisers, the Fund may incur higher brokerage costs
than would be the case if a single Sub-Adviser were managing the entire Fund.
Because each segment of the Fund may perform differently from the other segments
depending upon the investment style employed, the investments held and changing
market conditions, one segment may be larger or smaller at various times than
the other segments. Periodically, capital activity will be apportioned to
preserve the initial allocation designated for each segment's investment style.
However, the Adviser may, subject to review by the Trustees, allocate new
investment capital differently. This action may be necessary, if for example, a
Sub-Adviser determined that it desires no additional investment capital for a
segment or if an investment style becomes out of favor or more profitable than
other investment styles.
Manager of Managers Option
The Trust may, in the future, seek to achieve its investment objective by using
a "manager of managers" structure. Under a manager of managers structure,
Concentrated Capital Management would act as investment adviser in much the same
way as is currently contemplated. However, as manager of managers, the Adviser
would be permitted, subject to direction from and oversight by the Board of
Trustees, to allocate and reallocate the Fund's assets among sub-advisers, and
to recommend that the Board of Trustees hire, terminate or replace sub-advisers
without shareholder approval. By reducing the number of shareholder meetings
that may have to be held to approve new or additional sub-advisers for the Fund,
the Fund anticipates that there will be substantial potential cost savings, as
well as the opportunity to achieve certain management efficiencies.
Before it can operate using a manager of managers structure, the Trust and the
Adviser will have to obtain exemptive relief from the SEC to permit such an
arrangement. The Trust has requested this relief from the SEC. There is no
assurance that such an order will be granted by the SEC. The initial shareholder
of the Fund voted to vest authority to implement a manager of managers structure
with the Trustees, and such a structure may be adopted without shareholder
approval. However, shareholders of the Fund will be given at least 30 days'
prior written notice of any such change, and any such change would only be made
if the Trustees determine that it would be in the best interests of the Fund and
its shareholders. In making that determination, the Trustees will consider,
among other factors, the benefits to shareholders and/or the opportunity to
reduce costs and achieve operational efficiencies.
THE SUB-ADVISERS
The Sub-Advisory Agreements provide that a Sub-Adviser 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.
After the first two years, the continuance of each Sub-Advisory Agreement must
be specifically approved at least annually (i) by the vote of a majority of the
outstanding shares of the Fund or by the
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Trustees, and (ii) by the vote of a majority of the Trustees who are not parties
to such Agreement or "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. Each
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Trustees or,
with respect to the Fund, by a majority of the outstanding shares of the Fund,
on not less than 30 days' nor more than 60 days' written notice to the
Sub-Adviser on 90 days' written notice to the Trust.
The Fund currently has three Sub-Advisers -- Evergreen Asset Management, Mercury
Advisors, and Turner Investment Partners, Inc. (each a "Sub-Adviser" and
collectively, the "Sub-Advisers").
EVERGREEN INVESTMENT MANAGEMENT COMPANY -- Evergreen Investment Management
Company ("Evergreen"), 200 Berkeley Street, Charlotte, North Carolina, serves as
a Sub-Adviser for a portion of the assets of the Fund. As of May 31, 2000,
Evergreen had over $11.7 billion in client assets under management.
MERCURY ADVISORS -- Fund Asset Management, L.P., doing business as Mercury
Advisors ("Mercury Advisors"), 800 Scudders Mill Road, Plainsboro, New Jersey
serves as a Sub-Adviser for a portion of the assets of the Fund. As of May 31,
2000, Mercury had over $556 billion in client assets under management.
TURNER INVESTMENT PARTNERS, INC.-- Turner Investment Partners, Inc. ("Turner"),
1235 Westlakes Drive, Suite 350, Berwyn, Pennsylvania serves as a Sub-Adviser
for a portion of the assets of the Fund. As of May 31, 2000, Turner had $8
billion in client assets under management.
Each Sub-Adviser will manage a portion of the Fund's assets, which allocation is
determined by the Trustees upon the recommendation of the Adviser. Each
Sub-Adviser makes the investment decisions for the assets of the Fund allocated
to it, and continuously reviews, supervises and administers a separate
investment program, subject to the supervision of, and policies established by,
the Trustees. For its services, each of the Sub-Advisers is entitled to receive
a base fee from Concentrated Capital Management, which is calculated daily and
paid quarterly, at an annual rate of 0.65% for Turner, 0.65% for Evergreen, and
1.00% and 0.75% for the two segments, respectively, of the fund that Mercury
Advisors will manage of the average daily net assets of the Fund allocated to
it. For its services as Adviser to the Fund, CCM is entitled to receive base
investment advisory fees of 1.0625%. This fee may be higher or lower depending
on the Fund's performance relative to a benchmark. Currently, the Adviser and
each Sub-Adviser has been allocated assets in the range of 15-35% of the Fund's
total assets.
In addition, the Adviser may, at its discretion, contribute to a bonus pool out
of the revenues it receives as investment adviser to the Fund. This bonus pool
may be used to provide additional compensation to a Sub-Adviser that outperforms
the benchmark index designated for a particular investment style. The Adviser
may discontinue these arrangements at any time.
For the fiscal year ended September 30, 1999, Clover Capital Management, Inc.
and Penn Capital Management Company, Inc. (sub-advisers to the Fund's
predecessor, the TIP Funds' TIP Target
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<PAGE>
Select Equity Fund) received net advisory fees of 0%.
For purposes of the performance adjustments, the investment performance of the
Fund for any period is expressed as a percentage of the Fund's net asset value
per share at the beginning of the period. This percentage is equal to the sum of
(i) the change in the Fund's net asset value per share during the period; (ii)
the value of the Fund's cash distributions per share having an ex-dividend date
occurring within the period; and (iii) the per share amount of capital gains
taxes paid or accrued during the period by the Fund for undistributed realized
long-term capital gains. The investment record for a specific index is expressed
as a percentage of the starting level of that index at the beginning of the
period, as modified by the change in the level of the index during the period
and by the value computed consistently with the index, of cash distributions
having an ex-dividend date occurring within the period made by issuers whose
securities are included in the index.
THE ADMINISTRATOR
The Trust and SEI Investments Fund Resources (the "Administrator") have entered
into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three (3) years
after the effective date of the agreement and shall continue in effect for
successive periods of three (3) years unless terminated by either party on not
less than 90 days' prior written notice to the other party.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial 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, Amerindo Funds, Inc., The Arbor Fund,
ARK Funds, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, CNI
Charter Funds, CUFUND, The Expedition Funds, First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., Friends
Ivory Funds, HighMark Funds, Huntington Funds, Huntington VA Funds, The Nevis
Fund, Inc., Oak Associates Funds, The PBHG 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 Insurance Products
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI
Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM
Funds, Inc. II.
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<PAGE>
For the fiscal years ended September 30, 1998 and 1999, the Fund's predecessor,
the TIP Funds' TIP Target Select Equity Fund paid SIMC administration fees of $0
and $85,433, respectively.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Fund. The Distributor
receives no compensation for distribution of shares of the Fund.
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 Trust has adopted a distribution plan pursuant to Rule 12b-1 under the 1940
Act for its Class C Shares.
The distribution plan for Class C shares provides for payments to the
Distributor at an annual rate of .75% of the Fund's average daily net assets.
These payments are characterized as "Compensation," and are not directly tied to
expenses incurred by the Distributor; the payments the Distributor receives
during any year may, therefore, be higher or lower than its actual expenses.
These payments may be used to compensate the Distributor for its services in
connection with distribution assistance or provision of shareholder services,
and some or all of it may be used to pay financial institutions and
intermediaries such as banks, savings and loan associations, insurance
companies, and investment counselors, broker-dealers and the Distributor's
affiliates and subsidiaries for services or reimbursement of expenses incurred
in connection with distribution assistance or provision of shareholder services.
If the Distributor's expenses are less than its fee under a plan, the Trust will
still pay the full fee and the Distributor will realize a profit, but the Trust
will not be obligated to pay in excess of the full fee, even if the
Distributor's actual expenses are higher.
The Trust has adopted a shareholder servicing plan for its Class A and Class C
Shares.
Under the shareholder service plan applicable to Class A and Class C, the
Distributor may provide those services itself, or may enter into arrangements
under which third parties provide such services and are compensated by the
Distributor. Under such arrangements, the Distributor may retain as profit any
difference between the fee it receives and the amount it pays such third
parties. In addition, the Fund may pay the Distributor a fee at a negotiated
rate of up to .25% annually of the average daily net assets of the Fund
attributable to Class A or Class C 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
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<PAGE>
shareholder communications to clients; processing purchase, exchange and
redemption orders; and processing dividend payments.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule
17j-1 under the Investment Company Act. In addition, the Investment Adviser,
Sub-Advisers and Distributor have adopted Codes of Ethics pursuant to Rule
17j-1. These Codes of Ethics apply to the personal investing activities of
trustees, officers and certain employees ("access persons"). Rule 17j-1 and the
Codes of Ethics are designed to prevent unlawful practices in connection with
the purchase or sale of securities by access persons. Under each Code of Ethics,
access persons are permitted to engage in personal securities transactions, but
are required to report their personal securities transactions for monitoring
purposes. In addition, certain access persons are required to obtain approval
before investing in initial public offerings or private placements. Copies of
these Codes of Ethics are on file with the Securities and Exchange Commission,
and are available to the public.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the State of Delaware. The Trustees 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 and their principal
occupations for the last five years are set forth below. Each may have held
other positions with the named companies during that period. The Trust pays the
fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, CNI
Charter Funds, CUFUND, The Expedition Funds, First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., Friends
Ivory Funds, HighMark Funds, Huntington Funds, Huntington VA Funds, The Nevis
Fund, Inc., Oak Associates Funds, The PBHG 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 Insurance Products
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI
Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM
Funds, Inc. II each of which is an open-end management investment company
managed by SEI Investments Mutual Funds Services or its affiliates and
distributed by SEI Investments Distribution Co.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. since 1990.
