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TURNER FUNDS
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
The Turner Funds (the "Trust") provides a convenient and economical means of
investing in professionally managed portfolios of securities. This Prospectus
offers shares of the following mutual funds (each a "Fund" and, together, the
"Funds"), each of which is a separate series of the Trust:
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
This Prospectus concisely sets forth the information about the Trust and the
Funds that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated April 30, 1996 has been filed with the
Securities and Exchange Commission and is available without charge by calling
1-800-224-6312. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
April 30, 1996
TUR-F-005-08
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TABLE OF CONTENTS
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Summary................................................ 3
Expense Summary........................................ 5
Financial Highlights................................... 7
The Trust and the Funds................................ 9
Investment Objectives.................................. 9
Investment Policies.................................... 9
Risk Factors........................................... 11
Investment Limitations................................. 12
The Adviser............................................ 13
The Administrator...................................... 14
The Transfer Agent..................................... 14
The Distributor........................................ 14
Portfolio Transactions................................. 14
Purchase and Redemption of Shares...................... 15
Performance............................................ 17
Taxes.................................................. 18
General Information.................................... 20
Description of Permitted Investments and Risk Factors.. 22
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SUMMARY
The following provides basic information about the Turner Growth Equity Fund
(the "Growth Equity Fund"), Turner Fixed Income Fund (the "Fixed Income Fund")
and Turner Small Cap Fund (the "Small Cap Fund") (each a "Fund" and,
collectively, the "Funds"). The Funds are the three mutual funds comprising the
Turner Funds (the "Trust"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in this Prospectus
and in the Statement of Additional Information.
WHAT IS EACH FUND'S INVESTMENT OBJECTIVE AND PRIMARY POLICIES?
The Growth Equity Fund seeks capital appreciation. It invests in a diversified
portfolio of common stocks that, in the Adviser's opinion, have strong earnings
growth potential.
The Fixed Income Fund seeks total return through both current income and capital
appreciation. It invests primarily in fixed income securities of varying
maturities.
The Small Cap Fund seeks capital appreciation. It invests primarily in a
diversified portfolio of common stocks of issuers with market capitalizations of
not more than $1 billion that the Adviser believes offer strong earnings growth
potential.
WHAT ARE THE RISKS INVOLVED WITH INVESTING IN THE FUNDS? The investment
policies of each Fund entail certain risks and considerations of which investors
should be aware. Each Fund invests in securities that fluctuate in value, and
investors should expect each Fund's net asset value per share to fluctuate in
value. The value of equity securities in which the Growth Equity and Small Cap
Funds invest 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. In addition, the Fixed
Income Fund may invest in fixed income securities that have speculative
characteristics. The Funds may enter into futures and options transactions and
may purchase zero coupon and mortgage-backed securities and certain of the funds
may purchase securities of foreign issuers. Investments in these securities
involve certain risks.
For more information about each Fund, see "Investment Objectives," "Investment
Policies," "Risk Factors," and "Description of Permitted Investments and Risk
Factors."
WHO IS THE ADVISER? Turner Investment Partners, Inc. (the "Adviser") serves as
the investment adviser to each Fund. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Financial Management Corporation (the
"Administrator") serves as the administrator and shareholder servicing agent for
the Funds. See "Expense Summary" and "The Administrator."
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WHO IS THE DISTRIBUTOR? SEI Financial Services Company (the "Distributor")
serves as the distributor of the Funds' shares. See "The Distributor."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent for the Trust. See "The Transfer Agent."
IS THERE A SALES LOAD? No, shares of each Fund are offered on a no-load basis.
IS THERE A MINIMUM INVESTMENT? Each Fund requires a minimum initial investment
of $100,000, which the Distributor may waive at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on each day that the New York Stock Exchange is open
for business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives the
order and payment, by check or in readily available funds, prior to 4:00 p.m.
Eastern time. Redemption orders received by the Transfer Agent prior to 4:00
p.m. Eastern time on any Business Day will be effective that day. The purchase
and redemption price for shares is the net asset value per share determined as
of the end of the day the order is effective. See "Purchase and Redemption of
Shares."
HOW ARE DISTRIBUTIONS PAID? Each Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of periodic
dividends. Any capital gain is distributed at least annually. Distributions
are paid in additional shares unless the shareholder elects to take the payment
in cash. See "Dividends and Distributions."
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EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases ........................................... None
Sales Load Imposed on Reinvested Dividends ................................ None
Deferred Sales Load ....................................................... None
Redemption Fees (1) ....................................................... None
Exchange Fees ............................................................. None
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(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
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ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
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GROWTH EQUITY FIXED INCOME
FUND FUND SMALL CAP FUND
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<S> <C> <C> <C>
Advisory Fees (after fee waivers) .75% .05%/(1)/ .55%/(1)/
12b-1 Fees None None None
Other Expenses .28%/(2)/ .70%/(4)/ .70%/(3)/
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Total Operating Expenses
(after fee waivers) 1.03%/(2)/ .75% 1.25%
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</TABLE>
(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fee for
the Small Cap and Fixed Income Funds to the extent necessary to keep the
"Total Operating Expenses" of the Funds during the current fiscal year from
exceeding 1.25% and .75%, respectively. The Advisory Fee, after fee
waiver, for the Small Cap Fund has been restated to reflect the anticipated
advisory fee for the current year. The Adviser reserves the right to
terminate its waivers at any time in its sole discretion. Absent such
waivers, Advisory Fees for the Small Cap Fund and Fixed Income Fund would
be 1.00% and .50%, respectively, and Total Operating Expenses would be
1.70% and 1.20%, respectively.
(2) "Other Expenses" for the current fiscal year do not reflect the Adviser's
use of arrangements whereby certain broker-dealers have agreed to pay
certain expenses of the Growth Equity Fund in return for the direction of a
percentage of the Fund's brokerage transactions. As a result of these
arrangements, the amount of "Other Expenses" and "Total Operating Expenses"
deducted from the Fund's assets was .19% and .94%, respectively.
(3) "Other Expenses" have been restated to reflect the anticipated expenses of
the Small Cap Fund for the current year.
(4) "Other Expenses" for the Fixed Income Fund are estimated for the current
fiscal year.
EXAMPLE
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You would pay the following expenses on a 1 year 3 years 5 years 10 years
$1,000 investment in a Fund assuming (1) a ------ ------- ------- --------
5% annual return and (2) redemption at the
end of each time period.
