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 ULTRA LARGE CAP FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP FUND
TURNER SMALL CAP FUND
TURNER FIXED INCOME 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 January 31, 1997 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.
Effective on the date that Turner Investment Partners' small cap product (which
includes the Small Cap Fund) reaches $500 million in total assets, the Fund will
be closed to most new investors. (As of January 31, 1997, Turner Investment
Partners' small cap product had net assets of approximately $440 million.)
Existing shareholders may continue to make investments in the Fund, and may open
additional accounts with the Fund, provided the new account is registered in the
same name or has the same taxpayer identification or social security number
assigned to it. In addition, certain classes of new investors may also purchase
shares. See "Purchase and Redemption of Shares."
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.
<PAGE>
TABLE OF CONTENTS
Summary .......................................................... 3
Expense Summary.................................................... 5
Financial Highlights............................................... 7
The Trust and the Funds............................................ 11
Investment Objectives.............................................. 11
Investment Policies................................................ 11
Risk Factors....................................................... 14
Investment Limitations............................................. 15
The Adviser........................................................ 16
The Administrator.................................................. 17
The Transfer Agent................................................. 17
The Distributor.................................................... 17
Portfolio Transactions............................................. 18
Purchase and Redemption of Shares.................................. 18
Performance........................................................ 21
Taxes .......................................................... 22
General Information................................................ 24
Description of Permitted Investments and Risk Factors.............. 26
-2-
<PAGE>
SUMMARY
The following provides basic information about the Turner Ultra Large Cap Fund
(the "Ultra Large Cap Fund"), Turner Growth Equity Fund (the "Growth Equity
Fund"), Turner Midcap Fund (the "Midcap Fund"), Turner Small Cap Fund (the
"Small Cap Fund") and Turner Fixed Income Fund (the "Fixed Income Fund") (each a
"Fund" and, collectively, the "Funds"). The Funds are the five 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 Ultra Large Cap Fund seeks capital appreciation. It invests primarily in a
diversified portfolio of common stocks of issuers with, at the time of purchase,
market capitalizations in excess of $10 billion that the Adviser believes offer
strong earnings growth potential.
The Growth Equity Fund seeks capital appreciation. It invests primarily in a
diversified portfolio of common stocks that, in the Adviser's opinion, have
strong earnings growth potential.
The Midcap Fund seeks capital appreciation. It invests primarily in a
diversified portfolio of common stocks of issuers with, at the time of purchase,
market capitalizations between $500 million and $6 billion that the Adviser
believes offer strong earnings growth potential.
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.
The Fixed Income Fund seeks total return through both current income and capital
appreciation. It invests primarily in fixed income securities of varying
maturities.
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 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 securities. Each
of the Funds, other than the Ultra Large Cap Fund and the Midcap Fund, may
purchase mortgage-backed securities, and certain of the Funds may purchase
securities of foreign issuers. Investments in these securities involve certain
other risks.
-3-
<PAGE>
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 Fund Resources (the "Administrator") serves
as the administrator and shareholder servicing agent for the Funds. See "Expense
Summary" and "The Administrator."
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? The Funds require a minimum initial investment of
$10,000, which the Distributor may waive at its discretion.
How do I purchase and redeem shares? Purchases and redemptions may be made
through the Transfer Agent on each day that the New York Stock Exchange is open
for business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent ( or its
authorized agent) receives the order and payment, by check or in readily
available funds, prior to 4:00 p.m. Eastern time. 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."
-4-
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases...........................................None
Sales Load Imposed on Reinvested Dividends................................None
Deferred Sales Load.......................................................None
Redemption Fees (1).......................................................None
Exchange Fees.............................................................None
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Ultra Large Growth Midcap Small Cap Fixed Income
Cap Fund Equity Fund Fund Fund
Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees(after fee waivers or
reimbursements if applicable)(1) .75% .75% .75% .92% .05%
12b-1 Fees None None None None None
- -------------------------------------------------------------------------------------------------------
Other Expenses(2), (3) .25% .25% .50% .33% .70%
Total Operating Expenses (after fee
waivers or reimbursements) (4) 1.00% 1.00% 1.25% 1.25% .75%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser has agreed, on a voluntary basis, to waive its advisory fee for
the Ultra Large Cap, Growth Equity, Midcap, 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 1.00%, 1.00%, 1.25%,
1.25% and .75%, respectively. The Advisory Fee for the Midcap and Small Cap
Funds have been restated to reflect the effect of current and anticipated
advisory fee waivers and/or reimbursements. The Adviser reserves the right
to terminate its waivers at any time in its sole discretion. Absent such
waivers, Advisory Fees for the Midcap Fund, Small Cap Fund and Fixed Income
Fund would be .75%, 1.00% and .50%, respectively.
(2) "Other Expenses" for the current fiscal year do not reflect the value of
arrangements whereby certain broker-dealers have agreed to pay certain
expenses of the Ultra Large Cap, Growth Equity, Midcap and Small Cap Funds
in return for the direction of a percentage of the Funds' brokerage
transactions. As a result of these arrangements, the amount of "Other
Expenses" and "Total Operating Expenses" deducted from the Ultra Large Cap
Fund's assets is expected to be .23% and 1.00%, respectively, and pursuant
to the Adviser's guarantee, will not exceed .25% and 1.00%, respectively.
As a result of these arrangements, the amount of "Other Expenses" and
"Total Operating Expenses" deducted from the Growth Equity Fund's assets in
the most recent fiscal year was .16% and .94%, respectively, the amount of
"Other Expenses" and "Total Operating Expenses" expected to be deducted
from Midcap Fund's assets is .50% and 1.25%, respectively, and the amount
of "Other Expenses" and "Total Operating Expenses" expected to be deducted
from the Small Cap Fund's assets are anticipated to be .29% and 1.25%,
respectively.
(3) "Other Expenses" for the Ultra Large Cap Fund and the Fixed Income Fund are
estimated for the current fiscal year.
(4) Absent fee waivers, expense reimbursements, and assuming that certain
expenses were not paid for by certain broker-dealers in return for the
direction to them, of brokerage transactions, "Total Operating Expenses"
for the Growth Equity, Midcap, Small Cap and Fixed Income Funds would be
1.02%, 5.67%, 1.31% and 1.20%, respectively. The amounts for Growth Equity
and Small Cap Funds have been restated to reflect current expectations and
assumptions.
-5-
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Your would pay the following expenses on 1 year 3 years 5 years 10 years
a $1,000 investment in a Fund assuming ------ ------- ------- --------
(1) a 5% annual return and
(2) redemption at the end of
each time period.
Ultra Large Cap Fund $10 $32 -- --
Growth Equity Fund $10 $32 $55 $122
Midcap Fund $13 $40 -- --
Small Cap Fund $13 $40 $69 $151
Fixed Income Fund $ 8 $24 -- --
- -------------------------------------------------------------------------------------------
</TABLE>
The example is based upon total operating expenses of each Fund after waivers
and reimbursements, if any, as shown in the expense table. The example should
not be considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown. The purpose of the expense table and
example is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by shareholders of the Funds.
