AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 2000
File No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
VANGUARD FENWAY FUNDS
(Exact Name of Registrant as Specified in Charter)
P.O. Box 2600
Valley Forge, Pennsylvania 19482
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (610) 669-1000
(Name and Address of Agent for Service)
R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PENNSYLVANIA 19482
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
It is proposed that this filing will become effective on April 3, 2000 pursuant
to Rule 488.
<PAGE>
VANGUARD FENWAY FUNDS
Cross Reference Sheet
<TABLE>
ITEMS REQUIRED BY FORM N-14
<S> <C> <C>
Item 1. Beginning of Registration Cover Page of Registration Statement
Statement and outside Front Cover Page of
Prospectus
Item 2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
Item 3. Synopsis and Risk Factors Synopsis; Comparison of the Investment Objectives and
Policies of the Vanguard Fenway Funds and the TIP Funds
Item 4. Information About the Transaction Synopsis; Reasons for the Reorganization;
Information Relating to the Reorganization; Agreement and
Plan of Reorganization and Liquidation
Item 5. Information About the Registrant Prospectus Cover Page; Synopsis; Reasons for the
Reorganization; Information about the Funds; Comparison of
Investment Objectives and Policies of the Vanguard Fenway
Funds and the TIP Funds; Fund Transactions; Shareholder
Rights
Item 6. Information About the Company Prospectus Cover Page; Synopsis; Reasons for the
Being Acquired Reorganization; Information Relating to the Reorganization;
Description of TIP Funds; Comparison of Investment
Objectives and Policies of the Vanguard Fenway Funds and
the TIP Funds; Fund Transactions; Shareholder Rights
Item 7. Voting Information Prospectus Cover Page; Notice of Special Meeting of
Shareholders; Synopsis; Agreement and Plan of
Reorganization and Liquidation
Item 8. Interest of Certain Persons and Voting on the Reorganization; Legal Matters
Experts
Item 9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Registration Statement Heading
Part B. Information Required in a
Statement of Additional
Information
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information About Incorporated by Reference to the Registrant's Prospectus
the Registrant and SAI attached as exhibits to this filing
Item 13. Additional Information About the Incorporated by Reference to the Company's Prospectus and
the Company Being Acquired SAI attached as exhibits to this filing
Item 14. Financial Statements Financial Statements
Part C. Other Information
Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
</TABLE>
<PAGE>
Proxy Information
Turner Growth Equity Fund will host a Special Meeting of Shareholders on May 22,
2000, at the offices of Turner Investment Partners, Inc. in Berwyn,
Pennsylvania. The purpose of this meeting is to vote on a proposal to reorganize
your Fund into a substantially similar fund that is being created by The
Vanguard Group, called Vanguard Growth Equity Fund.
The first two pages of this booklet highlight key points about the proposed
reorganization and explain the proxy process--including how to cast your votes.
Before you vote, please read the full text of the combined proxy statement and
prospectus for a complete understanding of our proposal.
KEY POINTS ABOUT THE PROPOSED REORGANIZATION
Purpose of the Reorganization
The purpose of the reorganization is to make your Fund a part of the Vanguard
Group of Investment Companies, the second largest mutual fund complex in the
United States. Under this proposal, your Fund's assets and liabilities would be
transferred to Vanguard Growth Equity Fund, a new fund that is being created
just for this purpose. Turner Investment Partners would continue to serve as
investment adviser, carrying out your Fund's same investment program for
Vanguard Growth Equity Fund. Vanguard, however, would replace Turner as sponsor
and overall manager of your investment, subject to the direction of a Vanguard
Board of Trustees. Your existing Board of Trustees believes that the
reorganization is in shareholders' best interests for the following reasons:
Lower Shareholder Costs
Because they jointly own their management company, the Vanguard funds operate on
an "at-cost" basis. This operating structure, combined with the efficiencies
inherent in Vanguard's size, will result in lower operating expenses for
Vanguard Growth Equity Fund than for your existing Fund. Vanguard Growth Equity
Fund is expected to feature a total expense ratio of 0.65 % for its first full
year of operations following the Reorganization--an annual cost to shareholders
of $6.50 for each $1,000 invested. By contrast, your Fund's total expense ratio
for 1999 was 1.08% -- an annual cost to shareholders of $10.80 for each $1,000
invested.
Expanded Shareholder Services
As a shareholder of Vanguard Growth Equity Fund, you will have access to a wide
range of shareholder services, including 24-hour access to your account, the
ability to transact through Vanguard's website, exchange privileges with other
Vanguard funds, and access to Vanguard's comprehensive investor education
programs.
Future Growth of the Fund
Given the competitive nature of the mutual fund industry, Turner determined that
it would be prudent to enter into an arrangement with Vanguard. Joining Vanguard
should enable the fund to grow assets due to Vanguard's strong market
penetration and reputation as a low-cost provider. It is expected that assets in
the Fund will grow considerably once the Fund is within The Vanguard Group,
which will result in a larger, more stable asset base for the Fund. As a result,
expenses will be shared by a larger group of shareholders and expenses for
existing shareholders will be reduced.
How the Reorganization Will Affect Your Account
If shareholders approve the Reorganization, your Turner Growth Equity Fund
shares will be exchanged, on a tax-free basis, for an equivalent dollar amount
of Vanguard Growth Equity Fund shares. Your account registration and account
options will remain the same unless you change them. In addition, your aggregate
cost basis in the account will remain the same.
Tax-Free Nature of the Reorganization
The Reorganization will be accomplished on a tax-free basis, meaning that you
won't realize any capital gains when your Fund shares are exchanged for shares
of Vanguard Growth Equity Fund.
<PAGE>
-Q&A-
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, the Fund may not receive enough votes to go forward with its
meeting. If this happens, we'll need to mail proxies again--a costly proposition
for your Fund!
Q. Who gets to vote?
A. Any person who owned shares of the Turner Growth Equity Fund on the "record
date," which was March 31, 2000, gets to vote--even if the investor later sold
the shares. Shareholders are entitled to cast one vote for each dollar invested
in the Fund on the record date.
Q. How can I vote?
A. You can vote by mail, using the enclosed ballot. Or, you can vote in person
at the meeting. Whichever method you choose, please take the time to read the
full text of our proxy statement before you vote.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match one that appears on the card. You
should sign proxy cards for other types of accounts in a way that indicates your
authority (for instance, "John Brown, Custodian").
<PAGE>
Turner Growth Equity Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Your Fund will host a Special Meeting of Shareholders on Monday, May 22, 2000,
at 3:30, Eastern time. The meeting will be held at Turner's offices at 1235
Westlakes Drive, Suite 350, Berwyn, Pennsylvania. At the meeting, we will ask
shareholders to vote on:
1. A proposal to reorganize Turner Growth Equity Fund into Vanguard
Growth Equity Fund.
2. Any other business properly brought before the meeting.
By Order of the Board of Trustees
James W. Jennings, Secretary
April o, 2000
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YOUR VOTE IS IMPORTANT!
You can vote easily and quickly. Just follow the simple instructions that appear
on your enclosed proxy card. Please help your fund avoid the expense to
shareholders of a follow-up mailing by voting today!
- --------------------------------------------------------------------------------
<PAGE>
Turner Growth Equity Fund
Special Meeting of Shareholders
May 22, 2000
COMBINED PROSPECTUS/PROXY STATEMENT
I. Introduction
Proposal summary. This prospectus/proxy statement describes a proposal to
reorganize the Turner Growth Equity Fund into a substantially similar fund that
is being created by The Vanguard Group, called Vanguard Growth Equity Fund. The
reorganization involves two basic steps. First, your Fund will transfer all of
its assets and liabilities to Vanguard Growth Equity Fund. Simultaneously,
Vanguard Growth Equity Fund will open an account for you, crediting it with
shares that are equivalent in value to your investment in the Fund at the time
of the reorganization.
Read and keep these documents. Please read the entire prospectus/proxy
statement, along with Vanguard Growth Equity Fund's preliminary prospectus,
which follows the prospectus/proxy statement, before casting your vote. (The
preliminary Vanguard prospectus is, by reference, considered part of this
prospectus/proxy statement.) In addition, a statement of additional information
relating to this prospectus/proxy statement is attached. Finally, a copy of the
Turner Growth Equity Fund's prospectus is attached to this prospectus/proxy
statement. These documents contain information that is important to your proxy
decision, and you should keep them for future reference.
Additional information is available. Vanguard Growth Equity Fund is being
organized as a separate investment portfolio under Vanguard Fenway Funds, which
filed an amended registration statement with the U.S. Securities and Exchange
Commission on March 2, 2000 in order to create the new fund. Vanguard Growth
Equity Fund has not yet been declared effective by the SEC. However, you can
obtain copies of its preliminary statement of additional information without
charge by contacting Vanguard (1-800-662-7447) or visiting the SEC's website
(www.sec.gov). Copies of Turner Growth Equity Fund's prospectus and statement of
additional information (both dated o, 2000), along with its most recent annual
report to shareholders, are incorporated by reference into the statement of
additional information accompanying this prospectus/proxy statement, and are
also available without charge from Turner (1-800-224-6312) or at the SEC's
website.
- --------------------------------------------------------------------------------
These securities have not been approved or disapproved by the Securities and
Exchange Commission, nor has the Securities and Exchange Commission passed upon
the accuracy of this combined proxy statement/prospectus. Any representation to
the contrary is a criminal offense.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Overview
Details of Reorganization Proposal
Why We Want To Reorganize Your Fund
How We Plan To Accomplish The Reorganization
How The Reorganization Will Affect Your Fund
How Your Fund's Legal Form Of Organization Will Change
How Many Shareholder Votes We Need To Approve The Reorganization
Investment Advisory Arrangements
Management of Vanguard Growth Equity Fund
General Information
Appendix A
<PAGE>
II. OVERVIEW
This section summarizes key information concerning your Fund's proposal. Keep in
mind that more detailed information appears throughout the proxy statement and
the accompanying preliminary prospectus. Please be sure to read everything.
The Proposed Reorganization. At their meeting on February 25, 2000, Turner
Growth Equity Fund's Board of Trustees approved a plan to reorganize your Fund
into Vanguard Growth Equity Fund. We believe that the proposed Reorganization is
in the best interests of your Fund and its shareholders (more on this further
into the proxy statement). Also, the Reorganization will not dilute the
interests of the Fund's shareholders. If we don't win shareholder approval of
the Reorganization, the Fund will simply continue in existence unless the Board
of Trustees decides otherwise.
New Form of Organization. For legal purposes, Turner Growth Equity Fund is
organized as part of TIP Funds, a Massachusetts business trust. On the other
hand, Vanguard Growth Equity Fund is being organized as part of Vanguard Fenway
Funds, a Delaware business trust. The minor differences in these forms of
organization are described beginning on page ____.
New Board of Trustees. Vanguard Growth Equity Fund will have a different Board
of Trustees than your Fund. Beginning on page ____, we describe the backgrounds
and compensation of the individuals who will serve as Trustees of Vanguard
Growth Equity Fund.
Investment Objectives and Policies of Each Fund. Vanguard Growth Equity Fund is
being created with an investment objective and investment policies that are
substantially similar to those of Turner Growth Equity Fund.
Investment Adviser. The Fund's investment adviser, Turner Investment Partners,
will also serve as investment adviser to Vanguard Growth Equity Fund, continuing
the Fund's same investment program. Although there are no current plans to do
so, one or more new advisers could be added to Vanguard Growth Equity Fund in
the future, as either additions to or replacements for Turner. The Board of
Trustees of Vanguard Growth Equity Fund has the flexibility to make advisory
changes in shareholders best interests, without a shareholder vote. Details of
the advisory arrangements for your Fund and Vanguard Growth Equity Fund are
provided beginning on page ______.
Independent Accountants. PricewaterhouseCoopers LLP will serve as independent
auditors to Vanguard Growth Equity Fund, as they do for all other Vanguard
funds. In contrast, Turner Growth Equity Fund retains Ernst & Young LLP as its
independent auditors.
III. DETAILS OF REORGANIZATION PROPOSAL
Turner Growth Equity Fund's Board of Trustees has approved a plan to
reorganize your Fund into a substantially similar fund that is being created by
The Vanguard Group, called Vanguard Growth Equity Fund. (A copy of the plan of
reorganization is attached as Appendix A to this prospectus/proxy statement.) To
proceed with the Reorganization, we need shareholder approval. The next few
pages of this proxy statement discuss important details of the Reorganization
plan, including the following:
1
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o Why we want to reorganize your Fund.
o How we plan to accomplish the Reorganization.
o How the Reorganization will affect your Fund.
o How your Fund's legal form of organization will change.
o How many shareholder votes we need to approve the Reorganization.
A. WHY WE WANT TO REORGANIZE YOUR FUND
The mutual fund marketplace is much more competitive today than it was even five
years ago, and there is no reason to think that this competition will slow. The
Reorganization will allow Turner to better focus on its core competencies.
Turner believes that the ultimate beneficiaries of the Reorganization will be
the Fund's shareholders because they get access to Vanguard's expansive client
service capabilities, while Turner can focus on investment performance. In
addition, shareholders will gain significant efficiencies in the form of lower
fees, and a more stable, long-term client base, which will result in lower
transaction costs to the Fund.
Vanguard management believes that Turner Growth Equity Fund will fit well within
The Vanguard Group of Investment Companies. If the Reorganization is approved by
shareholders, the Fund will provide Vanguard investors with another proven
growth fund, and broaden the array of actively-managed funds available through
Vanguard.
The Vanguard Group has entered into a Sponsorship Agreement with Turner, which
generally provides that Turner will use reasonable efforts to facilitate the
proposed Reorganization. However, neither Turner nor any other party is being
compensated by Vanguard in consideration of Turner Growth Equity Fund joining
The Vanguard Group.
B. HOW WE PLAN TO ACCOMPLISH THE REORGANIZATION
Agreement and Plan of Reorganization. Your Fund has entered into an
Agreement and Plan of Reorganization with Vanguard Fenway Funds. This agreement
spells out the terms and conditions of that will apply to your Fund's
Reorganization into Vanguard Growth Equity Fund (assuming that shareholders
approve this proposal). For a complete description of these terms and
conditions, please see the summary on page ____, or see the agreement, which
appears as Appendix A to this proxy statement.
Three steps to reorganize. After shareholder approval, the Reorganization
will be accomplished in a three-step process. First, your Fund will transfer all
of its assets and liabilities to Vanguard Growth Equity Fund. Second, and
simultaneously with step one, Vanguard Growth Equity Fund will open an account
for you, crediting it with shares that are equivalent in value to your
investment in the Fund at the time of the Reorganization. Third, the Turner
Growth Equity Fund will be dissolved.
2
<PAGE>
Effective as soon as practicable. If approved by shareholders, the
Reorganization will take place as soon as practicable after all necessary
regulatory approvals and legal opinions are received. We think this could be
accomplished by mid-June, 2000.
The Reorganization is conditioned on tax-free treatment at the federal
level. We fully expect that the Reorganization will have no federal income tax
consequences for you or your Fund. We will not proceed with the Reorganization
until this point is confirmed by an IRS ruling or opinion of counsel. Following
the Reorganization, from a tax standpoint, the adjusted basis of your Fund
shares will be the same as before. We do not expect shareholders to incur any
personal state or local taxes as a result of the Reorganization, but you should
consult your own tax adviser to be sure. There is more information about the tax
consequences of the Reorganization in the plan of reorganization.
C. HOW THE REORGANIZATION WILL AFFECT YOUR FUND
Your Fund's investment objective and investment adviser will stay the same,
and its investment policies will be very similar. The Reorganization will not
materially change any of these. As reorganized, your Fund--which will become
Vanguard Growth Equity Fund--will continue to seek capital appreciation through
investments in a diversified portfolio of common stocks with strong earnings
growth potential. In addition, the existing investment adviser, Turner
Investment Partners, will continue to run the Fund's investment program. Several
of the investment policies will change, but these changes will not have a
material impact on the management of your Fund. Specifically, the Vanguard
Growth Equity Fund has more restrictive policies relating to lending and
investments in certain types of futures and options contracts. In addition to
these more restrictive policies, the Fund will have more flexibility to borrow
money since the funds in The Vanguard Group are eligible to participate in an
interfund lending program under an exemption received from the SEC. However,
since these practices are not part of the Fund's primary investment strategies,
it is expected that there will be no impact on the Fund's management.
Comparing Fund Expenses. The table set forth below compares the expenses
applicable to the Turner Growth Equity Fund and the estimated expenses of the
Vanguard Growth Equity Fund for the first full year after the Reorganization is
consummated.
<TABLE>
<CAPTION>
Expense Category Turner Growth Equity Fund Vanguard Growth Equity Fund
- ---------------- ------------------------- ---------------------------
<S> <C> <C>
Management Fees 0.75% 0.47%
Rule 12b-1 Fees None None
Other Expenses 0.25% 0.18%
Total Operating Expenses 1.00%* 0.65%**
</TABLE>
* Restated to reflect current expenses.
** Restated to reflect estimated post-Reorganization expenses.
3
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Example
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 Year 3 Years 5 Years 10 Years
----- ------- ------- --------
Turner Growth Equity Fund $102 $373 $665 $1,505
Vanguard Growth Equity Fund 66 208 362 810
Your Fund will keep the same fiscal year end, but switch to an annual
distribution schedule. As reorganized, your Fund will distribute its income
annually, which is more typical for a growth fund than the quarterly
distribution schedule that currently applies. Your Fund will keep its September
30th fiscal year end.
The Reorganization will have no impact on your Fund's share price. On the
day of the reorganization, Vanguard Growth Equity Fund's share price will be the
same as that of your existing Fund. The Reorganization will not cause your
Fund's share price to go up or down, and you will own the same number of shares.
Any declared but undistributed dividends or capital gains will carry over in the
Reorganization.
Your Fund's existing Trustees will be replaced by Vanguard Fenway Funds'
Trustees. As previously mentioned, your Fund will become an investment portfolio
of Vanguard Fenway Funds if shareholders approve the Reorganization. Information
on Vanguard Fenway Funds' Trustees appears further in this proxy statement.
Your Fund's existing independent auditor will be replaced by
PricewaterhouseCoopers, LLP. Currently, your Fund employs Ernst & Young, LLP as
its independent auditor. However, PricewaterhouseCoopers serves as the
independent auditor for Vanguard Fenway Funds and all other Vanguard funds. In
this role, PricewaterhouseCoopers audits and certifies the Vanguard funds'
financial statements. PricewaterhouseCoopers also reviews the Vanguard funds'
Annual Reports to Shareholders and their filings with the U.S. Securities and
Exchange Commission. Neither PricewaterhouseCoopers nor any of its partners have
any direct or material indirect financial interest in the Vanguard funds. If you
wish to request the attendance of a PricewaterhouseCoopers representative at the
shareholder meeting, you should contact the Fund's Secretary at
___________________________________________________.
Purchase, Redemption, and Exchange Information. The following chart
highlights the purchase, redemption and exchange features of your Fund as
compared to such features of the Vanguard Growth Equity Fund.
4
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<TABLE>
<CAPTION>
Purchase, Redemption and
Exchange Features(1) Turner Growth Equity Fund Vanguard Growth Equity Fund
------------------------ ------------------------- ---------------------------
<S> <C> <C>
Minimum initial purchase/ $2,500/$500 $10,000/$100
Additional investments
Purchases By mail, wire, or systematic By mail, wire, systematic investment
investment plan plan, Vanguard Fund Express(R), and
Vanguard Direct Deposit Service(TM)
Redemptions By mail or telephone (business By mail, 24-hour telephone, or
hours only) Vanguard's website
Free exchange privileges(2) Yes, with other TIP Funds--by Yes, with other Vanguard funds--by
mail or telephone (business hours mail, 24-hour telephone, or
only) Vanguard's website
</TABLE>
1 Explanations of each of the services available through Vanguard Growth
Equity Fund can be found in the preliminary prospectus that
accompanies this prospectus/proxy statement.
2 Investors may exchange between the TIP Funds, Vanguard Funds and other
fund families for a fee through Vanguard's FundAccess program and
programs available through other firms.
Calculating NAV. The Turner Growth Equity Fund calculates its net asset
value per share (NAV) once each business day at the regularly-scheduled close of
normal trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern
time). Similarly, the Vanguard Growth Equity Fund calculates its NAV after the
close of regular trading on the New York Stock Exchange.
D. HOW YOUR FUND'S LEGAL FORM OF ORGANIZATION WILL CHANGE
Federal securities laws have much to say about the way that mutual funds
operate, but they do not cover every aspect of a fund's existence. State law and
each fund's governing documents fill in most of the gaps. The Vanguard Growth
Equity Fund is organized under Delaware law, while your Fund is organized under
Massachusetts law. The laws of Massachusetts and Delaware governing business
trusts are similar in all material respects with one exception. Shareholders of
Massachusetts business trusts could be personally liable for the obligations of
the trust in certain highly unlikely circumstances. However, under Delaware law,
there is no similar provision providing for shareholder liability for
obligations of the fund. As a result of the Reorganization, this very remote
potential for personal liability will be eliminated.
5
<PAGE>
E. HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE REORGANIZATION
To go forward with the Reorganization, a majority of your Fund's
outstanding shares on March 31, 2000, must vote in favor of this proposal. YOUR
FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU APPROVE THE REORGANIZATION.
IV. INVESTMENT ADVISORY ARRANGEMENTS
Turner Growth Equity Fund's investment adviser, Turner Investment Partners, will
also serve as investment adviser to Vanguard Growth Equity Fund, continuing the
Fund's same investment program. Turner's address is 1235 Westlakes Drive,
Berwyn, Pennsylvania 19312. Under its investment advisory agreement dated April
28, 1996 with your Fund, Turner is responsible for managing the investment and
reinvestment of the Fund's assets, and for continuously reviewing, supervising
and directing the Fund's investment program. Turner will have these same
responsibilities under its investment advisory agreement with Vanguard Growth
Equity Fund.
Turner Investment Partners, Inc., is a professional investment management firm
founded in March, 1990. Robert E. Turner is the Chairman and controlling
shareholder of Turner. As of December 31, 1999, Turner had discretionary
management authority with respect to approximately $5.6 billion of assets.
Turner has provided investment advisory services to investment companies since
1992. The principal business address of Turner is 1235 Westlakes Drive, Suite
350, Berwyn, Pennsylvania 19312.
Turner serves as the investment adviser to the Turner Growth Equity Fund under
an investment advisory agreement. Under the agreement, Turner continuously
reviews, supervises and administers the Fund's investment program, subject to
the supervision of, and policies established by, the Trustees of TIP Funds.
Robert E. Turner, a Trustee of TIP Funds, is the head of the committee that
manages the Turner Growth Equity Fund. Mr. Turner is also Chairman and Chief
Investment Officer of Turner. He has held this position since the founding of
Turner in 1990. He has been in the investment business since 1982.
The other members of the committee that manages the Turner Growth Equity Fund
are John Hammerschmidt, Mark Turner, and Christopher McHugh. Mr. Hammerschmidt
is a Senior Equity Portfolio Manager at Turner, and he has 17 years of
investment experience. Mark Turner, Vice Chairman of Turner, co-founded Turner
in 1990, and has 18 years of investment experience. Christopher McHugh, a Senior
Equity Portfolio Manager at Turner, has 14 years of investment experience.
The Turner Growth Equity Fund paid Turner advisory fees of $694,046 and
$664,499, and waived advisory fees of $24,250 and $76,793, for the fiscal years
ended September 30, 1997 and 1998, respectively. For the fiscal year ended
September 30, 1999, the Fund paid Turner advisory fees of $987,424.
The investment advisory agreement between Turner and the Turner Growth Equity
Fund is similar to the investment advisory agreement between Turner and the
Vanguard Growth Equity. Specifically,
6
<PAGE>
the standard of care is identical, and the duration and termination provisions
are substantially similar. The principal difference between the two agreements
is the compensation structure. In the Turner Growth Equity Fund agreement,
Turner is entitled to a fee of 0.75% of the Fund's average daily net assets. In
contrast, the agreement relating to the Vanguard Growth Equity Fund has certain
breakpoints and a performance component, as described below.
Advisory Fees and Expenses for Vanguard Growth Equity Fund. Under its
investment advisory agreement with Vanguard Growth Equity Fund, Turner will be
paid a Basic Fee at the end of each fiscal quarter, calculated by applying a
quarterly rate, based on the following annual percentage rates, to the fund's
average month-end net assets for the quarter:
Net Assets Annual Rate
------------------ -----------
First $200 million 0.50%
Next $300 million 0.40%
Next $1.5 billion 0.30%
Over $2 billion 0.20%
The Basic Fee paid to Turner may be increased or decreased based on the
investment performance of Vanguard Growth Equity Fund. This Performance
Adjustment will be calculated as a percentage of the Basic Fee, and will change
proportionately with the investment performance of Vanguard Growth Equity Fund
relative to the investment performance of the Russell 1000 Growth Index for the
thirty-six month period ending with the applicable quarter. The Performance
Adjustment will apply as follows:
Cumulative 36-Month
Performance of the Fund Performance Fee Adjustment
Versus the Index as a Percentage of Basic Fee*
----------------------- -----------------------------
Exceeds by 9% or more +75%
Exceeds between 0 and +9% Linear increase from 0 to +75%
Trails between 0 and -9% Linear decrease from 0 to -75%
Trails by -9% or more -75%
- ------------------
*For purposes of determining the Adjustment, the Basic Fee is calculated by
applying the above rate schedule against the average month-end net assets of the
Fund over the same time period for which performance is measured.
Based on the Fund's current size, the maximum possible fee payable by
Vanguard Growth Equity Fund to Turner under the advisory agreement during the
first year of operations would be 0.47% of the Fund's net assets.
Duration and termination of Turner's investment advisory agreement with
Vanguard Growth Equity Fund. Turner's investment advisory agreement with
Vanguard Growth Equity Fund will become effective at the time of the
Reorganization, if this transaction is approved by shareholders. The agreement
will remain in effect for an initial two-year period, and may be
7
<PAGE>
continued beyond that for successive one-year periods, if approved at least
annually by the vote of the Board of Trustees of Vanguard Growth Equity Fund.