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<PAGE>
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.
STEPHEN J. KNEELEY (DOB 02/09/63) - Vice President and Assistant Secretary -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary -
Senior Vice President and General Counsel of SEI Investments; Senior Vice
President, General Counsel and Secretary of the Administrator and the
Distributor since 2000. Vice President and Assistant Secretary of SEI
Investments, the Administrator and the Distributor, 1995-2000. Associate, Dewey
Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm),
1991-1994.
JAMES R. FOGGO (DOB 06/30/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI Investments since January 1998. Vice
President and Secretary of the Adviser, Administrator and Distributor since May
1999. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner Investment Partners, Inc., since 1992.
TIMOTHY D. BARTO (DOB 3/28/68) - Vice President and Assistant Secretary -
Employed by SEI Investments since October 1999. Vice President and Assistant
Secretary of the Adviser, Administrator and Distributor since December 1999.
Associate at Dechert Price & Rhoads (1997-1999). Associate at Richter, Miller &
Finn (1994-1997).
CHRISTINE M. MCCULLOUGH (DOB 12/2/60) - Vice President and Assistant
Secretary-Employed by SEI Investments since November 1, 1999. Vice President and
Assistant Secretary of the Adviser, Administrator, and Distributor since
December 1999. Associate at White and Williams LLP (1991-1999). Associate at
Montgomery, McCracken, Walker & Rhoads (1990-1991).
LYDIA A. GAVALIS (DOB 06/05/64) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI Investments, the Administrator and the
Distributor since 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange from 1989-1998.
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<PAGE>
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.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - 1701 Market Street, Philadelphia,
PA 19103. 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, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, the Adviser, the Administrator and the Distributor.
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation From Retirement Benefits Benefits Upon From Registrant and
Registrant for the Accrued as Part of Retirement Fund Complex Paid to
Fiscal Year Ended Fund Expenses Trustees for the
September 30, 1999 Fiscal Year Ended
September 30, 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Turner* $0 N/A N/A $0 for service on
two Boards
-------------------------------------------------------------------------------------------------------------
Ronald Filante** $______ N/A N/A $_____ for service
on one Board
-------------------------------------------------------------------------------------------------------------
Katherine Griswold** $______ N/A N/A $_____ for service
on one Board
-------------------------------------------------------------------------------------------------------------
Alfred Salvato** $______ N/A N/A $_____ for service
on two Boards
-------------------------------------------------------------------------------------------------------------
</TABLE>
* Mr. Turner is a Trustee who may be deemed to be an "interested person" of
the Trust as the term is defined in the 1940 Act.
** Member of the Audit Committee.
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<PAGE>
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 Fund.
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 the Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
Based on the foregoing, the 30-day yield for Class I shares of the Fund's
predecessor, the TIP Funds TIP Target Select Equity Fund for the 30-day period
ended September 30, 1999 was 0.00%.
The total return of the 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.
Based on the foregoing, the average annual total return for Class I shares of
the Fund's predecessor, the TIP Funds TIP Target Select Equity Fund, from
inception through September 30, 1999, and for the one year period ended
September 30, 1999, were 80.04%, and 42.77%, respectively.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through DST, 330 West 9th Street, Kansas
City, Missouri 64105, (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 the Fund are offered on a
continuous basis.
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<PAGE>
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the 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 Fund are
valued on the basis of valuations provided by dealers in those instruments or by
an independent pricing service, approved by the Trustees. Any such pricing
service, in determining value, will use information with respect to transactions
in the securities being valued, quotations from dealers, market transactions in
comparable securities, analyses and evaluations of various relationships between
securities and yield to maturity information.
An option that is written by the Fund 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 Fund 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 Trustees.
If any securities held by the Fund 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
Trustees. The Trustees periodically review such procedures. The fair value of
such securities is generally determined as the amount which the Fund could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in
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<PAGE>
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.
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.
All other assets of the Fund are valued in such manner as the Board of Trustees
in good faith deems appropriate to reflect their fair value.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Fund and its 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 is only a summary of certain additional federal tax considerations
generally affecting the Fund and its shareholders that are not discussed in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or its shareholders and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
The 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.
The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the 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, the Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus
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<PAGE>
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.
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), the
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.
The Fund intends to make sufficient distributions to avoid liability for the
federal excise tax. The Fund may in certain circumstances be required to
liquidate Fund investments in order to make sufficient distributions to avoid
federal excise tax liability at a time when the Investment Adviser might not
otherwise have chosen to do so, and liquidation of investments in such
circumstances may affect the ability of the Fund to satisfy the requirements for
qualification as a RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of the
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than twelve months, and otherwise will be treated
as short-term capital gain or loss. However, if shares on which a shareholder
has received a net capital gain distribution are subsequently sold, exchanged or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the net
capital gain distribution. Long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates.
In certain cases, the 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
the Fund that such shareholder is not subject to backup withholding.
The Fund's transactions in certain futures contracts, options, forward
contracts, foreign currencies,
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<PAGE>
foreign debt securities, and certain other investment and hedging activities
will be subject to special tax rules. In a given case, these rules may
accelerate income to the Fund, defer losses to the Fund, cause adjustments in
the holding periods of the Fund's assets, convert short-term capital losses into
long-term capital losses, or otherwise affect the character of the Fund's
income. These rules could therefore affect the amount, timing, and character of
distributions to shareholders. The Fund will endeavor to make any available
elections pertaining to such transactions in a manner believed to be in the best
interest of the Fund.
If the 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 Fund may, in certain circumstances involving tax-free reorganizations,
accept securities that are appropriate investments as payment for Fund shares
(an "In-Kind Purchase"). An In-Kind Purchase may result in adverse tax
consequences under certain circumstances to either the investors transferring
securities for shares ("In-Kind Investors") or to investors who acquire shares
of the Fund after a transfer ("new shareholders"). As a result of an In-Kind
Purchase, the Fund may acquire securities that have appreciated in value or
depreciated in value from the date they were acquired. If appreciated securities
were to be sold after an In-Kind Purchase, the amount of the gain would be
taxable to new shareholders as well as to In-Kind Investors. The effect of this
for new shareholders would be to tax them on a distribution that represents a
return of the purchase price of their shares rather than an increase in the
value of their investment. The effect on In-Kind Investors would be to reduce
their potential liability for tax on capital gains by spreading it over a larger
asset base. The opposite may occur if the Fund acquires securities having an
unrealized capital loss. In that case, In-Kind Investors will be unable to
utilize the loss to offset gains, but, because an In-Kind Purchase will not
result in any gains, the inability of In-Kind Investors to utilize unrealized
losses will have no immediate tax effect. For new shareholders, to the extent
that unrealized losses are realized by the Fund, new shareholders may benefit by
any reduction in net tax liability attributable to the losses. The Adviser
cannot predict whether securities acquired in any In-Kind Purchase will have
unrealized gains or losses on the date of the In-Kind Purchase. Consistent with
its duties as investment adviser, the Adviser will, however, take tax
consequences to investors into account when making decisions to sell portfolio
assets, including the impact of realized capital gains on shareholders of the
Fund.
The Fund 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
The Fund is not is liable for any income or franchise tax in Delaware if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
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<PAGE>
PORTFOLIO TRANSACTIONS
Under the general supervision of the Adviser, the Sub-Advisers are authorized to
select brokers and dealers to effect securities transactions for the Fund. The
Sub-Advisers will seek to obtain the most favorable net results by taking into
account various factors, including price, commission, if any, size of the
transactions and difficulty of executions, the firm's general execution and
operational facilities and the firm's risk in positioning the securities
involved. While the Sub-Advisers generally seek reasonably competitive spreads
or commissions, the Fund will not necessarily be paying the lowest spread or
commission available. The Sub-Advisers seek to select brokers or dealers that
offer the Fund best price and execution or other services which are of benefit
to the Fund.
Purchases of portfolio securities for the Fund 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 Fund will be holding, unless better executions are
available elsewhere. Dealers and underwriters usually act as principals for
their own accounts. Purchases from underwriters will include a commission paid
by the issuer to the underwriter and purchases from dealers will include the
spread between the bid and the asked price. If the execution and price offered
by more than one dealer or underwriter are comparable, the order may be
allocated to a dealer or underwriter that has provided research or other
services as discussed below.
In placing portfolio transactions, the Sub-Advisers will use their 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 Sub-Advisers or their affiliates
that they may lawfully and appropriately use in their investment advisory
capacity for the Fund and for other accounts, as well as provide other services
in addition to execution services. The Sub-Advisers consider such information,
which is in addition to, and not in lieu of, the services required to be
performed by their under the agreements, to be useful in varying degrees, but of
indeterminable value. The Adviser and Sub-Advisers anticipate that these
opportunities will arise infrequently if at all.
The placement of portfolio transactions with broker-dealers who sell shares of
the Fund is subject to rules adopted by the National Association of Securities
Dealers, Inc. ("NASD"). Provided the Trust's officers are satisfied that the
Fund is receiving the most favorable price and execution available, the
Sub-Advisers may also consider the sale of the Fund's shares as a factor in the
selection of broker-dealers to execute their portfolio transactions.
While the Fund's general policy is to seek first to obtain the most favorable
price and execution
S-45
<PAGE>
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 Fund or to the Sub-Advisers, even if
the specific services were not imputed just to the Fund and may be lawfully and
appropriately used by Sub-Advisers in advising other clients. The Sub-Advisers
consider such information, which is in addition to, and not in lieu of, the
services required to be performed by their under the agreements, to be useful in
varying degrees, but of indeterminable value. In negotiating any commissions
with a broker, the Fund 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 Fund and the Sub-Advisers 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 Fund or assist the Sub-Advisers
in carrying out their responsibilities to the Fund. The standard of
reasonableness is to be measured in light of the Sub-Advisers and their overall
responsibilities to the Fund.