Additional information may be found under "The Adviser" and "The Administrator."
-6-
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended September 30, 1996 with
respect to the Growth Equity Fund has been audited by Ernst & Young LLP, the
Fund's independent auditors, whose report dated November 1, 1996 was
unqualified. On April 30, 1996, the Growth Equity Fund acquired all of the
assets and liabilities of the Turner Growth Equity Portfolio of The Advisors'
Inner Circle Fund. The information prior to that date relates to the Turner
Growth Equity Portfolio. The financial statements of the Turner Growth Equity
Portfolio of The Advisors' Inner Circle Fund were audited by Arthur Andersen
LLP. The following table should be read in conjunction with the Fund's financial
statements and the notes thereto. Additional performance information is set
forth in the Trust's 1996 Annual Report to Shareholders, which is available upon
request and without charge by calling 1-800-224-6312. 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:
<TABLE>
<CAPTION>
Growth Equity Fund
11/01/95 11/01/94 11/01/93 11/01/92 03/11/92(1)
to to to to to
9/30/96 10/31/95 10/31/94 10/31/93 10/31/92
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 14.97 $ 12.46 $ 13.12 $ 10.40 $ 10.00
Income From Investment Operations:
Net Investment Income ........................ 0.02 0.10 0.10 0.09 0.03
Net Realized and Unrealized
Gain (Loss) on Investments.................. 2.91 2.52 (0.66) 2.72 0.40
Total From Investment Operations................... 2.93 2.62 (0.56) 2.81 0.43
Less Distributions:
Dividends From Net Investment Income............... (0.02) (0.11) (0.10) (0.09) (0.03)
Distributions from Capital Gains................... (0.85) -- -- -- --
Total Distributions......................... (0.87) (0.11) (0.10) (0.09) (0.03)
Net Asset Value, End of Period..................... $ 17.03 $14.97 $ 12.46 $ 13.12 $ 10.40
Total Return....................................... 20.61% 21.15% (4.28)% 27.08% 6.95%
Ratios and Supplemental Data
Net Assets, End Of Period (000).................... $96,164 $115,819 $112,959 $ 53,327 $7,781
Ratios Of Expenses To Average Net Assets........... 1.06%(2)* 1.03%(2) 0.95% 1.00% 1.44%*
Ratio Of Expenses To Average Net Assets
Excluding Fee Waivers ......................... 1.06%(2)* 1.03%(2) 1.08% 1.52% 2.55%*
Ratio Of Net Investment Income To Average
Net Assets..................................... 0.03%(2)* 0.69%(2) 0.86% 0.80% 0.73%*
Ratio Of Net Investment Income to
Average Net Assets Excluding Fee Waivers....... 0.03%(2)* 0.69%(2) 0.73% 0.28% (0.38)%*
Portfolio Turnover Rate............................ 147.79% 177.86% 164.81% 88.35% 205.00%
Average Commission Rate(3)......................... $ 0.06 -- -- -- --
=============================================================================================================================
=============================================================================================================================
</TABLE>
* Annualized
(1) The Turner Growth Equity Portfolio commenced operations on March 11, 1992.
(2) The Ratios of Expenses to Average Net Assets (with and without waivers) and
Net Investment Income to Average Net Assets do not reflect the use of
Advisor's use of arrangements whereby certain broker-dealers have agreed to
pay certain expenses of the Turner Growth Equity Fund in return for the
direction of a percentage of the Fund's brokerage transactions. As a result
of these arrangements, the Ratio of Expenses to Average Net Assets was
0.94% for both the
-7-
<PAGE>
year ended 10/31/95 and the year ended 9/30/96, and the Ratios of Net Income
to Average Net Assets were 0.78% and 0.15% for the same periods described.
(3) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is required for fiscal years
beginning after September 1, 1995.
-8-
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period-Unaudited:
Midcap Fund
10/01/96
to
12/31/96
(unaudited)
Net Asset Value, Beginning of Period................. $10.00
- -----------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income (Loss).................... (0.01)
Net Realized and Unrealized
Gain (Loss) on Investments...................... 0.34
- -----------------------------------------------------------------------------
Total From Investment Operations..................... $ 0.33
- -----------------------------------------------------------------------------
Less Distributions:
Dividends From Net Investment Income.................
Distributions from Capital Gains..................... $(0.11)
Total Distributions........................... $(0.11)
- -----------------------------------------------------------------------------
Net Asset Value, End of Period....................... $10.22
- -----------------------------------------------------------------------------
Total Return......................................... 3.33 %
- -----------------------------------------------------------------------------
Ratios and Supplemental Data
Net Assets, End Of Period (000)...................... $1.713
Ratios Of Expenses To Average Net Assets............. 1.25 %
Ratio Of Expenses To Average Net Assets
Excluding Fee Waivers ........................... 5.67 %
Ratio Of Net Investment Loss To Average
Net Assets....................................... (0.53)%
Ratio Of Net Investment Loss to
Average Net Assets Excluding Fee Waivers......... (4.95)%
Portfolio Turnover Rate.............................. 70.27 %
Average Commission Rate(1)........................... $0.06
===============================================================================
* Annualized
(1) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is required for fiscal years
beginning after September 1, 1995.
-9-
<PAGE>
FINANCIAL HIGHLIGHTS
The following information for the fiscal year ended September 30, 1996 with
respect to the Small Cap Fund has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose report dated November 1, 1996 was unqualified. On
April 30, 1996, the Small Cap Fund acquired all of the assets and liabilities of
the Turner Small Cap Portfolio of The Advisors' Inner Circle Fund. The
information prior to that date relates to the Turner Small Cap Portfolio. The
financial statements of the Turner Small Cap Portfolio of The Advisors' Inner
Circle Fund were audited by Arthur Andersen LLP. The following table should be
read in conjunction with the Fund's financial statements and the notes thereto.
Additional performance information is set forth in the Trust's 1996 Annual
Report to Shareholders, which is available upon request and without charge by
calling 1-800-224-6312. All references herein to the Small Cap Fund shall be
deemed to include the Turner Small Cap Portfolio.