Growth Equity Fund $11 $33 $57 $126
Fixed Income Fund $ 8 $24 -- --
Small Cap Fund $13 $40 $69 $151
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THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF EACH FUND AFTER WAIVERS
AND REIMBURSEMENTS AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and example
is to assist the investor in understanding the various costs and expenses that
may be directly or indirectly borne by shareholders of the Funds. Additional
information may be found under "The Adviser" and "The Administrator."
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FINANCIAL HIGHLIGHTS
The following information concerning the Growth Equity Fund relates to a period
of time when the assets of the Growth Equity Fund were maintained by the Turner
Growth Equity Portfolio of The Advisors' Inner Circle Fund. The information
below and the financial statements of the Turner Growth Equity Portfolio of The
Advisors' Inner Circle Fund were audited by Arthur Andersen LLP, whose report
dated December 5, 1995, is included in the Statement of Additional Information.
The Growth Equity Fund acquired all of the assets and liabilities of the Turner
Growth Equity Portfolio on April 30, 1996. All references herein to the Growth
Equity Fund shall be deemed to include the Turner Growth Equity Portfolio.
For a Share Outstanding Throughout the Period:
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GROWTH EQUITY FUND
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<S> <C> <C> <C> <C>
11/01/94 11/01/93 11/01/92 03/11/92(1)
to to to to
10/31/95 10/31/94 10/31/93 10/31/92
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NET ASSET VALUE, BEGINNING OF PERIOD.......... $12.46 $13.12 $10.40 $10.00
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Income From Investment Operations:
Net Investment Income.................... 0.10 0.10 0.09 0.03
Net Realized and Unrealized
Gain (Loss) on Investments.............. 2.52 (0.66) 2.72 0.40
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Total From Investment Operations.............. 2.62 (0.56) 2.81 0.43
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Less Distributions:
Dividends From Net Investment Income.......... (0.11) (0.10) (0.09) (0.03)
Total Distributions..................... (0.11) (0.10) (0.09) (0.03)
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NET ASSET VALUE, END OF PERIOD................ $14.97 $12.46 $13.12 $10.40
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TOTAL RETURN.................................. 21.15% (4.28)% 27.08% 6.95%*
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RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)............... $115,819 $112,959 $53,327 $7,781
Ratios Of Expenses To Average Net Assets...... 0.94%(2) 0.95% 1.00% 1.44%*
Ratio Of Expenses To Average Net Assets
Excluding Fee Waivers....................... 0.94%(2) 1.08% 1.52% 2.55%*
Ratio Of Net Investment Income To Average
Net Assets.................................. 0.78%(2) 0.86% 0.80% 0.73%*
Ratio Of Net Investment Income to
Average Net Assets Excluding Fee Waivers.... 0.78%(2) 0.73% 0.28% (0.38)%*
Portfolio Turnover Rate....................... 177.86% 164.81% 88.35% 205.00%
=================================================================================================================
</TABLE>
* Annualized
(1) The Turner Growth Equity Portfolio commenced operations on March 11, 1992.
(2) Absent the Turner Growth Equity Portfolio's participation in a directed
brokerage program, the Ratios of Expenses to Average Net Assets (with and
without waivers) and the Ratios of Net Investment Income to Average Net Assets
(with and without waivers) were 1.03% and .69%, respectively.
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FINANCIAL HIGHLIGHTS
The following information concerning the Small Cap Fund relates to a period of
time when the assets of the Small Cap Fund were maintained by the Turner Small
Cap Portfolio of The Advisors' Inner Circle Fund. The information below and the
financial statements of the Turner Small Cap Portfolio of The Advisors' Inner
Circle Fund were audited by Arthur Andersen LLP, whose report dated December 5,
1995, is included in the Statement of Additional Information. The Small Cap
Fund acquired all of the assets and liabilities of the Turner Small Cap
Portfolio on April 30, 1996. All references herein to the Small Cap Fund shall
be deemed to include the Turner Small Cap Portfolio.
<TABLE>
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For a Share Outstanding Throughout the Period:
SMALL CAP FUND
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<S> <C> <C>
11/01/94 02/07/94(1)
to to
10/31/95 10/31/94
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NET ASSET VALUE, BEGINNING OF PERIOD....... $10.90 $10.00
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Income From Investment Operations:
Net Investment Income (Loss).......... (0.06) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investments............ 5.24 0.92
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Total From Investment Operations........... $5.18 .90
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Less Distributions: --
Dividends From Net Investment Income.......
Total Distributions................... --
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NET ASSET VALUE, END OF PERIOD............. $16.08 $10.90
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TOTAL RETURN............................... 47.52% 12.35%*
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RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000)............ $13,072 $4,806
Ratios Of Expenses To Average Net Assets... 1.25% 1.09%*
Ratio Of Expenses To Average Net Assets
Excluding Fee Waivers.................... 2.39% 4.32%*
Ratio Of Net Investment Income To Average
Net Assets............................... (0.68)% (0.27)%*
Ratio Of Net Investment Income to
Average Net Assets Excluding Fee Waivers.
(1.82)% (3.50)%*
Portfolio Turnover Rate.................... 183.49% 173.92%
================================================================================
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* Annualized
(1) The Turner Small Cap Portfolio commenced operations on February 7, 1994.
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<PAGE>
THE TRUST AND THE FUNDS
Turner Funds (the "Trust") offers shares in three separately-managed mutual
funds, each of which is a separate series of the Trust. Each share of each
mutual fund represents an undivided, proportionate interest in that mutual fund.
This Prospectus offers shares of the Trust's Turner Growth Equity Fund (the
"Growth Equity Fund"), Turner Fixed Income Fund (the "Fixed Income Fund"), and
Turner Small Cap Fund (the "Small Cap Fund") (each a "Fund" and, together, the
"Funds").
INVESTMENT OBJECTIVES
GROWTH EQUITY FUND -- The Growth Equity Fund seeks capital appreciation.
FIXED INCOME FUND -- The Fixed Income Fund seeks total return through current
income and capital appreciation.
SMALL CAP FUND -- The Small Cap Fund seeks capital appreciation.
There can be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
GROWTH EQUITY FUND
The Growth Equity Fund invests as fully as practicable (and, under normal
conditions at least 65% of its total assets) in a portfolio of common stocks
that Turner Investment Partners, Inc. (the "Adviser") believes to have potential
for strong growth in earnings and to be reasonably valued at the time of
purchase. The Fund seeks to purchase securities that are well diversified
across sectors and to maintain sector concentrations that approximate the
economic sector weightings of the Russell 1000 Growth Index (or other
appropriate index selected by the Adviser). The Fund may invest in warrants and
rights to purchase common stocks, and may invest up to 10% of its total assets
in American Depository Receipts ("ADRs"). The Fund only will purchase
securities that are traded on registered exchanges or the over-the-counter
market in the United States.