Investment decisions for the Fund are made independently from those of other
client accounts of the Sub-Advisers. Nevertheless, it is possible that at times
the same securities will be acceptable for the Fund and for one or more of such
client accounts. To the extent any of these client accounts and the Fund seeks
to acquire the same security at the same time, the 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 Fund
may not be able to obtain as high a price for, or as large an execution of, an
order to sell any particular security at the same time. If one or more of such
client accounts simultaneously purchases or sells the same security the Fund is
purchasing or selling, each day's transactions in such security will be
allocated between the Fund and all such client accounts in a manner deemed
equitable by the Sub-Advisers, taking into account the respective sizes of the
accounts, the amount being purchased or sold and other factors deemed relevant
by the Sub-Advisers. 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
Fund to participate in volume transactions may produce better trade execution
for the Fund.
The Fund may use the Distributor and other affiliated brokers as a broker to
execute portfolio transactions. In accordance with the Investment Company Act,
the Trust has adopted certain procedures which are designed to provide that
commissions payable to affiliated brokers 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 Fund does not deem
it practicable and in its 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 Sub-Advisers' view of market conditions, the Fund may or may
not purchase debt
S-46
<PAGE>
securities with the expectation of holding them to maturity. The Fund 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, 1998 and 1999 the portfolio turnover
rates of the Fund's predecessor, the TIP Funds' TIP Target Select Equity Fund,
were 803.02% and 1,279.40%, respectively.
For the fiscal years ended September 30, 1998 and 1999, the Fund's predecessor,
the TIP Funds' TIP Target Select Equity Fund, paid brokerage commissions of
$13,856 and $28,450, respectively.
VOTING
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 the Fund have no preemptive, conversion, or
subscription rights. The whole share shall be entitled to one vote and each
fractional share shall be entitled to a proportionate fractional vote.
Currently, only the Fund exists as a portfolio of the Trust. However, if
additional portfolios are added, each fund, as a separate series of the Trust,
will vote separately on matters affecting only that fund. Voting rights are not
cumulative. Shareholders of each Class of the Fund will vote separately on
matters pertaining solely to that Fund or that Class. As a Delaware business
trust, the Trust is not required to hold annual meetings of shareholders, but
approval will be sought for certain changes in the operation of the Trust and
for the election of Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Where the Trust's Prospectus or Statement of Additional Information state that
an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (1) 67% or more of the
affected Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the affected Fund's outstanding shares, whichever is less.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares
or separate classes of the Fund. All consideration received by the Trust for
shares of any portfolio or separate class and all assets in
S-47
<PAGE>
which such consideration is invested would belong to that portfolio or separate
class and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
The Class I Shares have no 12b-1 plan and no sales charges. Class A Shares are
identical to Class I Shares, except that Class A Shares have a shareholder
servicing plan and a front-end sales charge. Class C Shares are identical to
Class I Shares, except that Class C Shares have a Rule 12b-1 plan, a shareholder
service plan and a contingent-deferred sales charge.
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's property
for any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
INDEPENDENT AUDITORS
Ernst & Young LLP, 2001 Market Street, Philadelphia, Pennsylvania 19103, serves
as independent auditors to the Trust.
CUSTODIAN
First Union National Bank, an affiliate of Evergreen, located at 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 1940 Act.
S-48
<PAGE>
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103, serves as counsel to the Trust.
S-49
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
A-1
<PAGE>
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.
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
Investment Grade
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that
could lead to inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The 'B' rating
category also is used for debt subordinated to senior debt that is
assigned an actual or implied 'BB' or 'BB-' rating.
A-2
<PAGE>
CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B' or
'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C'
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt is rated 'D' when the issue is in payment default, or the obligor
has filed for bankruptcy. The 'D' rating is used when interest or
principal payments are not made on the date due, even if the applicable
grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but
AA- may vary slightly from time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are
A- 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 due.
BB Present or prospective financial protection factors fluctuate according
BB- to industry conditions or company fortunes. Overall quality may move up
or down frequently within this category.
A-3
<PAGE>
B+ Below investment grade and possessing risk that obligations will not be
B met when due.
B- Financial protection factors will fluctuate widely 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.
A-4
<PAGE>
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
Investment Grade Bond
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an 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.
A-5
<PAGE>
C Bonds are in imminent default in payment of interest or principal.
DDD, DD,
and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. 'DDD' represents the highest potential for recovery on these
bonds, and 'D' represents the lowest potential for recovery.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
substantially.
AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
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.
A-6
<PAGE>
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.
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-7
<PAGE>
Annual
Report
SEPTEMBER 30, 1999
[TIP FUNDS LOGO OMITTED]
-------------------------------------------------------------------------------
TIP Target Select Equity Fund
-------------------------------------------------------------------------------
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
2 Total Returns and Fund Investment Objective
3 Letter to Shareholders
7 Schedule of Investments
13 Notes to Financial Statements
16 Report of Independent Auditors
17 Notice to Shareholders
TIP FUNDS
--------------------------------------------------------------------------------
The TIP Funds offer the TIP Target Select Equity Fund, a no-load mutual
fund for individual and institutional investors. The minimum initial investment
in the TIP Target Select Equity Fund for regular accounts is $2,500 and $2,000
for individual retirement accounts. The minimum amount for subsequent
investments is $500.
Turner Investment Partners, Inc., based in Berwyn, Pennsylvania, serves as
the investment adviser to the fund. The firm, founded in 1990, invests in
equity, fixed-income, and balanced portfolios on behalf of individuals and
institutions.
Along with Turner, Chartwell Investment Partners, Clover Capital Management
Company, Inc., and Penn Capital Management Company, Inc. currently serve as
subadvisers to the TIP Target Select Equity Fund.
Chartwell Investment Partners, based in Berwyn, Pennsylvania, was founded
in 1997. A team of investment professionals manages the portion of the fund's
assets allocated to Chartwell.
Clover Capital Management, based in Pittsford, New York, was founded in
1984. Michael Edward Jones, managing director and one of the firm's founders,
will manage the portion of the fund's assets entrusted to Clover. As of
September 30, 1999, Clover is not managing any assets of the fund.
Penn Capital Management Company, based in Cherry Hill, New Jersey, was
founded in 1987. The firm was founded by Richard A. Hocker, who is the chief
investment officer and the portfolio manager of the portion of the fund's assets
managed by Penn Capital.
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
The TIP Funds shareholders receive annual and semiannual reports and
monthly account statements. Shareholders who have questions about their accounts
may call a toll-free telephone number, 1-800-224-6312. Or they may write to TIP
Funds, P.O. Box 419805, Kansas City, Missouri 64141.
<PAGE>
TOTAL RETURNS*
--------------------------------------------------------------------------------
Periods ended September 30, 1999
<TABLE>
<CAPTION>
Annualized
One-Year Inception
Return to Date**
-------- ----------
<S> <C> <C>
TIP Target Select Equity Fund 80.04% 42.77%
S&P 500 Composite Index 27.80 18.95
Lipper Multi-Cap Growth Funds Classification 41.46 23.48
</TABLE>
*Past performance cannot guarantee future results. The investment return and
principal value of an investment will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
**The inception date for the TIP Target Select Equity Fund is January 1, 1998.
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The TIP Target Select Equity Fund seeks long-term growth of capital. It
invests primarily in U.S. stocks. Each investment firm chosen to manage assets
in the fund invests in a maximum of 20 stocks and as few as 10 stocks that it
believes have the greatest return potential. Such a focused stock-selection
process permits the firms to act on only the investment ideas that they think
are the strongest. In the process, the fund provides two levels of
diversification: diversification in total holdings and diversification in
investment styles.
2
<PAGE>
TO OUR SHAREHOLDERS:
--------------------------------------------------------------------------------
The fiscal year ended September 30, 1999 was a very good one for the TIP Target
Select Equity Fund, which produced a total return of 80.04%. By comparison, the
S&P 500 Index recorded a total return of 27.80%. All three components of the
fund performed well, led by the growth-oriented style of Turner Investment
Partners.
The fiscal year began with a crisis in the global markets, as currency
meltdowns in several emerging nations threatened to spread to the economies of
their larger trading partners. However, strong and timely action by the Federal
Reserve Board helped restore confidence to the domestic markets - which in turn
helped to calm the waters globally.
By December, 1998, the U.S. equity markets had regained much of what they
had lost during the fall. However, many large-cap issues continued to suffer
from the realities of lower earnings due to declines in key international
markets.
Partly because of these realities, market leadership shifted somewhat over
the course of the year. For a brief time, cyclical industries such as basic
materials, enjoyed their day in the sun after years of neglect. This contrarian
rally was inspired by modest rises in the prices of certain commodities, and by
price-earnings ratios that appeared positively quaint in today's environment.
However, most of these stocks soon moved back into the shade after investors
recognized that growth, not value, would remain the theme of this historic era.
The year also witnessed a more convincing rally among many smaller-cap
growth issues, whose attributes had too long been ignored. Many of these issues
share the characteristics of their larger counterparts, including dynamic
earnings growth, innovative products/services, and solid franchises. And since
the small- and mid-cap growth sectors represent a large component of our fund,
we are pleased to note that the resurgence in these issues has continued to
build.
Seeking the "best of the best."
Through the multi-manager approach of the TIP Target Select Equity Fund, we
benefit from the perspectives and skills of three outstanding investment firms:
Turner Investment Partners, Chartwell Investment Partners, and Penn Capital
Management Company.
3
<PAGE>
Each firm is asked to select the most promising securities on their respective
radar screens for inclusion in the portfolio, in an effort to represent the
"best of the best" in each style. The following are brief summaries of our
managers' accomplishments for the year:
Turner Investment Partners
Turner Investment Partners continued to focus on growth stocks, with
particular concentration on technology-oriented issues. The Turner portfolio is
eclectic in nature, with a broad mixture of sectors and capitalization levels,
and turns over frequently in response to market conditions.