For a Share Outstanding Throughout the Period:
<TABLE>
<CAPTION>
Small Cap Fund
- -------------------------------------------------------------------------------------------------------
11/01/95 11/01/94 02/07/94(1)
to to to
9/30/96 10/31/95 10/31/94
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................. $16.08 $10.90 $10.00
- -------------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income (Loss).................... (0.08) (0.06) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investments...................... 8.17 5.24 0.92
- -------------------------------------------------------------------------------------------------------
Total From Investment Operations..................... 8.09 $ 5.18 .90
- -------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends From Net Investment Income................. -- -- --
Distributions from Capital Gains..................... (1.04) -- --
Total Distributions........................... (1.04) -- --
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period....................... $23.13 $16.08 $10.90
- -------------------------------------------------------------------------------------------------------
Total Return......................................... 52.90% 47.52% 12.35%
- -------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data
Net Assets, End Of Period (000)...................... $67,425 $13,072 $ 4,806
Ratios Of Expenses To Average Net Assets............. 1.25%* 1.25% 1.09%*
Ratio Of Expenses To Average Net Assets
Excluding Fee Waivers ........................... 1.54%* 2.39% 4.32%*
Ratio Of Net Investment Income To Average
Net Assets....................................... (0.88)%* (0.68)% (0.27)%*
Ratio Of Net Investment Income to
Average Net Assets Excluding Fee Waivers......... (1.17)%* (1.82)% (3.50)%*
Portfolio Turnover Rate.............................. 149.00% 183.49% 173.92%
Average Commission Rate(2)........................... $0.06 -- --
========================================================================================================
</TABLE>
* Annualized
(1) The Turner Small Cap Portfolio commenced operations on February 7, 1994.
(2) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is required for fiscal years
beginning after September 1, 1995.
-10-
<PAGE>
THE TRUST AND THE FUNDS
Turner Funds (the "Trust") offers shares in five 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 Ultra Large Cap Fund (the
"Ultra Large Cap Fund"), Turner Growth Equity Fund (the "Growth Equity Fund"),
Turner Midcap Fund (the "Midcap Fund"), Turner Small Cap Fund (the "Small Cap
Fund"), and Turner Fixed Income Fund (the "Fixed Income Fund") (each a "Fund"
and, together, the "Funds").
INVESTMENT OBJECTIVES
Ultra Large Cap Fund -- The Turner Ultra Large Cap Fund seeks capital
appreciation.
Growth Equity Fund -- The Growth Equity Fund seeks capital appreciation.
Midcap Fund -- The Midcap Fund seeks capital appreciation.
Small Cap Fund -- The Small Cap Fund seeks capital appreciation.
Fixed Income Fund -- The Fixed Income Fund seeks total return through current
income and capital appreciation.
There can be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
Ultra Large Cap Fund
The Ultra Large Cap Fund invests primarily (and, under normal conditions, at
least 65% of its total assets) in a diversified portfolio of common stocks of
issuers that, at the time of purchase, have market capitalizations in excess of
$10 billion that the Adviser believes to have strong earnings growth potential.
The Fund seeks to purchase securities that are well diversified across economic
sectors and to maintain sector concentrations that approximate the economic
sector weightings comprising the Russell 200 Growth Index (or such other
appropriate index selected by the Adviser). Any remaining assets may be invested
in securities issued by smaller capitalization companies, warrants and rights to
purchase common stocks, and they 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. The Fund may
purchase shares of other investment companies and foreign securities.
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
-11-
<PAGE>
"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 economic sectors and to maintain sector
concentrations that approximate the economic sector weightings of the Russell
1000 Growth Index (or such 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.
Midcap Fund
The Midcap Fund invests primarily (and, under normal conditions, at least 65% of
its total assets) in a diversified portfolio of common stocks of issuers that,
at the time of purchase, have market capitalizations between $500 million and $6
billion that the Adviser believes to have strong earnings growth potential. The
Fund seeks to purchase securities that are well diversified across economic
sectors and to maintain sector concentrations that approximate the economic
sector weightings comprising the Russell Midcap Growth Index (or such other
appropriate index selected by the Adviser). Any remaining assets may be invested
in securities issued by smaller capitalization companies and larger
capitalization companies, warrants and rights to purchase common stocks, and it
may invest up to 10% of its total assets in ADRs. The Fund only will purchase
securities that are traded on registered exchanges or the over-the-counter
market in the United States. The Fund may purchase shares of other investment
companies.
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 economic
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), 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.
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,
-12-
<PAGE>
intermediate and long-term securities. Normally, the Fund will 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
Standard and Poor's Corporation ("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.
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.
-13-
<PAGE>
Each Fund, except Ultra Large Cap Fund and Midcap 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" in 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, and the Midcap Fund may
invest to a lesser degree, in equity securities of smaller companies. In
addition, the Ultra Large Cap Fund may invest in the securities of medium
capitalization companies. Any investment in smaller or medium 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-sized 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 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-
14
<PAGE>
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. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
of the Fund's assets measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies.
Portfolio Turnover -- The annual portfolio turnover rate for the Growth Equity
Fund for the fiscal period ended September 30, 1996, was 147.79%. The annual
portfolio turnover rate for the Small Cap Fund for the fiscal period ended
September 30, 1996, was 149.00%. Under normal circumstances, the portfolio
turnover rate for the Ultra Large Cap Fund and the Midcap Fund is not expected
to exceed 150% and 175%, respectively. An annual portfolio turnover rate in
excess of 100% may result from the Adviser's investment strategy of focusing on
earnings potential and disposing of securities when the Adviser believes that
their earnings potential has diminished, or may result from the Adviser's
maintenance of appropriate issuer diversification. Portfolio turnover rates in
excess of 100% may result in higher transaction costs, including increased
brokerage commissions, and higher levels of taxable capital gain. 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 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
-15-
<PAGE>
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, 1996, the Adviser had
discretionary management authority with respect to approximately $2.26 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 Ultra Large Cap, Growth Equity and Midcap Funds, 1.00% of those of the Small
Cap Fund and .50% of those of the Fixed Income Fund. The Adviser has voluntarily
agreed to waive all or a portion of its fee and to reimburse expenses of the
Ultra Large Cap, Growth Equity, Midcap, Small Cap and Fixed Income 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 1.00%, 1.00%, 1.25%, 1.25%
and 0.75% and, respectively. The Adviser received .75% for the Growth Equity
Fund and .71% for its advisory services to the Small Cap Fund for the fiscal
year ended September 30, 1996. The Midcap Fund and Fixed Income Fund had not
commenced operations as of September 30, 1996. 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, and is
co-manager of the Ultra Large Cap and Midcap Funds. 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.
John Hammerschmidt, Senior Equity Portfolio Manager, is a co-manager of the
Ultra Large Cap Fund. Mr. Hammerschmidt joined the Adviser in 1992. Prior to
1992, he was a Vice President in Government Securities Trading at S.G. Warburg.
He has 13 years of investment experience.
-16-
<PAGE>
Christopher K. McHugh, Equity Portfolio Manager, is a co-manager of the
Midcap Fund. Mr. McHugh joined the Adviser in 1990. Prior to 1990, he was a
Performance Specialist with Provident Capital Management. He has 10 years of
investment experience.
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 Fund Resources (the "Administrator") provides the Trust with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel, and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly, at an annual rate of .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. In respect to the Ultra Large Cap and Midcap Funds, for the first 6
months of operations, the Funds will pay no fee to the Administrator. For the
second 6 months of operations, the Ultra Large Cap and Midcap Funds will pay to
the Administrator 25% of the $75,000 minimum annual administration fee. Once
each of the Fund's net assets exceed $62.5 million, the Administrator will
receive asset-based fees in accordance with the schedule set forth above.