Board approval must include the votes of a majority of those Trustees who are
not parties to the contract or "interested persons" (as defined under Federal
securities laws) of any party to the contract. In addition, Trustees must vote
in person on Turner's investment advisory agreement, at a meeting called for
that purpose. The agreement is automatically terminated if assigned, and may be
terminated without penalty at any time (i) either by vote of the Fund's Trustees
or by vote of the outstanding shares of the Fund on 60 days' written notice, or
(ii) by Turner on 90 days' written notice to the Fund.
Future changes to Vanguard Growth Equity Fund's advisory arrangements.
Although there are no current plans to do so, one or more new investment
advisers could be added to Vanguard Growth Equity Fund in the future, as either
additions to or replacements for Turner. The Board of Trustees of Vanguard
Growth Equity Fund has the flexibility to make advisory changes--including
changes to the contract of an existing investment adviser--without a shareholder
vote.
V. MANAGEMENT OF VANGUARD GROWTH EQUTY FUND
The seven individuals listed below serve as Trustees of Vanguard Fenway
Funds. (As previously mentioned, your Fund will become an investment portfolio
of Vanguard Fenway Funds if shareholders approve the Reorganization.) Each of
these individuals was last elected to office by shareholders of Vanguard Fenway
Funds on May 1, 1998 (except for Ms. Heisen, who was appointed to office by the
other Trustees on _______, 1998.)
<TABLE>
<CAPTION>
Principal Occupation and Became
Name DOB Other Directorships Trustee
- ---- --- ------------------------ -------
<S> <C> <C> <C>
John J. Brennan* 7/29/54 Chairman, Chief Executive Officer & Trustee 1987
Chairman, Chief Executive Officer and Director
of The Vanguard Group, Inc., and Trustee of each of
the investment companies in The Vanguard Group
Joann Heffernan Heisen 1/25/50 Trustee 1998
Vice President, Chief Information Officer, and
member of the Executive Committee of Johnson &
Johnson; Director of Johnson & Johnson*MERCK
Consumer Pharmaceuticals Co., The Medical Center
at Princeton, and Women's Research and Education
Institute
Bruce K. MacLaury 5/7/31 Trustee 1989
President Emeritus of The Brookings Institution,
Director of Amercian Express Bank, Ltd., The St.
Paul Companies, Inc., and National Steel Corp.
Alfred M. Rankin, Jr. 10/8/41 Trustee 1993
Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; and Director
the BFGoodrich Co.
8
<PAGE>
John C. Sawhill 6/12/36 Trustee 1991
President and Chief Executive Officer of The
Nature Conservancy; Director of Pacific Gas and
Electric Co., Procter & Gamble Co., NACCO
Industries and Newfield Exploration Co.; formerly,
Director and Senior Partner of McKinsey & Co., and
President of New York University
James O. Welch 5/13/31 Trustee 1987
Retired Chairman of Nabisco Brands, Inc.; retired
Vice Chairman and Director of RJR Nabisco;
Director of TECO Energy, Inc. and Kmart
J. Lawrence Wilson 3/2/36 Trustee 1987
Retired Chairman of Rohm & Haas Co.; Director
of Cummins Engine Co. and The Mead Corp; and
Trustee of Vanderbilt University
</TABLE>
- -------------------
*Mr. Brennan is an "interested person" as that term is defined in the
Investment Company Act.
The Vanguard Group
Vanguard Fenway Funds is a member of The Vanguard Group of Investment
Companies, which consists of more than 100 mutual funds. The Vanguard Group,
P.O. Box 2600, Valley Forge, PA 19482-6200, a jointly owned subsidiary of the
Vanguard funds, provides corporate management, administrative and distribution
services to the Vanguard funds on an at-cost basis. The Vanguard Group also
provides investment advisory services on an at-cost basis to many of the
Vanguard funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Vanguard funds and
also furnishes the funds with necessary office space, furnishings and equipment.
Each Vanguard fund pays its share of The Vanguard Group's total expenses, which
are allocated among the funds under methods approved by the Board of Trustees of
each Vanguard fund. In addition, each Vanguard fund bears its own direct
expenses, such as legal, auditing and custodian fees.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement that was approved by the shareholders of each of the Vanguard
funds. The amount that each Vanguard fund has invested in The Vanguard Group is
adjusted from time to time in order to maintain the proportionate relationship
between each fund's relative net assets and its contribution to The Vanguard
Group's capital. Under the Amended and Restated Service Agreement, no fund can
be called on to invest more than 0.40% of its current assets in The Vanguard
Group.
9
<PAGE>
Trustee Compensation
Vanguard Growth Equity Fund's Trustees also serve as Trustees of all other
Vanguard funds, and each Vanguard fund pays a proportionate share of the
Trustees' compensation. The Vanguard funds employ their officers on a shared
basis, as well. However, officers are compensated by The Vanguard Group, not the
funds.
Independent Trustees. The Vanguard funds compensate their independent
Trustees--that is, the ones who are not also officers of the fund--in three
ways:
o The independent Trustees receive an annual fee of _____ for their
services to all Vanguard funds, which is subject to reduction based on
absences form scheduled Board meetings.
o The independent Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.
o Upon retirement, the independent Trustees receive an aggregate annual
fee of $1,000 for each year served on the Board, up to fifteen years
of service. This annual fee is paid for ten years following
retirement, or until each Trustee's death.
"Interested" Trustees. The Vanguard funds' sole interested Trustee--Mr.
Brennan--receives no compensation for his service in that capacity. However, Mr.
Brennan is paid in his role as an officer of The Vanguard Group.
Compensation Table. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by Vanguard Fenway Funds for each Trustee. (These amounts
have been paid from the assets of Vanguard Equity Income Fund, the sole
investment portfolio currently offered by Vanguard Fenway Funds.) In addition,
the table shows the total amount of benefits that we expect each Trustee to
receive from all Vanguard funds upon retirement, and the total amount of
compensation paid to each Trustee by all Vanguard funds. All information shown
is for the fiscal year ended September 30, 1999:
VANGUARD FENWAY FUNDS TRUSTEES' COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits
Accrued as Total Compensation
Aggregate Part of this Estimated Annual from All Vanguard
Compensation from Fund's Benefits Upon Funds Paid to
Names of Trustees this Fund Expenses Retirement Trustees(1)
- ------------------------------ ------------------ ------------ ---------------- ------------------
<S> <C> <C> <C> <C>
John C. Bogle (2) None None None None
John J. Brennan None None None None
Barbara Barnes Hauptfuhrer (3) $167 $21 $15,000 $0
JoAnn Heffernan Heisen $667 $37 $15,000 $80,000
10
<PAGE>
Bruce K. MacLaury $697 $62 $12,000 $75,000
Alfred M. Rankin, Jr. $667 $44 $15,000 $80,000
John C. Sawhill $667 $57 $15,000 $80,000
James O. Welch, Jr. $667 $65 $15,000 $80,000
J. Lawrence Wilson $667 $58 $15,000 $80,000
</TABLE>
(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 103 Vanguard funds (93 in
the case of Mr. MacLaury).
(2) Mr. Bogle has retired from the Fund's Board, effective December 31, 1999.
(3) Mrs. Hauptfuhrer has retired from the Fund's Board, effective December 31,
1998.
11
<PAGE>
GENERAL INFORMATION
This section provides information on a number of topics relating to proxy voting
and shareholder meetings.
Proxy solicitation methods. Turner Growth Equity Fund will solicit shareholder
proxies in a variety of ways. All shareholders that are entitled to vote will
receive these proxy materials by mail. In addition, Turner employees and
officers may solicit shareholder proxies in person, by telephone, or through the
Internet.
Proxy solicitation costs. Turner will pay all costs of soliciting proxies from
its own shareholders, including costs relating to the printing, mailing, and
tabulation of proxies. By voting immediately, you can help your Fund avoid the
considerable expense of a second solicitation.
Quorum. In order for the shareholder meeting to go forward, Turner Growth Equity
Fund must achieve a quorum. This means that a majority of your Fund's shares
must be represented at the meeting--either in person or by proxy. All returned
proxies count towards a quorum, regardless of how they are voted ("For,"
"Against," or "Abstain"). Your Fund will count broker non-votes toward a quorum,
but not toward the approval of any proposals. (Broker non-votes are shares for
which (i) the underlying owner has not voted and (ii) the broker holding the
shares does not have discretionary authority to vote on the particular matter.)
Revoking your proxy. You may revoke your proxy at any time up until voting
results are announced at the shareholder meeting. You can do this by writing to
your Fund's Secretary, c/o Turner Investment Partners, 1235 Westlakes Drive,
Suite 350, Berwyn, PA 19312, or by voting in person at the meeting.
Shareholder proposals. Any shareholder proposals to be included in the proxy
statement for Turner Growth Equity Fund's next annual or special meeting must be
received by the Fund within a reasonable period of time prior to that meeting.
Your Fund has no current plans to hold an annual or special meeting in 2000.
Nominee accounts. Upon request, Turner Growth Equity Fund will reimburse
nominees for their reasonable expenses in forwarding proxy materials to
beneficial owners of the fund's shares. Please submit invoices for our review to
Turner Investment Partners, 1235 Westlakes Drive, Suite 350, Berwyn, PA 19312.
Annual/semi-annual reports. Turner Growth Equity Fund's most recent annual and
semi annual reports to shareholders are available at no cost. To request a
report, please call us toll-free at 1-800-224-6312 or write us at P.O. Box
219805, Kansas City, Missouri 64141-6805.
Litigation. Turner Growth Equity Fund is not involved in any litigation.
Principal shareholders. As of March 31, 2000, Turner Growth Equity Fund had
approximately $_____ million in net assets and ___________ outstanding shares.
As of the same date, each of the
12
<PAGE>
following persons was known to be the beneficial owner of more than 5% of the
outstanding shares of Turner Growth Equity Fund:
[TURNER TO PROVIDE]
Other matters. At this point, we know of no other business to be brought before
the shareholder meeting. However, if any other matters do come up, we will use
our best judgment to vote on your behalf. If you object to our voting other
matters on your behalf, please tell us so in writing before the meeting.
Obtaining Information from the SEC. Vanguard Fenway Funds is subject to the
informational requirements of the Securities Exchange Act of 1934 and must file
certain reports and other information with the SEC.
The proxy materials, reports and other information filed by the TIP Funds can be
inspected and copied at the public reference facilities maintained by the SEC
located at 450 5th Street N.W., Washington, D.C. 20549, and 7 World Trade
Center, Suite 1300, New York, NY 10048. Copies of such material also can be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates.
13
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of ____, 2000 between Vanguard Fenway Funds, a business trust
formed under the laws of the State of Delaware with its principal place of
business at P.O. Box 2600, Valley Forge, PA 19482 (the "Vanguard Fund"), on
behalf of Vanguard Growth Equity Fund, a series of the Vanguard Fund (the
"Acquiring Fund"), and TIP Funds, a business trust formed under the laws of the
Commonwealth of Massachusetts with its principal place of business at 530 East
Swedesford Road, Wayne, PA 19087 ("TIP Funds"), on behalf of the Turner Growth
Equity Fund, a series of TIP Funds (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(F) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization of the Selling Fund (the "Reorganization") will consist of (i)
the transfer of all of the assets of the Selling Fund in exchange solely for
shares of the common stock (the "Shares") of the Acquiring Fund (the "Acquiring
Fund Shares"), (ii) the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; and (iii) the distribution, after the Closing
Date, as defined below, of Acquiring Fund Shares to the shareholders of the
Selling Fund in liquidation of the Selling Fund as provided in this Agreement,
all upon the terms and conditions set out below.
WHEREAS, the Vanguard Fund and TIP Funds are each registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act") and the Acquiring Fund is permitted to invest in securities held by
the Selling Fund;
WHEREAS, the Acquiring Fund and the Selling Fund are authorized to issue
shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of the Vanguard Fund
has determined with respect to the Acquiring Fund that the exchange of all of
the assets of the Selling Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund and its shareholders; and
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act) of TIP Funds has
determined with respect to the Selling Fund that the exchange of all the assets
of the Selling Fund for the Acquiring Fund Shares is in the best interests of
the Selling Fund and its shareholders;
<PAGE>
In consideration of the mutual promises contained in this Agreement, the
Vanguard Fund and TIP Funds agree as follows:
ARTICLE I
Transfer of Assets of the Selling Fund in Exchange for Acquiring Fund Shares and
Assumption of Selling Fund Liabilities and Liquidation of the Selling Fund.
1.1 Subject to the terms and conditions set out in this Agreement and on
the basis of the representations and warranties contained in this Agreement, TIP
Funds agrees to transfer the Selling Fund's assets in the manner set out in
paragraph 1.2 of this Agreement to the Acquiring Fund, and the Vanguard Fund
agrees in exchange for the assets: (a) to deliver to the Selling Fund the number
of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined
by dividing the value of the Selling Fund's net assets, computed in the manner
and as of the time and date set out in paragraph 2.1 of this Agreement, by the
net asset value of one Acquiring Fund Share, computed in the manner and as of
the time and date set out in paragraph 2.2 of this Agreement; and (b) to assume
certain identified liabilities of the Selling Fund, as set out in paragraph 1.3
of this Agreement. Each of these transactions will take place at the closing
provided for in paragraph 3.1 of this Agreement (the "Closing").
1.2(a) The assets of the Selling Fund to be acquired by the Acquiring Fund
will consist of all property including, without limitation, all cash,
securities, commodities and futures interests, and dividend or interest
receivables that are owned by the Selling Fund and any deferred or prepaid
expenses shown as an asset on the books of the Selling Fund on the closing date
described in paragraph 3.1 of this Agreement (the "Closing Date").
(b) TIP Funds, on behalf of the Selling Fund, has provided the
Vanguard Fund with TIP Funds' most recent financial statements, which
contain a list of all of the Selling Fund's assets as of the date of
execution of this Agreement. TIP Funds, on behalf of the Selling Fund,
represents that as of the date of the execution of this Agreement no
changes have occurred in its financial position as reflected in its
financial statements other than those occurring in the ordinary course of
its business in connection with the purchase and sale of securities and the
payment of its normal operating expenses. TIP Funds, on behalf of the
Selling Fund, reserves the right to sell any of the Selling Fund's assets
but will not, without the prior approval of the Vanguard Fund, acquire any
additional assets for the Selling Fund other than instruments of the type
in which the Acquiring Fund is permitted to invest. TIP Funds, on behalf of
the Selling Fund, will, within a reasonable time prior to the Closing Date,
furnish the Vanguard Fund with a list of the assets, if any, on the Selling
Fund's list referred to in the first sentence of this paragraph that do not
conform to the Acquiring Fund's investment objectives, policies and
restrictions. In the event that the Selling Fund holds any assets that the
Acquiring Fund may not hold, the Selling Fund will use its best efforts to
dispose of the assets prior to the Closing Date.
1.3 TIP Funds, on behalf of the Selling Fund, will seek to discharge all of
the Selling Fund's known liabilities and obligations prior to the Closing Date,
other than those liabilities and
A-2
<PAGE>
obligations that would otherwise be discharged at a later date in the ordinary
course of the Selling Fund's business. Except as specifically provided in
paragraph 1.3 of this Agreement, the Acquiring Fund will assume the liabilities,
expenses, costs, charges and reserves reflected on a Statement of Assets and
Liabilities of the Selling Fund prepared on behalf of the Selling Fund, as of
the Valuation Date (as defined in paragraph 2.1 of this Agreement), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period (hereinafter the "Liabilities"). The Acquiring
Fund will assume only those Liabilities of the Selling Fund reflected in the
Statement of Assets and Liabilities and will not, except as specifically
provided in this paragraph 1.3, assume any other contingent, unknown, or
unaccrued liabilities, all of which will remain the obligation of the Selling
Fund.
1.4 As provided in paragraph 3.4 of this Agreement, as soon after the
Closing Date as is practicable (the "Liquidation Date"), the Selling Fund will
liquidate and distribute on a proportionate basis to the Selling Fund's
shareholders of record determined as of the close of business on the Closing
Date (the "Selling Fund Shareholders") the Acquiring Fund Shares it receives
pursuant to paragraph 1.1 of this Agreement. This liquidation and distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Selling Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Selling
Fund Shareholders representing the respective proportionate number of Acquiring
Fund Shares due those shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund,.
The Acquiring Fund will not issue certificates representing the Acquiring Fund's
Shares in connection with the exchange of Acquiring Fund Shares for shares of
the Selling Fund.
1.5 After the Reorganization, ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.6 As soon as practicable after distribution of the Acquiring Fund Shares
pursuant to paragraph 1.4 of this Agreement but in any event within 180 calendar
days after the Closing Date the Selling Fund will be terminated as a series of
TIP Funds ("Termination Date"). In addition, TIP Funds will as soon as
practicable after the Termination Date take all other actions in connection with
the termination of the Selling Fund as required by applicable law.
1.7 Any reporting responsibility of the Selling Fund to any public
authority is and will remain the responsibility of the Selling Fund up to and
including the Closing Date and the Termination Date.
1.8 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of shares of the Selling Fund
("Selling Fund Shares") on the books of the Selling Fund as of that time will,
as a condition of the issuance and transfer, be paid by the person to whom the
Acquiring Fund Shares are to be issued and transferred.
ARTICLE II
A-3
<PAGE>
Valuation.
2.1 The value of the Selling Fund's assets to be acquired under this
Agreement will be the value of the assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") on the applicable
Closing Date (the time and date being referred to as the "Valuation Date" for
purposes of this Agreement), using the valuation procedures set out in the
Selling Fund's then current prospectus and/or statement of additional
information.
2.2 The net asset value of the Acquiring Fund Shares will be the net asset
value per share computed as of the Valuation Date, using the valuation
procedures set out in the Acquiring Fund's then current prospectus and/or
statement of additional information.
2.3 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Selling Fund's net assets will be determined
by dividing the value of the net assets of the Selling Fund determined using the
same valuation procedures referred to in paragraph 2.1 of this Agreement by the
net asset value per share of the Acquiring Fund determined in accordance with
paragraph 2.2 of this Agreement.
2.4 All computations of value will be made in accordance with the regular
practices of the Vanguard Fund, subject to this Article II.
A-4
<PAGE>
ARTICLE III
Closing and Closing Date.
3.1 The Closing Date for the Reorganization will be June 5, 2000, or any
other date agreed to in writing by the Vanguard Fund and TIP Funds. All acts
taking place at the Closing will be deemed to take place simultaneously as of
the close of business on the Closing Date unless otherwise provided. The Closing
will be held as of 4:00 p.m., at the offices of the Vanguard Fund, 100 Vanguard
Blvd., Malvern, PA 19355, or at such other time and/or place agreed to by the
Vanguard Fund and TIP Funds.
3.2 The custodian for the Acquiring Fund (the "Custodian") will deliver at
the Closing a certificate of an authorized officer stating that: (a) the Selling
Fund's portfolio securities, cash and any other assets will have been delivered
in proper form to the Acquiring Fund prior to or on the Closing Date, and (b)
all necessary taxes, including all applicable federal and state stock transfer
stamps, if any, will have been paid, or provision for payment has been made, in
conjunction with the delivery of portfolio securities.
3.3 In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Fund or the Selling
Fund is closed to trading or trading on the market is restricted or (b) trading
or the reporting of trading on the NYSE or elsewhere is disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the applicable Closing Date will be postponed
until the first business day after the day when normal trading has fully resumed
and reporting has been restored.
3.4 TIP Funds, on behalf of the Selling Fund, will deliver at the Closing a
list of the names and addresses of the Selling Fund Shareholders and the number
of outstanding Shares owned by each such shareholder immediately prior to the
Closing or provide evidence that the information has been provided to the
Acquiring Fund's transfer agent. The Vanguard Fund, on behalf of the Acquiring
Fund, will issue and deliver a confirmation evidencing the Acquiring Fund Shares
to be credited to the Selling Fund's account on the Closing Date to the
Secretary of TIP Funds or provide evidence satisfactory to TIP Funds that the
Acquiring Fund Shares have been credited to the Selling Fund's account on the
books of the Acquiring Fund. At the Closing, each party to this Agreement will
deliver to the other party such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as the other party or its
counsel may reasonably request.
A-5
<PAGE>
ARTICLE IV
Representations and Warranties.
4.1 TIP Funds, on behalf of the Selling Fund, represents and warrants to
the Vanguard Fund as follows:
(a) The Selling Fund is an investment series of TIP Funds, a business
trust duly organized, validly existing, and in good standing under the laws
of the Commonwealth of Massachusetts;
(b) TIP Funds is a registered open-end management investment company
and its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the 1940 Act is in full force
and effect;
(c) TIP Funds is not, and the execution, delivery, and performance of
this Agreement (subject to approval of the Selling Fund Shareholders) will
not result, in a violation of any provision of its Declaration of Trust or
any material agreement, indenture, instrument, contract, lease or other
undertaking to which TIP Funds on behalf of itself or on behalf of the
Selling Fund is a party or by which its property is bound;
(d) TIP Funds will turn over all of the books and records relating to
the Selling Fund (including all books and records required to be maintained
under the 1940 Act and the Code and the rules and regulations under the
1940 Act and the Code) to the Vanguard Fund at the Closing;
(e) TIP Funds has no contracts or other commitments (other than this
Agreement) with respect to the Selling Fund that will be terminated with
liability to TIP Funds prior to the Closing Date;
(f) Except as previously disclosed in writing to and accepted by the
Vanguard Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending, or to TIP
Funds' knowledge, threatened against TIP Funds in connection with the
Selling Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect TIP Funds' financial
condition or the conduct of its business. TIP Funds knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body that materially and adversely affects its
business or the business of the Selling Fund or TIP Funds' ability to
consummate the transactions contemplated by this Agreement;
(g) The statements of assets and liabilities of TIP Funds relating to
the Selling Fund for the period beginning with commencement of the Selling
Fund and ending on
A-6
<PAGE>
September 30, 1999 have been audited by Ernst & Young LLP, certified public
accountants, and are in accordance with generally accepted accounting
principles consistently applied, and those statements (copies of which have
been furnished to the Acquiring Fund) fairly reflect the financial
condition of the Selling Fund as of such dates, and no known contingent
liabilities of the Selling Fund exist as of such dates that are not
disclosed in those statements;
(h) Since September 30, 1999, no material adverse change has occurred
in the Selling Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year
from the date that such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Vanguard Fund. For the purposes of this
subparagraph (h), a decline in net asset value per share or the total
assets of the Selling Fund in the ordinary course of business does not
constitute a material adverse change;
(i) At the Closing Date, all federal and other tax returns and reports
with respect to the Selling Fund required by law to have been filed by the
Closing Date will have been filed, and all federal and other taxes will
have been paid so far as due, or provision will have been made for the
payment of those taxes and, to the best of TIP Funds' knowledge, no such
tax return is currently under audit and no assessment has been asserted
with respect to such a return;
(j) For each of its prior fiscal years of operation, TIP Funds has met
the requirements of Subchapter M of the Code for qualification and
treatment of the Selling Fund as a regulated investment company; and all of
the Selling Fund's issued and outstanding shares have been offered and sold
in compliance in all material respects with applicable federal and state
securities laws;
(k) At the date of this Agreement, all issued and outstanding shares
of the Selling Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Selling Fund will, at the time of Closing, be
held by the persons and the amounts set out in the records of TIP Funds'
transfer agent as provided in paragraph 3.4 of this Agreement. TIP Funds
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Selling Fund's Shares, nor is any
security convertible into any of the Selling Fund's shares currently
outstanding;
(l) At the applicable Closing Date, TIP Funds will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 of this Agreement, and full right,
power and authority to sell, assign, transfer and deliver the assets under
the terms and conditions of this Agreement and, upon delivery and payment
for the assets, the Acquiring Fund will acquire good and marketable title
to
A-7
<PAGE>
them, subject to no restrictions on the full transfer of the assets,
including such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act"), other than as disclosed to the Vanguard
Fund;
(m) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions on the part of TIP Funds' Board of
Trustees and, subject to the approval of the Selling Fund Shareholders,
this Agreement will constitute a valid and binding obligation of TIP Funds,
enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
equity principles;
(n) The information to be furnished by TIP Funds for use in no-action
letters, applications for exemptive orders, registration statements, proxy
materials and other documents that may be necessary in connection with the
transactions contemplated by this Agreement will be accurate and complete
in all material respects and will comply in all material respects with
federal securities and other laws and regulations under those laws
applicable to those transactions;
(o) The proxy statement of the Selling Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in paragraph 5.7 of
this Agreement (insofar as it relates to the Selling Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in the Proxy Statement or necessary to make the
statements in the Proxy Statement, in light of the circumstances under
which the statements were made, not materially misleading; and
(p) The current prospectus and statement of additional information
filed with the Commission as part of TIP Funds' registration statement on
Form N-1A relating to the Selling Fund conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations under those Acts and do not include any untrue statement of
a material fact or omit to state any material fact required to be stated in
that registration statement or necessary to make the statements in the
registration statement, in light of the circumstances under which they were
made, not misleading.