Turner's performance was enhanced by timely moves into Internet-related
issues near the bottom of a mid-year cycle. From that bottom, these issues,
which included America Online and Yahoo, appreciated substantially for the
remainder of the fiscal year. Turner also took advantage of the increased market
interest in telecommunications issues such as Qwest Communications, Level 3
Communications, and several telecom equipment providers.
Chartwell Investment Partners
Chartwell continued to employ a strategy of investing in companies that can
generate predictable earnings growth over the next 12 months; that can realize
improvements in their fundamentals through new management, product innovation,
turnaround strategies, or accelerated growth; and that can produce good returns
on capital.
In fiscal 1999, this strategy led Chartwell to invest in value-oriented
issues within the financial services, basic materials, and capital goods
sectors. Its best-performing stocks for the year included Canadian
telecommunications holding company BCE, Midwestern utility company Illinova,
specialty retailer The Limited, and medical instruments and supplies
manufacturer Baxter International.
Penn Capital Management Company
While Penn Capital Management Company employs a value-style investment
approach, it has managed to find companies that are not only undervalued, but
also fast-growing. As a result, the firm recorded outstanding results for the
fiscal year.
For example, Penn Capital identified two overlooked Canadian cell phone
companies, Clearnet Communications and Microcell Telecommunications, that
delivered huge gains for the year. In addition, their investment in Pegasus
Communication, a leading provider of DirectTV satellite broadcast services to
rural markets, performed extremely well.
4
<PAGE>
Penn Capital also benefited from takeovers of two portfolio holdings,
International Comfort Products and Unilab Corporation. And it even enjoyed
strong gains in more traditional value sectors such as energy, thanks to a
substantial increase in oil prices during 1999.
Beyond Y2K, a healthy outlook.
Looking ahead, we believe that the long-term bull market is still solidly
intact, and that growth issues will continue to lead the way in the new
millennium. In fact, we expect a resurgence of many technology issues once
concerns over the so-called "Y2K" bug have become history. Over the past few
years, companies have had to invest billions of dollars in repairing old
software, drawing capital away from more forward-looking technology
expenditures.
We believe the TIP Target Select Fund is well positioned to take advantage
of the market's future direction, with solid representation by both growth- and
value- oriented issues.
Further, we believe we have an outstanding group of investment teams to
identify some of the best opportunities from the various segments of the market.
Our teams are excited to be part of a fund with so many strong assets - both
financial and human - and to be involved in a market of such historic
dimensions. And we feel privileged to be employing our skills on behalf of you,
our growing family of investors. We thank you for your continued confidence, and
will do all we can to continue earning that confidence in the years ahead.
/s/ Robert E. Turner
---------------------
Robert E. Turner
Chairman and Chief Investment Officer
Turner Investment Partners, Inc.
/s/ Richard A. Hocker
---------------------
Richard A. Hocker
Portfolio Manager
Penn Capital Management Company, Inc.
/s/ Harold A. Ofstie
--------------------
Harold A. Ofstie
Portfolio Manager
Chartwell Investment Partners
5
<PAGE>
Comparison of Change in the Value of a $10,000 Investment in the
TIP Target Select Equity Fund, versus the
S&P 500 Composite Index, and the Russell 3000 Index
In the printed version of the document, a line graph
appears which depicts the following plot points:
Target S&P Russell
12/31/97 10000 10000 10000
Sep 98 10350 10603 10222
Sep 99 18634 13550 12912
One Annualized
Year Inception to
Return Date
80.04% 42.77%(1)
These figures represent past performance. Past performance is no guarantee of
future results.The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost.
(1) The TIP Target Select Equity Fund began operations on January 1, 1998.
6
<PAGE>
Schedule of Investments TIP Funds
September 30, 1999
Market
TIP TARGET SELECT Value
EQUITY FUND Shares (000)
---------------------------------------------------------
Common Stocks (97.9%)
Aerospace & Defense (1.4%)
BE Aerospace* 2,195 $ 26
-------
Apparel/Textiles (3.5%)
Dan River, Cl A* 6,970 45
Pillowtex 2,660 20
-------
65
-------
Automotive & Truck Parts (1.4%)
Exide 2,600 25
-------
Banks (2.0%)
Seacoast Banking of Florida, Cl A 500 15
U.S. Bancorp 370 11
Wells Fargo 280 11
-------
37
-------
Broadcasting, Newspapers &
Advertising (2.8%)
Pegasus Communications* 1,125 51
-------
Casinos & Gaming (0.5%)
Starwood Hotels and Resorts
Worldwide 440 10
-------
Chemicals (0.7%)
Rohm & Haas 330 12
-------
Communications Equipment (8.0%)
Ciena* 1,150 42
Nokia 525 47
Scientific-Atlanta 1,180 58
-------
147
-------
Computers & Services (2.5%)
Cisco Systems* 665 46
-------
Drugs (1.3%)
Rexall Sundown* 850 10
Warner Lambert 210 14
-------
24
-------
Electrical Services (1.3%)
Illinova 445 12
Montana Power 405 12
-------
24
-------
Electronics (5.1%)
Atmel* 1,200 41
Micron Technology 790 53
-------
94
-------
Entertainment (1.2%)
Argosy Gaming* 1,680 22
-------
Environmental Services (1.1%)
Safety-Kleen* 1,710 21
-------
Financial Services (0.7%)
Fannie Mae 215 13
-------
Food, Beverage & Tobacco (4.2%)
Anheuser Busch 675 47
Dr. Pepper Bottling Holdings,
Cl A* 1,050 31
-------
78
-------
Gas/Natural Gas (4.1%)
Enron 1,100 45
Sonat 400 16
Williams 365 14
-------
75
-------
Insurance (0.4%)
Hartford Financial Services 190 8
-------
Internet Services (14.8%)
America Online* 575 60
Internap Network Services* 1,160 52
Netzero* 2,100 55
Priceline.com* 800 52
Yahoo* 300 54
-------
273
-------
Machinery (0.7%)
Eaton 145 12
-------
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Schedule of Investments TIP Funds
September 30, 1999
Market
TIP TARGET SELECT Shares Value
EQUITY FUND (Concluded) (000) (000)
------------------------------------------------------
Medical Products & Services (8.8%)
Bausch & Lomb 550 $ 36
Caremark Rx* 5,825 33
Johnson & Johnson 500 46
Kensey Nash* 1,260 20
Laboratory of America
Holdings* 9,300 26
-------
161
-------
Miscellaneous Business
Services (5.3%)
Automatic Data Processing 1,065 48
Pitney Bowes 210 13
Telespectrum Worldwide* 4,675 28
Wackenhut 635 9
-------
98
-------
Office Automation Equipment (0.7%)
Xerox 315 13
-------
Oil Field Services (2.6%)
Baker Hughes 1,625 47
-------
Petroleum & Fuel Products (6.2%)
Patterson Energy* 1,975 30
Pool Energy Services* 2,945 72
USX-Marathon Group 399 12
-------
114
-------
Petroleum Refining (0.7%)
Conoco* 485 13
-------
Retail (0.7%)
The Limited 335 13
Too* 4 --
-------
13
-------
Semi-Conductors/Instruments (5.3%)
JDS Uniphase* 425 48
Lam Research* 800 49
-------
97
-------
Software & Programming (2.6%)
Microsoft* 520 47
-------
Shares/Face Market
TIP TARGET SELECT Amount Value
EQUITY FUND (Concluded) (000) (000)
------------------------------------------------------
Steel & Steel Works (1.3%)
AK Steel Holding 1,315 $ 24
-------
Telephones &
Telecommunications (6.0%)
AT&T 225 10
BCE 250 12
Clearnet, Cl A* 2,520 46
Microcell Telecommunications* 3,315 43
-------
111
-------
Total Common Stocks
(Cost $1,745) 1,801
-------
Repurchase Agreement (1.9%)
Morgan Stanley,
5.00%, dated 09/30/99, matures
10/01/99, repurchase price
$34,960 (collateralized by
U.S. Treasury Note, par value
$33,702, 7.25%, 08/15/04,
market value $35,771) 35 35
-------
Total Repurchase Agreement
(Cost $35) 35
-------
Total Investments (99.8% )
(Cost $1,780) 1,836
-------
Other Assets and Liabilities, Net (0.2%) 3
-------
Total Net Assets (100.0%) $ 1,839
=======
*Non-income producing security
Cl -- Class
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities (000) TIP Funds
September 30, 1999
<TABLE>
<CAPTION>
TIP Target
Select Equity
Fund
---------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investment Securities at Value (Cost $1,780)................................ $1,836
Receivable for Investment Securities Sold .................................. 157
Other Assets ............................................................... 11
---------------------------------------------------------------------------------------------
Total Assets ............................................................ 2,004
---------------------------------------------------------------------------------------------
Liabilities:
Payable for Investment Securities Purchased ............................... 165
---------------------------------------------------------------------------------------------
Total Liabilities ......................................................... 165
---------------------------------------------------------------------------------------------
Net Assets:
Portfolio shares (unlimited authorization--no par value) based on
107,088 outstanding shares of beneficial interest ....................... 1,201
Distributions in Excess of Net Investment Income............................ (3)
Accumulated Net Realized Gain on Investments .............................. 585
Net Unrealized Appreciation of Investments ................................ 56
---------------------------------------------------------------------------------------------
Total Net Assets ........................................................ $1,839
=============================================================================================
Net Asset Value, Offering Price, and Redemption Price Per Share .............. $17.17
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations (000) TIP Funds
September 30, 1999
TIP Target Select
Equity Fund
-----------------
Investment Income:
Dividends ........................................................ $ 9
Interest ......................................................... 1
-----------------------------------------------------------------------------
Total Investment Income......................................... 10
-----------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ......................................... 14
Investment Advisory Fee Waiver ................................... (14)
Administrator Fees ............................................... 85
Custodian Fees ................................................... 5
Transfer Agent Fees .............................................. 6
Professional Fees ................................................ --
Trustee Fees ..................................................... 2
Registration Fees ................................................ 1
Pricing Fees ..................................................... --
Printing Fees .................................................... 17
Amortization of Deferred Organizational Costs .................... 5
Insurance and Other Fees ......................................... --
-----------------------------------------------------------------------------
Total Expenses ................................................. 121
-----------------------------------------------------------------------------
Less: Reimbursements by Adviser................................... (104)
-----------------------------------------------------------------------------
Total Net Expenses ............................................. 17
-----------------------------------------------------------------------------
Net Investment Loss ........................................ (7)
-----------------------------------------------------------------------------
Net Realized Gain From Securities Sold ........................... 603
Net Unrealized Appreciation of Investment Securities ............. 158
-----------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .................. 761
-----------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations ............. $ 754
-----------------------------------------------------------------------------
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets (000) TIP Funds
<TABLE>
<CAPTION>
TIP Target
Select Equity Fund
-------------------------
10/1/98 1/1/98
thru 9/30/99 thru 9/30/98(1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Activities:
Net Investment Loss ................................................ $ (7) $ --
Net Realized Gain on Securities Sold .............................. 603 70
Net Unrealized Appreciation (Depreciation) of Investment Securities 158 (102)
----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 754 (32)
----------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Net Investment Income ............................................. -- (1)
Realized Capital Gain ............................................. (83) --
----------------------------------------------------------------------------------------------------------
Total Distributions ............................................. (83) (1)
----------------------------------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds from Shares Issued ....................................... 473 1,272
Proceeds from Shares Issued in Lieu of Cash Distributions ......... 83 1
Cost of Shares Redeemed ........................................... (354) (274)
----------------------------------------------------------------------------------------------------------
Increase in Net Assets From Capital Share Transactions .......... 202 999
----------------------------------------------------------------------------------------------------------
Total Increase in Net Assets .................................... 873 966
----------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................................. 966 --
----------------------------------------------------------------------------------------------------------
End of Period(2) ................................................ $1,839 $ 966
==========================================================================================================
Shares Issued and Redeemed:
Issued ............................................................ 33 115
Issued in Lieu of Cash Distributions .............................. 8 --
Redeemed .......................................................... (27) (22)
----------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ............................... 14 93
----------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
(1) Commenced operations on January 1, 1998.