The Administrator also serves as shareholder servicing agent for the Trust under
a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Trust under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI Investments Company, acts as the Trust's
distributor pursuant to a distribution agreement (the "Distribution Agreement").
No compensation is paid to the Distributor for its
-17-
<PAGE>
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 commission business for the Ultra Large
Cap, Growth Equity, Midcap and Small Cap Funds to designated broker-dealers
(including the Distributor) in connection with such broker-dealers' payment of
certain Ultra Large Cap, Growth Equity, Midcap and Small Cap 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
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business ("Business Day").
Investors may purchase and redeem shares of each Fund directly through the
Transfer Agent at: The Turner Funds, P.O. Box 419805, Kansas City, Missouri
64141-6805, by mail or wire transfer. All shareholders may place orders by
telephone; when market conditions are extremely busy, it is possible that
investors may experience difficulties placing orders by telephone and may wish
to place orders by mail. Purchases and redemptions of shares of the Fund may be
made on any Business Day. Shares of each Fund are offered only to residents of
states in which such shares are eligible for purchase.
The minimum initial investment in the Funds is $10,000, and subsequent purchases
must be at least $1,000. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
Certain brokers assist their clients in the purchase or redemption of shares and
charge a fee for this service in addition to a Fund's public offering price.
Purchases by Mail
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the appropriate Fund) for $10,000 or more, together with
a completed Account Application to: The Turner Funds, P.O. Box 419805, Kansas
City, Missouri 64141-6805. Third-Party checks, credit cards, credit card checks
and cash will not be accepted. When purchases are made by check (including
certified or cashier's checks), redemption proceeds will not be forwarded until
the investment being redeemed has been in the account for 15 days. Subsequent
investments may also be mailed directly to the Transfer Agent.
-18-
<PAGE>
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.
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: Turner Funds, P.O. Box
419805, Kansas City, Missouri 64141-6805.
Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
Subsequent purchases may also be made by wire through the Automated Clearing
House ("ACH").
General Information Regarding Purchases
A purchase request will be effective as of the day received by the Transfer
Agent if the Transfer Agent (or its authorized agent) receives the purchase
request in good order and payment before 4:00 p.m., Eastern time. A purchase
request is in good order if it is complete and accompanied by the appropriate
documentation, including an Account Application and additional documentation
required. Purchase requests in good order received after 4:00 p.m., Eastern
time, will be effective the next Business Day. Payment may be made by check or
readily available funds. The purchase price of shares of any Fund is that Fund's
net asset value per share next determined after a purchase order is effective.
Purchases will be made in full 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.
Who Will Be Eligible to Invest in the Small Cap Fund After the Fund has Closed
to New Investors?
The Board of Trustees will close the Small Cap Fund to new investors when the
Adviser's small cap product (which includes the Small Cap Fund) reaches
approximately $500 million in total assets. If you are a shareholder of the
Small Cap Fund when it closes, you will be able to make additional
-19-
<PAGE>
investments in the Fund and reinvest your dividends and capital gain
distributions, even after the Fund has closed. After the Fund has closed, you
may open a new account only if:
o your business or other organization is already a shareholder of the Fund and
you are opening an account for an employee benefit plan sponsored by that
organization or an affiliated organization;
o you are a current Fund trustee or officer, or an employee of Turner
Investment Partners, Inc., or a member of the immediate family of any of
those people;
o you are an existing advisory client of Turner Investment Partners, Inc.; or
o you are a client of a financial adviser or planner who has client assets
invested in the Turner Funds as of the date of any proposed new investment
in the Fund.
In addition, an employee benefit plan which is a Fund shareholder may continue
to buy shares in the ordinary course of the plan's operations, even for new plan
participants.
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 (or its
authorized agent) receives exchange instructions in writing or by telephone (an
"Exchange Request") in good order by 4:00 p.m., Eastern time, on any Business
Day, the exchange will be effected that day. The liability of the 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.
Redemptions
Redemption requests in good order received by the Transfer Agent (or its
authorized agent) prior to 4:00 p.m., Eastern time on any Business Day will be
effective that day. To redeem shares of the Fund, shareholders must place their
redemption orders with the Transfer Agent (or its authorized agent) prior to
4:00 p.m., Eastern time, on any Business Day. The redemption price of shares of
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.
-20-
<PAGE>
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 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,
-21-
<PAGE>
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. Further information
concerning taxes is set forth in the Statement of Additional Information.
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 tax treatment,
it will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) which it distributes to shareholders.
Tax Status of Distributions:
Each Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; however, such distributions which do qualify for
the dividends-received deduction may be subject to the corporate alternative
minimum tax. It can be expected that none of the dividends paid by the Fixed
Income Fund will qualify for that deduction. Any net capital gains will be
distributed annually and
-22-
<PAGE>
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.
The Funds may, in certain circumstances, accept securities that are appropriate
investments as payment for Fund shares (an "In-Kind Purchase"). An In-Kind
Purchase may result in adverse tax consequences under certain circumstances to
either the investors transferring securities for shares (an "In-Kind Investors")
or to investors who acquire shares of the Funds after a transfer (Anew
shareholders@). As a result of an In-Kind Purchase, the Funds may acquire
securities that have appreciated in value or depreciated in value from the date
they were acquired. If appreciated securities were to be sold after an In-Kind
Purchase, the amount of the gain would be taxable to new shareholders as well as
to In-Kind Investors. The effect of this for new shareholders would be to tax
them on a distribution that represents a return of the purchase price of their
shares rather than an increase in the value of their investment. The effect on
In-Kind Investors would be to reduce their potential liability for tax on
capital gains by spreading it over a larger asset base. The opposite may occur
if the Funds acquire securities having an unrealized capital loss. In that case,
In-Kind Investors will be unable to utilize the loss to offset gains, but,
because an In-Kind Purchase will not result in any gains, the inability of
In-Kind Investors to utilize unrealized losses will have no immediate tax
effect. For new shareholders, to the extent that unrealized losses are realized
by the Funds, new shareholders may benefit by any reduction in net tax liability
attributable to the losses. The Adviser cannot predict whether securities
acquired in any In-Kind Purchase will have unrealized gains or losses on the
date of the In-Kind Purchase. Consistent with its duties as investment adviser,
the Adviser will, however, take tax consequences to investors into account when
making decisions to sell portfolio assets, including the impact of realized
capital gains on shareholders of the Funds.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 in the year declared, if paid by the Fund at any time during the
following January. Each Fund intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax
applicable to regulated investment companies.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a Fund 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
-23-
<PAGE>
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.
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
-24-
<PAGE>
of the Trust. In the event that such a meeting is requested, the Trust will
provide appropriate assistance and information to the Shareholders requesting
the meeting.
Reporting
The Trust issues unaudited financial information semiannually and audited
financial statements annually for each Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
Shareholder Inquiries
Shareholder inquiries should be directed to Turner Funds, 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 Ultra Large Cap Fund, Midcap Fund and the Small Cap Fund are 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 for the Trust.
-25-
<PAGE>
Custodian
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for 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.