4.2 The Vanguard Fund, on behalf of the Acquiring Fund, represents and
warrants to TIP Funds as follows:
(a) The Acquiring Fund is an investment series of a business trust,
duly organized, validly existing and in good standing under the laws of the
State of Delaware;
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(b) The Vanguard Fund is a registered open-end management investment
company and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information
filed as part of the Vanguard Fund's registration statement on Form N-1A,
which will become effective prior to the Closing Date, insofar as they
relate to the Acquiring Fund (the "Vanguard Fund Registration Statement")
conform in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated in the Vanguard Fund
Registration Statement or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading;
(d) The Vanguard Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of its
Declaration of Trust or any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Vanguard Fund on behalf
of itself or on behalf of the Acquiring Fund is a party or by which it is
bound;
(e) Except as previously disclosed in writing to and accepted by TIP
Funds, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to the
Vanguard Fund's knowledge, threatened against the Vanguard Fund in
connection with the Acquiring Fund or any of its properties or assets that,
if adversely determined, would materially and adversely affect the Vanguard
Fund's financial condition or the conduct of its business. The Vanguard
Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that materially
and adversely affects its business or the business of the Acquiring Fund or
the Vanguard Fund's ability to consummate the transactions contemplated in
this Agreement;
(f) Since the inception of the Acquiring Fund, no material adverse
change has occurred with respect to the Acquiring Fund's financial
condition, assets, liabilities or business other than changes occurring in
the ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date that such
indebtedness was incurred, except as otherwise disclosed to and accepted by
TIP Funds. For the purposes of this subparagraph (f), a decline in net
asset value per share or the total assets of the Acquiring Fund in the
ordinary course of business does not constitute a material adverse change;
(g) At the Closing Date, all federal and other tax returns and reports
with respect to the Acquiring Fund required by law to have been filed by
the Closing Date will have been filed, and all federal and other taxes will
have been paid so far as due, or provision will have been made for the
payment of those taxes;
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(h) The Vanguard Fund intends to meet the requirements of Subchapter M
of the Code for qualification and treatment of the Acquiring Fund as a
regulated investment company in the future;
(i) At the date of this Agreement, all issued and outstanding
Acquiring Fund Shares are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, with no
personal liability attaching to the ownership of those shares. The Vanguard
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any Acquiring Fund Shares, nor is any security
convertible into any Acquiring Fund Shares currently outstanding;
(j) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions, if any, of the Vanguard Fund's
Board of Trustees, and this Agreement will constitute a valid and binding
obligation of the Vanguard Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(k) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, under the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership of those shares;
(l) The information to be furnished by the Vanguard Fund for use in
no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents that may be necessary in
connection with the transactions contemplated in this Agreement will be
accurate and complete in all material respects and will comply in all
material respects with federal securities and other laws and regulations
applicable to those transactions;
(m) The Proxy Statement to be included in the Registration Statement
referred to in paragraph 5.7 of this Agreement (insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated in the
Proxy Statement or necessary to make the statements in the Proxy Statement,
in light of the circumstances under which such statements were made, not
materially misleading; and
(n) The Vanguard Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and the 1940 Act
as it may deem appropriate in order to continue the operations of the
Acquiring Fund after the Closing Date.
ARTICLE V
Covenants of the Acquiring Fund and the Selling Fund.
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5.1 The Vanguard Fund will operate the business of the Acquiring Fund, and
TIP Funds will operate the business of the Selling Fund, in the ordinary course
between the date of this Agreement and the Closing Date. The Vanguard Fund and
TIP Funds agree for purposes of this Agreement that the declaration and payment
of customary dividends and distributions will be considered to have been paid in
the ordinary course of business.
5.2 TIP Funds, on behalf of the Selling Fund, will call a meeting of its
shareholders to consider and act upon this Agreement and to take all other
actions in coordination with the Vanguard Fund necessary to obtain approval of
the transactions contemplated by this Agreement.
5.3 TIP Funds, on behalf of the Selling Fund, covenants that the Acquiring
Fund Shares to be issued under this Agreement are not being acquired for the
purpose of making any distribution other than in accordance with the terms of
this Agreement.
5.4 TIP Funds, on behalf of the Selling Fund, will assist the Vanguard Fund
in obtaining all information that the Vanguard Fund reasonably requests
concerning the beneficial ownership of the Selling Fund's Shares.
5.5 Subject to the provisions of this Agreement, the Vanguard Fund and TIP
Funds each will take, or cause to be taken, all action, and do, or cause to be
done, all actions reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, including any
actions required to be taken after the Closing Date.
5.6 As promptly as practicable, but in any case within forty-five calendar
days after the Closing Date, TIP Funds will furnish the Vanguard Fund, in such
form as is reasonably satisfactory to the Vanguard Fund, a statement of the
earnings and profits of the Selling Fund for federal income tax purposes that
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code, and that will be certified by the Selling Fund's President and its
Treasurer.
5.7 TIP Funds, on behalf of the Selling Fund, will provide the Vanguard
Fund with information reasonably necessary for the preparation of a prospectus
(the "Prospectus") that will include the Proxy Statement referred to in
paragraphs 4.1(o) and 4.2(m)of this Agreement, all to be included in a
registration statement on Form N-14 of the Vanguard Fund (the "Registration
Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act in connection with the meeting of the
Selling Fund's shareholder to consider approval of this Agreement and the
transactions contemplated by this Agreement.
5.8 As promptly as practicable, but in any case within thirty days of the
Closing Date, TIP Funds, on behalf of the Selling Fund, will furnish the
Vanguard Fund with a statement containing information required for purposes of
complying with Rule 24f-2 under the 1940 Act. A notice pursuant to Rule 24f-2
will be filed by the Acquiring Fund offsetting redemptions by the Selling Fund
during the fiscal year ending on or after the applicable Closing Date against
sales of the Acquiring Fund Shares; and TIP Funds agrees that it will not net
redemptions during that period by the Selling Fund against sales of shares of
any other series of TIP Funds.
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ARTICLE VI
Conditions Precedent to the Obligations of TIP Funds.
The obligations of TIP Funds to consummate the transactions provided for in
this Agreement will be subject, at its election, to the performance by the
Vanguard Fund of all obligations to be performed by it under this Agreement on
or before the Closing Date and, in addition to those obligations to the
following specific conditions:
6.1 All representations and warranties of the Vanguard Fund contained in
this Agreement will be true and correct in all material respects as of the date
of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 The Vanguard Fund will have delivered to TIP Funds a certificate
executed in its name by its Chief Executive Officer, President or Vice President
and its Secretary, Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to TIP Funds and dated as of the Closing Date, to the effect that
the representations and warranties of the Vanguard Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement and as to such other
matters as TIP Funds may reasonably request.
6.3 TIP Funds will have received on the Closing Date a favorable opinion
from Shearman & Sterling, counsel to the Vanguard Fund, dated as of the Closing
Date, in a form reasonably satisfactory to TIP Funds, covering the following
points:
(a) the Acquiring Fund is a separate series of the Vanguard Fund, a
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and the Vanguard Fund has the corporate
power to own all of the Acquiring Fund's properties and assets and to carry
on the Acquiring Fund's business as presently conducted;
(b) the Vanguard Fund is registered as an investment company under the
1940 Act, and, to such counsel's knowledge, the Fund's registration with
the Commission as an investment company under the 1940 Act is in force and
effect with respect to the Acquiring Fund;
(c) this Agreement has been duly authorized, executed and delivered by
the Vanguard Fund and, assuming that the Prospectus, Registration Statement
and Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act
and the rules and regulations under those laws and, assuming due
authorization, execution and delivery of the Agreement by TIP Funds, is a
valid and binding obligation of the Vanguard Fund enforceable against the
Vanguard Fund in accordance with its terms, subject to the effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and to
general equity principles;
(d) the Acquiring Fund Shares to be issued to the Selling Fund's
shareholders as provided by this Agreement are duly authorized and upon
delivery will be validly issued and
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outstanding and are fully paid and nonassessable with no personal
liability attaching to ownership of the Shares, and no shareholder of
the Acquiring Fund has any preemptive rights to subscription or
purchase in respect of the Shares;
(e) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result
in a violation of the Vanguard Fund's Declaration of Trust or in a
material violation of any provision of any agreement relating to the
Acquiring Fund (known to such counsel) to which the Vanguard Fund is a
party or by which it or its properties are bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which the Vanguard Fund is a party or by which it or its properties
are bound;
(f) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States or State of Delaware is required for the consummation by
the Vanguard Fund of the actions contemplated in this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act and
the 1940 Act;
(g) the descriptions in the Proxy Statement, insofar as they
relate to the Vanguard Fund or the Acquiring Fund, of statutes, legal
and governmental proceedings, investigations, orders, decrees or
judgments of any court or governmental body in the United States, and
contracts and other documents, if any, are accurate and fairly present
the information required to be shown;
(h) such counsel does not know of any legal, administrative or
governmental proceedings, investigation, order, decree or judgment of
any court or governmental body, insofar as they relate to the Vanguard
Fund or the Acquiring Fund or its assets or properties, pending,
threatened or otherwise existing on or before the effective date of
the Registration Statement or the Closing Date, which are required to
be described in the Registration Statement or to be filed as exhibits
to the Registration Statement that are not described and filed as
required; and
(i) the Vanguard Fund Registration Statement is effective under
the 1933 Act and the 1940 Act and no stop-order suspending its
effectiveness or order pursuant to section 8(e) of the 1940 Act has
been issued.
Counsel also will state that they have participated in conferences with
officers and other representatives of the Vanguard Fund at which the contents of
the Proxy Statement, the Vanguard Fund Registration Statement and related
matters were discussed and, although they are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Proxy Statement and the Vanguard Fund Registration Statement
(except to the extent indicated in paragraph (g) of their above opinion), on the
basis of the foregoing information (relying as to materiality upon the opinions
of officers and other representatives of the Vanguard Fund), they do not believe
that the Proxy Statement and the Vanguard Fund Registration Statement as of
their respective dates, as of the date of the Selling Fund's shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated in the Proxy
Statement and the Vanguard Fund Registration Statement or
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necessary to make the statements in the Proxy Statement and the Vanguard Fund
Registration Statement in the light of the circumstances under which they were
made not misleading.
The opinion may state that counsel does not express any opinion or belief
as to the financial statements or other financial data, or as to the information
relating to TIP Funds or the Selling Fund, contained in the Proxy Statement,
Registration Statement or the Vanguard Fund Registration Statement, and that the
opinion is solely for the benefit of TIP Funds and its directors and officers.
Such counsel may rely as to matters governed by the laws of the State of
Delaware on an opinion of local counsel and/or certificates of officers or
directors of the Acquiring Fund. The opinion also will include such other
matters incident to the transaction contemplated by this Agreement, as TIP Funds
may reasonably request.
In this paragraph 6.3, references to the Proxy Statement include and relate
only to the text of such Proxy Statement and not, except as specifically stated
above, to any exhibits or attachments to the Proxy Statement or to any documents
incorporated by reference in the Proxy Statement.
ARTICLE VII
Conditions Precedent to the Obligations of the Vanguard Fund.
The obligations of the Vanguard Fund to complete the transactions provided
for in this Agreement will be subject, at its election, to the performance by
TIP Funds of all the obligations to be performed by it under this Agreement on
or before the Closing Date and, in addition to those obligations, the following
conditions:
7.1 All representations and warranties of TIP Funds contained in this
Agreement will be true and correct in all material respects as of the date of
this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 TIP Funds will have delivered to the Vanguard Fund a statement of the
Selling Fund's assets and liabilities, together with a list of the Selling
Fund's portfolio securities showing the tax costs of those securities by lot and
the holding periods of the securities, as of the Closing Date, certified by the
Treasurer or Assistant Treasurer of TIP Funds;
7.3 TIP Funds will have delivered to the Vanguard Fund on the Closing Date
a certificate executed in its name, and on behalf of the Selling Fund, by its
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Vanguard Fund and dated as of the Closing
Date, to the effect that the representations and warranties of TIP Funds made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Vanguard Fund shall reasonably request; and
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7.4 The Vanguard Fund will have received on the Closing Date a
favorable opinion of Morgan, Lewis & Bockius LLP, counsel to TIP Funds, dated as
of the Closing Date, in a form reasonably satisfactory to the Vanguard Fund,
covering the following points:
(a) the Selling Fund is a separate investment series of TIP
Funds, a business trust that is duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts
and TIP Funds has the corporate power to own all of the Selling Fund's
properties and assets and to carry on the Selling Fund's business as
presently conducted;
(b) TIP Funds is registered as an investment company under the
1940 Act and, to such counsel's knowledge, TIP Funds' registration
with the Commission as an investment company under the 1940 Act is in
force and effect with respect to the Selling Fund;
(c) this Agreement has been duly authorized, executed and
delivered by TIP Funds and, assuming that the Prospectus, the
Registration Statement and the Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations under
those laws and, assuming due authorization, execution and delivery of
the Agreement by the Vanguard Fund, is a valid and binding obligation
of TIP Funds enforceable against TIP Funds in accordance with its
terms, subject to the effect of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws relating to or
affecting creditors, rights generally and to general equity
principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated by this Agreement will
not, result in a violation of TIP Funds' Declaration of Trust or a
material violation of any provision of any agreement (known to such
counsel) to which TIP Funds is a party or by which it or its
properties are bound or, to the knowledge of such counsel, result in
the acceleration of any obligation or the imposition of any penalty,
under any agreement, judgment or decree to which TIP Funds is a party
or by which it or its properties are bound;
(e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States or Commonwealth of Massachusetts is required for the
consummation by TIP Funds of the transactions contemplated in this
Agreement, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act;
(f) the descriptions in the Proxy Statement under the captions
[add relevant caption headings], insofar as they relate to TIP Funds,
are accurate and fairly present the information required to be shown;
and
(g) counsel does not know of any legal, administrative or
governmental proceedings, investigation, order, decree or judgment of
any court or governmental body, only insofar as they relate to TIP
Funds or its respective assets or properties, pending, threatened or
otherwise existing on or before the effective date of the Registration
Statement or the Closing Date, which are required to be described in
the Registration Statement or to be filed as exhibits to the
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Registration Statement that are not described and filed as required or
that materially and adversely affect the Selling Fund's business.
Counsel also will state that they have participated in conferences with
officers and other representatives of TIP Funds at which the contents of the
Proxy Statement and related matters were discussed and, although they are not
passing upon and do not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Proxy Statement (except to the
extent indicated in paragraph (f) of their above opinion), on the basis of the
foregoing information (relying as to materiality to a large extent upon the
opinions of officers and other representatives of TIP Funds), they do not
believe that the Proxy Statement as of its date, as of the date of the Selling
Fund's shareholder meeting, and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated in the Proxy Statement regarding the Selling Fund or necessary in the
light of the circumstances under which they were made, to make the statements in
the Proxy Statement regarding the Selling Fund not misleading.
The opinion may state that counsel does not express any opinion or belief
as to the financial statements or other financial data, or as to the information
relating to the Vanguard Fund or the Acquiring Fund, contained in the Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of the Vanguard Fund and its directors and officers. The opinion also
will include such other matters incident to the transaction contemplated by this
Agreement as the Fund may reasonably request.
In this paragraph 7.4, references to the Proxy Statement include and relate
only to the text of the Proxy Statement and not to any exhibits or attachments
to the Proxy Statement or to any documents incorporated by reference in the
Proxy Statement.
7.5 The Vanguard Fund will have received from Ernst & Young LLP a letter
addressed to the Vanguard Fund dated as of the effective date of the
Registration Statement in form and substance satisfactory to the Vanguard Fund,
to the effect that:
(a) they are independent public accountants with respect to TIP
Funds within the meaning of the 1933 Act and the applicable
regulations under the 1933 Act;
(b) in their opinion, the financial statements and per share
income and capital changes of the Selling Fund included or
incorporated by reference in the Registration Statement and reported
on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the rules and
regulations under the 1933 Act;
(c) on the basis of limited procedures agreed upon by the
Vanguard Fund and TIP Funds and described in the letter (but not an
audit in accordance with generally accepted auditing standards) with
respect to the unaudited pro forma financial statements of the Selling
Fund included in the Registration Statement and the Proxy Statement,
and inquiries of appropriate officials of TIP Funds or the officers of
TIP Funds responsible for financial and accounting matters, nothing
came to their attention that caused them to believe that (i) the
unaudited pro forma financial statements do not comply as to form in
all material respects with the applicable accounting
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requirements of the 1933 Act and the rules and regulations under the
1933 Act, or (ii) the unaudited pro forma financial statements are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements; and
(d) on the basis of limited procedures agreed upon by the
Vanguard Fund and TIP Funds and described in the letter (but not an
examination in accordance with generally accepted auditing standards),
the information relating to the Selling Fund appearing in the
Registration Statement and the Proxy Statement that is expressed in
dollars or percentages of dollars (with the exception of performance
comparisons) has been obtained from the accounting records of the
Selling Fund or from schedules prepared by officers of TIP Funds
having responsibility for financial and reporting matters and the
information is in agreement with these records, schedules or
computations made from those documents.
7.6 TIP Funds will have delivered to the Vanguard Fund, pursuant to
paragraph 4.1(f) of this Agreement, copies of financial statements of the
Selling Fund as of and for its most recently completed fiscal year.
7.7 The Vanguard Fund will have received from Ernst & Young LLP a letter
addressed to the Vanguard Fund and dated as of the applicable Closing Date
stating that as of a date no more than three business days prior to the
applicable Closing Date, Ernst & Young LLC performed limited procedures in
connection with TIP Funds' most recent unaudited financial statements relating
to the Selling Fund and that (a) nothing came to their attention in performing
the limited procedures or otherwise that led them to believe that any changes
had occurred in the assets, liabilities, net assets, net investment income, net
increase (decrease) in net assets from operations or net increase (decrease) in
net assets as compared with amounts as of the Selling Fund's most recent audited
fiscal year end or the corresponding period in the Selling Fund's most recent
audited fiscal year, other than changes occurring in the ordinary course of
business and (b) based on the limited procedures, no change has occurred in
their report on the most recent audited financial statements of TIP Funds
relating to the Selling Fund.
ARTICLE VIII
Further Conditions Precedent to Obligations of the Acquiring Fund and the
Selling Fund.
8.1 The Agreement and the transactions contemplated in the Agreement will
have been approved by the requisite vote of the holders of the outstanding
shares of the Selling Fund in accordance with the provisions of TIP Funds'
Declaration of Trust and applicable law and certified copies of the votes
evidencing the approval will have been delivered to the Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding will be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated by this Agreement. On the Closing
Date, the Commission will not have issued an unfavorable report under Section
25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the
consummation of the transactions
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contemplated by this Agreement under Section 25(c) of the 1940 Act, and no
action, suit or other proceeding will be threatened or pending before any court
or governmental agency in which it is sought to restrain or prohibit, or obtain
damages or other relief in connection with, this Agreement or the transactions
contemplated by this Agreement.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state blue sky and securities authorities, including
no-action positions of and exemptive orders from federal and state authorities)
deemed necessary by the Vanguard Fund or TIP Funds to permit consummation, in
all material respects, of the transactions contemplated by this Agreement will
have been obtained, except if the failure to obtain any such consent, order or
permit would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Selling Fund, provided that either the
Vanguard Fund or TIP Funds may for itself waive any of the conditions in this
paragraph 8.3.
8.4 The Vanguard Fund Registration Statement and the Registration Statement
will each have become effective under the 1933 Act and no stop orders suspending
the effectiveness of the Vanguard Fund Registration Statement and the
Registration Statement will have been issued and, to the best knowledge of the
Vanguard Fund or TIP Funds, no investigation or proceeding for that purpose will
have been instituted or be pending, threatened or contemplated under the 1933
Act.
8.5 The parties will have received a favorable opinion of Stradley Ronon
Stevens & Young, LLP, addressed to, and in form and substance satisfactory to
TIP Funds substantially to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this Agreement and based
upon certificates with respect to matters of fact from the officers of TIP Funds
and the Vanguard Fund, that for federal income tax purposes:
(a) the transfer of all or substantially all of the Selling
Fund's assets in exchange for Acquiring Fund Shares and the assumption
by the Acquiring Fund of the Liabilities of the Selling Fund will
constitute a "reorganization" within the meaning of Section
368(a)(1)(F) of the Code and the Acquiring Fund and the Selling Fund
are each a "party to a reorganization" within the meaning of Section
368(b) of the Code; (b) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Selling Fund
solely in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Liabilities of the Selling Fund; however, no
opinion will be expressed as to whether any accrued market discount
will be required to be recognized as ordinary income; (c) no gain or
loss will be recognized by the Selling Fund upon the transfer of the
Selling Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
Liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to the Selling
Fund's shareholders in exchange for their shares of the Selling Fund;
(d) no gain or loss will be recognized by shareholders of the Selling
Fund upon the exchange of their Selling Fund Shares for the Acquiring
Fund Shares and the assumption by the Acquiring Fund of the
Liabilities of the Selling Fund; (e) the aggregate tax basis for the
Acquiring Fund Shares received by each of the Selling Fund
Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the Selling Fund Shares held by the shareholder
immediately prior to the Reorganization, and the holding period of the
Acquiring Fund
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Shares to be received by each Selling Fund shareholder will include
the period during which the Selling Fund Shares exchanged for the
Acquiring Fund Shares were held by the shareholder (provided that the
Selling Fund Shares were held as capital assets on the date of the
Reorganization); and (f) the tax basis of the Selling Fund's assets
acquired by the Acquiring Fund will be the same as the tax basis of
the assets to the Selling Fund immediately prior to the
Reorganization, and the holding period of the assets of the Selling
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Selling Fund.
Notwithstanding anything in this Agreement to the contrary, neither the
Vanguard Fund nor TIP Funds may waive the conditions set out in this paragraph
8.5.
ARTICLE IX
Brokerage Fees and Expenses; Other Agreements.
9.1 The Vanguard Fund represents and warrants to TIP Funds, and TIP Funds
represents and warrants to the Vanguard Fund, that no brokers or finders or
other entities are entitled to receive any payments in connection with the
transactions provided for in this Agreement.
9.2 The Vanguard Fund or its affiliates agrees to bear certain of the
expenses incurred in connection with the transactions contemplated by this
Agreement, whether or not consummated (excluding extraordinary expenses such as
litigation expenses, damages and other expenses not normally associated with
transactions of the type contemplated by this Agreement). These expenses consist
of: (i) expenses incurred by Vanguard in connection with preparing this
Agreement and the Registration Statement; (ii) expenses incurred by Vanguard in
connection with preparing and filing the Vanguard Fund Registration Statement;
(iii) fees and expenses of preparing and filing such forms for notification
purposes, if required under applicable state securities laws with respect to the
Acquiring Fund Shares to be issued in connection with the Reorganization; and
(iv) postage, printing, accounting fees, and legal fees incurred in connection
with the transactions contemplated by this Agreement.
9.3 TIP Funds or its affiliates agrees to bear certain of the expenses
incurred in connection with the transactions contemplated by this Agreement.
These expenses consist of (i) expenses incurred by TIP Funds in connection with
preparing this Agreement and the Registration Statement; (ii) expenses
associated with preparing the Proxy Statement; and (iii) solicitation costs and
expenses incurred in connection with the shareholders meeting referred to in
paragraph 5.2 of this Agreement.
9.4 (a) TIP Funds or its affiliates ("Turner") will indemnify and hold
harmless the Vanguard Fund, the Acquiring Fund, The Vanguard Group, Inc., their
directors, officers, employees, and affiliates (each, a "Turner Indemnified
Party"), from and against any and all damages, costs and expenses (including
reasonable attorney's fees and costs) incurred by any of them as a result of any
breach or failure of TIP Funds' representations or warranties under this
Agreement, or as a result of any willful misconduct or negligence by TIP Funds
in the performance (or failure to perform) of TIP Funds' obligations under this
Agreement.
A-19
<PAGE>
(b) Turner's agreement to indemnify a Turner Indemnified Party
pursuant to paragraph 9.4(a) is expressly conditioned upon Turner's being
promptly notified of any action or claim brought against any Turner Indemnified
Party after that party receives notice of the action. The failure of a Turner
Indemnified Party to notify Turner will not relieve Turner from any liability
that Turner may have otherwise than on account of this indemnification
agreement.
(c) In case any action or claim is brought against any Turner
Indemnified Party and that party timely notifies Turner of the commencement of
the action or claim, Turner will be entitled to participate in and, to the
extent that it wishes to do so, to assume the defense of the action or claim
with counsel satisfactory to it. If Turner decides to assume the defense of the
action, Turner will not be liable to the Turner Indemnified Party for any legal
or other expenses subsequently incurred by the Turner Indemnified Party in
connection with the defense of the action or claim other than: (i) reasonable
costs of investigation or the furnishing of documents or witnesses and (ii) all
reasonable fees and expenses of separate counsel to the Turner Indemnified Party
if the Turner Indemnified Party has concluded reasonably that representation of
Turner and the Turner Indemnified Party would be inappropriate as a result of
actual or potential differing interests between them in the conduct of the
defense of such action.
9.5 (a) The Vanguard Fund or its affiliates ("Vanguard") will indemnify
and hold harmless TIP Funds, the Selling Fund, Turner Investment Partners, Inc.,
their directors, officers, employees and affiliates (each, a "Vanguard
Indemnified Party") from and against any and all damages (including reasonable
attorney's fees and costs) incurred by any of them as a result of any breach or
failure of the Vanguard Fund's representations or warranties under this
Agreement, or as a result of any willful misconduct or negligence by the
Vanguard Fund in the performance (or failure to perform) of the Vanguard Fund's
obligations under this Agreement.
<PAGE>
(b) Vanguard's agreement to indemnify a Vanguard Indemnified
Party pursuant to this paragraph 9.5(b) is expressly conditioned upon
Vanguard's being promptly notified of any action or claim brought
against any Vanguard Indemnified Party after that party receives
notice of the action. The failure of a Vanguard Indemnified Party to
notify Vanguard will not relieve Vanguard from any liability that
Vanguard may have otherwise than on account of this indemnification
agreement.
(c) In case any action or claim is brought against any Vanguard
Indemnified Party and that party timely notifies Vanguard of the
commencement of the action or claim, Vanguard will be entitled to
participate in and, to the extent that it wishes to do so, to assume
the defense of the action or claim with counsel satisfactory to it. If
Vanguard decides to assume the defense of the action, Vanguard will
not be liable to the Vanguard Indemnified Party for any legal or other
expenses subsequently incurred by the Vanguard Indemnified Party in
connection with the defense of the action or claim other than: (i)
reasonable costs of investigation or the furnishing of documents or
witnesses and (ii) all reasonable fees and expenses of separate
counsel to the Vanguard Indemnified Party if the Vanguard Indemnified
Party has concluded reasonably that representation of Vanguard and the
Vanguard Indemnified Party would be inappropriate as a result of
actual or potential differing interest between them in the conduct of
the defense as a result of the action.
A-20
<PAGE>
ARTICLE X
Entire Agreement; Survival of Warranties.