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 Fund's holdings across the yield curve by holding short,
intermediate and long-term securities. Normally, the Fund will
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maintain a dollar-weighted average portfolio duration that approximates the
average duration range of the Fund's benchmark index, the Lehman Brothers
Aggregate Bond Index (currently 4.6 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 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
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 Investors Service,
Inc. ("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
Fund's total assets.
The Fund may invest in variable and floating rate obligations and in convertible
debt securities that meet the ratings criteria set forth above.
SMALL CAP 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 $1 billion that the Adviser believes to
have strong earnings growth potential. Under normal market conditions, the Fund
will maintain a weighted average market capitalization of less than $1 billion.
The Fund seeks to purchase securities that are well diversified across sectors
and to maintain sector concentrations that approximate the economic sector
weightings comprising the Russell 2500 Index (or such other appropriate index
selected by the Adviser),
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the Fund may invest in warrants and rights to purchase common stocks, and may
invest up to 10% of its total assets in ADRs. The Fund only will purchase
securities that are traded on registered exchanges or the over-the-counter
market in the United States.
All Funds
Each Fund may purchase securities on a when-issued basis.
Each Fund may enter into futures and options transactions.
Each Fund may invest up to 15% of its net assets in illiquid securities.
Each Fund may purchase convertible securities.
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.
For a further description of these types of instruments see "Description of
Permitted Investments and Risk Factors" and the Statement of Additional
Information.
RISK FACTORS
EQUITY SECURITIES -- Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities
in which a fund invests will cause the net asset value of that fund to
fluctuate. An investment in such funds may be more suitable for long-term
investors who can bear the risk of short-term principal fluctuations.
The Small Cap Fund invests to a significant degree in equity securities of
smaller companies. Any investment in smaller capitalization companies involves
greater risk than that customarily associated with investments in larger, more
established companies. This increased risk may be due to the greater business
risks of smaller size, limited markets and financial resources, narrow product
lines and lack of depth of management. The securities of smaller companies are
often traded in the over-the-counter market and if listed on a national
securities exchange may not be traded in volumes typical for that exchange.
Thus, the securities of smaller companies are likely to be less liquid, and
subject to more abrupt or erratic market movements than securities of larger,
more established growth companies.
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
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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. Mortgage-backed and asset-backed
securities purchased by the Fixed Income Fund may be subject to prepayment,
which may result in capital gains or losses, and which make it difficult to
determine such securities' average life and yield. When the mortgage-backed
securities held by a Fund are pre-paid, the Fund must reinvest the proceeds in
securities the yield of which reflects prevailing interest rates, which may be
lower than the yield of the pre-paid security.
SECURITIES OF FOREIGN ISSUERS -- Investments in the securities of foreign
issuers may subject a Fund to investment risks that differ in some respects from
those related to investments in securities of U.S. issuers. Such risks include
future adverse political and economic developments, possible imposition of
withholding taxes on income, possible seizure, nationalization or expropriation
of foreign deposits, possible establishment of exchange controls or taxation at
the source or greater fluctuation in value due to changes in exchange rates.
Foreign issuers of securities often engage in business practices different from
those of domestic issuers of similar securities, and there may be less
information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States.
PORTFOLIO TURNOVER -- The annual portfolio turnover rate for the Growth Equity
Fund for the fiscal period ended October 31, 1995, was 177.86%. The annual
portfolio turnover rate for the Small Cap Fund for the fiscal period ended
October 31, 1995, was 183.49%. An annual portfolio turnover rate in excess of
100% may result from the Adviser's investment strategy of focusing on earnings
potential and disposing of securities when the Adviser believes that their
earnings potential has diminished, or may result from the Adviser's maintenance
of appropriate issuer diversification. Portfolio turnover rates in excess of
100% may result in higher transaction costs, including brokerage commissions,
and higher levels of taxable capital gain. See "Taxes."
INVESTMENT LIMITATIONS
The investment objective of each Fund and certain of the investment limitations
set forth here and in the Statement of Additional Information are fundamental
policies of that Fund. Fundamental policies cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares.
1. No Fund may (i) purchase securities of any issuer (except securities issued
or guaranteed by the United States Government, its agencies or instrumentalities
and repurchase agreements
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involving such securities) if, as a result, more than 5% of the total assets of
the Fund would be invested in the securities of such issuer; or (ii) acquire
more than 10% of the outstanding voting securities of any one issuer. This
restriction applies to 75% of each Fund's total assets.
2. No Fund may purchase any securities which would cause 25% or more of the
total assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
Turner Investment Partners, Inc. is a professional investment management firm
founded in March, 1990. Robert E. Turner is the Chairman and controlling
shareholder of the Adviser. As of December 31, 1995, the Adviser had
discretionary management authority with respect to approximately $2.5 billion of
assets. The Adviser has provided investment advisory services to investment
companies since 1992. The principal business address of the Adviser is 1235
Westlakes Drive, Suite 350, Berwyn, Pennsylvania 19312.
The Adviser serves as the investment adviser for 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.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .75% of the average daily net assets of
the Growth Equity Fund, .50% of those of the Fixed Income Fund and 1.00% of
those of the Small Cap Fund. The advisory fees for the Growth Equity Fund and
Small Cap Fund are higher than those paid by most other investment companies,
but the Adviser believes that they are comparable to the investment advisory
fees paid by other investment companies with comparable investment objectives
and policies. The Adviser has voluntarily agreed to waive all or a portion of
its fee and to reimburse expenses of the Fixed Income and Small Cap Funds in
order to limit their total operating expenses (as a percentage of average daily
net assets on an annualized basis) to not more than 0.75% and 1.25%,
respectively. The Adviser reserves the right, in its sole discretion, to
terminate these voluntary fee waivers and reimbursements at any time.
Robert E. Turner, CFA, Chairman and Chief Investment Officer of the Adviser, has
managed the Growth Equity Fund since its inception. Mr. Turner founded Turner
Investment Partners, Inc. in 1990. Prior to 1990, he was Senior Investment
Manager with Meridian Investment Company. He has 15 years of investment
experience.
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William H. Chenoweth, CFA, Senior Equity Portfolio Manager of the Adviser,
manages the Small Cap Fund. Mr. Chenoweth joined Turner Investment Partners,
Inc. in 1993. Prior to 1993, he was Second Vice President with Jefferson-Pilot
Corporation. He has 11 years of investment experience.