(2) Includes distributions in excess of net investment income of $(3) and $(1)
as of September 30, 1999, and September 30, 1998, respectively.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights TIP Funds
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Ratio of Net
Net Net Net Investment
Asset Net Realized and Distributions Distributions Asset Assets Ratio Income
Value Investment Unrealized from Net from Value End of Expenses (Loss)
Beginning Income Gains on Investment Capital End of Period to Average to Average
of Period (Loss) Investments Income Gains of Period Total Return(1) (000) Net Assets Net Assets
--------- ---------- ------------ ------------- ------------- --------- --------------- --------- ----------- -----------
-----------------------------
TIP Target Select Equity Fund
-----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $10.34 (0.07) 7.80 -- (0.90) $17.17 80.04% $1,839 1.30% (0.56)%
1998(2) $10.00 -- 0.35 (0.01) -- $10.34 3.50% $ 966 1.30%* 0.02%*
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ------------- ---------
<S> <C> <C> <C>
1999 10.19% (9.45)% 1,279.40%
1998(2) 18.76%* (17.44)%* 803.02%
</TABLE>
* Annualized
(1) Returns are for the period indicated and have not been annualized.
(2) Commenced operations on January 1, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements TIP Funds
September 30, 1999
1. Organization:
TIP Funds (the "Trust") a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company with 19 portfolios. The financial statements included herein
is for the TIP Target Select Equity Fund (the "Target Select Equity Fund") (the
"Fund"). The financial statements of the remaining portfolios are presented
separately. The assets of each fund are segregated, and a shareholder's interest
is limited to the portfolio in which shares are held. The Fund's prospectus
provides a description of the Fund's investment objectives, policies, and
strategies. The Fund is non-diversified, and may therefore be invested in equity
securities of a limited number of issues.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Fund.
Security Valuation -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price.
Federal Income Taxes -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
Security Transactions and Related Income -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period.
Net Asset Value Per Share -- The net asset value per share of the Fund is
calculated on each business day, by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
Repurchase Agreements -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of default of the counterparty. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
Expenses -- Expenses that are directly related to the Fund are charged to
the Fund. Other operating expenses of the Trust are prorated to the funds
on the basis of relative daily net assets.
13
<PAGE>
Notes to Financial Statements (Continued) TIP Funds
September 30, 1999
Distributions to Shareholders -- Distributions from net investment income
are declared and paid to Shareholders on a quarterly basis. Any net
realized capital gains on sales of securities are distributed to
Shareholders at least annually.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations. Certain book/tax differences are either temporary or permanent
in nature. To the extent these differences are permanent, they are charged
or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and
expenses during the reported period. Actual results could differ from those
estimates.
3. Organization Costs and Transactions with Affiliates:
Organization costs have been capitalized by the Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares outstanding at the time
of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers and trustees of the Trust.
4. Administration, Shareholder Servicing, and Distribution Agreements:
The Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee
of 0.09% of the average daily net assets of the Trust up to $250 million, 0.07%
on the next $250 million, 0.06% on the next $250 million, 0.05% on the next
$1.25 billion, and 0.04% of such assets in excess on $2 billion. There is a
minimum annual fee of $65,000 per Fund payable to the Administrator for services
rendered to the Fund under the Administration Agreement. The Administrator may,
at its sole discretion waive all or a portion of its fees.
DST Systems, Inc., (the "Transfer Agent"), serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 28, 1996. The Distributor receives no fees for its distribution services
under this agreement.
14
<PAGE>
Notes to Financial Statements (Concluded) TIP Funds
September 30, 1999
5. Investment Advisory Agreement:
The Trust and Turner Investment Partners, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement dated April 30, 1996, under which the Adviser
receives an annual fee equal to 1.05% of the average daily net assets of the
Target Select Equity Fund. The Fund currently has three Sub-Advisers--Chartwell
Investment Partners, Clover Capital Management, Inc., and Penn Capital
Management, Inc. (each a "Sub-Adviser" and collectively, the "Sub-Advisers").
Each Sub-Adviser manages a portion of the Fund's assets, which allocation is
determined by the Trustees upon the recommendation of the Adviser. As of
September 30, 1999, Clover Capital Management did not manage any assets of the
Fund. For its services, each of the Sub-Advisers is entitled to receive a fee
from Turner Investment Partners, which is calculated daily and paid monthly, at
an annual rate of .80% of the average daily net assets of the Fund allocated to
them. The Adviser has voluntarily agreed to waive all or a portion of its fees
and to reimburse expenses of the Target Select Equity 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 1.30%. Fee waivers and expense reimbursements
are voluntary and may be terminated at any time.
6. Investment Transactions:
The total cost of security purchases and the proceeds from security sales, other
than short-term investments, for the period ended September 30, 1999, are as
follows (000):
TIP Target
Select Equity Fund
------------------
Purchases ........................ $16,945
Sales ............................ 16,914
At September 30, 1999, the total cost of securities for Federal income tax
purposes was $1,800,566. The aggregate gross unrealized appreciation and
depreciation for securities held by the Fund at September 30, 1999, is as
follows (000):
TIP Target
Select Equity Fund
------------------
Aggregate gross unrealized appreciation $152
Aggregate gross unrealized depreciation (139)
----
Net unrealized appreciation ........ $ 13
====
7. Line of Credit:
Pursuant to a credit agreement dated May 21, 1997, First Union National Bank
provides an uncommitted line of credit to the Turner Funds, Portfolios of the
TIP Funds, for short-term or emergency purposes, such as funding shareholder
redemptions. These loans are for the respective benefit of and repayable from
the respective assets of the Turner Funds. The aggregate principal amount of all
borrowings may not exceed 10% of the Turner Funds, net assets and the maximum
principal amount that the Bank will loan is $10,000,000. Borrowings under the
line of credit are charged interest based on the federal funds rate determined
at the date of borrowing and are secured by investment securities of the
borrowing portfolio. Each Turner Fund is individually, and not jointly, liable
for its particular advances under the line. There is no commitment fee on the
unused portion of the line of credit. There were no borrowings under the line of
credit during the period ended September 30, 1999.
15
<PAGE>
Report of Independent Auditors TIP Funds
To the Shareholders and Board of Trustees
TIP Funds -- TIP Target Select Equity Fund
We have audited the accompanying statement of assets and liabilities of the
TIP Funds - TIP Target Select Equity Fund, including the schedule of
investments, as of September 30, 1999, and the related statement of operations
and the statements of changes in net assets and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
TIP Funds - TIP Target Select Equity Fund at September 30, 1999, the results of
its operations and the changes in its net assets and its financial highlights
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ signature omitted
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
November 8, 1999
16
<PAGE>
Notice to Shareholders
of
TIP Target Select Funds
(Unaudited)
For shareholders that do not have a September 30, 1999 tax year end, this notice
is for informational purposes only. For shareholders with a September 30, 1999,
please consult your tax advisor as to the pertinence of this notice. For the
fiscal year ended September 30, 1999, each portfolio is designating the
following items with regard to distributions paid during the year.
<TABLE>
<CAPTION>
Long Term
(20% Rate) Ordinary
Capital Gain Income Tax Exempt
Portfolio Distributions Distributions Interest
---------- ------------- ------------- ----------
<S> <C> <C> <C>
TIP Target Select Equity Fund .......... 0.00% 100.00% 0.00%
</TABLE>
Total Qualifying
Portfolio Distributions Dividends (1)
--------- ------------- -------------
TIP Target Select Equity Fund .......... 100.00% 3.65%
----------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction and is reflected as a percentage of "Ordinary
Income Distributors".