10.1 The Vanguard Fund and TIP Funds agree that neither of them has made
any representation, warranty or covenant not set forth in this Agreement and
that this Agreement represents the entire agreement among them.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered in accordance with its terms will survive
the consummation of the transactions contemplated under this Agreement.
ARTICLE XI
Termination.
11.1 This Agreement may be terminated at any time at or prior to the
Closing Date by: (i) mutual agreement of TIP Funds and the Vanguard Fund; (ii)
TIP Funds, in the event the Vanguard Fund has, or the Vanguard Fund in the event
TIP Funds has, materially breached any representation, warranty or agreement
contained in this Agreement to be performed at or prior to the Closing Date; or
(iii) TIP Funds, or the Vanguard Fund in the event a condition included in this
Agreement expressed to be precedent to the obligations of the terminating party
or parties has not been met and it reasonably appears that it will not or cannot
be met.
11.2 In the event of any such termination, the Vanguard Fund or TIP Funds,
or their respective directors or officers, will not be liable to the other party
or parties.
ARTICLE XII
Amendments.
This Agreement may be amended, modified or supplemented in writing in such
manner as may be mutually agreed upon by the authorized officers of the Vanguard
Fund and TIP Funds; provided, however, that following the meeting of the Selling
Fund's shareholders called pursuant to paragraph 5.2 of this Agreement, no
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Selling Fund's
Shareholders under this Agreement to the detriment of the shareholders without
their further approval.
ARTICLE XIII
A-21
<PAGE>
Notices.
13.1 Any notice, report, statement or demand required or permitted by any
provisions of this Agreement will be in writing and given by prepaid telegraph,
telecopy, or certified mail addressed to TIP Funds:
530 East Swedesford Road,
Wayne, PA 19087
Attention:
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Attention: Edward B. Baer, Esq.
or to the Vanguard Fund at:
P.O. Box 2600
Valley Forge, PA 19482
Attention: Suzanne F. Barton, Esq.
<PAGE>
with a copy to:
Shearman & Sterling
` 1801 Pennsylvania Ave., N.W.
Suite 900
Washington, D.C. 20004
Attention: Barry P. Barbash, Esq.
ARTICLE XIV
Headings; Counterparts; Governing Law; Assignment; Limitation of Liability.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement will be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
A-22
<PAGE>
14.4 This Agreement will bind and inure to the benefit of the parties to
the Agreement and their respective successors and assigns, but no assignment or
transfer of the Agreement or of any rights or obligations under the Agreement
may be made by either party without the written consent of the other party.
Nothing expressed or implied in this Agreement is intended or may be construed
to confer upon or give any person, firm or corporation, other than the parties
to the Agreement and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
* * * * *
A-23
<PAGE>
Each of the parties to this Agreement has caused this Agreement to be
executed by its Chief Executive Officer, President or Vice President, and
attested to by its Secretary or Assistant Secretary.
By: [Vanguard Fund]
Name:[_____________________]
Title:[_____________________]
By:[TIP Funds]
Name:[____________________]
Title:[____________________]
A-24
<PAGE>
TIP FUNDS
Turner Growth Equity Fund
Special Meeting of the Shareholders
PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR
THE SPECIAL MEETING OF SHAREHOLDERS, MAY 22, 2000
The undersigned, revoking previous proxies with respect to the Shares (defined
below), hereby appoints Stephen J. Kneeley and Brian M. Ferko as proxies and
each of them, each with full power of substitution, to vote at the Special
Meeting of Shareholders of the Turner Growth Equity Fund of TIP Funds (the
"Trust") to be held in the offices of Turner Investment Partners, Inc.
("Turner"), 1235 Westlakes Drive, Suite 350, Berwyn, Pennsylvania 19312, on
Monday, May 22, 2000, at 3:30 p.m., and any adjournments or postponements
thereof (the "Meeting") all shares of beneficial interest of said Trust that the
undersigned would be entitled to vote if personally present at the Meeting
("Shares") on the proposal set forth below respecting the proposed Agreement and
Plan of Reorganization between the Trust, on behalf of the Turner Growth Equity
Fund, and Vanguard Fenway Funds, and in accordance with their own discretion,
any other matters properly brought before the Meeting.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS A VOTE "FOR" THE PROPOSAL TO:
PROPOSAL 1. Approval of the reorganization of the Turner Growth Equity Fund into
the Vanguard Growth Equity Fund.
____For ____Against ____Abstain
This proxy will, when properly executed, be voted as directed herein by the
signing Shareholder. If no direction is given when the duly executed Proxy is
returned, this Proxy will be voted FOR the foregoing proposal and will be voted
in the appointed proxies' discretion upon such other business as may properly
come before the Meeting.
The undersigned acknowledges receipt with this Proxy of a copy of the Notice of
Special Meeting and the Proxy Statement of the Board of Trustees. Your
signature(s) on this Proxy should be exactly as your name(s) appear on this
Proxy. If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact, executors, administrators, trustees or guardians should
indicate the full title and capacity in which they are signing.
<PAGE>
Dated: _______________, 2000
--------------------------------
Signature of Shareholder
--------------------------------
Signature (Joint owners)
PLEASE DATE, SIGN AND RETURN PROMPTLY USING THE ENCLOSED, POSTAGE-PAID ENVELOPE
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING; YOU MAY, NEVERTHELESS, VOTE IN
PERSON IF YOU DO ATTEND.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
TURNER GROWTH EQUITY FUND
a Series of
TIP FUNDS
1235 Westlakes Drive, Suite 350
Berwyn, Pennsylvania 19312
(800) 224-6312
By and In Exchange For Shares of
VANGUARD GROWTH EQUITY FUND
a Series of
VANGUARD FENWAY FUNDS
P.O. Box 2600
Valley Forge, Pennsylvania 19482
(610) 669-1000
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Turner Growth Equity Fund
("Growth Equity Fund"), a series of TIP Funds, in exchange for shares of
beneficial interest of Vanguard Fenway Funds, with par value of $.001 per share,
consists of this cover page and the following described documents, each of which
is attached hereto and incorporated by reference herein:
(1) The Turner Growth Equity Fund Prospectus of TIP Funds dated January
31, 2000;
(2) The Statement of Additional Information of TIP Funds dated January 31,
2000;
(3) The Vanguard Fenway Funds Prospectus dated ____________, 2000;
(4) The Statement of Additional Information of Vanguard Fenway Funds dated
________ ___, 2000;
(5) Annual Report of TIP Funds for the year ended September 30, 1999; and
(6) Semi-Annual Report of TIP Funds for the period ended March 31, 1999.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of TIP Funds and Vanguard Fenway Funds dated _________, 2000. A copy
of the Prospectus/Proxy Statement may be obtained without charge by calling or
writing to TIP Funds or Vanguard Fenway Funds, respectively, at the numbers or
addresses set forth above.
The date of this Statement of Additional Information is ______ ___, 2000.
<PAGE>
PROSPECTUS
JANUARY 31, 2000
[LOGO OMITTED]
TIP
TURNER
----------
FUNDS
Turner Large Cap Growth Equity Fund
----------------------------------------------------------------
Turner Growth Equity Fund
----------------------------------------------------------------
Turner Midcap Growth Fund
----------------------------------------------------------------
Turner Small Cap Growth Fund
----------------------------------------------------------------
Turner Micro Cap Growth Fund
----------------------------------------------------------------
Turner Top 20 Fund
----------------------------------------------------------------
Turner Technology Fund
----------------------------------------------------------------
Turner Short Duration Government Funds - One Year Portfolio
----------------------------------------------------------------
Turner Short Duration Government Funds - Three Year Portfolio
----------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
----------------------------------------------------------------
PORTFOLIOS OF THE TIP FUNDS [LOGO OMITTED]
INVESTMENT ADVISER:
Turner Investment Partners, Inc.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
PROSPECTUS
HOW TO READ
YOUR PROSPECTUS
TIP Funds is a mutual fund family that offers different classes of shares in
separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Class I and Class II Shares of the Turner Funds that you should know before
investing. Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Funds. For more detailed information about
the Funds, please see:
2 TURNER LARGE CAP GROWTH EQUITY FUND
4 TURNER GROWTH EQUITY FUND
6 TURNER MIDCAP GROWTH FUND
8 TURNER SMALL CAP GROWTH FUND
10 TURNER MICRO CAP GROWTH FUND
12 TURNER TOP 20 FUND
14 TURNER TECHNOLOGY FUND
16 TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
18 TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
20 TURNER CORE HIGH QUALITY FIXED INCOME FUND
22 INVESTMENTS AND PORTFOLIO MANAGEMENT
25 PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
28 DIVIDENDS, DISTRIBUTIONS AND TAXES
30 FINANCIAL HIGHLIGHTS
TO OBTAIN MORE INFORMATION ABOUT TIP FUNDS PLEASE REFER TO THE BACK COVER OF
THE PROSPECTUS
<PAGE>
PROSPECTUS 1
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
INFORMATION COMMON TO ALL FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that it believes will help each Fund
achieve its goal. Still, investing in the Funds involves risk and there is no
guarantee that a Fund will achieve its goal. The Adviser's judgments about the
markets, the economy, or companies may not anticipate actual market movements,
economic conditions or company performance, and these judgments may affect the
return on your investment. In fact, no matter how good a job the Adviser does,
you could lose money on your investment in the Funds, just as you could with
other investments. A Fund share is not a bank deposit and it is not insured or
guaranteed by the FDIC or any government agency.
The value of your investment in a Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund's share price of a change in the value of a single security
will depend on how widely the Fund diversifies its holdings.
INITIAL PUBLIC OFFERINGS
A number of the Funds, including the Midcap, Small Cap, Micro Cap, Top 20 and
Technology Funds, participate in initial public offerings (IPOs). During 1999,
there were a large number of IPOs, and many of these IPOs were very successful.
The Funds participated in a number of these successful IPOs, and as a result,
these IPOs had a significant impact on the Funds' performance, especially on
those Funds with lower asset levels. There is no guarantee that there will be as
many successful IPOs in the future, or that the Funds will continue to have
access to these successful IPOs. In addition, as Fund assets grow, the positive
impact of successful IPOs on Fund performance will decrease.
<PAGE>
2 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER LARGE CAP GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Very large capitalization U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium to high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify very large capitalization
U.S. companies with strong earnings growth
potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Large Cap Growth Equity Fund invests primarily (at least 65% of its
assets) in common stocks and other equity securities of U.S. companies with very
large market capitalizations (i.e., over $10 billion) that Turner Investment
Partners believes have strong earnings growth potential. The Fund may also
purchase securities of smaller companies that offer growth potential. The Fund
will invest in securities of companies that are diversified across economic
sectors. Portfolio exposure is generally limited to a maximum of 2% in any
single issue. However, the Fund may hold up to two times the Index weighting of
those securities that comprise between 1% and 5% of the Russell Top 200 Growth
Index, and up one and one-half times the Index weighting of those securities
that comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, large capitalization growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for two years.*
[BAR GRAPH OMITTED]
1998 45.22%
1999 55.71%
* The performance information shown above is based on a calendar year.
BEST QUARTER WORST QUARTER
41.30% -8.19%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 3
- --------------------------------------------------------------------------------
TURNER LARGE CAP GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell Top 200 Growth Index and the
S&P 500 Index.
- -----------------------------------------------------------
SINCE
INCEPTION
1 YEAR (2/1/97)
- -----------------------------------------------------------
Turner Large Cap Growth
Equity Fund 55.71% 44.24%
- -----------------------------------------------------------
Russell Top 200 Growth Index 29.68% 33.65%
- -----------------------------------------------------------
S&P 500 Index 21.05% 25.83%
- -----------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell Top 200 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 200
largest U.S. companies with higher growth rates and price-to-price book ratios.
The S&P 500 Index is a widely-recognized, market value-weighted index of 500
stocks designed to mimic the overall equity market's industry weightings.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 1.66%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.41%
Fee waivers and expense reimbursements 1.41%
----
NET TOTAL OPERATING EXPENSES 1.00%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.25% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Large Cap Growth
Equity Fund-Class I Shares $102 $373 $665 $1,505
- --------------------------------------------------------------------------------
<PAGE>
4 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium to high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify reasonably priced large-
and mid-cap U.S. companies with strong
earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Growth Equity Fund invests primarily (at least 65% of its assets) in
common stocks and other equity securities of U.S. companies with large and
medium capitalizations that Turner Investment Partners believes have strong
earnings growth potential and that are reasonably valued at the time of
purchase. The Fund will invest in securities of companies that are diversified
across economic sectors, and will attempt to maintain sector concentrations that
approximate those of its current benchmark, the Russell 1000 Growth Index.
Portfolio exposure is generally limited to a maximum of 2% in any single issue.
However, the Fund may hold up to two times the Index weighting of those
securities that comprise between 1% and 5% of the Russell 1000 Growth Index, and
up to one and one-half times the Index weighting of those securities that
comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, large and medium capitalization growth
stocks, may underperform compared to other market segments or to the equity
markets as a whole.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for seven years.*
[BAR GRAPH OMITTED]
1993 15.38%
1994 (6.73)%
1995 29.96%
1996 19.23%
1997 31.36%
1998 38.07%
1999 53.60%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
39.67% -8.85%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 5
- --------------------------------------------------------------------------------
TURNER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 1000 Growth Index and the S&P
500 Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (3/11/92)
- --------------------------------------------------------------------------------
Turner Growth Equity Fund 53.60% 33.98% 23.68%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index 33.16% 34.21% 22.08%
- --------------------------------------------------------------------------------
S&P 500 Index 21.05% 28.56% 20.51%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 1000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 1000
largest U.S. companies with higher growth rates and price-to-book ratios. The
S&P 500 Index is a widely-recognized, market value-weighted index of 500 stocks
designed to mimic the overall equity market's industry weightings.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.25%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.00%*
* TOTAL OPERATING EXPENSES HAVE BEEN RESTATED TO REFLECT CURRENT EXPENSES. THE
FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE EXPENSES
IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00% FOR A PERIOD OF
ONE YEAR, OR FROM EXCEEDING 1.25% IN ANY SUBSEQUENT YEAR. IN ADDITION, THE FUND
HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN
FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Growth Equity Fund--
Class I Shares $102 $318 $552 $1,225
- --------------------------------------------------------------------------------
<PAGE>
6 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Mid-cap U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- High
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify medium capitalization U.S.
companies with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Midcap Growth Fund invests primarily (at least 65% of its assets) in
common stocks and other equity securities of U.S. companies with medium market
capitalizations (i.e., between $1 billion and $10 billion) that Turner
Investment Partners believes have strong earnings growth potential. The Fund
will invest in securities of companies that are diversified across economic
sectors, and will attempt to maintain sector concentrations that approximate
those of its current benchmark, the Russell Midcap Growth Index. Portfolio
exposure is generally limited to a maximum of 2% in any single issue. However,
the Fund may hold up to two times of the Index weighting of those securities
that comprise between 1% and 5% of the Russell Midcap Growth Index, and up to
one and one-half times the Index weighting of those securities that comprise
more than 5% of the benchmark index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, medium capitalization growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for three years.*
[BAR GRAPH OMITTED]
1997 40.56%
1998 26.52%
1999 125.45%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
54.63% -16.65%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 7
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell Midcap Growth Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (10/1/96)
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund 125.45% 54.87%
- --------------------------------------------------------------------------------
Russell Midcap Growth Index 51.29% 28.29%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell Midcap Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of the 800
smallest U.S. companies out of the 1,000 largest companies with higher growth
rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.50%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.25%
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT -THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE
FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund--
Class I Shares $127 $397 $686 $1,511
- --------------------------------------------------------------------------------
<PAGE>
8 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Small cap U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- High
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify small cap U.S. companies
with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of small cap equity
investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Small Cap Growth Fund invests primarily (at least 65% of its assets)
in common stocks and other equity securities of U.S. companies with small market
capitalizations (i.e., under $2 billion) that Turner Investment Partners
believes have strong earnings growth potential. The Fund will invest in
securities of companies that are diversified across economic sectors, and will
attempt to maintain sector concentrations that approximate those of its current
benchmark, the Russell 2000 Growth Index. Portfolio exposure is generally
limited to a maximum of 2% in any single issue. However, the Fund may hold up to
two times the Index weighting of those securities that comprise between 1% and
5% of the Russell 2000 Growth Index, and up to one and one-half times the Index
weighting of those securities that comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, small cap U.S. growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over the counter or listed on an exchange and may
or may not pay dividends.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for five years.*
[BAR GRAPH OMITTED]
1995 68.16%
1996 28.85%
1997 14.75%
1998 8.53%
1999 85.04%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
44.57% -24.30%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 9
- --------------------------------------------------------------------------------
TURNER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (2/7/94)
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund 85.04% 37.94% 33.44%
Russell 2000 Growth Index 43.09% 18.99% 14.89%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What is an Index?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 2000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of the 2000
smallest U.S. companies out of the 3000 largest U.S. companies with higher
growth rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses 0.31%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.31%
Fee waivers and expense reimbursements 0.06%
----
NET TOTAL OPERATING EXPENSES 1.25%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund--
Class I Shares $127 $409 $713 $1,578
- --------------------------------------------------------------------------------
<PAGE>
10 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Micro cap U.S. common stock
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify micro cap U.S. companies
with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of micro cap equity
investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Micro Cap Growth Fund invests primarily (at least 65% of its assets)
in common stocks and other equity securities of U.S. companies with very small
market capitalizations (i.e., under $500 million) that Turner Investment
Partners believes have strong earnings growth potential. The Fund will invest in
securities of companies that are diversified across economic sectors. Portfolio
exposure is generally limited to a maximum 2% of the Fund's assets at the time
of purchase in any single issue.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, U.S. micro capitalization growth stocks,
may underperform compared to other market segments or to the equity markets as a
whole.
The micro capitalization companies the Fund invests in may be more vulnerable to
adverse business or economic events than larger, more established companies. In
particular, these very small companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group. Micro cap stocks also tend to be traded only in the over the counter
market, and may not be as liquid as larger capitalization stocks. As a result,
the prices of the micro cap stocks owned by the Fund will be very volatile, and
the price movements of the Fund's shares will reflect that volatility.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows the performance of the Fund's Class I Shares for one year.*
[BAR GRAPH OMITTED]
1999 144.39%
BEST QUARTER WORST QUARTER
60.84% 3.89%
(12/31/99) (3/31/99)
<PAGE>
PROSPECTUS 11
- --------------------------------------------------------------------------------
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 2000 Growth Index.
SINCE
INCEPTION
1 YEAR (3/1/98)
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 144.39% 94.15%
- --------------------------------------------------------------------------------
Russell 2000 Growth Index 43.09% 17.69%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What is an Index?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 2000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 2000
smallest U.S. companies out of the 3000 largest U.S. companies with higher
growth rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses 1.86%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.86%
----
Fee waivers and expense reimbursements 1.61%
----
NET TOTAL OPERATING EXPENSES 1.25%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. FOR MORE
INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund--
Class I Shares $127 $450 $798 $1,788
- --------------------------------------------------------------------------------
<PAGE>
12 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Long-term capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. companies with strong
earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Top 20 Fund invests substantially all (at least 80%) of its assets in
common stocks and other equity securities of companies, regardless of their
market capitalization, that Turner Investment Partners believes have strong
earnings growth potential. A number of portfolio managers manage the Fund by
selecting stocks in different sectors and capitalization ranges under the
supervision of Robert Turner. The Fund's portfolio will contain a total of 15-25
stocks representing Turner's favorite investment ideas. By investing in
different sectors and capitalization ranges, Turner seeks to reduce the Fund's
overall level of volatility. Ideally, when one sector or capitalization range is
out of favor, the other ranges will offer a counter-balancing influence.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, U.S. growth stocks, may underperform
compared to other market segments or to the equity markets as a whole.
The smaller capitalization and micro capitalization companies the Fund invests
in may be more vulnerable to adverse business or economic events than larger,
more established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend upon a
relatively small management group. Micro cap stocks also tend to be traded only
in the over the counter market, and may not be as liquid as larger
capitalization stocks. Small cap securities may be traded over the counter or
listed on an exchange and may or may not pay dividends. Therefore, small cap and
micro cap stocks may be very volatile, and the price movements of the Fund's
shares may reflect that volatility.
The Fund is non-diversified, which means that it may invest in the securities of
fewer issuers than a diversified Fund. As a result, the Fund may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Top 20 Fund commenced operations on July 1, 1999. Since the Fund does
not have a full calendar year of performance, performance results have not been
provided.
The Fund will compare its performance to that of the S&P 500 Index. The S&P 500
Index is a widely-recognized, market value-weighted (higher market value stocks
have more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
<PAGE>
PROSPECTUS 13
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.10%*
Distribution (12b-1) Fees None
Other Expenses 1.45%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.55%
Fee waivers and expense reimbursements 1.20%
----
NET TOTAL OPERATING EXPENSES 1.35%**
* THE ADVISORY FEE IS SUBJECT TO A PERFORMANCE ADJUSTMENT BASED ON THE FUND'S
PERFORMANCE RELATIVE TO THE PERFORMANCE OF THE S&P 500 INDEX.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP OTHER EXPENSES FROM EXCEEDING 0.25%. AS A RESULT,
THE ADVISER'S CONTRACTUAL AGREEMENT WILL KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.35% FOR A PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.85% IN ANY
SUBSEQUENT YEAR. IN ADDITION, THE FUND HAS AN ARRANGEMENT WITH CERTAIN
BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN FUND EXPENSES IN RETURN FOR THE
DIRECTION OF A PERCENTAGE OF THE FUND'S BROKERAGE TRANSACTIONS. AS A RESULT
OF THESE ARRANGEMENTS, IT IS ANTICIPATED THAT THE FUND'S EXPENSES WILL BE
REDUCED. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Top 20 Fund-
Class I Shares $137 $533 $954 $2,128
- --------------------------------------------------------------------------------
<PAGE>
14 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Long-term capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Common stocks of technology companies
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify technology companies with
strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of technology-focused
equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Technology Fund invests substantially all (at least 80%) of its
assets in common stocks of companies that develop new technologies and that may
experience exceptional growth in sales and earnings driven by technology-related
products and services. Stock selection will not be based on company size, but
rather on an assessment of a company's fundamental prospects. The Fund's
holdings will be concentrated in the technology sector, and will range from
small companies developing new technologies to large, established firms with a
history of developing and marketing such technologies. These companies may
include companies that develop, produce or distribute products or services in
the computer, semiconductor, electronics, communications, health care and
biotechnology sectors.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization and micro capitalization companies the Fund invests
in may be more vulnerable to adverse business or economic events than larger,
more established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend upon a
relatively small management group. Micro cap stocks also tend to be traded only
in the over-the-counter market, and may not be as liquid as larger
capitalization stocks. Small cap securities may be traded over the counter or
listed on an exchange and may or may not pay dividends. Therefore, small cap and
micro cap stocks may be very volatile, and the price movements of the Fund's
shares may reflect that volatility.
In addition, the Fund is subject to the risk that its principal market segment,
technology stocks, may underperform compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies and product offerings which continue to expand could
cause technology companies to become increasingly sensitive to short product
cycles and aggressive pricing. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Technology Fund commenced operations on July 1, 1999. Since the Fund
does not have a full calendar year of performance, performance results have not
been provided.
The Fund will compare its performance to that of the Pacific Stock Exchange
Technology 100 Index. The Pacific Stock Exchange Technology 100 Index is a
widely-recognized, price weighted index of the top 100 U.S. technology
companies.
<PAGE>
PROSPECTUS 15
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.10%*
Distribution (12b-1) Fees None
Other Expenses 2.79%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 3.89%
Fee waivers and expense reimbursements 2.54%
----
NET TOTAL OPERATING EXPENSES 1.35%**
* THE ADVISORY FEE IS SUBJECT TO A PERFORMANCE ADJUSTMENT BASED ON THE FUND'S
PERFORMANCE RELATIVE TO THE PERFORMANCE OF THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP OTHER EXPENSES FROM EXCEEDING 0.25%. AS A RESULT,
THE ADVISER'S CONTRACTUAL AGREEMENT WILL KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.35% FOR A PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.85% IN ANY
SUBSEQUENT YEAR. IN ADDITION, THE FUND HAS AN ARRANGEMENT WITH CERTAIN
BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN FUND EXPENSES IN RETURN FOR THE
DIRECTION OF A PERCENTAGE OF THE FUND'S BROKERAGE TRANSACTIONS. AS A RESULT
OF THESE ARRANGEMENTS, IT IS ANTICIPATED THAT THE FUND'S EXPENSES WILL BE
REDUCED. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Technology Fund-
Class I Shares $137 $533 $954 $2,128
- --------------------------------------------------------------------------------
<PAGE>
16 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Total return consistent with the preservation of capital
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Fixed income securities issued or guaranteed by the
U.S. government
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Low
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. government securities
that are attractively priced
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking current income with a limited amount of
share price volatility
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Short Duration Government Funds - One Year Portfolio invests
primarily (at least 65% of its assets) in debt securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, including
mortgage-backed securities issued by agencies such as Fannie Mae or the
Government National Mortgage Association (GNMA). In selecting investments for
the Fund, Turner Investment Partners chooses U.S. government obligations that
are attractively priced relative to the market or to similar instruments. In
addition, Turner considers the "effective duration" of the Fund's entire
portfolio when selecting securities. Effective duration is a measure of a
security's price volatility or the risk associated with changes in interest
rates. Although Turner manages interest rate risk by maintaining an effective
duration that is comparable to or less than that of one-year U.S. Treasury
bills, the Fund may invest in securities with any maturity or duration.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's of
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The performance of Class I and Class II Shares will differ due to differences in
expenses. This bar chart shows changes in the per-formance of the Fund's Class I
Shares from year to year for five years.*
[BAR GRAPH OMITTED]
1995 7.61%
1996 6.41%
1997 6.30%
1998 5.84%
1999 5.41%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FIRST
FOUR YEARS OF PERFORMANCE SHOWN IS FOR THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO, THE FUND'S PREDECESSOR. THE FUND BECAME
PART OF THE TIP FUNDS IN 1999.