Mark D. Turner, President and Director of Fixed Income Management of the
Adviser, is the manager of the Fixed Income Fund. Mr. Turner joined Turner
Investment Partners, Inc. in 1990. Prior to 1990, he was Vice President and
Senior Portfolio Manager with First Maryland Asset Management. He has 14 years
of investment experience.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Trust with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly, at an annual rate of .12%
of that Fund's average daily net assets up to $75 million, .10% on the next $75
million of such assets, .09% on the next $150 million of such assets, .08% of
the next $300 million of such assets, and .075% of such assets in excess of $600
million.
The Administrator also serves as shareholder servicing agent for the Trust under
a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
DST Systems, Inc., P.O. Box 419805, Kansas City, Missouri 64141-6805 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Trust under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, acts as the
Trust's distributor pursuant to a distribution agreement (the "Distribution
Agreement"). No compensation is paid to the Distributor for its distribution
services. Certain broker-dealers assist their clients in the purchase of shares
from the Distributor and charge a fee for this service in addition to a Fund's
public offering price.
PORTFOLIO TRANSACTIONS
Each Fund may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. The Adviser may direct
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<PAGE>
commission business for the Growth Equity Fund to designated broker-dealers
(including the Distributor) in connection with such broker-dealers' payment of
certain Growth Equity Fund expenses.
Since shares of the Funds are not marketed through intermediary broker-dealers,
no Fund has a practice of allocating brokerage or effecting principal
transactions with broker-dealers on the basis of sales of shares which may be
made through such firms. However, the Adviser may place orders for any Fund
with qualified broker-dealers who refer clients to that Fund.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of each Fund directly through the
Transfer Agent, P.O. Box 419805, Kansas City, Missouri 64141-6805, by mail or
wire transfer. All shareholders may place orders by telephone; when market
conditions are extremely busy, it is possible that investors may experience
difficulties placing orders by telephone and may wish to place orders by mail.
Purchases and redemptions of shares of the Fund may be made on any Business Day.
Shares of each Fund are offered only to residents of states in which such shares
are eligible for purchase.
The minimum initial investment in any Fund is $100,000, and subsequent purchases
must be at least $10,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
Certain brokers assist their clients in the purchase or redemption of shares and
charge a fee for this service in addition to a Portfolio's public offering
price.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the appropriate Fund) for $100,000 or more, together
with a completed Account Application to the Transfer Agent, P.O. Box 419805,
Kansas City, Missouri 64141-6805. Third-Party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
redemptions will not be allowed until the investment being redeemed has been in
the account for ten business days. Subsequent investments may also be mailed
directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA #10-10-
00695; for Account Number 98-7060-116-8; Further Credit: [___________ Fund].
The shareholder's name and account number must be specified in the wire.
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Initial Purchases: Before making an initial investment by wire, an investor
must first telephone 1-800-224-6312 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: DST Systems, Inc., P.O.
Box 419805, Kansas City, Missouri 64141-6805.
Subsequent Purchases: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
Subsequent purchases may also be made by wire through the Automated Clearing
House ("ACH").
GENERAL INFORMATION REGARDING PURCHASES
A purchase request will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives the purchase request in good order and
payment before 4:00 p.m., Eastern time. A purchase request is in good order if
it is complete and accompanied by the appropriate documentation. Purchase
requests in good order received after 4:00 p.m., Eastern time, will be effective
the next Business Day. Payment may be made by check or readily available funds.
The purchase price of shares of any Fund is that Fund's net asset value per
share next determined after a purchase order is effective. Purchases will be
made in full and fractional shares of each Fund calculated to three decimal
places. The Trust will not issue certificates representing shares of any Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
EXCHANGES
Shareholders of each Fund may exchange their shares for shares of the other
Funds that are then offering their shares to the public. Exchanges are made at
net asset value. An exchange is considered a sale of shares and may result in
capital gain or loss for federal income tax purposes. The shareholder must have
received a current prospectus for the new Fund before any exchange will be
effected, and the exchange privilege may be exercised only in those states where
shares of the new Fund may legally be sold. If the Transfer Agent receives
exchange instructions in writing or by telephone (an "Exchange Request") in good
order by 4:00 p.m. on any Business Day, the exchange will be effected that day.
The liability of the Fund or the Transfer Agent for fraudulent or unauthorized
telephone instructions may be limited as described below. The Trust reserves
the right to modify or terminate this exchange offer on 60 days' notice.
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REDEMPTIONS
Redemption requests in good order received by the Transfer Agent prior to 4:00
p.m., Eastern time on any Business Day will be effective that day. To redeem
shares of the Fund, shareholders must place their redemption orders with the
Transfer Agent prior to 4:00 p.m., Eastern time, on any Business Day. The
redemption price of shares of any Fund is the net asset value per share of that
Fund next determined after the redemption order is effective. Payment of
redemption proceeds will be made as promptly as possible and, in any event,
within seven days after the redemption order is received, provided, however,
that redemption proceeds for shares purchased by check (including certified or
cashier's checks) will be forwarded only upon collection of payment for such
shares; collection of payment may take up to 15 days. Shareholders may not
close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of a Fund by
Federal Reserve wire on Federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of instructions received by telephone if they reasonably believe
those instructions to be genuine. The Trust and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine.
Such procedures may include the taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
VALUATION OF SHARES
The net asset value per share of each Fund is determined by dividing the total
market value of that Fund's investments and other assets, less any liabilities,
by the total number of outstanding shares of that Fund. Net asset value per
share is determined daily as of the close of business of the New York Stock
Exchange (currently, 4:00 p.m., Eastern time) on any Business Day.
PERFORMANCE
From time to time, each Fund may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future
yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The
yield is calculated by assuming that the same amount of income generated by the
investment
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during that period is generated in each 30-day period over one year and is shown
as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, for designated time periods (including but not limited
to the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
A Fund may periodically compare its performance to that of other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services,
Inc.), financial and business publications and periodicals, broad groups of
comparable mutual funds, unmanaged indices, which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs, or other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of risk-
adjusted performance, and Ibbotson Associates of Chicago, Illinois, which
provides historical returns of the capital markets in the U.S. A Fund may also
quote the Frank Russell Company or Wilshire Associates, consulting firms that
compile financial characteristics of common stocks and fixed income securities,
regarding non-performance-related attributes of a Fund's portfolio. The Fund
may use long term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, state and local income taxes.