DERIVATIVES -- Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., CMOs, REMICs, IOs and
POs), when issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
Receipts and STRIPs), privately issued stripped securities (e.g., TGRs, TRs, and
CATs). See elsewhere in the "Description of Permitted Investments and Risk
Factors" and in the Statement of Additional Information for discussions of these
various instruments.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven days, securities for
which there is no active secondary market, and repurchase agreements with
durations or maturities over 7 days in length.
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-
26
<PAGE>
quality commercial paper ratings; and (v) repurchase agreements involving any of
the foregoing obligations entered into with highly-rated banks and
broker-dealers.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days from the date of purchase. Repurchase
agreements are considered loans under the 1940 Act.
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").
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
transactions involve the purchase of an instrument with payment and delivery
taking place in the future. Delivery of and payment for these securities may
occur a month or more after the date of the purchase commitment. The Fund will
maintain with the Custodian a separate account with liquid, 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.
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.
-27-
<PAGE>
Trust:
TURNER FUNDS
Funds:
TURNER ULTRA LARGE CAP FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP FUND
TURNER SMALL CAP FUND
TURNER FIXED INCOME FUND
Investment Adviser:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Ultra Large Cap Fund (the "Ultra Large Cap Fund"), Turner Growth
Equity Fund (the "Growth Equity Fund"), Turner Midcap Fund (the "Midcap Fund"),
Turner Small Cap Fund (the "Small Cap Fund") and Turner Fixed Income Fund (the
"Fixed Income 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 should be read in conjunction with the Funds'
Prospectus dated January 31, 1997. The Prospectus may be obtained without charge
by calling 1-800-224-6312.
TABLE OF CONTENTS
THE TRUST....................................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS.........................................S-2
INVESTMENT LIMITATIONS.......................................................S-6
THE ADVISER..................................................................S-8
THE ADMINISTRATOR............................................................S-9
THE DISTRIBUTOR.............................................................S-10
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-11
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-14
PURCHASE AND REDEMPTION OF SHARES...........................................S-14
DETERMINATION OF NET ASSET VALUE............................................S-15
TAXES ......................................................................S-15
PORTFOLIO TRANSACTIONS......................................................S-17
DESCRIPTION OF SHARES.......................................................S-19
SHAREHOLDER LIABILITY.......................................................S-19
LIMITATION OF TRUSTEES' LIABILITY...........................................S-20
5% SHAREHOLDERS.............................................................S-20
FINANCIAL INFORMATION.......................................................S-22
APPENDIX ....................................................................A-1
JANUARY 31, 1997
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Turner Ultra Large
Cap Fund (the "Ultra Large Cap Fund"), Turner Growth Equity Fund (the "Growth
Equity Fund"), Turner Midcap Fund (the "Midcap Fund"), Turner Small Cap Fund
(the "Small Cap Fund") and Turner Fixed Income Fund (the "Fixed Income 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." 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.
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."
S-2
<PAGE>
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 other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
S-3
<PAGE>
Options
A put option 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 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
S-4
<PAGE>
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
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
Repurchase Agreements
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
S-5
<PAGE>
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.
When-Issued and Delayed Delivery Securities
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
INVESTMENT LIMITATIONS
Fundamental Policies
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of each Fund which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of a Fund are present or represented by proxy, or (ii) more
than 50% of a Fund's outstanding shares, whichever is less.
No Fund may:
1. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate fund to purchase securities or require a
Fund to segregate assets are not considered to be borrowings. Asset
coverage of a least 300% is required for all borrowings, except where a
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. A Fund will not purchase securities while its
borrowings exceed 5% of its total assets.
S-6
<PAGE>
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 position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
S-7
<PAGE>
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
5. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
In addition, each Fund will invest no more than 5% of its net assets in short
sales, unregistered securities, futures contracts, options and investment
company securities. Unregistered securities sold in reliance on the exemption
from registration in Section 4(2) of the 1933 Act and securities exempt from
registration on re-sale pursuant to Rule 144A of the 1933 Act may be treated as
liquid securities under procedures adopted by the Board of Trustees.
THE ADVISER
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.
On April 30, 1996, the Growth Equity Fund, the Small Cap Fund and the Fixed
Income Fund acquired the assets of the Turner Growth Equity, Turner Small Cap
and Turner
S-8
<PAGE>
Fixed Income Portfolios, respectively, of The Advisors' Inner Circle Fund. For
the fiscal years ended October 31, 1994 and 1995, and September 30, 1996, the
Funds paid the following advisory fees:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Advisory Fees Paid Advisory Fees Waived
----------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ultra Large Cap ** ** ** ** ** **
Fund
- ---------------------------------------------------------------------------------------------
Growth Equity $613,070 $897,405 $666,476 $114,486 $0 $0
Fund
- ---------------------------------------------------------------------------------------------
Midcap Fund ** ** ** ** ** **
- ---------------------------------------------------------------------------------------------
Small Cap Fund * * $197,634 * * $82,694
- ---------------------------------------------------------------------------------------------
Fixed Income Fund ** ** ** ** ** **
- ---------------------------------------------------------------------------------------------
</TABLE>
* For the fiscal periods ending October 1994 and 1995, the Advisor waived all
fees due it under the Advisory Agreement with respect to the Small Cap Fund and
reimbursed expenses of $66,551 and $11,944, respectively.
** Not in operation during such period.
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. The Administration Agreement shall
remain in effect for a period of three (3) years after the effective date of the
agreement and shall continue in effect for successive periods of one (1) year
unless terminated by either party on not less than 90 days' prior written notice
to the other party.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interests in the Administrator. SEI and its affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator and
its affiliates also serve as administrator to the following other mutual funds:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, CoreFunds, Inc.,
S-9
<PAGE>
CrestFunds, Inc., CUFUND, FMB Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., Marquis Funds(R),
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
Pillar Funds, Profit Funds Investment Trust, Rembrandt Funds(R), Santa Barbara
Group of Mutual Funds, Inc., 1784 Funds(R), SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds and STI Classic
Variable Trust.
On April 30, 1996, the Growth Equity Fund, the Small Cap Fund and the Fixed
Income Fund acquired the assets of the Turner Growth Equity, Turner Small Cap
and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner Circle
Fund. For the fiscal years ended October 31, 1994 and 1995, and September 30,
1996, the Funds paid the following administrative fees:
- -------------------------------------------------------------------------------
Administrative Fees Paid
----------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------------
Ultra Large Cap * * *
Fund
- -------------------------------------------------------------------------------
Growth Equity $164,423 $214,591 $136,587
Fund
- -------------------------------------------------------------------------------
Midcap Fund * * *
- -------------------------------------------------------------------------------
Small Cap Fund $54,658 $75,000 $68,682
- -------------------------------------------------------------------------------
Fixed Income * * *
Fund
- -------------------------------------------------------------------------------
* Not in operation during such period.
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.