BEST QUARTER WORST QUARTER
2.04% 1.11%
(12/31/95) (6/30/99)
<PAGE>
PROSPECTUS 17
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for Class I and
Class II Shares for the periods ended December 31, 1999, to those of the Merrill
Lynch Three-Month Treasury Bill Index.
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-One Year Portfolio-
Class I Shares 5.41% 6.31% 6.04%*
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-One Year Portfolio-
Class II Shares 5.40% N/A 5.23%**
- --------------------------------------------------------------------------------
Merrill Lynch Three-Month
Treasury Bill Index 4.84% 5.35% 5.22%***
- --------------------------------------------------------------------------------
* THE INCEPTION DATE FOR CLASS I SHARES IS MARCH 1, 1994.
** THE INCEPTION DATE FOR CLASS II SHARES IS FEBRUARY 27, 1998.
***THE CALCULATION DATE FOR THE INDEX IS MARCH 1, 1994.
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Merrill Lynch Three-Month Treasury Bill Index is an unmanaged index
of Treasury securities that assumes reinvestment of all dividends.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES CLASS II SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 6.28% 6.53%
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 6.53% 6.78%
Fee waivers and expense reimbursements 6.17% 6.17%
----- -----
NET TOTAL OPERATING EXPENSES 0.36%* 0.61%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE CLASS I AND CLASS II
SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD OF ONE YEAR,
OR FROM EXCEEDING 0.86% AND 1.11%, RESPECTIVELY, IN ANY SUBSEQUENT YEAR. FOR
MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND "DISTRIBUTION
OF FUND SHARES."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Turner Short Duration Government Funds-
One Year Portfolio-Class I Shares $37 $225 $432 $1,037
- --------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio-Class II Shares $62 $304 $568 $1,336
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
18 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Total return consistent with the preservation of capital
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Fixed income securities issued or guaranteed by the
U.S. government
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Low to medium
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. government securities
that are attractively priced
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking current income with a limited amount of
share price volatility
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Short Duration Government Funds - Three Year Portfolio invests
primarily (at least 65% of its assets) in debt securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, including
mortgage-backed securities issued by agencies such as Fannie Mae or the
Government National Mortgage Association (GNMA). In selecting investments for
the Fund, Turner Investment Partners chooses U.S. government obligations that
are attractively priced relative to the market or to similar instruments. Turner
considers the "effective duration" of the Fund's entire portfolio when selecting
securities. Effective duration is a measure of a security's price volatility or
the risk associated with changes in interest rates. Although Turner manages
interest rate risk by maintaining an effective duration that is comparable to or
less than that of three-year U.S. Treasury notes, the Fund may invest in
securities with any maturity.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The performance of Class I and Class II Shares will differ due to differences in
expenses. This bar chart shows changes in the performance of the Fund's Class I
Shares from year to year for five years.*
[BAR GRAPH OMITTED]
1995 11.18%
1996 5.26%
1997 6.92%
1998 6.93%
1999 2.75%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FIRST
FOUR YEARS OF PERFORMANCE SHOWN IS FOR THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS - THREE YEAR PORTFOLIO, THE FUND'S PREDECESSOR. THE FUND
BECAME PART OF THE TIP FUNDS IN 1999.
BEST QUARTER WORST QUARTER
3.24% 0.40%
(3/31/95) (3/31/96)
<PAGE>
PROSPECTUS 19
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for Class I Shares
for the periods ended December 31, 1999, to those of the Lehman Brothers 1-3
Year U.S. Government Bond Index.
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-Three Year Portfolio-
Class I Shares 2.75% 6.57% 5.85%*
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-Three Year Portfolio-
Class II Shares N/A N/A 6.29%**
- --------------------------------------------------------------------------------
Lehman Brothers 1-3 Year U.S.
Government Bond Index 2.96% 6.47% 5.79%***
- --------------------------------------------------------------------------------
* THE INCEPTION DATE FOR CLASS I SHARES IS MARCH 1, 1994.
** THE INCEPTION DATE FOR CLASS II SHARES IS APRIL 28, 1999.
***THE CALCULATION DATE FOR THE INDEX IS MARCH 1, 1994.
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Lehman Brothers 1-3 Year U.S. Government Bond Index is a widely
recognized index of U.S. government obligations with maturities of at least one
year.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES CLASS II SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 0.70%* 0.95%*
------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.95% 1.20%
Fee waivers and expense reimbursements 0.59% 0.59%
------ ------
NET TOTAL OPERATING EXPENSES 0.36%** 0.61%**
* OTHER EXPENSES HAVE BEEN RESTATED TO REFLECT CURRENT EXPENSES.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE CLASS I AND CLASS
II SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD OF ONE
YEAR, OR FROM EXCEEDING 0.86% AND 1.11%, RESPECTIVELY, IN ANY SUBSEQUENT
YEAR. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF FUND SHARES."
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Turner Short Duration Government Funds-
Three Year Portfolio-Class I Shares $37 $225 $432 $1,037
- --------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio-Class II Shares $62 $304 $568 $1,336
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
20 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Current income and capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Investment grade U.S. corporate and government bonds
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify quality fixed income
securities with intermediate maturities
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors who are seeking current income and capital
appreciation and who are willing to accept principal risk
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Core High Quality Fixed Income Fund invests primarily (at least 65%
of its assets) in investment grade fixed income securities, including U.S.
government securities, corporate debt securities, mortgage-backed securities,
asset-backed securities, and short-term obligations. Turner Investment Partners
will allocate the Fund's assets among these market sectors based on its analysis
of historical data, yield trends and credit ratings. In selecting investments
for the Fund, Turner chooses securities with intermediate durations that are
attractively priced and that offer competitive yields. Typically, the Fund's
average duration will be between three and six years (although the Fund may hold
securities with longer or shorter durations).
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, U.S. fixed income securities, may underperform compared to other
market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Core High Quality Fixed Income Fund commenced operations on July 1,
1999. Since the Fund does not have a full calendar year of performance,
performance results have not been provided.
The Fund will compare its performance to that of the Lehman Aggregate Bond
Index. The Lehman Aggregate Bond Index is a widely-recognized, market value
weighted (higher market value stocks have made more influence than lower market
value stocks) index of U.S. government obligations, corporate debt securities,
and AAA-rated mortgage-backed securities. All securities in the index are rated
investment grade (BBB) or higher, with maturities of at least one year.
<PAGE>
PROSPECTUS 21
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 1.49%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.99%
Fee waivers and expense reimbursements 1.54%
----
NET TOTAL OPERATING EXPENSES 0.45%*
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.45% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.00% IN ANY SUBSEQUENT YEAR. FOR MORE
INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed
Income Fund-Class I Shares $46 $265 $504 $1,203
- --------------------------------------------------------------------------------
<PAGE>
22 PROSPECTUS
- --------------------------------------------------------------------------------
INVESTMENTS AND PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
THE FUNDS' OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information (SAI). Of course, there is no guarantee that any Fund
will achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that the Funds use under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, each Fund may
invest up to 100% of its assets in cash, repurchase agreements and short-term
obligations that would not ordinarily be consistent with the Funds' objectives.
A Fund will do so only if the Adviser believes that the risk of loss outweighs
the opportunity for gains.
INVESTMENT ADVISER
Turner Investment Partners, Inc., an SEC-registered adviser, serves as the
Adviser to each Fund. As the Funds' Adviser, Turner makes investment decisions
for the Funds and continuously reviews, supervises and administers the Funds'
investment programs. The Adviser also ensures compliance with the Funds'
investment policies and guidelines.
As of December 31, 1999, Turner had approximately $5.6 billion in assets under
management. For its services during the most recent fiscal year, Turner received
investment advisory fees (after waivers and reimbursements) of:
TURNER GROWTH EQUITY FUND 0.75%
TURNER MIDCAP GROWTH FUND 0.75%
TURNER SMALL CAP GROWTH FUND 0.96%
For its services during the most recent fiscal year, Turner received no advisory
fees, and waived/reimbursed expenses of:
TURNER LARGE CAP GROWTH EQUITY FUND 0.66%
TURNER MICRO CAP GROWTH FUND 0.96%
TURNER SHORT DURATION GOVERNMENT
FUNDS - ONE YEAR PORTFOLIO 6.28%
TURNER SHORT DURATION GOVERNMENT
FUNDS - THREE YEAR PORTFOLIO 0.81%
TURNER CORE HIGH QUALITY FIXED
INCOME FUND 1.04%
Turner is entitled to receive base investment advisory fees from the following
Funds as set forth below:
TURNER TOP 20 FUND 1.10%
TURNER TECHNOLOGY FUND 1.10%
However, these fees may be higher or lower depending on a Fund's performance
relative to a benchmark. If a Fund outperforms its benchmark by a set amount,
Turner will receive higher advisory fees. Conversely, if a Fund underperforms
its benchmark by the same amount, Turner will receive lower advisory fees. The
Funds' SAI contains detailed information about each Fund's benchmark, as well as
any possible performance-based adjustments to Turner's fees. These
performance-based adjustments will take effect after the Funds have been in
operation for more than one year.
For the period from July 1, 1999 through September 30, 1999, Turner received no
advisory fees, and waived/reimbursed expenses of:
TURNER TOP 20 FUND 0.10%
TURNER TECHNOLOGY FUND 1.44%
TURNER'S EQUITY INVESTMENT PHILOSOPHY
Turner believes earnings expectations drive stock prices. Turner invests in
companies with strong earnings dynamics, and sells those with deteriorating
earnings prospects. Turner believes forecasts for market timing and sector
rotation are unreliable, and introduce an unacceptable level of risk. As a
result, all portfolios are fully invested and attempt to maintain sector
weightings that are neutral to diversified against those of a benchmark index,
since Turner believes it is imprudent to be overly-invested in any individual
security. This allows Turner's stock selection process to be the primary
determinant of performance.
PORTFOLIO MANAGERS
The Large Cap Growth Equity Fund is managed by a committee comprised of Robert
Turner, John Hammerschmidt and Mark Turner. The Growth Equity Fund is managed by
a committee comprised of Robert Turner, John Hammerschmidt, Mark Turner and
Chris McHugh. The Midcap Growth and Top 20 Funds are managed by a committee
comprised of Chris McHugh, Bill McVail and Robert Turner. The Small Cap Growth
Fund is managed by a committee comprised of Bill McVail, Chris McHugh and Frank
Sustersic. The Micro Cap Growth Fund is managed by a committee comprised of
Frank Sustersic, Bill McVail and Chris Perry. The
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 23
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Technology Fund is managed by a committee comprised of Robert Turner, Chris
McHugh and Robb Parlanti. The Short Duration Government Funds - One Year
Portfolio, Short Duration Government Funds - Three Year Portfolio, and Core High
Quality Fixed Income Fund are managed by a committee comprised of James Midanek
and Robb Parlanti. The background of each committee member is set forth below.
Robert E. Turner is a member of the committees which manage the Large Cap Growth
Equity, Growth Equity, Midcap Growth, Top 20, and Technology Funds, as set forth
above. Mr. Turner, CFA, Chairman and Chief Investment Officer of the Adviser, is
lead manager of the Large Cap Growth Equity, Growth Equity, Top 20, and
Technology Funds and co-manager of the Midcap Growth Fund. Mr. Turner founded
Turner Investment Partners, Inc. in 1990. Prior to 1990, he was Senior
Investment Manager with Meridian Investment Company. He has 19 years of
investment experience.
John Hammerschmidt is a member of the committees which manage the Large Cap
Growth Equity and Growth Equity Funds, as set forth above. Mr. Hammerschmidt,
Senior Equity Portfolio Manager of the Adviser, is co-manager of the Large Cap
Growth Equity and Growth Equity Funds. Mr. Hammerschmidt joined the Adviser in
1992. Prior to 1992, he was Vice President in Government Securities Trading at
S.G. Warburg. He has 17 years of investment experience.
Mark Turner is a member of the committees which manage the Large Cap Equity
Growth and Growth Equity Funds, as set forth above. Mr. Turner, Chairman of the
Adviser, is co-manager of the Growth Equity Fund and Large Cap Growth Equity
Fund. Mr. Turner co-founded Turner Investment Partners, Inc. in 1990. Prior to
1990, he was Vice President and Senior Portfolio Manager with First Maryland
Asset Management. He has 18 years of investment experience.
Christopher K. McHugh is a member of the committees which manage the Midcap
Growth, Small Cap Growth, Top 20 and Technology Funds, as set forth above. Mr.
McHugh, Senior Equity Portfolio Manager of the Adviser, is the lead manager of
the Midcap Growth Fund and co-manager of the Growth Equity, Small Cap Growth,
Top 20 and Technology Funds. Mr. McHugh joined the Adviser in 1990. Prior to
1990, he was a Performance Specialist with Provident Capital Management. He has
14 years of investment experience.
Bill McVail is a member of the committees which manage the Small Cap Growth,
Midcap Growth, Micro Cap Growth and Top 20 Funds, as set forth above. Mr.
McVail, Senior Equity Portfolio Manager of the Adviser, is the lead manager of
the Small Cap Growth Fund and co-manager of the Midcap Growth, Micro Cap Growth
and Top 20 Funds. Mr. McVail joined the Adviser in 1998. Prior to 1998, he was
Portfolio Manager at PNC Equity Advisers. He has 13 years of investment
experience.
Frank L. Sustersic is a member of the committees which manage the Micro Cap and
Small Cap Growth Funds, as set forth above. Mr. Sustersic, Senior Equity
Portfolio Manager of the Adviser, serves as lead manager of the Micro Cap Growth
Fund and co-manager of the Small Cap Growth Fund. Mr. Sustersic joined Turner in
1994. Mr. Sustersic has 11 years of investment experience.
Chris Perry is a member of the committee which manages the Micro Cap Growth
Fund, as set forth above. Mr. Perry, Senior Security Analyst of the Adviser, is
co-manager of the Micro Cap Growth Fund. Mr. Perry joined the Adviser in 1998.
Prior to 1998, he was a Research Analyst with Pennsylvania Merchant Group. He
has 9 years of investment experience.
James L. Midanek is a member of the committee which manages the Short Duration
Government Funds - One Year Portfolio, Short Duration Government Funds - Three
Year Portfolio, and Core High Quality Fixed Income Fund. Mr. Midanek, Chief
Investment Officer for Fixed Income joined the Adviser in 1997. Prior to 1997,
he was Chief Investment Officer of Solon Asset Management, L.P., which he
founded in 1989, and Portfolio Manager of the Short Duration Government Funds.
From 1992 to 1994, Mr. Midanek was Chief Investment Officer to the Fixed Income
Group of Montgomery Asset Management, L.P., where he managed four institutional
fixed income funds. Mr. Midanek has 19 years of investment experience.
Robb J. Parlanti is a member of the committees which manage the Technology and
Fixed Income Funds, as set forth above. Mr. Parlanti, CFA, Senior Portfolio
Manager of the Adviser, is co-manager of the Technology and Fixed Income Funds.
Mr. Parlanti joined the Adviser in 1993. Prior to 1993, he was Assistant Vice
President and Portfolio Manager at PNC Bank. He has 13 years of investment
experience.
1-800-224-6312
<PAGE>
24 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER'S PAST PERFORMANCE
- --------------------------------------------------------------------------------
TURNER'S PAST PERFORMANCE
Since January 1, 1998, Turner has managed some assets in a "top 20" style. In
this style, Turner's best investment ideas are combined in a single portfolio
consisting of 15-25 stocks. There is no limit on the capitalization of any
stock, and these portfolios have typically been invested across a broad range of
sectors and capitalizations.
The following table presents historical performance information for a composite
consisting of the Top 20 Fund and two discretionary "top 20" accounts that are
managed by Turner in a way that is equivalent in all material respects as to
objectives, policies and strategies to how Turner is managing the Top 20 Fund.
This table also compares the performance to that of the Standard & Poor's 500
Index. The computed rates of return include the impact of capital appreciation
as well as the reinvestment of interest and dividends. This data does not
indicate how the Top 20 Fund may perform in the future:
FOURTH 12 MONTHS 1/1/98
CALENDAR ENDED (INCEPTION)
QUARTER 1999 12/31/99 TO 12/31/99
------------ --------- -----------
Composite Gross Performance 60.43% 235.07% 165.18%*
Composite Net Performance 60.25% 232.64% 162.60%*
S&P 500 Performance 14.88% 21.05% 24.75%
*Annualized
THE MODIFIED BANK ADMINISTRATION INSTITUTE (BAI) METHOD IS USED TO COMPUTE A
TIME WEIGHTED RATE OF RETURN IN ACCORDANCE WITH STANDARDS SET BY THE ASSOCIATION
OF INVESTMENT MANAGEMENT AND RESEARCH (AIMR). THE PERFORMANCE FIGURES FOR THE
ADVISER'S ACCOUNTS DESCRIBED ABOVE ARE NET OF ADVISORY FEES AND EXPENSES. THE
EFFECT OF DEDUCTING FUND OPERATING EXPENSES ON ANNUALIZED PERFORMANCE, INCLUDING
THE COMPOUNDING EFFECT OVER TIME, MAY BE SUBSTANTIAL, AND WILL REDUCE THE
PERFORMANCE OF THE FUND.
ALL INFORMATION PRESENTED RELIES ON DATA SUPPLIED BY THE ADVISER AND STATISTICAL
SERVICES, REPORTS OR OTHER SOURCES BELIEVED BY THE TRUST TO BE RELIABLE. IT HAS
NOT BEEN INDEPENDENTLY VERIFIED OR AUDITED BY THE FUNDS.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 25
- --------------------------------------------------------------------------------
PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
IN ORDER TO OPEN A NEW ACCOUNT YOU MUST COMPLETE AND MAIL THE NEW ACCOUNT
APPLICATION THAT YOU RECEIVE WITH THIS PROSPECTUS.
- --------------------------------------------------------------------------------
All trades must be received by the Funds' Transfer Agent by 4:00 PM EST.
Your check must be made payable to the Turner Funds or wires must be sent to the
instructions listed below.
Each Fund's minimum initial investment is $2,500 with minimum subsequent
purchases of $50.
Once you are a shareholder of the Turner Funds you can do the following:
[BULLET] PURCHASE, SELL OR EXCHANGE FUND SHARES BY PHONE. Call 1-800-224-6312
between 9:00 AM and 4:00 PM EST Monday through Friday and press 3 to
place a trade.
[BULLET] PURCHASE, SELL OR EXCHANGE FUND SHARES BY MAIL. Shareholders can mail
trade requests to:
By regular mail
The Turner Funds
P.O. Box 219805
Kansas City, MO 64141-6805
By express or overnight mail
The Turner Funds
c/o DST Systems Inc
330 W. 9th Street
Kansas City, MO 64105
[BULLET] PURCHASE FUND SHARES BY WIRING FUNDS TO:
United Missouri Bank of Kansas NA
ABA #101000695
Account # 9870601168
Further Credit: name of fund, shareholder name
and Turner Funds account number
- --------------------------------------------------------------------------------
CLOSING THE FUNDS TO NEW INVESTORS AT CERTAIN ASSET LEVELS
There are limits to the amount an investment adviser can effectively invest in
certain asset classes. Too many advisers try to manage more and more money
regardless of their capacity to find attractive investments. Turner Investment
Partners will not do this. Turner will close a Fund to most new investors once
assets under management reach certain specified levels. For the Small Cap Growth
Fund, that level has been reached, and the Fund is currently closed to new
investors. Similarly, effective when the assets that Turner manages in its Micro
Cap Growth Equity Style, Midcap Growth Equity Style and the Growth Equity Style
(which includes the assets of each Fund) reach $385 million, $4.5 billion and
$9.3 billion, respectively, the Funds will be closed to new investors. Existing
shareholders of the Funds will be notified before any Fund is closed to new
investors.
Shareholders of the Funds as of the effective date for a Fund closing may
continue to make investments and may open additional accounts with the Funds,
provided the new accounts are registered in the same name or have the same
taxpayer identification or social security number assigned to them. In addition,
certain limited classes of new investors may also purchase shares of the Funds
after they are closed to new investors. See "Purchasing, Selling and Exchanging
Fund Shares."
1-800-224-6312
<PAGE>
26 PROSPECTUS
- --------------------------------------------------------------------------------
PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
The Turner Funds are "no load" mutual funds, meaning you pay no sales charge
when purchasing shares of the Funds. The minimum initial investment is $2,500
and the minimum subsequent investment is $50. The Funds reserve the right to
waive the minimum initial investment.
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.
PURCHASING TURNER FUND SHARES
CHOOSING CLASS I OR CLASS II SHARES
Class I and Class II Shares have different expenses and other characteristics.
Class I Shares are for individual investors and for certain institutional
investors investing for their own or their customers' account.
Class II Shares are for individual investors who purchase shares through
financial institutions or intermediaries. Only the Turner Short Duration
Government Funds - One Year Portfolio and Turner Short Duration Government Funds
- - Three Year Portfolio offer Class II Shares.
CLASS I SHARES CLASS II SHARES
[BULLET] NO SALES CHARGE [BULLET] NO SALES CHARGE
[BULLET] LOWER ANNUAL EXPENSES [BULLET] HIGHER ANNUAL EXPENSES
[BULLET] $2,500 MINIMUM INITIAL [BULLET] $2,500 MINIMUM
INVESTMENT INITIAL INVESTMENT
For some investors the minimum initial investment may be lower.
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day).
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Funds or their shareholders.
TO OPEN AN ACCOUNT:
[BULLET] BY MAIL Please send your completed application, with a check payable to
the Turner Funds, to the address listed on this page. Your check must be in U.S.
dollars and drawn on a bank located in the United States. We do not accept third
party checks, credit card checks or cash.
[BULLET] BY WIRE Please call us at 1-800-224-6312 (option 3) to let us know that
you intend to make your initial investment by wire. You will be given an account
number and fax number to which you should send your completed New Account
Application. Once this is complete you will need to instruct your bank to wire
money to: United Missouri Bank of Kansas, N.A.; ABA #10-10-00695; for Account
Number 98-7060-116-8; Further Credit: [_________ Fund]. The shareholder's name
and account number must be specified in the wire.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase Class I
Shares automatically through regular deductions from your account. Please call
1-800-224-6312 for information regarding participating banks. With a $100
minimum initial investment, you may begin regularly scheduled investments -once
a month.
WHO IS ELIGIBLE TO INVEST IN A FUND ONCE IT IS CLOSED TO NEW INVESTORS?
If you are a shareholder of a Fund when it closes to new investors, you will be
able to make additional investments in the Fund and reinvest your dividends and
capital gains distributions. Once a Fund is closed, you may open a new account
only if:
[BULLET] 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;
[BULLET] 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 these people; or
[BULLET] you are a client of a financial adviser or planner who has client
assets invested in the TIP Funds as of the date of any proposed new
investment in the Fund.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 27
- --------------------------------------------------------------------------------
PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
HOW FUND PRICES ARE CALCULATED
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Funds receive your purchase order. NAV for one
Fund share is the value of that share's portion of all of the net assets in the
Fund. The Funds' NAV is calculated once each Business Day at the
regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m.,
Eastern time). So, for you to receive the current Business Day's NAV, generally
we must receive your purchase order before 4:00 p.m., Eastern time.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or a Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
PURCHASING ADDITIONAL SHARES
[BULLET] BY MAIL Please send your check payable to Turner Funds along with a
signed letter stating the name of the Turner Fund and your account number.
[BULLET] BY PHONE Current shareholders are eligible to purchase shares by phone
if they have requested that privilege by checking the appropriate box on the New
Account Application. Shareholders who have requested telephone privileges can
call 1-800-224-6312 (option 3) and give the Fund and account number they would
like to make a subsequent purchase into. They must then instruct their bank to
wire the money by following the instructions listed on page 25.
ADDITIONAL INFORMATION
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for customers. If you invest
through an authorized institution, you will have to follow its procedures, which
may be different from the procedures for investing directly. Your institution
may charge a fee for its services, in addition to the fees charged by the Funds.
You will also generally have to address your correspondence or questions
regarding the Funds to your institution.
SELLING TURNER FUND SHARES
If you own shares directly, you may sell your shares on any Business Day by
contacting us directly by mail or telephone. You may also sell your shares by
contacting your financial institution by mail or telephone. The sale price of
each share will be the next NAV determined after we receive your request.
You may sell shares by following procedures established when you opened your
account or accounts. If you have questions, call 1-800-224-6312.
[BULLET] BY MAIL If you wish to redeem shares of the Turner Funds, you should
send us a letter with your name, Fund and account number and the amount of your
request. All letters must be signed by the owner(s) of the account. All proceeds
will be mailed or wired (depending on instructions given) to the address or
instructions given to us when the account was established. If you would like the
proceeds sent to either a different bank account or address, a signature
guarantee is required.
[BULLET] BY PHONE When filling out a New Account Application shareholders are
given the opportunity to establish telephone redemption privileges. If
shareholders elect to take advantage of this privilege they will be able to
redeem shares of the Turner Funds by calling 1-800-224-6312 (option 3) and
informing one of our representatives.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $2,500 in your account, you may use the Systematic
Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $50 from any Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. Please
call 1-800-224-6312 for information regarding banks that participate in the
Systematic Withdrawal Plan.
1-800-224-6312
<PAGE>
28 PROSPECTUS
- --------------------------------------------------------------------------------
PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature in certain circumstances including, (1) written requests
for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds to a bank other than the bank previously designated on the
account application; and (3) redemption requests that provide that the
redemption proceeds should be sent to an address other than the address of
record or to a person other than the registered shareholder(s) for the account.
Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. A
notarized signature is not sufficient.
REDEMPTIONS IN KIND
The Funds generally pay sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders) the Funds might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). Although it is highly unlikely that your
shares would ever be redeemed in kind, you would probably have to pay brokerage
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
RECEIVING YOUR MONEY
Normally, the Funds will send your sale proceeds within three Business Days
after they receive your request, but it may take up to seven days. Your proceeds
can be wired to your bank account (subject to a $10 wire fee) or sent to you by
check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION
PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO
15 DAYS FROM YOUR DATE OF PURCHASE).
EXCHANGING TURNER FUND SHARES
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after we receive your exchange request.