TAX STATUS OF THE FUNDS:
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. Each Fund intends to qualify or
to continue to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Internal Revenue Code
of 1986, as amended. So long as a Fund qualifies for this special
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<PAGE>
tax treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS:
Each Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations. It can be expected that none of the dividends
paid by the Fixed Income Fund will qualify for that deduction. Any net capital
gains will be distributed annually and will be taxed to shareholders as long-
term capital gains, regardless of how long the shareholder has held shares.
Each Fund will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by a Fund are sold with original issue discount and
thus do not make periodic cash interest payments. Each Fund will be required to
include as part of its current income the accrued discount on such obligations
even though the Fund has not received any interest payments on such obligations
during that period. Because each Fund distributes all of its net investment
income to its shareholders, a Fund may have to sell portfolio securities to
distribute such accrued income, which may occur at a time when the Adviser would
not have chosen to sell such securities and which may result in a taxable gain
or loss.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. Each Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from a Fund provided certain state-specific
conditions are satisfied. The Funds will inform shareholders annually of the
percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisers to determine whether any portion
of the income dividends received from a Fund is considered tax exempt in their
particular state. Income derived by a Fund from securities of foreign issuers
may be subject to foreign withholding taxes. The Funds will not be able to
elect to treat shareholders as having paid their proportionate share of such
foreign taxes.
Each sale, exchange or redemption of a Fund's shares is a taxable event to the
shareholder.
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GENERAL INFORMATION
THE TRUST
The Trust, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated January
26, 1996. The Declaration of Trust permits the Trust to offer separate series
("portfolios") of shares. All consideration received by the Trust for shares of
any portfolio and all assets of such portfolio belong to that portfolio and
would be subject to liabilities related thereto. The Trust reserves the right
to create and issue shares of additional portfolios.
The Trust pays its operating expenses, including fees of its service providers,
audit and legal expenses, expenses of preparing prospectuses, proxy solicitation
material and reports to shareholders, costs of custodial services and
registering the shares under federal and state securities laws, pricing and
insurance expenses, and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote for each dollar
invested. In other words, each shareholder of record is entitled to one vote
for each dollar of net asset value of the shares held on the record date for the
meeting. Shareholders of each Fund will vote separately on matters pertaining
solely to that Fund. As a Massachusetts business trust, the Trust is not
required to hold annual meetings of Shareholders, but approval will be sought
for certain changes in the operation of the Trust and for the election of
Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
Shareholders at a special meeting called upon written request of Shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually for each Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
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SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to DST Systems, Inc., P.O. Box 419805,
Kansas City, Missouri 64141-6805, or by calling 1-800-224-6312. Purchases,
exchanges and redemptions of shares should be made through the Transfer Agent by
calling 1-800-224-6312.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (excluding capital gains) of the
Growth Equity Fund is distributed in the form of quarterly dividends, that of
the Fixed Income Fund is distributed in the form of monthly dividends, and that
of the Small Cap Fund is distributed in the form of dividends at least annually.
Shareholders of record of the Growth Equity Fund and the Fixed Income Fund on
the last Business Day of each quarter or month, respectively, will be entitled
to receive the quarterly or monthly dividend distribution. If any capital gain
is realized, substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
Dividends and other distributions of each Fund are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If shares
are purchased shortly before the record date for a distribution of ordinary
income or capital gains, a shareholder will pay the full price for the shares
and receive some portion of the price back as a taxable distribution or
dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Ernst & Young LLP
serves as the independent public accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
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DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for one or more of the
Funds:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") -- ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be 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 (Non-mortgage) -- Asset-backed securities are securities
secured by non-mortgage assets such as company receivables, truck and auto
loans, leases and credit card receivables. Such securities are generally issued
as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain period by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associate with mortgage-
backed securities. In addition, credit card receivables are unsecured
obligations of the cardholder.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to 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
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(e.g., CMOs, REMICs, IOs and POs), when issued securities and forward
----
commitments, floating and variable rate securities, convertible securities,
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPs), privately
----
issued stripped securities (e.g., TGRs, TRs, and CATs). See elsewhere in the
----
Description of Permitted Investments and Risk Factors for discussions of these
various instruments, and see "Investment Policies" and "Risk Factors" for more
information about any investment policies and limitations applicable to their
use.
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. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations
over 7 days in length.
MONEY MARKET INSTRUMENTS - Money market securities are high-quality, dollar-
denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper ratings;
and (v) repurchase agreements involving any of the foregoing obligations entered
into with highly-rated banks and broker-dealers.
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 thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages.
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 GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury at its discretion. GNMA, FNMA and FHLMC each
guarantees timely distributions of interest to certificate holders. GNMA and
FNMA also each guarantees timely distributions of scheduled principal. FHLMC
has in the past guaranteed only the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed securities
(FHLMC Gold PCs) which also guarantee timely payment of monthly principal
reductions. Government and private guarantees do not extend to the securities'
value, which is likely to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
- -------------------------------
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations
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("CMOs") and real estate mortgage investment conduits ("REMICs") that are rated
in one of the top two rating categories. 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 are debt obligations or 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 a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid. A REMIC is a CMO
that qualifies for special tax treatment under the Internal Revenue Code and
invests in certain mortgages principally secured by interests in real property.
Investors may purchase beneficial interests in REMICs, which are known as
"regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates issued and guaranteed as to
timely distribution of principal and interest by FNMA.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
- ------------
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current condition in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security.
There can be no assurance that estimated average life will be a security's
actual average life.
RECEIPTS -- Interests in separately traded interest and principal component
parts of U.S. Government obligations that are issued by banks or brokerage firms
and are created by depositing U.S. Government obligations into a special account
at a custodian bank. The Custodian holds the interest and principal payments
for the benefit of the registered owners of the certificates or receipts.
Receipts are sold as zero coupon securities. For more information, see "Zero
Coupon Securities."
REITS -- REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. The value of interests in REITS may be affected by
the value of the property owned or the quality of the mortgages held by the
trust.
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REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Custodian will hold the security as collateral
for the repurchase agreement. The Fund bears a risk of loss in the event the
other party defaults on its obligations and the Fund is delayed or prevented
from exercising its right to dispose of the collateral or if the Fund realizes a
loss on the sale of the collateral. The Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
U.S. GOVERNMENT AGENCY OBLIGATIONS - Certain Federal agencies, such as the
Government National Mortgage Association ("GNMA"), have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Federal
National Mortgage Association securities).