S-10
<PAGE>
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 Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB
Funds, Inc., First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc, Marquis Funds(R), Monitor Funds, Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
1784 Funds(R), SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone
Funds, STI Classic Funds, and STI Classic Variable Trust, each of which is an
open-end management investment company managed by SEI Fund Resources or its
affiliates and, except for Profit Funds Investment Trust, Rembrandt Funds(R),
and Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. (the Adviser) since 1990.
JOAN LAMM-TENNANT, Ph.D. (DOB 10/20/52) - Trustee - 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 (DOB 01/09/58) - Trustee - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
MARK D. TURNER (DOB 12/12/57) - Trustee* - President and Director of Fixed
Income Management of Turner Investment Partners, Inc. (the Adviser), since 1990.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee - Professor, Loyola Marymount
University, since 1984.
DAVID G. LEE (DOB 04/16/52) - President and Chief Executive Officer -
Senior Vice President of the Administrator and Distributor since 1993. Vice
President of the
S-11
<PAGE>
Administrator and Distributor (1991-1993). President, GW Sierra Trust Funds
before 1991.
STEPHEN J. KNEELEY (DOB 02/09/63) - Vice President and Assistant Secretary -
Chief Operating Officer of Turner Investment Partners, Inc., since 1990.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine (law firm), 1994-1995. Associate,
Winston and Strawn (law firm), 1991-1994.
JOSEPH P. LYDON (DOB 09/27/59) - Vice President and Assistant Secretary -
Director, Business Administration of Fund Resources, April 1995. Vice President,
Fund Group, Dreman Value Management, LP, President Dreman Financial Services,
Inc., prior to 1995.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994. Associate, Morgan, Lewis & Bockius LLP(law firm) ,
1988-1992.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President and Assistant Secretary,
Deputy General Counsel, Vice President and Assistant Secretary of SEI, Vice
President and Assistant Secretary of the Administrator and Distributor, since
1994. Associate, Morgan, Lewis & Bockius LLP(law firm), 1989-1994.
STEPHEN G. MEYER (DOB 07/12/65) - Controller, Chief Financial Officer - Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
& Lybrand, 1990-1992.
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary -
Vice President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker, Biddle & Reath (law firm) (1994-1996). Assistant
Vice President/Administration, Delaware Service Company, Inc. (1992-1993):
Assistant Vice President - Operations of Delaware Service Company, Inc.
(1988-1992)
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC (1995-1996). ERISA
counsel, First Fidelity Bancorporation (1994-1995), Associate, Morgan, Lewis &
Bockius LLP (1989- 1994).
S-12
<PAGE>
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP (law firm), counsel to the Trust, the Adviser, the Administrator and
Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1800 M Street,
N.W., Washington, D.C. 20036, Partner, Morgan, Lewis & Bockius LLP, Counsel to
the Trust, Adviser, Administrator and Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1800 M Street, N.W.,
Washington, D.C. 20036, Associate, Morgan, Lewis & Bockius LLP, Counsel to the
Trust, Adviser, Administrator and Distributor, since 1995. Attorney, Aquila
Management Corporation, 1994. Rutgers University School of Law - Newark,
1991-1994.
- ----------
* Messrs. Robert Turner and Mark Turner are Trustees who may be deemed to be
"interested persons" of the Trust as the term is defined in the 1940 Act.
The Trustees and Officers of the Trust own less than 1% of the
outstanding shares of the Trust. The Trust pays fees only to the Trustees who
are not interested persons of the Trust. Compensation of Officers and interested
Trustees of the Trust is paid by the adviser or the manager.
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
From Registrant Benefits Accrued Upon From Registrant
for the Fiscal Year as Part of Fund Retirement and Fund
Ended September Expenses Complex Paid to
30, 1996 Trustees for the
Fiscal Year Ended
September 30, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Turner * * * *
- -----------------------------------------------------------------------------------------------------------
Mark Turner * * * *
- -----------------------------------------------------------------------------------------------------------
Joan Lamm-Tennant $3,500 N/A N/A $3,500
- -----------------------------------------------------------------------------------------------------------
Alfred C. Salvato $3,500 N/A N/A $3,500
- -----------------------------------------------------------------------------------------------------------
John T. Wholihan $3,500 N/A N/A $3,500
- -----------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
* Messrs. Robert Turner and Mark Turner are Trustees who may be deemed to be
"interested persons" of the Trust as the term is defined in the 1940 Act.
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.
For the 30-day period ended September 30, 1996, the Growth Equity Fund's yield
was 0% and the Small Cap Fund's yield was 0%. The Ultra Large Cap, Midcap and
Fixed Income Funds were not in operation during this 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.
For the fiscal year ended September 30, 1996, and for the period from March 11,
1992 (commencement of operations of the Turner Growth Equity Portfolio of The
Advisors' Inner Circle Fund) through September 30, 1996, the total return for
the Growth Equity Fund was 20.61% and 14.54%, respectively. For the fiscal year
ended September 30, 1996 and the period from February 7, 1994 (commencement of
operations of the Turner Small Cap Portfolio of The Advisors' Inner Circle Fund)
through September 30, 1996, the total return for the Small Cap Fund was 52.90%
and 40.53%, respectively. The Ultra Large Cap, Midcap and Fixed Income Funds
were not in operation during these periods.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on days when
the New York Stock Exchange is open for business. Currently, the weekdays on
which
S-14
<PAGE>
the Fund is closed for business are: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Shares of each Fund are offered on a continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued by the Administrator. The Administrator
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 on trade quotations obtained from third parties. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
S-15
<PAGE>
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) 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 are engaged in the same, similar or related trades or business if
the Fund owns at least 20% of the voting power of such issuer.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
each Fund will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short-and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions will generally be eligible for the corporate dividends-received
deduction.
S-16
<PAGE>
State Taxes
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The Adviser may, consistent with the interests of the 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
S-17
<PAGE>
rules further require that commissions paid to the Distributor by a Fund for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who recommend a
Fund's shares to clients, and may, when a number of brokers and dealers can
provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.
On April 30, 1996, the Growth Equity Fund, the Small Cap Fund and the Fixed
Income Fund acquired the assets of the Turner Growth Equity, Turner Small Cap
and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner Circle
Fund. For the fiscal years ended October 31, 1994, 1995 and September 30, 1996,
the Funds turnover rate was as follows:
- --------------------------------------------------------------------------------
TURNOVER RATE
----------------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------
Ultra Large Cap Fund * * *
- --------------------------------------------------------------------------------
Growth Equity Fund 164.81% 177.86% 147.79%
- --------------------------------------------------------------------------------
Midcap Fund * * *
- --------------------------------------------------------------------------------
Small Cap Fund 173.92% 183.49% 149.00%
- --------------------------------------------------------------------------------
Fixed Income Fund * * *
- --------------------------------------------------------------------------------
* Not in operation during such period.