You may exchange your shares on any Business Day by contacting the Funds
directly by mail or telephone. You may also exchange shares through your
financial institution by mail or telephone. IF YOU RECENTLY PURCHASED SHARES BY
CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.
OTHER POLICIES:
FOR CUSTOMERS OF FINANCIAL INSTITUTIONS
If you purchase, sell or exchange Fund shares through a financial institution
(rather than directly from us), you may have to transmit your purchase, sale and
exchange requests to your financial institution at an earlier time for your
transaction to become effective that day. This allows the financial institution
time to process your request and transmit it to us. For more information about
how to purchase, sell or exchange Fund shares through your financial
institution, you should contact your financial institution directly.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 29
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUSPENSION OF YOUR RIGHT TO SELL SHARES
The Funds may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the Funds' SAI.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum of $1,000, you may be
required to sell your shares. You will always be given at least 60 days' written
notice to give you time to add to your account and avoid selling your shares.
DISTRIBUTION OF FUND SHARES
SEI Investments Distribution Co. (SIDCo.) is the distributor of the Funds.
SIDCo. receives no compensation for distributing the Funds' shares.
The Turner Short Duration Government Funds-One Year Portfolio and Turner Short
Duration Government Funds-Three Year Portfolio have adopted a shareholder
service plan for their Class II Shares that allows the Funds to pay service fees
of up to 0.25% of average daily net assets for services provided to
shareholders.
DIVIDENDS AND DISTRIBUTIONS
The Turner Large Cap Growth Equity, Turner Midcap Growth, Turner Small Cap
Growth, Turner Micro Cap Growth, Turner Top 20 and Turner Technology Funds
distribute their income annually as a dividend to shareholders. The Turner
Growth Equity Fund distributes its income quarterly as a dividend to
shareholders. The Turner Short Duration Government Funds - One Year Portfolio,
Turner Short Duration Government Funds - Three Year Portfolio and Turner Core
High Quality Fixed Income Fund declare their investment income daily and
distribute it monthly as a dividend to shareholders.
The Funds make distributions of capital gains, if any, at least annually. If you
own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Funds in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after we receive
your written notice. To cancel your election, simply send the Funds written
notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Summarized below are some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. Distributions you receive from a Fund may be taxable whether or not you
reinvest them. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
More information about taxes is in the SAI.
1-800-224-6312
<PAGE>
30 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables that follow present performance information about Class I and Class
II Shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years, or, if shorter, the period
of each Fund's operation. Some of this information reflects financial
information for a single Fund share. The total returns in the table represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. These Financial
Highlights have been audited by Ernst & Young LLP, independent auditors whose
report, along with each Fund's financial statements, appears in the annual
report that accompanies our SAI. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-800-224-6312.
<TABLE>
<CAPTION>
TURNER LARGE CAP GROWTH EQUITY FUND
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.22 $12.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.01) 0.01
Net Gains or Losses on Securities (both realized and unrealized) 5.76 1.98 2.27
Total From Investment Operations 5.68 1.97 2.28
LESS DISTRIBUTIONS
Dividends (from net investment income) -- (0.01) --
Distributions (from capital gains) -- (1.02) --
Returns of Capital -- -- --
Total Distributions -- (1.03) --
Net Asset Value, End of Period $18.90 $13.22 $12.28
TOTAL RETURN+ 42.97% 17.26% 22.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $8,459 $4,328 $ 701
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.00% 1.00% 1.00%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.00% 1.00% 1.00%*
Ratio of Net Income (Loss) to Average Net Assets (0.47)% (0.10)% 0.20%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.41% 7.70% 26.45%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.88)% (6.80)% (25.25)%*
Portfolio Turnover Rate 370.71% 234.93% 346.47%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1997.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 31
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER GROWTH EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997 1996(1) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.87 $ 16.64 $ 17.03 $ 14.97 $ 12.46 $ 13.12
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.05) (0.05) (0.03) 0.02 0.10 0.10
Net Gains or Losses on Securities (both realized
and unrealized) 4.66 1.10 4.23 2.91 2.52 (0.66)
Total From Investment Operations 4.61 1.05 4.20 2.93 2.62 (0.56)
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- -- (0.02) (0.11) (0.10)
Distributions (from capital gains) (1.60) (4.82) (4.59) (0.85) -- --
Returns of Capital -- -- -- -- -- --
Total Distributions (1.60) (4.82) (4.59) (0.87) (0.11) (0.10)
Net Asset Value, End of Period $ 15.88 $ 12.87 $ 16.64 $ 17.03 $ 14.97 $ 12.46
TOTAL RETURN+ 38.16% 10.71% 32.61% 20.61% 21.15% (4.28)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $142,824 $97,857 $99,590 $96,164 $115,819 $112,959
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 0.92% 1.00% 0.96% 0.94%* 0.94% 0.95%
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 0.96% 1.04% 1.02% 1.06%* 1.03% 0.95%
Ratio of Net Income (Loss) to Average Net Assets (0.42)% (0.42)% (0.25)% 0.03%* 0.69% 0.86%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 0.96% 1.12% 1.05% 1.06%* 1.03% 1.08%
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (0.42)% (0.50)% (0.28)% 0.03%* 0.69% 0.73%
Portfolio Turnover Rate 328.26% 249.58% 178.21% 147.79% 177.86% 164.81%
</TABLE>
* ANNUALIZED.
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON APRIL 19, 1996, THE BOARD OF TRUSTEES OF THE ADVISORS' INNER CIRCLE FUND
VOTED TO APPROVE A TAX-FREE REORGANIZATION OF THE TURNER FUNDS. IN
CONNECTION WITH THE REORGANIZATION, THE FUNDS CHANGED THEIR FISCAL YEAR END
FROM OCTOBER 31 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER 30, 1996.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
32 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.87 $14.22 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) (0.07) (0.03)
Net Gains or Losses on Securities (both realized and unrealized) 11.72 0.22 4.36
Total From Investment Operations 11.66 0.15 4.33
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- --
Distributions (from capital gains) -- (0.50) (0.11)
Returns of Capital -- -- --
Total Distributions -- (0.50) (0.11)
Net Asset Value, End of Period $25.53 $13.87 $14.22
TOTAL RETURN+ 84.07% 1.24% 43.77%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $148,830 $24,582 $5,145
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.03% 1.23% 1.25%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.08% 1.34% 1.25%*
Ratio of Net Income (Loss) to Average Net Assets (0.58)% (0.79)% (0.62)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.08% 1.73% 7.96%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (0.58)% (1.18)% (7.33)%*
Portfolio Turnover Rate 290.79% 304.29% 348.29%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON OCTOBER 1, 1996.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 33
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SMALL CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997 1996(1) 1995 1994(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $21.49 $26.35 $23.13 $16.08 $10.90 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.26) (0.23) (0.07) (0.08) (0.06) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) 12.97 (4.19) 3.80 8.17 5.24 0.92
Total From Investment Operations 12.71 (4.42) 3.73 8.09 5.18 0.90
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- -- -- -- --
Distributions (from capital gains) -- (0.25) (0.51) (1.04) -- --
Returns of Capital -- (0.19) -- -- -- --
Total Distributions -- (0.44) (0.51) (1.04) -- --
Net Asset Value, End of Period $34.20 $21.49 $26.35 $23.13 $16.08 $10.90
Total Return+ 59.14% (16.90)% 16.64% 52.90% 47.52% 12.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $254,077 $147,534 $153,462 $67,425 $13,072 $4,806
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.25% 1.25% 1.24% 1.25%* 1.25% 1.09%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.27% 1.28% 1.24% 1.25%* 1.25% 1.09%*
Ratio of Net Income (Loss) to Average Net Assets (1.00)% (0.99)% (0.84)% (0.88)%* (0.68)% (0.27)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.31% 1.41% 1.33% 1.54%* 2.39% 4.32%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.04)% (1.12)% (0.93)% (1.17)%* (1.82)% (3.50)%*
Portfolio Turnover Rate 223.61% 167.73% 130.68% 149.00% 183.49% 173.92%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON APRIL 19, 1996, THE BOARD OF TRUSTEES OF THE ADVISORS' INNER CIRCLE FUND
VOTED TO APPROVE A TAX-FREE REORGANIZATION OF THE TURNER FUNDS. IN
CONNECTION WITH THE REORGANIZATION, THE FUNDS CHANGED THEIR FISCAL YEAR END
FROM OCTOBER 31 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER 30, 1996.
(2) COMMENCED OPERATIONS ON FEBRUARY 7, 1994.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
34 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER MICRO CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1) 1998(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.88 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.05) (0.04)
Net Gains or Losses on Securities (both realized and unrealized) 11.26 (0.08)
Total From Investment Operations 11.21 (0.12)
LESS DISTRIBUTIONS
Dividends (from net investment income) -- --
Distributions (from capital gains) -- --
Total Distributions -- --
Net Asset Value, End of Period $21.09 $9.88
TOTAL RETURN+ 113.46% (1.20)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $12,963 $2,843
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 0.90% 1.25%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 0.90% 1.25%*
Ratio of Net Income (Loss) to Average Net Assets (0.47)% (0.64)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.86% 8.18%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (2.43)% (7.57)%*
Portfolio Turnover Rate 239.32% 128.53%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON JANUARY 25, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER MICRO CAP GROWTH
FUND (THE "FUNDS") APPROVED A TAX-FREE REORGANIZATION UNDER WHICH ALL ASSETS
AND LIABILITIES OF THE FUND WERE TRANSFERRED TO THE TIP TURNER MICRO CAP
GROWTH FUND.
(2) COMMENCED OPERATIONS ON MARCH 1, 1998.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 35
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02)
Net Gains or Losses on Securities (both realized and unrealized) 4.01
Total From Investment Operations 3.99
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Total Distributions --
Net Asset Value, End of Period $ 13.99
TOTAL RETURN+ 39.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $16,112
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.35%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.35%*
Ratio of Net Income (Loss) to Average Net Assets (0.87)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.55%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (2.07)%*
Portfolio Turnover Rate 369.11%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
36 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02)
Net Gains or Losses on Securities (both realized and unrealized) 4.08
Total From Investment Operations 4.06
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Total Distributions --
Net Asset Value, End of Period $14.06
TOTAL RETURN+ 40.60%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $8,296
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.35%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.35%*
Ratio of Net Income (Loss) to Average Net Assets (0.87)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 3.89%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (3.41)%*
Portfolio Turnover Rate 317.32%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 37
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO-CLASS I SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(2) 1998(3) 1998(4) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.09 $10.08 $10.06 $10.03 $9.99 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.35 0.60 0.60 0.64 0.53
Net Gains or Losses on Securities
(both realized and unrealized) (0.02) -- 0.02 0.03 0.05 (0.02)
Total From Investment Operations 0.52 0.35 0.62 0.63 0.69 0.51
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.56) (0.33) (0.60) (0.60) (0.65) (0.52)
Distributions (from capital gains) -- (0.01) -- -- -- --
Total Distributions (0.56) (0.34) (0.60) (0.60) (0.65) (0.52)
Net Asset Value, End of Period $10.05 $10.09 $10.08 $10.06 $10.03 $9.99
TOTAL RETURN+ 5.34% 3.50% 6.34% 6.32% 7.09% 5.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $3,207 $ 991 $1,195 $ 864 $ 398 $ 145
Ratio of Expenses to Average Net Assets 0.00% 0.00%* 0.00% 0.00% 0.00% 0.00%
Ratio of Net Income to Average Net Assets 5.50% 5.88%* 5.97% 5.91% 6.46% 5.74%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 6.53% 10.83%* 8.83% 10.25% 16.47% 27.89%
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.03)% (4.95)%* (2.86)% (4.34)% (10.01)% (22.15)%
Portfolio Turnover Rate 154.33% 96.56% 68.80% 81.82% -- --
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON MARCH 1, 1998.
(2) ON MAY 24, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO (THE "FUND") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR
PORTFOLIO.
(3) ON NOVEMBER 10, 1997 THE BOARD OF TRUSTEES OF TIP INSTITUTIONAL FUNDS
(FORMERLY, THE SOLON FUNDS) APPROVED A CHANGE IN THE TURNER SHORT DURATION
GOVERNMENT FUNDS THREE YEAR AND ONE YEAR PORTFOLIOS' YEAR END FROM FEBRUARY
28 TO SEPTEMBER 30, EFFECTIVE MARCH 1, 1998.
(4) ON JANUARY 22, 1998, SHAREHOLDERS OF BOTH THE THREE YEAR AND ONE YEAR FUNDS
APPROVED A CHANGE IN THE ADVISOR FROM SOLON ASSET MANAGEMENT, L.P. TO TURNER
INVESTMENT PARTNERS, INC.
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
38 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO-CLASS II SHARES
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1) 1998(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $10.11 $10.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.30
Net Gains or Losses on Securities (both realized and unrealized) 0.02 0.03
Total From Investment Operations 0.49 0.33
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.50) (0.30)
Distributions (from capital gains) -- --
Total Distributions (0.50) (0.30)
Net Asset Value, End of Period $10.10 $10.11
TOTAL RETURN+ 5.00% 3.26%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $3,155 --
Ratio of Expenses to Average Net Assets 0.23% 0.25%*
Ratio of Net Income to Average Net Assets 5.13% 5.63%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 6.76% 11.08%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (1.40)% (5.20)%*
Portfolio Turnover Rate 154.33% 96.56%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON MAY 24, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO (THE "FUND") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR
PORTFOLIO.
(2) COMMENCED OPERATIONS ON FEBRUARY 27, 1998
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 39
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO-CLASS I SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(4) 1998(2) 1998(3) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.25 $ 10.10 $ 10.00 $ 10.04 $ 9.80 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.35 0.59 0.58 0.60 0.61
Net Gains or Losses on Securities
(both realized and unrealized) (0.27) 0.15 0.10 (0.01) 0.23 (0.22)
Total From Investment Operations 0.28 0.50 0.69 0.57 0.83 0.39
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.55) (0.34) (0.59) (0.59) (0.59) (0.59)
Distributions (from capital gains) (0.14) (0.01) -- (0.02) -- --
Total Distributions (0.69) (0.35) (0.59) (0.61) (0.59) (0.59)
Net Asset Value, End of Period $ 9.84 $ 10.25 $ 10.10 $ 10.00 $ 10.04 $ 9.80
TOTAL RETURN+ 2.89% 5.09% 7.07% 5.45% 8.73% 4.08%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $38,687 $12,015 $15,544 $17,809 $ 11,027 $ 7,065
Ratio of Expenses to Average Net Assets 0.24% 0.24%* 0.24% 0.24% 0.24% 0.15%
Ratio of Net Income to Average Net Assets 6.21% 5.84%* 5.85% 5.80% 6.18% 6.21%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.31% 1.49%* 1.21% 1.21% 1.45% 1.18%
Ratio of Net Investment Income (Loss) to
Average Net Assets (excluding waivers
and reimbursements) 5.14% 4.59%* 4.88% 4.83% 4.97% 5.18%
Interest expense -- -- -- 0.02% 0.12% 0.04%
Average debt per share during the period (5) -- -- -- $ 0.04 $0.28 $ 0.08
Average debt outstanding during the period (5) (6) -- -- -- $56,238 $256,115 $75,604
Portfolio Turnover Rate 257.98% 121.63% 279.00% 251.00% 197.03% 405.00%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON MARCH 1, 1998.
(2) ON NOVEMBER 10, 1997 THE BOARD OF TRUSTEES OF TIP INSTITUTIONAL FUNDS
(FORMERLY, THE SOLON FUNDS) APPROVED A CHANGE IN THE TURNER SHORT DURATION
GOVERNMENT FUNDS THREE YEAR AND ONE YEAR PORTFOLIOS' YEAR END FROM FEBRUARY
28 TO SEPTEMBER 30, EFFECTIVE MARCH 1, 1998.
(3) ON JANUARY 22, 1998, SHAREHOLDERS OF BOTH THE THREE YEAR AND ONE YEAR FUNDS
APPROVED A CHANGE IN THE ADVISOR FROM SOLON ASSET MANAGEMENT, L.P. TO TURNER
INVESTMENT PARTNERS, INC.
(4) ON JANUARY 25, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-THREE YEAR PORTFOLIO (THE "FUNDS") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR
PORTFOLIO.
(5) AVERAGE BASED UPON AMOUNTS OUTSTANDING AT EACH MONTH END.
(6) THERE WAS NO DEBT OUTSTANDING AT THE END OF ANY PERIOD PRESENTED.
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
40 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO-CLASS II SHARES
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.95
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.68
Net Gains or Losses on Securities (both realized and unrealized) (0.13)
Total From Investment Operations 0.55
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.70)
Distributions (from capital gains) --
Total Distributions (0.70)
Net Asset Value, End of Period $9.80
TOTAL RETURN+ 5.64%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 87
Ratio of Expenses to Average Net Assets 0.48%*
Ratio of Net Income to Average Net Assets 5.71%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 0.95%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) 5.24%*
Portfolio Turnover Rate 257.98%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON APRIL 28, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 41
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14
Net Gains or Losses on Securities (both realized and unrealized) (0.09)
Total From Investment Operations 0.05
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.14)
Distributions (from capital gains) --
Total Distributions (0.14)
Net Asset Value, End of Period $ 9.91
TOTAL RETURN+ 0.48%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $10,009
Ratio of Expenses to Average Net Assets 0.45%*
Ratio of Net Income to Average Net Assets 5.67%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.99%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) 4.13%*
Portfolio Turnover Rate 39.70%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TIP FUNDS
INVESTMENT ADVISER
Turner Investment Partners, Inc.
1235 Westlakes Drive
Suite 350
Berwyn, PA 19312
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated January 31, 2000, includes detailed information about the Funds.
The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports contain the Fund's holdings and contain information from the
Fund's managers about strategies, and recent market conditions and trends and
their impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
[BULLET] BY TELEPHONE: Call 1-800-224-6312
[BULLET] BY MAIL: Write to TIP Funds at
P.O. Box 219805
Kansas City, MO 64141-6805
[BULLET] BY INTERNET: http://www.turner-invest.com
[BULLET] FROM THE SEC: You can also obtain the SAI or the Annual and
Semi-Annual reports, as well as other information about
TIP Funds, from the EDGAR Database on the SEC's website
("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference
Room, call 1-202-942-8090). You may request documents by
mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-0102. You may
also obtain this information, upon payment of a
duplicating fee, by e-mailing the SEC at the following
address: [email protected].
The Fund's Investment Company Act registration number is 811-07527.
TUR-F-030-05
<PAGE>
TIP FUNDS
TURNER LARGE CAP GROWTH EQUITY FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP GROWTH FUND
TURNER SMALL CAP GROWTH FUND
TURNER MICRO CAP GROWTH FUND
TURNER FOCUSED LARGE CAP EQUITY FUND
TURNER TOP 20 FUND
TURNER TECHNOLOGY FUND
TURNER INTERNATIONAL GROWTH FUND
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
TURNER CORE HIGH QUALITY FIXED INCOME FUND
TIP TARGET SELECT EQUITY FUND
INVESTMENT ADVISER:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Large Cap Growth Equity Fund ("Large Cap Fund"), Turner Growth Equity
Fund ("Growth Equity Fund"), Turner Midcap Growth Fund ("Midcap Fund"), Turner
Small Cap Growth Fund ("Small Cap Fund"), Turner Micro Cap Growth Fund ("Micro
Cap Fund"), Turner Focused Large Cap Equity Fund ("Focused Fund"), Turner Top 20
Fund ("Top 20 Fund"), Turner Technology Fund ("Technology Fund"), Turner
International Growth Fund ("International Fund"), Turner Short Duration
Government Funds - One Year Fund ("One Year Portfolio"), Turner Short Duration
Government Funds-Three Year Portfolio ("Three Year Portfolio"), Turner Core High
Quality Fixed Income Fund ("Fixed Income Fund"), and the TIP Target Select
Equity Fund ("Target Select Fund") (each a "Fund" and, together, the "Funds").
It is intended to provide additional information regarding the activities and
operations of the TIP Funds (the "Trust") and should be read in conjunction with
the Funds' Prospectuses dated January 31, 2000. The Prospectuses may be obtained
without charge by calling 1-800-224-6312.
TABLE OF CONTENTS
THE TRUST ...................................................................S-2
INVESTMENT OBJECTIVES........................................................S-2
INVESTMENT POLICIES..........................................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS........................S-9
INVESTMENT LIMITATIONS......................................................S-23
THE ADVISER.................................................................S-25
THE ADMINISTRATOR...........................................................S-28
DISTRIBUTION AND SHAREHOLDER SERVICES.......................................S-30
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-30
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-33
PURCHASE AND REDEMPTION OF SHARES...........................................S-35
DETERMINATION OF NET ASSET VALUE............................................S-36
TAXES.......................................................................S-36
PORTFOLIO TRANSACTIONS......................................................S-39
VOTING......................................................................S-42
DESCRIPTION OF SHARES.......................................................S-43
SHAREHOLDER LIABILITY.......................................................S-43
LIMITATION OF TRUSTEES' LIABILITY...........................................S-43
5% SHAREHOLDERS.............................................................S-43
CUSTODIAN...................................................................S-48
EXPERTS.....................................................................S-48
LEGAL COUNSEL...............................................................S-48
FINANCIAL STATEMENTS........................................................S-48
APPENDIX.....................................................................A-1
January 31, 2000
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THE TRUST
This Statement of Additional Information relates only to the Turner Large Cap
Growth Equity Fund ("Large Cap Fund"), Turner Growth Equity Fund ("Growth Equity
Fund"), Turner Midcap Growth Fund ("Midcap Fund"), Turner Small Cap Growth Fund
("Small Cap Fund"), Turner Micro Cap Growth Fund ("Micro Cap Fund"), Turner
Focused Large Cap Equity Fund ("Focused Fund"), Turner Top 20 Fund ("Top 20
Fund"), Turner Technology Fund ("Technology Fund"), Turner International Growth
Fund ("International Growth Fund"), Turner Short Duration Government Funds-One
Year Portfolio ("One Year Portfolio"), Turner Short Duration Government
Funds-Three Year Portfolio ("Three Year Portfolio"), Turner Core High Quality
Fixed Income Fund, ("Fixed Income Fund"), and TIP Target Select Equity Fund
("Target Select Fund"), (each a "Fund" and, together the "Funds"). Each is a
separate series of TIP Funds (formerly, Turner Funds) (the "Trust"), an open-end
management investment company established as a Massachusetts business trust
under a Declaration of Trust dated January 26, 1996, and amended on February 21,
1997, which consists of both diversified and non-diversified Funds. The
Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest (the "shares") and separate classes of funds. Each portfolio
is a separate mutual fund and each share of each portfolio represents an equal
proportionate interest in that portfolio. Shareholders may purchase shares in
the One Year Portfolio or the Three Year Portfolio through two separate classes,
Class I and Class II, which provide for variations in distribution costs,
transfer agent fees, voting rights and dividends. All other Funds in the Trust
offer only Class I Shares. Except for differences between the Class I Shares and
the Class II Shares pertaining to distribution and shareholder servicing, voting
rights, dividends and transfer agent expenses, each share of each series
represents an equal proportionate interest in that series. Please see
"Description of Shares" for more information.
On January 29, 1999, the Micro Cap Fund and the Three Year Portfolio acquired
all of the assets and liabilities of the Alpha Select Turner Micro Cap Growth
Fund and the Alpha Select Turner Short Duration Government Funds-Three Year
Portfolio, respectively. On June 30, 1999, the One Year Portfolio acquired all
of the assets and liabilities of the Alpha Select Turner Short Duration
Government Funds - One Year Portfolio. Historical information presented for
those Funds relates to the Alpha Select Funds. The Trust also offers shares in
the Clover Max Cap Value Fund, Clover Equity Value Fund, Clover Small Cap Value
Fund, Clover Fixed Income Fund, Penn Capital Select Financial Services Fund,
Penn Capital Strategic High Yield Bond Fund, and Penn Capital Value Plus Fund.
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
INVESTMENT OBJECTIVES
TURNER LARGE CAP GROWTH EQUITY FUND -- The Large Cap Fund seeks capital
appreciation.
TURNER GROWTH EQUITY FUND -- The Growth Equity Fund seeks capital appreciation.
TURNER MIDCAP GROWTH FUND -- The Midcap Fund seeks capital appreciation.
TURNER SMALL CAP GROWTH FUND -- The Small Cap Fund seeks capital appreciation.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund seeks capital appreciation.
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TURNER FOCUSED LARGE CAP EQUITY FUND -- The Focused Fund seeks long-term capital
appreciation.
TURNER TOP 20 FUND -- The Top 20 Fund seeks long-term capital appreciation.
TURNER TECHNOLOGY FUND -- The Technology Fund seeks long-term capital
appreciation.
TURNER INTERNATIONAL GROWTH FUND -- The International Fund seeks long-term
capital appreciation.
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO & TURNER SHORT
DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO -- The investment objective of
each Fund is to provide maximum total return consistent with preservation of
capital and prudent investment management. Under normal circumstances, the One
Year Portfolio seeks to maintain an average effective duration comparable to or
less than that of one-year U.S. Treasury bills. The Three Year Portfolio seeks
to maintain an average effective duration comparable to or less than that of
three-year U.S. Treasury notes. Effective duration is an indicator of a
security's price volatility or risk associated with changes in interest rates.
Because the Turner Investment Partners, Inc. (the "Adviser") seeks to manage
interest rate risk by limiting effective duration, each Fund may invest in
securities of any maturity.
TURNER CORE HIGH QUALITY FIXED INCOME FUND -- The Fixed Income Fund seeks total
return through current income and capital appreciation.
TIP TARGET SELECT EQUITY FUND -- The Target Select Fund seeks long term growth
of capital primarily from investment in U.S. equity securities.
There can be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
TURNER LARGE CAP GROWTH EQUITY FUND--The 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. The Russell 200 Growth Index is the
Fund's current benchmark. 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 American
Depository Receipts "ADRs"). The Fund will only 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.