U.S. GOVERNMENT SECURITIES - Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS - Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interested and Principal Securities ("STRIPS") and Coupon
Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed,
but which vary with changes in specified market rates or indices. The interest
rates on these securities may be reset daily, weekly, quarterly or some other
reset period, and may have a floor or ceiling on interest rate changes. There
is a risk that the current interest rate on such obligations may not actually
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 shares of a company at a given price during a specified
period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a
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separate account with liquid, high grade debt securities or cash in an amount at
least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date, and no interest accrues to the Fund
before settlement. These securities are subject to market fluctuation 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.
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
accreted. Such obligations will not result in the payment of interest until
maturity, and will have greater price volatility than similar securities that
are issued at par and pay interest periodically.
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Trust:
TURNER FUNDS
Funds:
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
Adviser:
TURNER INVESTMENT PARTNERS, INC.
Distributor:
SEI FINANCIAL SERVICES COMPANY
Administrator:
SEI FINANCIAL MANAGEMENT CORPORATION
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ERNST & YOUNG LLP
April 30, 1996
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Trust:
TURNER FUNDS
Funds:
TURNER GROWTH EQUITY FUND
TURNER FIXED INCOME FUND
TURNER SMALL CAP FUND
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Growth Equity Fund (the "Growth Equity Fund"), Turner Fixed Income
Fund (the "Fixed Income Fund") and Turner Small Cap Fund (the "Small Cap Fund")
(each a "Fund" and, together, the "Funds"). It is intended to provide
additional information regarding the activities and operations of the Turner
Funds (the "Trust") and the Funds and should be read in conjunction with the
Funds' Prospectus dated April 30, 1996. The Prospectus may be obtained without
charge by calling 1-800-224-6312.
TABLE OF CONTENTS
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THE TRUST............................................................ S-2
DESCRIPTION OF PERMITTED INVESTMENTS................................. S-2
INVESTMENT LIMITATIONS............................................... S-7
THE ADVISER.......................................................... S-9
THE ADMINISTRATOR.................................................... S-10
THE DISTRIBUTOR...................................................... S-11
TRUSTEES AND OFFICERS OF THE TRUST................................... S-11
COMPUTATION OF YIELD AND TOTAL RETURN................................ S-14
PURCHASE AND REDEMPTION OF SHARES.................................... S-15
DETERMINATION OF NET ASSET VALUE..................................... S-15
TAXES................................................................ S-15
PORTFOLIO TRANSACTIONS............................................... S-17
DESCRIPTION OF SHARES................................................ S-18
SHAREHOLDER LIABILITY................................................ S-18
LIMITATION OF TRUSTEES' LIABILITY.................................... S-19
5% SHAREHOLDERS...................................................... S-19
EXPERTS.............................................................. S-19
FINANCIAL INFORMATION................................................ S-19
APPENDIX............................................................. A-1
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April 30, 1996
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THE TRUST
This Statement of Additional Information relates only to the Turner Growth
Equity Fund (the "Growth Equity Fund"), Turner Fixed Income Fund (the "Fixed
Income Fund") and Turner Small Cap Fund (the "Small Cap Fund") (each a "Fund"
and, together, the "Funds"). Each Fund is a separate series of the Turner Funds
(the "Trust"), a diversified, open-end management investment company established
as a Massachusetts business trust under a Declaration of Trust dated January 26,
1996. The Declaration of Trust permits the Trust to offer separate series
("portfolios") of shares of beneficial interest ("shares"). Each portfolio is a
separate mutual fund, and each share of each portfolio represents an equal
proportionate interest in that portfolio. See "Description of Shares." No
investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the Index is made; generally contracts are closed out prior to the
expiration date of the contracts.
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No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid, high grade debt securities, equal to the market value of the futures
positions held, less margin deposits, in a segregated account with its
custodian. Collateral equal to the current market value of the futures position
will be marked to market on a daily basis.
INVESTMENT COMPANY SHARES
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the
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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."
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 the Fund, loss of the premium paid may be offset by
an increase in the value of the Fund's securities or by a decrease in the cost
of acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
fund and as a means of providing limited protection against decreases in its
market value. When a fund sells an option, if the underlying securities do not
increase or decrease to a price level that would make the exercise of the option
profitable to the holder thereof, the option generally will expire without being
exercised and the Fund will realized as profit the premium received for such
option. When a call option written by a Fund is exercised, the Fund will be
required to sell the underlying securities to the option holder at the strike
price, and will not participate in any increase in the price of such securities
above the strike price. When a put option written by a Fund is exercised, the
Fund will be required to purchase the underlying securities at the strike price,
which may be in excess of the market value of such securities.
A Fund may purchase and write options on an exchange or over-the-counter. Over-
the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC
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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, high
grade debt securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while the option is
open or will otherwise cover the transaction.
Risk Factors: Risks associated with options transactions include: (1) the
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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.
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REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize
a loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
U.S. GOVERNMENT SECURITIES
Each Fund may invest in securities issued or guaranteed by U.S. Government
agencies or instrumentalities such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are
backed by the full faith and credit of the United States Government.
Obligations of FNMA and FHLMC are not backed by the full faith and credit of the
United States Government, but are considered to be of high quality since they
are considered to be instrumentalities of the United States. The market value
and interest yield of these securities can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans with a maximum
maturity of 30 years. However, due to scheduled and unscheduled principal
payments, GNMA certificates have a shorter average maturity and, therefore, less
principal volatility than a comparable 30-year bond. Since prepayment rates
vary widely, it is not possible to accurately predict the average maturity of a
particular GNMA pool. The scheduled monthly interest and
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principal payments relating to mortgages in the pool will be "passed through" to
investors. GNMA securities differ from conventional bonds in that principal is
paid back to the certificate holders over the life of the loan rather than at
maturity. As a result, there will be monthly scheduled payments of principal
and interest. In addition, there may be unscheduled principal payments
representing prepayments on the underlying mortgages. Although GNMA
certificates may offer yields higher than those available from other types of
U.S. Government securities, GNMA certificates may be less effective than other
types of securities as a means of "locking in" attractive long-term rates
because of the prepayment feature. For instance, when interest rates decline,
the value of a GNMA certificate likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments can
cause the price of a GNMA certificate originally purchased at a premium to
decline in price to its par value, which may result in a loss.
Each Fund may invest in Separately Traded Interest and Principal Securities
("STRIPS"), which are component parts of U.S. Treasury Securities traded through
the Federal Book-Entry System. The Adviser will purchase only those STRIPS that
it determines are liquid or, if illiquid, do not violate the Fund's investment
policy concerning investments in illiquid securities. While there is no
limitation on the percentage of a Fund's assets that may be comprised of STRIPS,
the Adviser will monitor the level of such holdings to avoid the risk of
impairing shareholders' redemption rights.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of each Fund which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of a Fund's outstanding shares, whichever is less.