On April 30, 1996, the Growth Equity Fund, the Small Cap Fund and the Fixed
Income Fund acquired the assets of the Turner Growth Equity, Turner Small Cap
and Turner Fixed Income Portfolios, respectively, of The Advisors' Inner Circle
Fund. The Brokerage Commissions paid for each Fund for the fiscal years ended
October 31, 1994, 1995 and September 30, 1996, was as follows:
S-18
<PAGE>
- --------------------------------------------------------------------------------
Total Dollar Amount of Brokerage Commissions Paid
-----------------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------
Ultra Large Cap Fund * * *
- --------------------------------------------------------------------------------
Growth Equity Fund $497,901 $581,138 $369,573
- --------------------------------------------------------------------------------
Midcap Fund * * *
- --------------------------------------------------------------------------------
Small Cap Fund $ 22,495 $ 41,882 $128,154
- --------------------------------------------------------------------------------
Fixed Income Fund * * *
- --------------------------------------------------------------------------------
*Not in operation during such period.
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.
S-19
<PAGE>
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
As of January 6,1997, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
Growth Equity Fund
Name and Address Number of Shares Percent of Funds
- ---------------- ---------------- ----------------
Saul & Co. 905,399.48 12.69%
FBO Sheet Metal Annuity
c/o First Union National Bank
A/C 154600537
401 South Tryon Street CMG-1151
Charlotte, NC 28202-1911
Retirement Plan for Employees of 683,904.23 9.59%
Bridgeport Hospital
c/o People's Bank Trust Department
850 Main Street, 13th Floor
Bridgeport, CT 06604-4917
Citicorp USA Inc. Pledgee 582,077.38 8.16%
McNeil Children's Trust
Loan Collateral Account
c/o Carole McNeil
P.O. Box 803598
Dallas, TX 75380-3598
Plumbers Local Union #690 558,315.37 7.83%
S-20
<PAGE>
Pension Fund
2791 Southampton Road
Philadelphia, PA 19154-1296
Corestates Bank NA TTEE 547,876.45 7.68%
Montgomery, McCracken,
Walker & Rhoads
Retirement Plan 02320-07-A
P.O. Box 7829
Philadelphia, PA 19101-7829
Saxon & Co. TTEE 477,368.80 6.69%
FBO Duane Morris/Heckschel Trust
Account # 35 35 002 1029077
P.O. Box 7780-1888
Philadelphia, PA 19182
Society National Bank TTEE 365,956.26 5.13%
FBO Cleveland Botanical Garden
P.O. Box 94870
Cleveland, OH 44101-4870
Small Cap Fund
Charles Schwab & Co. Inc 1,845,638.27 50.82%
Special Customer Account
FBO of Customers
Attn: Mutual Funds/Team A
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin Jenrette Secs Corp. 531,997.00 14.65%
Pershing Division
P.O. Box 2052
Jersey City, NJ 07399-0001
Midcap Fund
Wachovia Bank of NC NA 33,827.13 18.96%
Investment Advice IRA Master Plan
A/C for H. Vann Austin
A/C #33-86003-00 NC-31057
301 North Main Street P.O. Box 3073
Winston Salem, NC 27160-0001
Wachovia Bank of NC Customer 26,582.61 14.90%
for H. Vann Austin Trust
S-21
<PAGE>
DTD 08-18-1995
U/A with H. Vann Austin
P.O. Box 3073 NC 31057
Winston Salem, NC 27150-0001
Mark D. Turner 26,483.62 14.85%
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312-2414
Mark D. Turner & 20,021.09 11.22%
Christina M. Turner JTWROS
Attn: Mark Turner
1235 Westlakes Drive, Suite 1235
Berwyn, PA 19312-2407
Charles Schwab & Co. Inc. 13,313.44 7.46%
Special Customer Acct.
FBO of Customers
Attn: Mutual Funds/Team A
101 Montgomery Street
San Francisco, CA 94104-4122
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended September 30, 1996,
including notes thereto and the report of Ernst & Young LLP thereon, are herein
incorporated by reference. The unaudited financial statements for the Midcap
Fund accompany this Statement of Additional Information. A copy of the 1996
Annual Report must accompany the delivery of this Statement of Additional
Information.
S-22
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Fund Name Turner Mid Cap Fund
------------------------------
(IN THOUSANDS)
<S> <C>
Investment Income:
Dividends $1
Interest 1
------------------------------
Total Investment Income 2
------------------------------
Expenses:
Investment Advisory Fees 2
Investment Advisory Fee Waiver (15)
Custodian Fees 4
Transfer Agent Fees 3
Professional Fees 2
Trustee Fees 1
Registration Fees 5
Printing Fees 1
Other Fees 1
Total Expenses 4
------------------------------
Net Investment Loss (2)
------------------------------
Net Realized Gain from Securities Sold 60
Net Unrealized Appreciation of Investment Securities 23
------------------------------
Net Realized and Unrealized Gain on Investments 83
------------------------------
Net Increase in Net Assets Resulting From Operations 81
------------------------------
</TABLE>
S-23
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Fund Name: Turner Mid Cap Fund
------------------------------
(IN THOUSANDS)
<S> <C>
Investment Activities:
Net Investment Loss ($2)
Net Realized Gain on Securities Sold 60
Net Unrealized Appreciation of Investment Securities 23
------------------------------
Net Increase in Net Assets Resulting From Operations 81
------------------------------
Distributions to Shareholders:
Net Investment Income 0
Realized Capital Gain (18)
------------------------------
Total Distributions (18)
------------------------------
Share Transactions:
Proceeds from Shares Issued 1,738
Proceeds fom Shares Issued in Lieu of Cash Distributions 17
Cost of Shares Redeemed (105)
Increase in Net Assets From Capital Share Transactions 1,650
------------------------------
Total Increase in Net Assets 1,713
------------------------------
Net Assets:
Beginning of Period 0
------------------------------
End of Period $1,713
==============================
Shares Issued And Redeemed:
Issued 176
Issued in Lieu of Cash Distributions 2
Redeemed (10)
------------------------------
Net Increase in Share Transactions 168
------------------------------
</TABLE>
S-24
<PAGE>
Financial Highlights
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Asset Realized and Distributions Distributions Net Asset Net Assets
Value Net Unrealized from Net from Value End of
Beginning Investment Gains on Investment Capital End of Total Period
of Period Loss Investments Income Gains Period Return (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Fund
1996 (1) $10.00 (0.01) 0.34 0.00 (0.11) $10.22 3.33% $1,713
Ratio of
Ratio of Ratio of Net Investment
Net Investment Expenses Loss to
Ratio of Loss to Average Average
Expenses Average Net Assets Net Assets Portfolio Average
to Average Net (Excluding (Excluding Turnover Commission
Net Assets Assets Waivers) Waivers) Rate Rate
<C> <C> <C> <C> <C> <C>
1.25% (0.53%) 5.67% 4.95% 70.27% 0.0600
(1) The Turner Mid Cap Fund commenced operations on October 1, 1996.