17
<PAGE>
NOTES
<PAGE>
Trust
TIP Funds
P.O. Box 419805
Kansas City, MO 64141-6805
Investment Adviser
Turner Investment Partners, Inc.
Subadvisers
Chartwell Investment Partners
Clover Capital Management, Inc.
Penn Capital Management Company, Inc.
Distributor
SEI Investments Distribution Co.
Administrator
SEI Investments Mutual Funds Services
Legal Counsel
Morgan, Lewis & Bockius LLP
Independent Auditors
Ernst & Young LLP
[TURNER LOGO OMITTED]
TURNER
-------------------------
INVESTMENT PARTNERS, INC.
To open an account, receive account information, make inquiries, or request
literature:
1-800-224-6312
This report was prepared for shareholders in the TIP Target Select Equity Fund.
It may be distributed to others only if preceded or accompanied by a Prospectus,
which contains detailed information.
TIP-F-007-02
<PAGE>
Semiannual
Report
MARCH 31, 2000
(UNAUDITED)
TIP FUNDS [LOGO OMITTED]
-------------------------------
TRUSTED INSTITUTIONAL PARTNERS
-------------------------------
TIP Target Select Equity Fund
-------------------------------
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
2 Total Returns and Fund Investment Review
4 Statement of Net Assets
6 Statement of Operations
7 Statement of Changes in Net Assets
8 Financial Highlights
9 Notes to Financial Statements
TIP FUNDS
--------------------------------------------------------------------------------
The TIP Funds offer the TIP Target Select Equity Fund, a no-load mutual
fund for individual and institutional investors. The minimum initial investment
in the TIP Target Select Equity Fund for regular accounts is $2,500 and $2,000
for individual retirement accounts. The minimum amount for subsequent
investments is $50.
TURNER INVESTMENT PARTNERS, INC., based in Berwyn, Pennsylvania, serves as
the investment adviser to the fund. The firm, founded in 1990, invests in
equity, fixed-income, and balanced portfolios on behalf of individuals and
institutions.
Along with Turner, CLOVER CAPITAL MANAGEMENT COMPANY, INC., and PENN
CAPITAL MANAGEMENT COMPANY, INC. currently serve as sub-advisers to the TIP
Target Select Equity Fund.
CLOVER CAPITAL MANAGEMENT, based in Pittsford, New York, was founded in
1984. Michael Edward Jones, managing director and one of the firm's founders,
will manage the portion of the fund's assets entrusted to Clover. As of March
31, 2000, Clover is not managing any assets of the fund.
PENN CAPITAL MANAGEMENT COMPANY, based in Cherry Hill, New Jersey, was
founded in 1987. The firm was founded by Richard A. Hocker, who is the chief
investment officer and the portfolio manager of the portion of the fund's assets
managed by Penn Capital.
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
The TIP Funds shareholders receive annual and semiannual reports and
monthly account statements. Shareholders who have questions about their accounts
may call a toll-free telephone number, 1-800-224-6312. Or they may write to TIP
Funds, P.O. Box 419805, Kansas City, Missouri 64141.
<PAGE>
TIP TARGET SELECT EQUITY FUND
<TABLE>
<CAPTION>
ANNUALIZED
TOTAL RETURN SIX-MONTH ONE-YEAR INCEPTION
SIX-MONTH PERIOD ENDING MARCH 31, 2000 RETURN RETURN TO DATE**
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIP TARGET SELECT EQUITY FUND 77.72% 126.87% 70.29%
S&P 500 Composite Index 17.51 17.94 22.96
Lipper Multi-Cap Growth Funds Classification 55.62 65.13 41.90
</TABLE>
*Past performance cannot guarantee future results. The investment return and
principal value of an investment will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
**The inception date for the TIP Target Select Equity Fund is January 1, 1998.
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
THE TIP TARGET SELECT EQUITY FUND seeks long-term growth of capital. It
invests primarily in U.S. stocks. Each investment firm chosen to manage assets
in the fund invests in a maximum of 20 stocks and and as few as 10 stocks that
it believes have the greatest return potential. Such a focused stock-selection
process permits the firms to act on only the investment ideas that they think
are the strongest. In the process, the fund provides two levels of
diversification: diversification in total holdings and diversification in
investment styles.
2
<PAGE>
TIP TARGET SELECT EQUITY FUND
For the six-month period ended March 31, 2000, the TIP Target Select Equity Fund
delivered a total return of 77.72%, compared with a total return of 17.51% for
its benchmark, the S&P 500 Index.
The fund continued to pursue a multi-manager approach through its
sub-advisers, Turner Investment Partners and Penn Capital Management Company.
Under this arrangement, the firms are asked to select the most promising
securities on their respective radar screens, in an effort to represent the
"best of the best" in each sub-adviser's style.
Both of the sectors represented within the fund performed well during the
period. Growth stocks continued to deliver solid gains despite weaknesses in the
Internet sector. Value stocks posted some of their best gains in years thanks to
a flight to quality during the market's more volatile periods.
Turner Investment Partners represents the growth portion of the fund, with
particular concentration on technology-oriented issues. Top performers among its
holdings during the period included Qualcomm, a leading cell phone manufacturer;
Cisco Systems, the top producer of data communications equipment, and JDS
Uniphase, a leader in fiber optic networking products.
Penn Capital Management Company represents the value portion of the fund,
seeking companies that are not only undervalued, but also fast-growing. Among
the leading performers among Penn Capital's holdings for the period were Tyco
International, an industrial conglomerate; Kimberly-Clark Corporation, the
world's largest paper products manufacturer; and Omnicom Group, an advertising
agency holding company.
Looking ahead, we believe that the fund's combination of growth and value
will continue to provide capital appreciation potential, as well as an element
of cushioning through the relatively moderate price-earnings ratios of value
stocks.
GROWTH OF A $10,000 INVESTMENT IN THE TIP TARGET SELECT EQUITY FUND:
JANUARY 1, 1998-MARCH 31, 2000 *
Annualized total returns
---------------------------
PAST SINCE
ONE YEAR INCEPTION
126.87% 70.29%
[Graphic Omitted]
Plot points are as follows:
TIP Target Select
Equity Fund S&P 500 Russell 3000 Index
12/31/97 10,000 10,000 10,000
Sep. 98 10,350 10,603 10,222
Sep. 99 18,634 13,550 12,912
Mar. 00 33,117 15,923 15,692
*These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the TIP Target Select Equity
Fund is January 1, 1998.
3
<PAGE>
STATEMENT OF NET ASSETS TIP FUNDS
March 31, 2000 (Unaudited)
Market
TIP TARGET SELECT Shares Value
EQUITY FUND (000) (000)
--------------------------------------------------------------------------------
COMMON STOCKS (98.7%)
APPAREL/TEXTILES (1.5%)
Dan River, Cl A* 9,570 $ 62
------
BROADCASTING, NEWSPAPERS & ADVERTISING (4.9%)
Pegasus Communications* 1,080 152
Sirius Satellite Radio * 800 46
------
198
------
COMMUNICATIONS (2.2%)
Audiovox, Cl A* 2,045 89
------
COMMUNICATIONS EQUIPMENT (16.9%)
Cisco Systems* 1,920 148
Metromedia Fiber Network, Cl A* 1,110 107
Motorola 820 117
Nokia ADR 510 111
Nortel Networks 1,020 128
Research In Motion* 700 75
------
686
------
COMPUTERS & SERVICES (10.6%)
Comverse Technology* 570 108
EMC* 1,100 137
Lexmark International
Group, Cl A* 1,030 109
Verisign* 520 78
------
432
------
ENTERTAINMENT (1.4%)
Argosy Gaming* 3,830 55
------
INTERNET SERVICES (7.1%)
America Online* 2,470 166
Yahoo* 720 123
------
289
------
MEDICAL PRODUCTS & SERVICES (4.6%)
Kensey Nash* 4,070 67
Laboratory of America
Holdings* 27,925 120
------
187
------
Face Market
TIP TARGET SELECT Amount Value
EQUITY FUND (CONCLUDED) (000) (000)
--------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES (2.4%)
Telespectrum Worldwide * 7,675 $ 54
Vignette* 260 42
------
96
------
MISCELLANEOUS MANUFACTURING (2.9%)
Tyco International Limited 2,390 119
------
PETROLEUM & FUEL PRODUCTS (10.1%)
Grey Wolf* 17,000 67
Nabors Industries* 3,920 152
Patterson Energy* 5,950 189
------
408
------
PROFESSIONAL SERVICES (3.4%)
MedPartners 12,075 80
Medquist* 2,125 58
------
138
------
TECHNOLOGY (3.0%)
Qualcomm* 820 122
------
SEMICONDUCTORS/INSTRUMENTS (18.3%)
Advanced Micro Devices* 1,920 110
Broadcom, Cl A* 340 83
Intel 930 123
JDS Uniphase* 1,210 146
KLA-Tencor* 1,710 144
Lam Research* 3,000 135
------
741
------
TELEPHONES & TELECOMMUNICATIONS (9.4%)
Clearnet, Cl A* 2,520 104
Gilat Satellite Networks* 1,125 132
Microcell Telecommunications* 3,315 147
------
383
------
TOTAL COMMON STOCKS
(Cost $3,306) 4,005
------
4
<PAGE>
STATEMENT OF NET ASSETS TIP FUNDS
March 31, 2000 (Unaudited)
Face Market
TIP TARGET SELECT Amount Value
EQUITY FUND (CONCLUDED) (000) (000)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.5%)
Morgan Stanley,
5.80%, dated 3/31/00, matures
4/03/00, repurchase price $60,392
(collateralized by U.S. Treasury Notes,
par value $58,703, 7.50%, matures 02/15/05:
market value $61,892) $ 60 $ 60
------
TOTAL REPURCHASE AGREEMENTS
(Cost $60) 60
------
TOTAL INVESTMENTS (100.2%)
(Cost $3,366) 4,065
------
OTHER ASSETS AND LIABILITIES, NET (-0.2%) (7)
------
NET ASSETS:
Portfolio capital (unlimited
authorization -- no par value)
based on 182,387 outstanding
shares of beneficial interest 2,554
Distributions in excess of net
investment income (7)
Accumulated net realized gain
on investments 812
Net unrealized appreciation
on investments 699
------
TOTAL NET ASSETS (100.0%) $4,058
======
Net Asset Value, Offering and
Redemption Price Per Share $22.25
======
*NON-INCOME PRODUCING SECURITY
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<PAGE>
STATEMENT OF OPERATIONS (000) TIP FUNDS
(Unaudited)
<TABLE>
<CAPTION>
TIP TARGET SELECT
EQUITY FUND
------------------------------
10/1/99
THRU 3/31/00
---------------------------------------------------------------------------------------------------
Investment Income:
<S> <C>
Dividends .......................................................... $ 12
Interest ........................................................... 2
---------------------------------------------------------------------------------------------------
Total Investment Income........................................... 14
---------------------------------------------------------------------------------------------------
Expenses:
Investment Advisory Fees ........................................... 15
Investment Advisory Fee Waiver ..................................... (15)
Administrator Fees ................................................. 32
Custodian Fees ..................................................... 5
Transfer Agent Fees ................................................ 17
Professional Fees .................................................. 1
Trustee Fees ....................................................... --