No Fund may:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate fund to purchase securities or require a
Fund to segregate assets are not considered to be borrowings. Asset
coverage of a least 300% is required for all borrowings, except where a
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. A Fund will not purchase securities while its
borrowings exceed 5% of its total assets.
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2. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that each Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
4. Issue senior securities (as defined in the Investment Company Act of 1940
(the "1940 Act")) except as permitted by rule, regulation or order of the
Securities and Exchange Commission (the "SEC").
5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
6. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of
security transactions; (ii) provide initial and variation margin payments
in connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's
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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 (i) by
purchase in the open market involving only customary brokers' commissions;
(ii) in connection with mergers, acquisitions of assets, or consolidations;
or (iii) as otherwise permitted by the 1940 Act.
5. Purchase securities of any company which has (with predecessors) a record
of less than three years continuing operations if, as a result, more than
15% of the total assets (taken at fair market value) would be invested in
such securities.
6. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities. Unregistered securities sold in
reliance on the exemption from registration in Section 4(2) of the 1933 Act
and securities exempt from registration on re-sale pursuant to Rule 144A of
the 1933 Act may be treated as liquid securities under procedures adopted
by the Board of Trustees. Each Fund will invest no more than 5% of its net
assets in short sales, unregistered securities, futures contracts, options
and investment company securities.
ADDITIONAL RESTRICTIONS
The following are non-fundamental investment limitations that are currently
required by one or more states in which the Trust sells shares of the Funds.
These limitations are in addition to, and in some cases more restrictive than,
the fundamental and non-fundamental investment limitations listed above. A
limitation may be changed or eliminated without shareholder approval if the
relevant state changes or eliminates its policy regarding such investment
restriction. As long as a Fund's shares are registered for sale in such states,
it may not:
1. Invest more than 5% of its net assets in warrants; provided that of this 5%
no more than 2% will be in warrants that are not listed on the New York
Stock Exchange or the American Stock Exchange.
2. Invest in the securities of other investment companies except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
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THE ADVISER
The Trust and Turner Investment Partners, Inc. (the "Adviser") have entered into
an advisory agreement (the "Advisory Agreement"). 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 Internal Revenue Code of 1986, as amended (the "Code").
The continuance of the Advisory Agreement as to any Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Fund, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to any Fund,
by a majority of the outstanding shares of that Fund, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
THE ADMINISTRATOR
The Trust and SEI Financial Management Corporation (the "SFM" or
"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 3 years after the effective date of the agreement and shall continue
in effect for successive periods of 1 year unless terminated by either party on
not less than 90 days' prior written notice to the other party.
The Administrator, a wholly-owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969, and has its principal business
offices at
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680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. Alfred P. West, Jr.,
Henry H. Greer and Carmen V. Romeo, constitute the Board of Directors of the
Administrator. Mr. West is the Chairman of the Board and Chief Executive
Officer of the Administrator and of SEI. Mr. Greer is the President and Chief
Operating Officer of the Administrator and of SEI. SEI and its subsidiaries 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 also serves as administrator to
the following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Conestoga
Family of Funds, CoreFunds, Inc., CrestFunds, Inc.(C), CUFUND, FMB Funds, First
American Funds, Inc., First American Investment Funds, Inc., Insurance
Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R), Monitor
Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds,
Rembrandt Funds(R), 1784 Funds, SEI Asset Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI
Classic Funds and STI Classic Variable Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Trust are parties to a distribution agreement (the "Distribution
Agreement"). 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.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees and executive officers
of the Trust and their principal occupations for the last five years are set
forth below. Each may have held other positions with the named companies during
that period. The Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trusts, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Financial Management Corporation, 680 East Swedesford
Road, Wayne,
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Pennsylvania 19087-1658. Certain officers of the Trust also serve as officers
of some or all of the following: The Achievement Funds Trust; The Advisors'
Inner Circle Fund; The Arbor Fund; ARK Funds; Bishop Street Funds; Conestoga
Family of Funds; CoreFunds, Inc.; CrestFunds, Inc.; CUFUND; First American
Funds, Inc.; First American Investment Funds, Inc.; FMB Funds, Inc.; Insurance
Investment Products Trust; Inventor Funds, Inc.; Marquis Funds(R); Monitor
Funds; Morgan Grenfell Investment Trust; The Pillar Funds; The PBHG Funds, Inc.;
Rembrandt Funds(R); SEI Asset Allocation Trust; SEI Daily Income Trust; SEI
Index Funds; SEI Institutional Managed Trust; SEI International Trust; SEI
Liquid Asset Trust; SEI Tax Exempt Trust; 1784 Funds; Stepstone Funds; STI
Classic Funds; and STI Classic Variable Trust, each of which is an open-end
management investment company managed by SEI Financial Management Corporation
and, except for Rembrandt Funds(R), distributed by SEI Financial Services
Company.
ROBERT E. TURNER - Trustee* - Date of Birth: 11/26/56. Chairman and Chief
Investment Officer of Turner Investment Partners, Inc. (the Adviser) since 1990.
JOAN LAMM-TENNANT, Ph.D. - Trustee - Date of Birth: 10/20/52. Professor of
Finance, Villanova University, since 1989. Director, Selective Insurance
(property and casualty insurance), since 1993. Director, Focus Trust Fund
(mutual fund), since 1995.
ALFRED C. SALVATO - Trustee - Date of Birth: 01/09/58. Treasurer, Thomas
Jefferson University Health Care Pension Fund, since 1995, and Assistant
Treasurer, 1988-1995.
MARK D. TURNER - Trustee* - Date of Birth: 12/12/57. President and Director of
Fixed Income Management of Turner Investment Partners, Inc. (the Adviser), since
1990.
JOHN T. WHOLIHAN - Trustee - Date of Birth: 12/12/37. Professor, Loyola
Marymount University, since 1984.
DAVID G. LEE - President, Chief Executive Officer - Date of Birth: 04/16/52.
Senior Vice President of SEI Financial Management Corporation and SEI Financial
Services Company, since 1993. Vice President of SEI Financial Management
Corporation and SEI Financial Services Corporation, 1991-1993. President, GW
Sierra Trust Funds prior to 1991.
STEPHEN J. KNEELEY - Vice President, Assistant Secretary - Date of Birth:
02/09/63. Chief Operating Officer of Turner Investment Partners, Inc., since
1990.