TURNER 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 the Adviser believes to have potential for
strong growth in earnings and to be reasonably valued at the time of purchase.
The Fund seeks to purchase securities that are well diversified across economic
sectors and to maintain sector concentrations that approximate the economic
sector weightings of the
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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 ADRs. The Fund will only
purchase securities that are traded on registered exchanges or the
over-the-counter market in the United States.
TURNER MIDCAP GROWTH FUND--The Midcap Fund invests primarily (and, under normal
conditions, at least 65% of its total assets) in a diversified portfolio of
common stocks of issuers that, at the time of purchase, have market
capitalizations between $1 billion and $8 billion that the Adviser believes to
have strong earnings growth potential. The 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 will only 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.
TURNER SMALL CAP GROWTH FUND--The Small Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $2
billion that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Fund will maintain a weighted average market
capitalization of less than $2 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 2000 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 ADRs. The Fund will only
purchase securities that are traded on registered exchanges or the
over-the-counter market in the United States.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $500
million that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Fund will maintain a weighted average market
capitalization of less than $350 million. The Fund will not hold securities with
market capitalizations over $1 billion. The Fund seeks to purchase securities
that are well diversified across economic sectors. The Russell 2000 Growth Index
is the Fund's current benchmark. The Micro Cap Fund will typically invest in
companies whose market capitalizations, at the time of purchase, are $350
million or under. The Fund may invest in warrants and rights to purchase common
stocks, and may invest up to 10% of its total assets in micro cap stocks of
foreign issuers and in ADRs.
The Micro Cap Fund invests in some of the smallest, most dynamic publicly-traded
companies. These emerging growth companies are typically in the early stages of
a long-term development cycle. In many cases, these companies offer unique
products, services or technologies and often serve special or expanding market
niches. Because of their small size, and less frequent trading activity, the
companies represented in the Fund's portfolio may be overlooked or not closely
followed by investors. Accordingly, their prices may rise either as a result of
improved business fundamentals, particularly when earnings grow faster than
general expectations, or as more investors
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appreciate the full extent of a company's underlying business potential. Thus in
the opinion of the Fund's Adviser, they offer substantial appreciation potential
for meeting retirement and other long-term goals.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of micro capitalization stocks. To
manage risk and improve liquidity, Turner expects to invest in numerous small,
publicly traded companies, representing a broad cross-section of U.S.
industries.
TURNER FOCUSED LARGE CAP EQUITY FUND--The Focused Fund invests primarily (and,
under normal conditions, at least 80% of its total assets) in a portfolio of
common stocks of issuers that, at the time of purchase, have market
capitalizations in excess of $5 billion that the Adviser, believes to have
strong earnings growth potential. Any remaining assets may be invested in
securities issued by smaller capitalization companies, warrants and rights to
purchase common stocks, convertible and preferred stocks, and in ADRs. The Fund
will generally purchase securities that are traded on registered exchanges or
the over-the-counter market in the United States. The Fund may also purchase
shares of other investment companies and foreign securities. The Fund's overall
portfolio will contain a total of 15-30 stocks of Turner's best large
capitalization ideas.
TURNER TOP 20 FUND--The Top 20 Fund invests primarily (and, under normal
conditions, at least 80% of its total assets) in a portfolio of common stocks of
issuers with a variety of sectors and market capitalizations that the Adviser
believes to have strong earnings growth potential. Any remaining assets may be
invested in warrants and rights to purchase common stocks, convertible and
preferred stocks, and ADRs. The Fund will generally purchase securities that are
traded on registered exchanges or the over-the-counter market in the United
States. The Fund may also purchase shares of other investment companies and
foreign securities.
TURNER TECHNOLOGY FUND -- The Technology Fund invests primarily (and, under
normal conditions, at least 80% of its total assets) in a portfolio of common
stocks of technology companies. The Fund may invest in warrants and rights to
purchase common stocks, convertible and preferred stocks, stocks of foreign
issuers and ADRs.
The Fund invests in dynamic, publicly-traded technology companies. These
emerging growth companies are typically in the early stages of a long-term
development cycle. In many cases, these companies offer unique products,
services or technologies and often serve special or expanding market niches.
Because of their small size and less frequent trading activity, the small
technology companies represented in the Fund's portfolio may be overlooked or
not closely followed by investors. Accordingly, their prices may rise either as
a result of improved business fundamentals, particularly when earnings grow
faster than general expectations, or as more investors appreciate the full
extent of a company's underlying business potential. The Adviser will seek to
capture these price increases. Most of the technology companies that the Fund
will invest in will be located in the U.S.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of many technology stocks. To manage
risk and improve liquidity, Turner expects to invest in numerous publicly traded
companies, representing a broad cross-section of U.S. and foreign technology
companies.
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TURNER INTERNATIONAL GROWTH FUND -- The International Fund seeks to provide
long-term capital appreciation by investing primarily in a diversified portfolio
of ADRs and equity securities of non-U.S. issuers.
Under normal circumstances, at least 80% of the International Fund's assets will
be invested in ADRs and equity securities of non-U.S. issuers located in at
least three countries other than the United States. Most of the securities that
the Fund will invest in will be located in Europe and other developed foreign
countries.
Certain securities of non-U.S. issuers purchased by the Fund will be listed on
recognized foreign exchanges, but securities generally will be purchased in
over-the-counter markets, on U.S.-registered exchanges, or in the form of
sponsored or unsponsored ADRs traded on registered exchanges or NASDAQ, or
sponsored or unsponsored European Depositary Receipts ("EDRs"), Continental
Depositary Receipts ("CDRs") or Global Depositary Receipts ("GDRs"). The Fund
expects its investments to emphasize large, intermediate and small
capitalization companies.
The Fund may also invest in warrants and rights to purchase common stocks,
convertible and preferred stocks, and securities of other investment companies.
Although permitted to do so, the Fund does not currently intend to invest in
securities issued by passive foreign investment companies or to engage in
securities lending.
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO & TURNER SHORT
DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO (TOGETHER, THE "SHORT DURATION
FUNDS") -- Under normal market conditions, each Fund invests at least 65% of the
value of its total assets in obligations either issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
Certain of the obligations, including U.S. Treasury bills, notes and bonds and
mortgage-related securities of the Government National Mortgage Association
("GNMA"), are issued or guaranteed by the U.S. Government. Other securities
issued by U.S. Government agencies or instrumentalities are supported only by
the credit of the agency or instrumentality, such as those issued by the Federal
Home Loan Bank, while others, such as those issued by Fannie Mae and the Student
Loan Marketing Association, have an additional line of credit with the U.S.
Treasury.
The balance of each Fund's assets may be invested in cash and high grade debt
securities, shares of other investment companies, including privately issued
mortgage-related securities and general obligation bonds and notes of various
states and their political subdivisions, rated within the three highest grades
assigned by Standard and Poor's Corporation ("S&P") (AAA, AA or A), Moody's
Investor Services ("Moody's") (Aaa, Aa or A), or Fitch Investor Services, Inc.
("Fitch") (AAA, AA or A), or, if unrated by S&P, Moody's and/or Fitch, judged by
the Adviser to be of comparable quality. A further description of S&P's, Moody's
and Fitch's ratings is included in the Appendix to the Statement of Additional
Information.
The relative proportions of the Funds' net assets invested in the different
types of permissible investments will vary from time to time depending upon the
Adviser's assessment of the relative market value of the sectors in which the
Funds invest. In addition, the Funds may purchase securities that are trading at
a discount from par when the Adviser believes there is a potential for capital
appreciation.
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The Short Duration Funds may enter into forward commitments or purchase
securities on a when issued basis, and may invest in variable or floating rate
obligations.
TURNER CORE HIGH QUALITY FIXED INCOME FUND--The Fixed Income Fund invests as
fully as practicable (and, under normal conditions, at least 65% of its total
assets) in a portfolio of fixed income securities of varying levels of quality
and maturity, that, in the Adviser's opinion, are undervalued in the market. To
determine a security's fair market value, the Adviser will focus on the yield
and credit quality of particular securities based upon third-party evaluations
of quality as well as the Adviser's own research and analysis of the issuer. The
Adviser will attempt to diversify the Fund's holdings across the yield curve by
holding short, 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 4.5 years). Duration is a measure of the
expected life of a fixed income security on a cash flow basis.
For example, assuming a portfolio duration of eight years, an increase in
interest rates of 1%, a parallel shift in the yield curve, and no change in the
spread relationships among securities, the value of the portfolio would decline
8%. Using the same assumptions, if interest rates decrease 1%, the value of the
portfolio would increase 8%. The Adviser considers duration an accurate measure
of a security's expected life and sensitivity to interest rate changes. The
Adviser may increase or decrease this average weighted duration when, in the
Adviser's opinion, market conditions warrant.
The Fund will purchase the following types of securities if, at the time of
purchase, such securities either have been classified as investment grade by a
nationally recognized statistical rating organization ("NRSRO") or are
determined by the Adviser to be of comparable quality: (i) obligations issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities"); (ii) corporate bonds and
debentures of U.S. and foreign issuers rated in one of the four highest rating
categories; (iii) privately issued mortgage-backed securities rated in the
highest rating category; (iv) asset-backed securities rated in the two highest
rating categories; (v) receipts evidencing separately traded interest and
principal component parts of U.S. Government obligations ("Receipts"); (vi)
commercial paper rated in one of the two highest rating categories; (vii)
obligations of U.S. commercial banks and savings and loan institutions that have
net assets of at least $500 million as of the end of their most recent fiscal
year ("bank obligations"); (viii) obligations issued or guaranteed by the
government of Canada; (ix) obligations of supranational entities rated in one of
the four highest rating categories; (x) loan participations; (xi) repurchase
agreements involving any of the foregoing securities; and (xii) shares of other
investment companies. Investment grade bonds include securities rated BBB by S&P
or Baa by Moody's, 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.
TIP TARGET SELECT EQUITY FUND -- The Adviser and Sub-Advisers of the Target
Select Fund will each invest in a maximum of 20 equity securities and as few as
10 that they believe have the greatest return potential. Such a focused
security-selection process permits each manager to act on only the investment
ideas that they think are their strongest ones. The intent is to avoid diluting
performance
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by owning too many securities, so that the positive contributions of winning
investments will prove substantial.
The Fund is designed to provide an investment that combines the investment
expertise and best investment ideas of four outstanding money-management firms.
The Adviser and Sub-Advisers will manage a portion of the Fund's portfolio on a
day-to-day basis. Assets for investment will be allocated to each manager by the
Fund's Board of Trustees, based on the recommendation of the Adviser. The
expectation is that the allocations will result in a portfolio invested in a
variety of equity securities with differing capitalizations and valuations,
chosen by differing investment strategies.
The Fund intends to invest primarily (and, under normal circumstances, at least
65% of its total assets) in equity securities of companies that are
headquartered in the United States or do business both in the United States and
abroad. Those securities, however, will be traded principally in the United
States equity market. Selection of equity securities will not be restricted by
market capitalization, and the Fund's Adviser and Sub-Advisers will employ their
own proprietary investment processes in managing assets.
Any remaining assets of the Fund may be invested in securities of foreign
issuers, shares of other investment companies, ADRs and real estate investment
trusts ("REITs"). The Fund may also invest up to 15% of its net assets in
illiquid securities, invest up to 25% of its total assets in convertible
securities, including convertible securities rated below investment grade,
purchase unregistered securities that are eligible for re-sale pursuant to Rule
144A under the Securities Act, and purchase fixed income securities, including
securities rated below investment grade. In addition, the Fund may effect short
sales, purchase securities on a when-issued basis, and may enter into futures
and options transactions. Debt securities rated below investment grade, I.E.,
rated lower than BBB by S&P and/or Baa by Moody's or unrated securities of
comparable quality, are also known as "junk bonds." The maximum percentage of
the Fund's assets that may be invested in securities rated below investment
grade is 25%.
Under normal circumstances, the Adviser and each of the Sub-Advisers may invest
a portion of the assets under its management in the money market instruments
described below in order to maintain liquidity, or if securities meeting the
Fund's investment objective and policies are not otherwise reasonably available
for purchase, provided that such Instruments do not exceed 25% of the Fund's
total assets. For temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, the Adviser and each Sub-Adviser may
invest up to 100% of the assets under their management in money market
instruments and in cash.
GENERAL INVESTMENT POLICIES
Each Fund may purchase securities on a when-issued basis and borrow money.
Each Fund may enter into futures and options transactions.
Each Fund may invest up to 15% (10% for the Short Duration Funds) of its net
assets in illiquid securities.
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Each Fund, except the Large Cap, Midcap and Short Duration Funds, may purchase
convertible securities.
Each Fund may enter into repurchase agreements.
Each Fund may purchase fixed income securities, including variable and floating
rate instruments and zero coupon securities.
Each Fund may purchase Rule 144A securities and other restricted securities.
Each Fund may purchase obligations of supranational entities.
Each Fund may, for temporary defensive purposes, invest up to 100% of its total
assets in money market instruments (including U.S. Government securities, bank
obligations, commercial paper rated in the highest rating category by an NRSRO,
repurchase agreements involving the foregoing securities), shares of money
market investment companies and cash.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
BORROWING
The Funds may borrow money equal to 5% of their total assets for temporary
purposes to meet redemptions or to pay dividends. Borrowing may exaggerate
changes in the net asset value of a Fund's shares and in the return on the
Fund's portfolio. Although the principal of any borrowing will be fixed, a
Fund's assets may change in value during the time the borrowing is outstanding.
The
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Funds may be required to liquidate portfolio securities at a time when it would
be disadvantageous to do so in order to make payments with respect to any
borrowing. The Funds may be required to segregate liquid assets in an amount
sufficient to meet their obligations in connection with such borrowings. In an
interest rate arbitrage transaction, a Fund borrows money at one interest rate
and lends the proceeds at another, higher interest rate. These transactions
involve a number of risks, including the risk that the borrower will fail or
otherwise become insolvent or that there will be a significant change in
prevailing interest rates.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES
Derivatives are securities that derive their value from other securities,
financial instruments or indices. The following are considered derivative
securities: options on futures, futures, options (E.G., puts and calls), swap
agreements, mortgage-backed securities (E.G., collateralized mortgage
obligations ("CMOs"), real estate mortgage investment conduits ("REMICs"),
interest-only ("IOs") and principal-only ("POs"), when issued securities and
forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (E.G., Receipts and separately
traded registered interested and principal securities ("STRIPs"), privately
issued stripped securities (E.G., TGRs, TRs, and CATs). See elsewhere in the
"Description of Permitted Investments" for discussions of these various
instruments.
EQUITY SECURITIES
Equity securities include common stocks, preferred stocks, warrants, rights to
acquire common or preferred stocks, and securities convertible into or
exchangeable for common stocks. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which an equity Fund invests will cause the net asset value
of the Fund to fluctuate. An investment in an equity Fund may be more suitable
for long-term investors who can bear the risk of short-term principal
fluctuations.
FIXED INCOME SECURITIES
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations
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as a result of changes in interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of these securities will not necessarily affect cash income
derived from these securities, but will affect the investing Fund's net asset
value.
Investment grade bonds include securities rated BBB by S&P or Baa by Moody's,
which may be regarded as having speculative characteristics as to repayment of
principal. If a security is downgraded, the Adviser will review the situation
and take appropriate action.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for BONA FIDE hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the Index is made; generally contracts are closed out prior to the
expiration date of the contracts.
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
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A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities, equal to the market value of the futures positions held, less
margin deposits, in a segregated account with its custodian. Collateral equal to
the current market value of the futures position will be marked to market on a
daily basis.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on the
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with durations or maturities over seven days
in length.
INVESTMENT COMPANY SHARES
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
LEVERAGING
Leveraging a Fund creates an opportunity for increased net income, but, at the
same time, creates special risk considerations. For example, leveraging may
exaggerate changes in the net asset value of a Fund's shares and in the yield on
the Fund's portfolio. Although the principal of such borrowings will be fixed, a
Fund's assets may change in value during the time the borrowing is outstanding.
Leveraging creates interest expenses for a Fund which could exceed the income
from the assets retained. To the extent the income derived from securities
purchased with borrowed funds
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exceeds the interest that a Fund will have to pay, the Fund's net income will be
greater than if leveraging were not used. Conversely, if the income from the
assets retained with borrowed funds is not sufficient to cover the cost of
leveraging, the net income of the Fund will be less than if leveraging were not
used, and therefore the amount available for distribution to stockholders as
dividends will be reduced. Because the Securities and Exchange Commission (the
"SEC") staff believes both reverse repurchase agreements and dollar roll
transactions are collateralized borrowings, the SEC staff believes that they
create leverage, which is a speculative factor. The requirement that such
transactions be fully collateralized by assets segregated by the Fund's
Custodian does impose a practical limit on the leverage created by such
transactions. The Adviser will not use leverage if as a result the effective
duration of the portfolios of the Three Year Portfolio would not be comparable
or less than that of a three-year U.S. Treasury note, respectively.
LOWER-RATED SECURITIES
Lower-rated securities are lower-rated bonds commonly referred to as "junk
bonds" or high-yield securities. These securities are rated lower than Baa by
Moody's and/or lower than BBB by S&P. The Funds may invest in securities rated
in the lowest ratings categories established by Moody's or by S&P. These ratings
indicate that the obligations are speculative and may be in default. In
addition, the Funds may invest in unrated securities of comparable quality
subject to the restrictions stated in the Funds' Prospectus.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES
The descriptions below are intended to supplement the discussion in the
Prospectus.
GROWTH OF HIGH-YIELD, HIGH-RISK BOND MARKET
The widespread expansion of government, consumer and corporate debt within the
U.S. economy has made the corporate sector more vulnerable to economic downturns
or increased interest rates. Further, an economic downturn could severely
disrupt the market for lower rated bonds and adversely affect the value of
outstanding bonds and the ability of the issuers to repay principal and
interest. The market for lower-rated securities may be less active, causing
market price volatility and limited liquidity in the secondary market. This may
limit the Funds' ability to sell such securities at their market value. In
addition, the market for these securities may be adversely affected by
legislative and regulatory developments. Credit quality in the junk bond market
can change suddenly and unexpectedly, and even recently issued credit ratings
may not fully reflect the actual risks imposed by a particular security.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES
Lower rated bonds are somewhat sensitive to adverse economic changes and
corporate developments. During an economic down turn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond defaulted on its obligations to
pay interest or principal or entered into bankruptcy proceedings, the Funds may
incur losses or expenses in seeking recovery
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of amounts owed to it. In addition, periods of economic uncertainty and change
can be expected to result in increased volatility of market prices of high-yield
bonds and the Funds' net asset values.
PAYMENT EXPECTATIONS
High-yield, high-risk bonds may contain redemption or call provisions. If an
issuer exercised these provisions in a declining interest rate market, the Funds
would have to replace the securities with a lower yielding security, resulting
in a decreased return for investors. Conversely, a high-yield, high-risk bond's
value will decrease in a rising interest rate market, as will the value of the
Funds' assets. If the Funds experience significant unexpected net redemptions,
this may force them to sell high-yield, high-risk bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Funds' rates of return.
LIQUIDITY AND VALUATION
There may be little trading in the secondary market for particular bonds, which
may affect adversely the Funds' ability to value accurately or dispose of such
bonds. Adverse publicity and investor perception, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yield,
high-risk bonds, especially in a thin market.
TAXES
The Funds may purchase debt securities (such as zero-coupon, pay-in-kind or
other types of securities) that contain original issue discounts. Original issue
discount that accrues in a taxable year is treated as earned by each Fund and
therefore is subject to the distribution requirements of the tax code even
though the such Fund has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Funds in a
taxable year may not be represented by cash income, the Funds may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
MONEY MARKET INSTRUMENTS
Money market securities are high-quality, dollar-denominated, short-term debt
instruments. They consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. banks and U.S. branches
of foreign banks; (ii) U.S. Treasury obligations and obligations issued or
guaranteed by the agencies and instrumentalities of the U.S. Government;
(iii) high-quality commercial paper issued by U.S. and foreign corporations;
(iv) debt obligations with a maturity of one year or less issued by corporations
with outstanding high-quality commercial paper ratings; and (v) repurchase
agreements involving any of the foregoing obligations entered into with
highly-rated banks and broker-dealers.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional fifteen- and thirty-year
fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages,
and balloon mortgages. During periods of declining interest rates,
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prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. Prepayment of mortgages which underlie securities purchased at a
premium often results in capital losses, while prepayment of mortgages purchased
at a discount often results in capital gains. Because of these unpredictable
prepayment characteristics, it is often not possible to predict accurately the
average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the GNMA, Fannie Mae and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC as GNMA certificates are, but Fannie
Mae and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, Fannie Mae and FHLMC each guarantee timely
distributions of interest to certificate holders. GNMA and Fannie Mae also each
guarantee timely distributions of scheduled principal.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
CMOS: CMOs are debt obligations of multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO is issued with a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae or FHLMC represent beneficial ownership interests in a
REMIC trust consisting principally or mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments, while the other class may receive all of the principal
payments. SMBs are extremely sensitive to changes in interest rates because of
the impact thereon of prepayment of principal on the underlying mortgage
securities. The market for SMBs is not as fully developed as other markets; SMBs
therefore may be illiquid.
NON-DIVERSIFICATION
The Target Select, Top 20 and Focused Funds are a non-diversified companies, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
which means that a relatively high percentage of assets of each Fund may be
invested in the obligations of a limited number of issuers. Although the Adviser
or the Sub-Advisers generally do not intend to invest more than 5% of a
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Fund's assets in any single issuer (with the exception of securities which are
issued or guaranteed by a national government), the value of the shares of each
Fund may be more susceptible to a single economic, political or regulatory
occurrence than the shares of a diversified investment company would be. The
Funds intend to satisfy the diversification requirements necessary to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), which requires that each Fund be diversified (I.E., not
invest more than 5% of its assets in the securities in any one issuer) as to 50%
of its assets.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
Obligations of supranational entities are obligations of entities established
through the joint participation of several governments, such as the Asian
Development Bank, the Inter-American Development Bank, International Bank of
Reconstruction and Development (World Bank), African Development Bank, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
OPTIONS
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, a Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If a Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of securities that the Fund may seek to purchase in the future.
A Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
portfolio and as a means of providing limited protection against decreases in
its market value. When a Fund sells an option, if the underlying securities do
not increase or decrease to a price level that would make the exercise of the
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.
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A Fund may purchase and write options on an exchange or over the counter. Over
the counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are generally illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
Custodian consisting of cash or liquid, high grade debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Each Short Duration Fund will not engage in transactions involving interest rate
futures contracts for speculation but only as a hedge against changes in the
market values of debt securities held or intended to be purchased by the Fund
and where the transactions are appropriate to reduce the Fund's interest rate
risks. There can be no assurance that hedging transactions will be successful. A
Fund also could be exposed to risks if it could not close out its futures or
options positions because of any illiquid secondary market.
Futures and options have effective durations which, in general, are closely
related to the effective duration of the securities which underlie them. Holding
purchased futures or call option positions (backed by segregated cash or other
liquid securities) will lengthen the duration of a Short Duration Fund's
portfolio.
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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.
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PORTFOLIO TURNOVER
An annual portfolio turnover rate in excess of 100% may result from the
Adviser's investment strategy. Portfolio turnover rates in excess of 100% may
result in higher transaction costs, including increased brokerage commissions,
and higher levels of taxable capital gain.
RECEIPTS
Receipts are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on a security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments.
REITS
The Funds may invest in REITs, which pool investors' funds for investment in
income producing commercial real estate or real estate related loans or
interests.
A REIT is not taxed on income distributed to its shareholders or unitholders if
it complies with regulatory requirements relating to its organization,
ownership, assets and income, and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
for each taxable year. Generally, REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents
and capital gains from appreciation realized through property sales. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs. A shareholder in a Fund
should realize that by investing in REITs indirectly through the Fund, he or she
will bear not only his or her proportionate share of the expenses of the Fund,
but also indirectly, similar expenses of underlying REITs.
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in the of their underlying
properties and by defaults by borrowers or tenants. Mortgage REITs may be
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized management skills. Some REITs may have limited diversification
and may be subject to risks inherent in financing a limited number of
properties. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income under the Code or its failure to maintain exemption from registration
under the 1940 Act.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not
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more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
REVERSE DOLLAR ROLL TRANSACTIONS
Each Short Duration Fund may enter into reverse dollar roll transactions, which
involve a purchase by a Fund of an eligible security from a financial
institution concurrently with an agreement by the Fund to resell a similar
security to the institution at a later date at an agreed-upon price. Reverse
dollar roll transactions are fully collateralized in a manner similar to loans
of the Fund's portfolio securities.
REVERSE REPURCHASE AGREEMENT AND DOLLAR ROLL TRANSACTIONS
A reverse repurchase agreement involves a sale by a Fund of securities that it
holds to a bank, broker-dealer or other financial institution concurrently with
an agreement by the Fund to repurchase the same securities at an agreed-upon
price and date. A dollar roll transaction involves a sale by a Fund of an
eligible security to a financial institution concurrently with an agreement by
the Fund to repurchase a similar eligible security from the institution at a
later date at an agreed-upon price. Each Fund will fully collateralize its
reverse repurchase agreements and dollar roll transactions in an amount at least
equal to the Fund's obligations under the reverse repurchase agreement or dollar
roll transaction by cash or other liquid securities that the Fund's custodian
segregates from other Fund assets.
RIGHTS
Rights give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the 1933 Act. Rule 144A securities are traded in the
institutional market pursuant to this registration
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exemption, and, as a result, may not be as liquid as exchange-traded securities
since they may only be resold to certain qualified institutional investors. Due
to the relatively limited size of this institutional market, these securities
may affect the Fund's liquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.
Nevertheless, Rule 144A securities may be treated as liquid securities pursuant
to guidelines adopted by the Trust's Board of Trustees.
SECURITIES LENDING
In order to generate additional income, a Fund may lend its securities pursuant
to agreements requiring that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. Government or its agencies equal to
at least 100% of the market value of the loaned securities. A Fund continues to
receive interest on the loaned securities while simultaneously earning interest
on the investment of cash collateral. Collateral is marked to market daily.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially or
become insolvent.