Registration Fees .................................................. 5
Pricing Fees ....................................................... --
Printing Fees ...................................................... 5
Amortization of Deferred Organizational Costs ...................... 3
Insurance and Other Fees ........................................... --
---------------------------------------------------------------------------------------------------
Total Expenses ................................................... 68
---------------------------------------------------------------------------------------------------
Less: Reimbursements by Adviser..................................... (50)
---------------------------------------------------------------------------------------------------
Total Net Expenses ............................................... 18
---------------------------------------------------------------------------------------------------
Net Investment Loss .......................................... (4)
---------------------------------------------------------------------------------------------------
Net Realized Gain From Securities Sold ............................. 867
Net Unrealized Appreciation of Investment Securities ............... 643
---------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments .................... 1,510
---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations ............... $1,506
---------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000) TIP FUNDS
(Unaudited)
<TABLE>
<CAPTION>
TIP TARGET
SELECT EQUITY FUND
--------------------------------
10/1/99 10/1/98
THRU 3/31/00 THRU 9/30/99
---------------------------------------------------------------------------------------------------------------
Investment Activities:
<S> <C> <C>
Net Investment Loss ............................................... $ (4) $ (7)
Net Realized Gain on Securities Sold .............................. 867 603
Net Unrealized Appreciation of Investment Securities .............. 643 158
---------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............ 1,506 754
---------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
Realized Capital Gain ............................................. (640) (83)
---------------------------------------------------------------------------------------------------------------
Capital Share Transactions: (1)
Proceeds from Shares Issued ....................................... 1,479 473
Proceeds from Shares Issued in Lieu of Cash Distributions ......... 624 83
Cost of Shares Redeemed ........................................... (750) (354)
---------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Capital Share Transactions .......... 1,353 202
---------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets .................................... 2,219 873
---------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period ............................................. 1,839 966
---------------------------------------------------------------------------------------------------------------
End of Period (2) ............................................... $4,058 $1,839
===============================================================================================================
(1) Shares Issued and Redeemed:
Issued ............................................................ 75 33
Issued in Lieu of Cash Distributions .............................. 39 8
Redeemed .......................................................... (39) (27)
---------------------------------------------------------------------------------------------------------------
Net Increase in Share Transactions ............................... 75 14
---------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Includes distributions in excess of net investment income of $(7) and $(3)
as of March 31, 2000, and September 30, 1999, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS TIP FUNDS
For a Share Outstanding Throughout the Year (Unaudited)
<TABLE>
<CAPTION>
Net Net Net
Asset Net Realized and Distributions Distributions Asset Assets
Value Investment Unrealized from Net from Value End
Beginning Income Gains on Investment Capital End of Period
of Period (Loss) Investments Income Gains of Period Total Return(+) (000)
--------- ---------- ------------- ------------- ------------- --------- ------------ ---------
-----------------------------
TIP TARGET SELECT EQUITY FUND
-----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000* $17.17 (0.01) 11.10 -- (6.01) $22.25 77.72% $4,058
1999 10.34 (0.07) 7.80 -- (0.90) 17.17 80.04 1,839
1998(1) 10.00 -- 0.35 (0.01) -- 10.34 3.50 966
</TABLE>
<TABLE>
<CAPTION>
Ratio of Net
Ratio of Net Ratio of Investment
Investment Expenses Income (Loss)
Ratio Income to Average to Average
of Expenses (Loss) Net Assets Net Assets Portfolio
to Average to Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
----------- ------------ ---------- ------------- ---------
-----------------------------
TIP TARGET SELECT EQUITY FUND
-----------------------------
<S> <C> <C> <C> <C> <C>
2000* 1.30% (0.30)% 5.89% (4.89)% 525.82%
1999 1.30 (0.56) 10.19 (9.45) 1,279.40
1998(1) 1.30 0.02 18.76 (17.44) 803.02
</TABLE>
*For the six month period ended March 31. All ratios for the period have been
annualized.
+Returns are for the period indicated and have not been annualized.
(1)Commenced operations on January 1, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS TIP FUNDS
March 31, 2000 (Unaudited)
1. ORGANIZATION:
TIP FUNDS (the "Trust") a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company with 19 portfolios. The financial statements included herein
is for the TIP Target Select Equity Fund (the "Target Select Equity Fund") (the
"Fund"). The financial statements of the remaining portfolios are presented
separately. The assets of each fund are segregated, and a shareholder's interest
is limited to the portfolio in which shares are held. The Fund's prospectus
provides a description of the Fund's investment objectives, policies, and
strategies. The Fund is non-diversified, and may therefore be invested in equity
securities of a limited number of issues.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund.
SECURITY VALUATION -- Investments in equity securities which are traded on
a national exchange (or reported on the NASDAQ national market system) are
stated at the last quoted sales price if readily available for such equity
securities on each business day; other equity securities traded in the
over-the-counter market and listed equity securities for which no sale was
reported on that date are stated at the last quoted bid price.
FEDERAL INCOME TAXES -- It is the Fund's intention to qualify as a
regulated investment company by complying with the appropriate provisions
of the Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
SECURITY TRANSACTIONS AND RELATED INCOME -- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income
is recognized on the accrual basis. Costs used in determining realized
gains and losses on the sales of investment securities are those of the
specific securities sold during the respective holding period.
NET ASSET VALUE PER SHARE -- The net asset value per share of the Fund is
calculated on each business day, by dividing the total value of the Fund's
assets, less liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market
value of the collateral, including accrued interest thereon, is sufficient
in the event of default of the counterparty. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters an
insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
EXPENSES -- Expenses that are directly related to the Fund are charged to
the Fund. Other operating expenses of the Trust are prorated to the funds
on the basis of relative daily net assets.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued) TIP FUNDS
March 31, 2000 (Unaudited)
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared and paid to Shareholders on a quarterly basis. Any net
realized capital gains on sales of securities are distributed to
Shareholders at least annually.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations. Certain book/tax differences are either temporary or permanent
in nature. To the extent these differences are permanent, they are charged
or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and
expenses during the reported period. Actual results could differ from those
estimates.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
Organization costs have been capitalized by the Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by the Fund will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares outstanding at the time
of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers and trustees of the Trust.
4. ADMINISTRATION, SHAREHOLDER SERVICING, AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee
of 0.09% of the average daily net assets of the Trust up to $250 million, 0.07%
on the next $250 million, 0.06% on the next $250 million, 0.05% on the next
$1.25 billion, and 0.04% of such assets in excess on $2 billion. There is a
minimum annual fee of $65,000 per Fund payable to the Administrator for services
rendered to the Fund under the Administration Agreement. The Administrator may,
at its sole discretion waive all or a portion of its fees.
DST Systems, Inc., (the "Transfer Agent"), serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 28, 1996. The Distributor receives no fees for its distribution services
under this agreement.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Concluded) TIP FUNDS
March 31, 2000 (Unaudited)
5. INVESTMENT ADVISORY AGREEMENT:
The Trust and Turner Investment Partners, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement dated April 30, 1996, under which the Adviser
receives an annual fee equal to 1.05% of the average daily net assets of the
Target Select Equity Fund. The Fund currently has two Sub-Advisers -- Clover
Capital Management, Inc., and Penn Capital Management, Inc. (each a
"Sub-Adviser" and collectively, the "Sub-Advisers"). Each Sub-Adviser manages a
portion of the Fund's assets, which allocation is determined by the Trustees
upon the recommendation of the Adviser. As of March 31, 2000, Clover Capital
Management did not manage any assets of the Fund. On February 22, 2000,
Chartwell Investment Partners resigned as a sub-adviser to the Fund. For its
services, each of the Sub-Advisers is entitled to receive a fee from Turner
Investment Partners, which is calculated daily and paid monthly, at an annual
rate of .80% of the average daily net assets of the Fund allocated to them. The
Adviser has voluntarily agreed to waive all or a portion of its fees and to
reimburse expenses of the Target Select Equity 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 1.30%. Fee waivers and expense reimbursements are
voluntary and may be terminated at any time.