TODD B. CIPPERMAN - Vice President, Assistant Secretary - Date of Birth:
02/14/66. Attorney, SEI Corporation, since 1995. Associate, Dewey Ballantine
(law firm), 1994-1995. Associate Winston and Strawn (law firm), 1991-1994.
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JOSEPH M. LYDON - Vice President, Assistant Secretary - Date of Birth: 09/27/59.
Director of Business Administration of Fund Resources, SEI Corporation, since
1995. Vice President of Fund Group and Vice President of Dreman Value
Management (investment adviser) and President of Dreman Financial Services,
Inc., prior to 1995.
SANDRA K. ORLOW - Vice President, Assistant Secretary - Date of Birth: 10/18/53.
Vice President and Assistant Secretary of SEI Financial Management Corporation
and SEI Financial Services Company, since 1988.
KEVIN P. ROBBINS - Vice President, Assistant Secretary - Date of Birth:
04/15/61. Senior Vice President and General Counsel of SEI Corporation, the
Manager and Distributor since 1994. Vice President of SEI Corporation, 1992-
1994. Associate, Morgan, Lewis & Bockius (law firm) prior to 1992.
RICHARD J. SHOCH - Vice President, Assistant Secretary - Date of Birth:
10/28/66. Vice President, SEI Corporation, since 1995. Regulatory Manager, SEI
Corporation, 1991-1995. Student, Widener University School of Law, 1992-1995.
CATHERINE L. STANTON - Vice President, Assistant Secretary - Date of Birth:
11/19/58. Vice President and Assistant Secretary of SEI Corporation, the
Manager and Distributor, since 1994. Associate, Morgan, Lewis & Bockius (law
firm), 1989-1994.
JEFFREY A. COHEN - Controller, Chief Accounting Officer - Date of Birth:
04/22/61. Director, Fund Resources, 1991 to present. Senior Accountant, Price
Waterhouse, 1988-1991.
JAMES W. JENNINGS - Secretary - Date of Birth: 1/15/37. Partner, Morgan, Lewis
& Bockius LLP (law firm), counsel to the Trust, the Adviser, the Manager and
Distributor.
JOHN H. GRADY, JR. - Assistant Secretary - Date of Birth: 06/01/61. 1800 M
Street, N.W., Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP,
Counsel to the Trust, Adviser, Manager and Distributor.
EDWARD B. BAER - Assistant Secretary - Date of Birth: 09/27/68. 1800 M Street,
N.W., Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to
the Trust, Adviser, Manager and Distributor, since 1995. Attorney, Aquila
Management Corporation, 1994. Rutgers University School of Law - Newark, 1991-
1994.
-----------------------------------
* Messrs. Turner and Turner are Trustees who may be deemed to be "interested
persons" of the Trust as the term is defined in the 1940 Act.
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The Trustees and Officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays fees to the Trustees who are not interested
persons of the Trust. Compensation of Officers and affiliated Trustees of the
Trust is paid by the adviser or the manager. It is estimated that each
unaffiliated Trustee will receive $6,000 per year as compensation for serving on
the Trust's Board.
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)/6/ - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)/n/ = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. 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.
S-14
<PAGE>
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
will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trade quotations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes
or court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or
S-15
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certain other income; (ii) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months; (iii) at the close of each quarter
of the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iv) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers which the Fund
controls or which are engaged in the same, similar or related trades or
business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Fund will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short-and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions will generally be eligible for the corporate dividends-received
deduction.
STATE TAXES
No Fund is liable for any income or franchise tax in 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
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<PAGE>
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 Fund, 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 the Fund or account generating the brokerage, and there can be
no guarantee that the Adviser will find all of such services of value in
advising that Fund.
It is 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
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<PAGE>
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.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents
an equal proportionate interest in that portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received
by the Trust for shares of any portfolio and all assets in which such
consideration is invested would belong to that portfolio and would be subject to
the liabilities related thereto. Share certificates representing shares will
not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust, and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the
S-18
<PAGE>
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 the date of this Statement of Additional Information, SEI Financial
Management Corporation controls all of the outstanding shares of the Funds.
EXPERTS
The financial statements in this Statement of Additional Information for the
fiscal year ended October 31, 1995, of the Turner Growth Equity and Turner Small
Cap Portfolios of The Advisors' Inner Circle Fund (the "AIC Fund") have been
audited by Arthur Andersen LLP, independent public accountants to the AIC Fund
since its inception, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report. On April 30, 1996, all of the outstanding assets and liabilities
of the AIC Fund were acquired by the Trust. Ernst & Young LLP has been selected
to serve as the Trust's independent public accountants for the fiscal year
ending September 30, 1996.
FINANCIAL INFORMATION
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<PAGE>
To the Shareholders and Trustees of Turner Growth Equity Fund and Turner Small
Cap Fund of The Advisors' Inner Circle Fund:
We have audited the accompanying statements of net assets of Turner Growth
Equity Fund and Turner Small Cap Fund (two of the funds constituting The
Advisors' Inner Circle Fund) as of October 31, 1995, and the related statements
of operations, changes in net assets and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Company'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
October 31, 1995, 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 and 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 Turner
Growth Equity Fund and Turner Small Cap Fund of The Advisors' Inner Circle Fund
as of October 31, 1995, the result of their operations, changes in their net
assets, and financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 5, 1995
S-20
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APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such
a rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from AAA issues only
in small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
A-1
<PAGE>
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
A-2
<PAGE>
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the numbers 1, 1 +, and 2 to indicate the relative
degree of safety. Issues rated A-1+ are those with an "overwhelming degree" of
credit protection. Those rated A-1, the highest rating category, reflect a
"very strong" degree of safety regarding timely payment. Those rated A-2, the
second highest rating category, reflect a satisfactory degree of safety
regarding timely payment but not as high as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by good fundamental
protection factors. Risk factors are minor. Duff has incorporated gradations
of 1+ and 1- to assist investors in recognizing quality differences within this
highest tier. Paper rated Duff-1+ has the highest certainty of timely payment,
with outstanding short-term liquidity and safety just below risk-free U.S.
Treasury short-term obligations. Paper rated Duff-1- has high certainty of
timely payment with strong liquidity factors which are supported by good
fundamental protection factors. Risk factors are very small. Paper rated Duff-
2 is regarded as having good certainty of timely payment, good access to capital
markets (although ongoing funding may enlarge total financing requirements) and
sound liquidity factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated
A1+ are supported by the highest capacity for timely repayment. Obligations
rated A2, the second highest rating, are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
A-3