</TABLE>
S-25
<PAGE>
Notes to Financial Statements (Unaudited) Turner Funds
December 31, 1996
1. Organization:
Turner Funds (the "Trust") a Massachusetts business trust, is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with four funds: the Turner Small Cap Fund, the
Turner Growth Equity Fund, the Turner Midcap Fund, and the Turner Fixed Income
Fund. These statements relate only to the Turner Midcap Fund (the "Fund"). The
assets of each fund are segregated, and a shareholder's interest is limited to
the fund in which shares are held. The Funds' prospectus provides a description
of each Fund's investment objectives, policies and strategies.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Fund.
Security Valuation - Investments in equity securities which are traded
on a national exchange (or reported on the NASDAQ national market
system) are stated at the last quoted sales price if readily available
for such equity securities on each business day; other equity
securities traded in the over-the-counter market and listed equity
securities for which no sale was reported on that date are stated at
the last quoted bid price. Debt obligations exceeding sixty days to
maturity for which market quotations are readily available are valued
at the most recently quoted bid price. Debt obligations with sixty days
or less remaining until maturity may be valued at their amortized cost,
which approximates market value.
Federal Income Taxes - The Fund's intention to qualify as a regulated
investment company by complying with the appropriate provisions of the
Internal Revenue Code of 1986, as amended. Accordingly, no provision
for Federal income taxes is required.
Security Transactions and Related Income - Security transactions are
accounted for on the date the security is purchased or sold (trade
date). Dividend income is recognized on the ex-dividend date, and
interest income is recognized on the accrual basis. Costs used in
determining realized gains and losses on the sales of investment
securities are those of the specific securities sold during the
respective holding period.
Net Asset Value Per Share - The net asset value per share of the Fund
is calculated on each business day, by dividing the total value of the
Fund's assets, less liabilities, by the number of shares outstanding.
Repurchase Agreements - Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective
agreements mature. Provisions of the repurchase agreements ensure that
the market value of the collateral, including accrued interest thereon,
is sufficient in the event of default of the counterparty. If the
counterparty defaults and the value of the collateral declines or if
the counterparty enters an insolvency proceeding, realization of the
collateral by the Fund may be delayed or limited.
Other - Expenses that are directly related to the Fund are charged to
that Fund. Other operating expenses of the Trust are prorated to the
Funds on the basis of relative daily net assets.
Distributions from net investment income are declared and paid to
Shareholders on a quarterly basis. Any net realized capital gains on
sales of securities are distributed to Shareholders at least annually.
Dividends from net investment income and distributions from net
realized capital gains are determined in accordance with U.S. federal
income tax regulations, which may differ from those amounts determined
under generally accepted accounting principals. These book/tax
differences are either temporary or permanent in nature. To the extent
these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in
the period that the differences arise.
The preparation of financial statements in
conformity with generally accepted
<PAGE>
Notes to Financial Statements (Unaudited) Turner Funds
December 31, 1996
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
3. Transactions with Affiliates:
Certain officers and trustees of the Trust are also officers of SEI Fund
Resources (the "Administrator") and/or SEI Financial Services Company (the
"Distributor"). Such officers and trustees are paid no fees by the Trust for
serving as officers and trustees of the Trust.
4. Administration, Shareholder Servicing and Distribution Agreements:
As of April 30, 1996, the Trust and the Administrator entered into an agreement
under which the Administrator provides management and administrative services
for an annual fee of .12% of the average daily net assets of each of the Funds
up to $75 million, .10% on the next $75 million, .09% on the next $150 million,
.08% on the next $300 million and .075% of such assets in excess of $600
million. In respect to the Midcap Fund, for the first 6 months of operations,
the Fund will pay no fee to the Administrator. For the second 6 months of
operations, the Midcap Fund will pay to the Administrator 25% of the $75,000
minimum annual administration fee. Once the Fund's net assets exceed $62.5
million, the Administrator will receive asset-based fees in accordance with the
schedule set forth above.
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Fund under a transfer agency agreement with
the Trust.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 30, 1996. The Distributor receives no fees for its distribution services
under this agreement.
5. Investment Advisory and Custodian Agreements:
The Trust and Turner Investment Partners, Inc. (the "Adviser") are parties to an
Investment Advisory Agreement dated April 30, 1996, under which the Adviser
receives an annual fee equal to .75% of the average daily net assets of the
Midcap Fund. The Adviser has voluntarily agreed to waive all or a portion of its
fees (and to reimburse the Fund's expenses) in order to limit operating expenses
to not more than 1.25% of the average daily net assets of the Midcap Fund. Fee
waivers and expense reimbursements are voluntary and may be terminated at
any time.
CoreStates Bank, N.A. acts as custodian (the "Custodian") for the Fund. Fees of
the Custodian are being paid on the basis of the net assets of the Fund. The
Custodian plays no role in determining the investment policies of the Fund or
which securities are to be purchased or sold by the Fund.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the three month period ended December 31, 1996 are
as follows:
Midcap
Fund
(000)
------
Purchases
Government....................... $ 0
Other............................ 1,976
Sales
Government....................... $ 0
Other............................ 866
At December 31, 1996, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation for securities held by the Fund
at September 30, 1996, are as follows:
<PAGE>
Notes to Financial Statements (Unaudited) Turner Funds
December 31, 1996
Midcap
Fund
(000)
------
Aggregate gross unrealized
appreciation..................... $18,009
Aggregate gross unrealized
depreciation..................... (1,429)
-------
Net unrealized appreciation............... $16,580
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities.
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
A-1
<PAGE>
Bonds rated AA by Fitch are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Bonds rated A by Fitch are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB by Fitch are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard & Poor's Corporation ("S&P") is regarded by
S&P as having the greatest capacity for timely payment. Issues rated A are
further refined by use of the 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.
A-2
<PAGE>
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investors Service,
Inc. ("Moody's") are judged by Moody's to be of "superior" quality and "strong"
quality respectively on the basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated
F-1+ or F-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by good fundamental protection
factors. Risk factors are minor. Duff has incorporated gradations of 1+ and 1-
to assist investors in recognizing quality differences within this highest tier.
Paper rated Duff-1+ has the highest certainty of timely payment, with
outstanding short-term liquidity and safety just below risk-free U.S. Treasury
short-term obligations. Paper rated Duff-1- has high certainty of timely payment
with strong liquidity factors which are supported by good fundamental protection
factors. Risk factors are very small. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets (although
ongoing funding may enlarge total financing requirements) and sound liquidity
factors and company fundamentals. Risk factors are small.
The designation A1, the highest rating by IBCA, indicates that the obligation is
supported by a strong capacity for timely repayment. Those obligations rated A1+
are supported by the highest capacity for timely repayment. Obligations rated
A2, the second highest rating, are supported by a satisfactory capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
A-3
<PAGE>
Trust:
TURNER FUNDS
Funds:
TURNER ULTRA LARGE CAP FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP FUND
TURNER SMALL CAP FUND
TURNER FIXED INCOME FUND
Adviser:
TURNER INVESTMENT PARTNERS, INC.
Distributor:
SEI FINANCIAL SERVICES COMPANY
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Auditors:
ERNST & YOUNG LLP