6. INVESTMENT TRANSACTIONS:
The total cost of security purchases and the
proceeds from security sales, other than short-term investments, for the period
ended March 31, 2000, are as follows (000):
TIP TARGET
SELECT EQUITY FUND
--------------------------------------------------------------------------------
Purchases .......................... $15,123
Sales .............................. 14,508
At March 31, 2000, the total cost of securities and net realized gains or losses
on securities sold for Federal income tax purposes was not materially different
from amounts reported for financial reporting purposes. The aggregate gross
unrealized appreciation and depreciation for securities held by the Fund at
March 31, 2000, is as follows (000):
TIP TARGET
SELECT EQUITY FUND
--------------------------------------------------------------------------------
Aggregate gross unrealized appreciation $833
Aggregate gross unrealized depreciation (134)
----
Net unrealized appreciation ........ $699
====
7. SUBSEQUENT EVENT:
TIP Target Select Equity Fund (the "Select EquityFund") under which all of the
assets and liabilities of the Select Equity Fund would be transferred to the
Alpha Select Funds, a Delaware business trust. A Shareholder meeting to approve
this reorganization is anticipated to take place in the third quarter of 2000.
11
<PAGE>
TRUST
TIP Funds
P.O. Box 419805
Kansas City, MO 64141-6805
INVESTMENT ADVISER
Turner Investment Partners, Inc.
SUB-ADVISERS
Clover Capital Management, Inc.
Penn Capital Management Company, Inc.
DISTRIBUTOR
SEI Investments Distribution Co.
ADMINISTRATOR
SEI Investments Mutual Funds Services
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
INDEPENDENT AUDITORS
Ernst & Young LLP
[Logo Omitted]
TURNER
-------------------------------------
INVESTMENT PARTNERS, INC.
To open an account, receive account information, make inquiries, or request
literature:
1-800-224-6312
THIS REPORT WAS PREPARED FOR SHAREHOLDERS IN THE TIP TARGET SELECT EQUITY FUND.
IT MAY BE DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY A PROSPECTUS,
WHICH CONTAINS DETAILED INFORMATION.
TIP-F-008-02
<PAGE>
ALPHA SELECT FUNDS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification.
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1 to the
Registration Statement is incorporated by reference. Insofar as indemnification
for liability arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, directors,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suit or proceeding) is asserted by such trustees,
directors, officers or controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.
Item 16. Exhibits
(1)(a) 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 with the
Securities and Exchange Commission on November
24, 1998.
(1)(b) 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 with the
Securities and Exchange Commission on November
24, 1998.
(1)(c) 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 with the Securities and Exchange
Commission on November 24, 1998.
C-1
<PAGE>
(1)(d) Certificate of Amendment of Agreement and
Declaration of Trust dated November 10,
1997, is incorporated by reference to Exhibit
1(d) of the Registrant's Post-Effective
Amendment No. 5 as filed with the Securities
and Exchange Commission on December 16,
1997.
(1)(e) Amended and Restated Agreement and Declaration
of Trust dated October 8, 1998, is incorporated
by reference to Exhbit a(5) of the Registrant's
Post-Effective Amendment No. 9 as filed with the
Securities and Exchange Commission on November
24, 1998.
(1)(f) Certificate of Amendment and Declaration of
Trust dated December 10, 1998 is incorporated by
reference to Exhibit a(6) of the Registrant's
Post- Effective Amendment No. 10 as filed with
the Securities and Exchange Commission on
January 27, 1999.
(2) By-Laws are incorporated by reference to
Exhibit (b) of the Registrant's Post-Effective
Amendment No. 9 as filed with the Securities and
Exchange Commission on November 24, 1998.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization and
Liquidation is filed herewith.
(5) Not applicable.
(6)(a) 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.
(6)(b) 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.
(6)(c) 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-2
<PAGE>
(6)(d) 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.
(6)(e) 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.
(6)(f) Form of Investment Advisory Agreement between
the Registrant and Concentrated Capital
Management, L.P,on behalf of the Target Select
Equity Fund, is incorporated by reference to
Exhibit (d)(6) the Registrant's Post- Effective
Amendment No. 12 as filed with the Securities
and Exchange Commission on August 9, 2000.
(6)(g) Form of Sub-Advisory Agreement between
Concentrated Capital Management and Turner
Investment Partners, Inc., on behalf of the
Target Select Equity Fund, is incorporated by
reference to Exhibit (d)(7) of the Registrant's
Post-Effective Amendment No. 12 as filed with
the Securities and Exchange Commission on
August 9, 2000.
(6)(h) Form of Sub-Advisory Agreement between
Concentrated Capital Management and Mercury
Advisors, on behalf of the Target Select Equity
Fund, is incorporated by reference to Exhibit
(d)(8) of the Registrant's Post- Effective
Amendment No. 12 as filed with the Securities
and Exchange Commission on August 9, 2000.
(6)(i) Form of Sub-Advisory Agreement between
Concentrated Capital Management and Evergreen
Investment Management Company on behalf of the
Target Select Equity Fund, is incorporated by
reference to Exhibit (d)(9) of the Registrant's
Post-Effective Amendment No. 12 as filed with
the Securities and Exchange Commission on August
9, 2000.
(7)(a) 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.
(7)(b) 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.
C-3
<PAGE>
(8) Not applicable
(9)(a) 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 29, 1995.
(9)(b) Agreement by and between the Registrant and
First Union National Bank is incorporated by
reference to the Registrant's Post-Effective
Amendment No. 9 as filed with the Securities and
Exchange Commission on November 24, 1998
(10) Rule 18f-3 Plan is incorporated by reference to
Exhibit (o) of the Registrant's Post-Effective
Amendment No. 12 as filed with the Securities
and Exchange Commission on August 9, 2000.
(11) Opinion and Consent of Morgan, Lewis & Bockius
LLP that shares will be validly issued, fully
paid and non-assessable is filed herewith.
(12) Opinion and Consent of Morgan, Lewis & Bockius
LLP as to tax matters and consequences is filed
herewith.
(13)(a) 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.
(13)(b) 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.
(13)(c) 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.
(13)(d) 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.
(14)(a) Consent of Ernst & Young LLP is filed herewith.
(14)(b) Opinion and Consent of Counsel is incorporated
by reference to Exhibit (i) of the Registrant's
Post-Effective Amendment No. 12 as filed with
the Securities and Exchange Commission on
August 9, 2000.
(15) Not applicable.
C-4
<PAGE>
(16) Powers of Attorney for Robert E. Turner, Alfred
C. Salvato, Katherine R. Griswold, Ronald W.
Filante, Stephen J. Kneeley, and Robert
DellaCroce are incorporated by reference to the
Registrant's Post-Effective Amendment No. 10 as
filed on January 27, 1999.
(17)(a) Prospectus for TIP Fund's TIP Target Select
Equity Fund dated January 31, 2000 is filed
herewith.
(17)(b) Statement of Additional Information for TIP
Fund's TIP Target Select Equity Fund dated June
30, 2000 is filed herewith.
(17)(c) Prospectus for the Alpha Select Target Select
Equity Fund is filed herewith.
(17)(d) Statement of Additional Information for Alpha
Select Funds Target Select Equity Fund is filed
herewith.
(17)(e) Audited Financial Statements dated September 30,
1999 for the TIP Target Select Equity Fund are
filed herewith.
(17)(f) Unaudited Financial Statements dated March 31,
2000 for the TIP Target Selecty Equity Fund are
filed herewith.
Item 17. Undertakings.
The registrant agrees that prior to any public reoffering of the securities
registered through the use of a prospectus which is a part of this registration
statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will
contain the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant agrees that every prospectus that is filed under paragraph
(1) above will be filed as a part of an amendment to the registration statement
and will not be used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post- effective amendment shall be deemed
to be a new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering of them.
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<PAGE>
SIGNATURES
As required by the Securities Act of 1933 this Registration Statement has
been signed on behalf of the Registrant in Philadelphia on the 18th of August,
2000.
ALPHA SELECT FUNDS
Registrant
By: /s/ Stephen J. Kneeley
--------------------------
Stephen J. Kneeley
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacity on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
* Trustee August 18, 2000
------------------------------
Robert E. Turner
* Trustee August 18, 2000
------------------------------
Ronald W. Filante
* Trustee August 18, 2000
------------------------------
Katherine R. Griswold
* Trustee August 18, 2000
------------------------------
Alfred C. Salvato
President and Chief August 18, 2000
Stephen J. Kneeley Executive Officer
/s/ Robert DellaCroce Controller and August 18, 2000
Robert DellaCroce Chief Financial
Officer
*By: /s/ Stephen J. Kneeley August 18, 2000
-------------------------
Stephen J. Kneeley
Attorney-in-Fact
</TABLE>
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<PAGE>
Exhibit Index
EX-99.(4) Form of Agreement and Plan of Reorganization and
Liquidation is filed herewith.
EX-99.(11) Opinion and Consent of Morgan, Lewis & Bockius
LLP that shares will be validly issued, fully
paid and non-assessable is filed herewith.
EX-99.(12) Opinion and Consent of Morgan, Lewis & Bockius
LLP as to tax matters and consequences is filed
herewith.
EX-99.(14) Consent of Ernst & Young LLP is filed herewith.
EX-99.(17)(a) Prospectus for TIP Funds' TIP Target Select
Equity Fund dated January 31, 2000 is filed
herewith.
EX-99.(17)(b) Statement of Additional Information for TIP
Funds TIP Target Select Equity Fund dated
January 31, 2000 is filed herewith.
EX-99.(17)(c) Prospectus for Alpha Select's Target Select
Equity Fund is filed herewith.
EX-99.(17)(d) Statement of Additional Information for Alpha
Select Funds Target Select Equity Fund is
incorporated by reference to the Registrant's
Post-Effective Amendment No. 12 as filed with
the Securities and Exchange Commission on
August 9, 2000.
EX-99.(17)(e) Audited Financial Statements dated September 30,
1999 for the TIP Target Select Equity Fund are
filed herewith.
EX-99.(17)(f) Unaudited Financial Statements dated March 31,
2000 for the TIP Target Selecty Equity Fund are
filed herewith.
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