SECURITIES OF FOREIGN ISSUERS
The Funds may invest in securities of foreign issuers with a strong U.S. trading
presence and in sponsored and unsponsored ADRs. Investments in the securities of
foreign issuers may subject the Funds to investment risks that differ in some
respects from those related to investments in securities of U.S. issuers. Such
risks include future adverse political and economic developments, possible
imposition of withholding taxes on income, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or greater fluctuation in value due to changes in
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities, and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
of a Fund's assets measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Funds may incur costs in connection with conversions between various
currencies. Moreover, investments in emerging market nations may be considered
speculative, and there may be a greater potential for nationalization,
expropriation or adverse diplomatic developments (including war) or other events
which could adversely effect the economies of such countries or investments in
such countries.
SHORT SALES
A short sale is "against the box" if at all times during which the short
position is open, a Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities that are sold short.
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U.S. GOVERNMENT AGENCY OBLIGATIONS
Certain Federal agencies, such as the GNMA, have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (E.G., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (E.G., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES
U.S. Government Securities are bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS
U.S. Treasury Obligations are bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interested and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
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YEAR 2000
The Trust and its service providers do not appear to have been adversely
affected by computer problems related to the transition to the year 2000.
However, there remains a risk that such problems could arise or be discovered in
the future. Year 2000 related problems also may negatively affect issuers whose
securities the Trust purchases, which could have an impact on the value of your
investment.
ZERO COUPON SECURITIES
Zero coupon obligations are debt securities that do not bear any interest, but
instead are issued at a deep discount from par. The value of a zero coupon
obligation increases over time to reflect the interest accredit. Such
obligations will not result in the payment of interest until maturity, and will
have greater price volatility than similar securities that are issued at par and
pay interest periodically.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
No Fund may:
1. (i) Purchase securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if,
as a result, more than 5% of the total assets of the Fund would be invested
in the securities of such issuer; or (ii) acquire more than 10% of the
outstanding voting securities of any one issuer. This restriction applies
to 75% of each Fund's total assets and does not apply to the Top 20,
Focused and Target Select Funds.
2. Purchase any securities which would cause 25% or more of the total assets
of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. This
limitation does not apply to the Technology Fund.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or require
the Fund to segregate assets are not considered to be borrowings. Asset
coverage of at least 300% is required for all borrowings, except where the
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. Each Fund will not purchase securities while its
borrowings exceed 5% of its total assets.
S-23
<PAGE>
4. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that each Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including REITs),
commodities, or commodities contracts; and (ii) commodities contracts
relating to financial instruments, such as financial futures contracts and
options on such contracts.
6. Issue senior securities as defined in the 1940 Act except as permitted by
rule, regulation or order of the SEC.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of
security transactions; (ii) provide initial and variation margin payments
in connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
S-24
<PAGE>
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
Turner Investment Partners, Inc., 1235 Westlakes Drive, Suite 350, Berwyn,
Pennsylvania 19312, is a professional investment management firm founded in
March, 1990. Robert E. Turner is the Chairman and controlling shareholder of the
Adviser. As of December 31, 1999, the Adviser had discretionary management
authority with respect to approximately $5.61 billion of assets. The Adviser has
provided investment advisory services to investment companies since 1992.
The Adviser serves as the investment adviser for each Fund under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers each Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust. The Adviser makes recommendations to the Trustees with respect to the
appropriate allocation of assets to each of the Target Select Fund's
Sub-Advisers, and directly manages assets of the Fund not allocated to the
Sub-Advisers.
The Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of the Fund are
registered, the Adviser will bear the amount of such excess. The Adviser will
not be required to bear expenses of any Fund to an extent which would result in
the Fund's inability to qualify as a regulated investment company under
provisions of the Code.
The continuance of the Advisory Agreement as to any Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Fund, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to any Fund,
by a majority of the outstanding shares of that Fund, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
S-25
<PAGE>
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid
(had reimbursed) the following advisory fees:
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------------- -------------------------------------------
1997 1998 1999 1997 1998 1999
-------------- -------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Fund $ 0 ($79,930) $ (49,999) $ 2,281 $ 15,530 $56,778
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Growth Equity Fund $694,046 $ 664,499 $ 987,424 $24,250 $ 76,793 $ 0
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Midcap Fund $ 0 $ 92,465 $ 521,612 $13,244 $ 42,799 $ 2,444
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Small Cap Fund $762,604 $1,458,689 $1,940,749 $73,594 $226,626 $66,830
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Micro Cap Fund * $ (97,006) $ (63,745) * $ 16,354 $67,820
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Focused Fund * * * * * *
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Top 20 Fund * * $ 7,100 * * $18,763
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Technology Fund * * $ (6,578) * * $12,267
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
International Fund * * * * * *
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
One Year Portfolio Fiscal Year Fiscal ($116,124) Fiscal Year Fiscal $ 4,624
Ended 2/28/98 Period Ended Ended Period
($94,700) 9/30/98 2/28/98 Ended
($67,178) $2,792 9/30/98
$1,596
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Three Year Portfolio Fiscal Year Fiscal ($165,234) Fiscal Year Fiscal $50,673
Ended 2/28/98 Period Ended Ended Period
($117,540) 9/30/98 2/28/98 Ended
($80,828) $41,761 9/30/98
$20,056
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Fixed Income Fund * * ($15,843) * * $12,322
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Target Select Fund * ($47,875) ($104,563) * $6,656 $13,999
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
</TABLE>
* Not in operation during the period.
As described in the prospectus, the Focused Large Cap, Top 20, Technology and
International Growth Funds are subject to base investment advisory fees that may
be adjusted if a Fund out- or under-performs a stated benchmark. Set forth below
is information about the advisory fee arrangements of these Funds:
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
FUND BENCHMARK REQUIRED EXCESS BASE ADVISORY FEE HIGHEST POSSIBLE LOWEST POSSIBLE
PERFORMANCE ADVISORY FEE ADVISORY FEE
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Focused S&P 500 Index +/- 2.5% 1.00% 1.30% .70%
Fund
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Top 20 Fund S&P 500 Index +/- 2.5% 1.10% 1.50% .70%
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Technology Fund PSE Technology +/- 2.0% 1.10% 1.50% .70%
Index
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
International MSCI EAFE Index +/- 2.0% 1.00% 1.30% .70%
Fund
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
</TABLE>
The performance adjustment works as follows: If the Top 20 Fund outperforms the
S&P 500 Index by more than 2.5%, Turner's advisory fees will increase from 1.10%
to 1.50%. If, however, the Fund underperforms its benchmark by 2.5%, Turner's
advisory fees would go down to 0.70%. These performance-based fees will only be
charged once a Fund has been in operation for at least one year, and will comply
with all applicable SEC rules.
THE SUB-ADVISERS
The Target Select Fund currently has three Sub-Advisers -- Clover Capital
Management, Inc., Penn Capital Management Company, Inc., and Chartwell
Investment Partners (each a "Sub-Adviser" and collectively, the "Sub-Advisers").
Each Sub-Adviser will manage a portion of the Fund's assets, which allocation is
determined by the Trustees upon the recommendation of the Adviser. Each
Sub-Adviser makes the investment decisions for the assets of the Fund allocated
to it, and continuously reviews, supervises and administers a separate
investment program, subject to the supervision of, and policies established by,
the Trustees of the Trust. For its services, each of the Sub-Advisers is
entitled to receive a fee from Turner Investment Partners, which is calculated
daily and paid monthly, at an annual rate of 0.80% of the average daily net
assets of the Fund allocated to it. Currently, the Adviser and each Sub-Adviser
has been allocated assets in the range of 15-30% of the Fund's total assets.
CLOVER CAPITAL MANAGEMENT, INC. ("Clover Capital"), 11 Tobey Village Office
Park, Pittsford, New York 14354, is a professional investment management firm
founded in 1984 by Michael Edward Jones, CFA, and Geoffrey Harold Rosenberger,
CFA, who are Managing Directors of Clover Capital and who control all of Clover
Capital's outstanding voting stock. Michael Jones, Managing Director of Clover
Capital, is the portfolio manager of the portion of the Fund's assets managed by
Clover Capital. As of December 31, 1999, Clover Capital had discretionary
management authority with respect to approximately $1.4 billion of assets. In
addition to sub-advising the Fund and the Clover Funds, separate investment
portfolios of the Trust, Clover provides advisory services to pension plans,
religious and educational endowments, corporations, 401(k) plans, profit sharing
plans, individual investors and trusts and estates. For the fiscal year ended
September 30, 1999, Clover received investment sub-advisory fees of 0.00%.
PENN CAPITAL MANAGEMENT COMPANY, INC. ("Penn Capital"), 52 Haddonfield-Berlin
Road, Suite 1000, Cherry Hill, New Jersey 08034, is a professional investment
management firm founded in 1987 and registered as an investment adviser under
the Investment Advisers Act. Richard A. Hocker is a founding partner and Chief
Investment Officer of Penn Capital and portfolio manager of the portion of the
assets of the Fund managed by Penn Capital, an investment management firm that
manages the investment portfolios of institutions and high net worth
individuals. As of December 31, 1999, Penn Capital had assets under management
of approximately $450 million. Penn Capital
S-27
<PAGE>
employs a staff of 17 and manages monies in a variety of investment styles
through either separate account management or one of its private investment
funds. In addition, Penn Capital serves as investment adviser to the Penn
Capital Funds, three separate portfolios of the Trust. For the fiscal year ended
September 30, 1999, Penn Capital received investment subadvisory fees of 0.00%.
CHARTWELL INVESTMENT PARTNERS ("Chartwell"), 1235 Westlakes Drive, Suite 330,
Berwyn, Pennsylvania 19312, is a professional investment management firm founded
in 1997 and registered as an investment adviser under the Investment Advisers
Act. Chartwell was founded by a team of experienced investment professionals who
had been employees of Delaware Management Company of Philadelphia, Pennsylvania.
The portion of the assets of the Fund managed by Chartwell will be managed by a
team of investment professionals with extensive investment experience. The
portion of the assets of the Fund managed by Chartwell will be managed by a team
of investment professionals with extensive investment experience. Chartwell
currently manages approximately $3.7 billion in assets for institutional
clients. For the fiscal year ended September 30, 1999, Chartwell received
investment sub-advisory fees of 0.00%.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three (3) years
after the effective date of the agreement and shall continue in effect for
successive periods of one (1) year unless terminated by either party on not less
than 90 days' prior written notice to the other party.
The continuance of the Administration Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) by the vote
of a majority of the Trustees of the Trust who are not parties to the
Administration Agreement or an "interested person" (as that term is defined in
the 1940 Act) of any party thereto, cast in person at a meting called for the
purpose of voting on such approval. The Administration Agreement is terminable
at any time as to any Fund without penalty by the Trustees of the Trust, by a
vote of a majority of the outstanding shares of the Fund or by the Manager on
not less than 30 days' nor more than 60 days' written notice.
The Administrator, a Massachusetts business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select Funds,
Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
S-28
<PAGE>
Street Funds, Boston 1784 Funds(R), CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The Nevis Fund,
Inc., Oak Associates Funds, The Parkstone Advantage Fund, The PBHG Funds, Inc.,
PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust,
SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, and UAM Funds, Inc. II.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid the
following administrative fees (net of waivers):
<TABLE>
<CAPTION>
---------------------------------------------------------
Administrative Fees Paid
---------------------------------------------------------
1997 1998 1999
- -------------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Large Cap Fund $ 3,057 $ 31,129 $ 65,307
- -------------------------------- ------------------ ------------------- ------------------
Growth Equity Fund $110,759 $114,049 $117,203
- -------------------------------- ------------------ ------------------- ------------------
Midcap Fund $ 9,404 $ 46,823 $ 70,403
- -------------------------------- ------------------ ------------------- ------------------
Small Cap Fund $ 98,104 $181,597 $175,795
- -------------------------------- ------------------ ------------------- ------------------
Micro Cap Fund * $ 42,470 $ 68,309
- -------------------------------- ------------------ ------------------- ------------------
Focused Fund * * *
- -------------------------------- ------------------ ------------------- ------------------
Top 20 Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
Technology Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
International Fund * * *
- -------------------------------- ------------------ ------------------- ------------------
One Year Portfolio Fiscal Year Fiscal Period $ 16,902
Ended 2/28/98 Ended 9/30/98
$802 $510
- -------------------------------- ------------------ ------------------- ------------------
Three Year Portfolio Fiscal Year Fiscal Period $ 46,462
Ended 2/28/98 Ended 9/30/98
$11,964 $6,418
- -------------------------------- ------------------ ------------------- ------------------
Fixed Income Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
Target Select Fund * $ 0 $ 85,433
- -------------------------------- ------------------ ------------------- ------------------
</TABLE>
* Not in operation during the period.
DISTRIBUTION AND SHAREHOLDER SERVICES
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Funds. The Distributor
receives no compensation for distribution of shares of the Funds.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the
S-29
<PAGE>
Distributor, by a majority vote of the Trustees who are not interested persons
and have no financial interest in the Distribution Agreement or by a majority
vote of the outstanding securities of the Trust upon not more than 60 days'
written notice by either party or upon assignment by the Distributor.
The Short Duration Funds have adopted a shareholder service plan for Shares (the
"Class II Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefore. Under the Class II Service Plan, the Distributor may provide those
services itself, or may enter into arrangements under which third parties
provide such services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any difference between the
fee it receives and the amount it pays such third parties. In addition, the
Funds may enter into such arrangements directly. Under the Class II Service
Plan, the Distributor is entitled to receive a fee at an annual rate of up to
0.25% of each Fund's average daily net assets attributable to Class II Shares
that are subject to the arrangement in return for provision of a broad range of
shareholder and administrative services, including: maintaining client accounts;
arranging for bank wires; responding to client inquiries concerning services
provided for investments; changing dividend options; account designations and
addresses; providing sub-accounting; providing information on share positions to
clients; forwarding shareholder communications to clients; processing purchase,
exchange and redemption orders; and processing dividend payments.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. The Trustees and executive officers of the Trust and
their principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select
Funds, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds(R), CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Huntington Funds, The Nevis Fund, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The Parkstone Group of Funds, The PBHG
Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
International Trust, SEI Institutional Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds
and STI Classic Variable Trust, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and distributed by SEI Investments Distribution Co.
S-30
<PAGE>
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. ("Turner"), since 1990.
RICHARD A. HOCKER (DOB 07/21/46) - Trustee* - CEO and Chairman of the Board of
Covenant Bank, 1988-1997. Director of Bedminister Bioconversion Corporation,
since 1988. Chief Investment Officer and Senior Vice President of Penn Capital
Management Co., Inc., since 1987.
MICHAEL E. JONES (DOB 12/24/54) - Trustee* - Senior Vice President, Investment
Adviser and Portfolio Manager with Clover Capital Management Inc., since 1984.
Principal of CCM Securities Inc.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee** - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
JANET F. SANSONE (DOB 08/11/45) - Trustee** - Corporate Vice President of Human
Resources of Frontier Corporation (telecommunications company), retired.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee** - Professor, Loyola Marymount
University, since 1984.
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner, since 1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner, since 1992.
EDWARD T. SEARLE (DOB 04/03/54) - Vice President and Assistant Secretary -
Employed by SEI Investments since August 1999. Vice President and Assistant
Secretary of the Administrator and Distributor since December 1999. Associate at
Drinker Biddle & Reath LLP, 1998-1999. Associate at Ballard, Andrews &
Ingersoll, LLP, 1995-1998.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine, 1994-1995. Associate, Winston and
Strawn, 1991-1994.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting of SEI since 1994. Senior Audit
Manager, Arthur Andersen LLP, 1986-1994.
LYDIA A. GAVALIS (DOB 06/05/64) - Vice President and Assistant Secretary - vice
President and Assistant Secretary of the Manager and the Distributor since 1998.
Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
S-31
<PAGE>
KATHY HEILIG (DOB 12/21/58) - Vice President and Assistant Secretary - Treasurer
of SEI Investments Company since 1997; Assistant Controller of SEI Investment
since 1995; Vice President of SEI Investments Company since 1991.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP, counsel to the Trust, Turner, the Administrator and Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103, Partner, Morgan, Lewis & Bockius LLP, Counsel
to the Trust, Turner, the Administrator and the Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103, Associate, Morgan, Lewis & Bockius LLP,
Counsel to the Trust, Turner, the Administrator and the Distributor, since 1995.
-------------------------------
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Aggregate Pension or Estimated Total Compensation From
Compensation From Retirement Annual Registrant and Fund
Name of Person, Registrant for the Benefits Accrued Benefits Complex Paid to Trustees
Position Fiscal Year Ended as Part of Fund Upon for the Fiscal Year
September 30, 1999 Expenses Retirement Ended September 30, 1999
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
<S> <C> <C> <C> <C>
Robert Turner* $0 N/A N/A $0 for service on two
Boards
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Richard A. Hocker* $0 N/A N/A $0 for service on one
Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Michael E. Jones* $0 N/A N/A $0 for service on one
Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Alfred C. Salvato** $8,000 N/A N/A $14,000 for service on
two Boards
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Janet F. Sansone** $9,775 N/A N/A $9,775 for service on
one Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
John T. Wholihan** $10,538 N/A N/A $10,538 for service on
one Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
</TABLE>
* Messrs. Robert Turner, Richard Hocker and Michael Jones are Trustees who may
be deemed to be "interested persons" of the Trust as the term is defined in the
1940 Act. The Trust pays fees only to the Trustees who are not interested
persons of the Trust. Compensation of Officers and interested persons of the
Trust is paid by the adviser or the manager.
** Member of the Audit Committee.
The Trustees and Officers of the Trust own less than 1% of the outstanding
shares of the Trust.
S-32
<PAGE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1] where a = dividends and interest earned during
the period; b ' expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
Based on the foregoing, the 30-day yield for the Funds for the 30-day period
ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
----------------------------------- ----------------------- -----------------------
Fund Class 30-Day Yield
----------------------------------- ----------------------- -----------------------
<S> <C> <C>
Large Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Growth Equity Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Midcap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Small Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Micro Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Focused Fund Class I *
----------------------------------- ----------------------- -----------------------
Top 20 Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Technology Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
International Fund Class I *
----------------------------------- ----------------------- -----------------------
One Year Portfolio Class I 5.30%
----------------------------------- ----------------------- -----------------------
One Year Portfolio Class II 5.04%
----------------------------------- ----------------------- -----------------------
Three Year Portfolio Class I 5.85%
----------------------------------- ----------------------- -----------------------
Three Year Portfolio Class II 5.62%
----------------------------------- ----------------------- -----------------------
Fixed Income Fund Class I 5.96%
----------------------------------- ----------------------- -----------------------
Target Select Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
</TABLE>
*Not in operation during the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
S-33
<PAGE>
following formula: P (1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
Based on the foregoing, the average annual total return for the Funds from
inception through September 30, 1999, and for the one and five year periods
ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
- -------------------------- ------------- ------------------------------------------------------
Average Annual Total Return
------------------------------------------------------
Class One Year Five Year Since Inception
- -------------------------- ------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Large Cap Fund Class I 42.97% * 31.15%
- -------------------------- ------------- ---------------- ------------------ ------------------
Growth Equity Fund Class I 38.16% 24.63% 19.17%
- -------------------------- ------------- ---------------- ------------------ ------------------
Midcap Fund Class I 84.07% * 38.93%
- -------------------------- ------------- ---------------- ------------------ ------------------
Small Cap Fund Class I 59.14% 29.26% 26.63%
- -------------------------- ------------- ---------------- ------------------ ------------------
Micro Cap Fund Class I 113.46% * 59.94%
- -------------------------- ------------- ---------------- ------------------ ------------------
Focused Fund Class I * * *
- -------------------------- ------------- ---------------- ------------------ ------------------
Top 20 Fund Class I * * 39.90%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Technology Fund Class I * * 40.60%**
- -------------------------- ------------- ---------------- ------------------ ------------------
International Fund Class I * * *
- -------------------------- ------------- ---------------- ------------------ ------------------
One Year Portfolio Class I 5.34% 6.33% 6.08%
- -------------------------- ------------- ---------------- ------------------ ------------------
One Year Portfolio Class II 5.00% * 5.22%
- -------------------------- ------------- ---------------- ------------------ ------------------
Three Year Portfolio Class I 2.89% 6.56% 6.02%
- -------------------------- ------------- ---------------- ------------------ ------------------
Three Year Portfolio Class II * * 5.64%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Fixed Income Fund Class I * * 0.48%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Target Select Fund Class I 80.04% * 42.77%
- -------------------------- ------------- ---------------- ------------------ ------------------
</TABLE>
*Not in operation during the period.
**These returns have not been annualized.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the DST, 330 West 9th Street,
Kansas City, Missouri 64105, (the "Transfer Agent") on days when the New York
Stock Exchange is open for business. Currently, the weekdays on which the Fund
is closed for business are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Shares of each Fund are offered on a
continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-
S-34
<PAGE>
kind of securities held by a Fund in lieu of cash. Shareholders may incur
brokerage charges on the sale of any such securities so received in payment of
redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued by the Administrator. The Administrator
may use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as on trade quotations obtained from third parties. However, the pricing service
may use a matrix system to determine valuations of fixed income securities. This
system considers such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. The procedures used by the pricing service and its valuation are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
If there is no readily ascertainable market value for a security, the
Administrator will make a good faith determination as to the "fair value" of the
security.
Some Funds may hold portfolio securities that are listed on foreign exchanges.
These securities may trade on weekends or other days when the Funds do not
calculate NAV. As a result, the value of these investments may change on days
when you cannot purchase or sell Fund shares.
Securities with remaining maturities of 60 days or less will be valued by the
amortized cost method, which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization of maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by this method, is higher or lower than the
price the Trust would receive if it sold the instrument.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
S-35
<PAGE>
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax considerations
generally affecting the Funds and their shareholders that are not discussed in
the Funds' Prospectus. No attempt is made to present a detailed explanation of
the federal, state or local tax treatment of the Funds or their shareholders and
the discussion here and in the Funds' Prospectus is not intended as a substitute
for careful tax planning.
The discussion of federal income tax consequences is based on the Code and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer, or of two or more issuers which are
engaged in the same, similar or related trades or business if the Fund owns at
least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Funds will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income (the excess of short- and
long-term capital gains over short-and long-term capital losses) for the
one-year period ending on October 31 of that year, plus certain other amounts.
Each Fund intends to make sufficient distributions to avoid liability for the
federal excise tax. A Fund may in certain circumstances be required to liquidate
Fund investments in order to make sufficient distributions to avoid federal
excise tax liability at a time when the investment advisor
S-36
<PAGE>
might not otherwise have chosen to do so, and liquidation of investments in such
circumstances may affect the ability of a Fund to satisfy the requirements for
qualification as a RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of a
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than one year, and otherwise will be treated as
short-term capital gain or loss. However, if shares on which a shareholder has
received a net capital gain distribution are subsequently sold, exchanged or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the net
capital gain distribution. Long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions may generally be eligible for the corporate dividends-received
deduction.
Funds may, in certain circumstances involving tax-free reorganizations, accept
securities that are appropriate investments as payment for Fund shares (an
"In-Kind Purchase"). An In-Kind Purchase may result in adverse tax consequences
under certain circumstances to either the investors transferring securities for
shares (an "In-Kind Investors") or to investors who acquire shares of the Fund
after a transfer ("new shareholders"). As a result of an In-Kind Purchase, the
Funds may acquire securities that have appreciated in value or depreciated in
value from the date they were acquired. If appreciated securities were to be
sold after an In-Kind Purchase, the amount of the gain would be taxable to new
shareholders as well as to In-Kind Investors. The effect of this for new
shareholders would be to tax them on a distribution that represents a return of
the purchase price of their shares rather than an increase in the value of their
investment. The effect on In-Kind Investors would be to reduce their potential
liability for tax on capital gains by spreading it over a larger asset base. The
opposite may occur if the Funds acquire securities having an unrealized capital
loss. In that case, In-Kind Investors will be unable to utilize the loss to
offset gains, but, because an In-Kind Purchase will not result in any gains, the
inability of In-Kind Investors to utilize unrealized losses will have no
immediate tax effect. For new shareholders, to the extent that unrealized losses
are realized by the Funds, new shareholders may benefit by any reduction in net
tax liability attributable to the losses. The Adviser cannot predict whether
securities acquired in any In-Kind Purchase will have unrealized gains or losses
on the date of the In-Kind Purchase. Consistent with its duties as investment
adviser, the Adviser will, however, take tax consequences to investors into
account when making decisions to sell portfolio assets, including the impact of
realized capital gains on shareholders of the Funds.
S-37
<PAGE>
The Funds may use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.
STATE TAXES
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The Adviser may, consistent with the interests of the Funds, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Fund or other accounts managed by the Adviser will be benefitted
by supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Fund.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940
S-38
<PAGE>
Act, the Securities Exchange Act of 1934 and rules promulgated by the SEC. Under
these provisions, the Distributor is permitted to receive and retain
compensation for effecting portfolio transactions for a Fund on an exchange if a
written contract is in effect between the Trust and the Distributor expressly
permitting the Distributor to receive and retain such compensation. These rules
further require that commissions paid to the Distributor by a Fund for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who recommend a
Fund's shares to clients, and may, when a number of brokers and dealers can
provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds'
portfolio turnover rates were as follows:
<TABLE>
<CAPTION>
- --------------------------------- ----------------------------------------------------------------------------------
Portfolio Turnover Rate
----------------------------------------------------------------------------------
1997 1998 1999
- --------------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Large Cap Fund 346.47% 234.93% 370.71%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Growth Equity Fund 178.21% 249.58% 328.26%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Midcap Fund 348.29% 304.29% 290.79%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Small Cap Fund 130.68% 167.73% 223.61%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Micro Cap Fund * 128.53% 239.32%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Focused Fund * * *
- --------------------------------- --------------------------- -------------------------- ---------------------------
Top 20 Fund * * 369.11%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Technology Fund * * 317.32%
- --------------------------------- --------------------------- -------------------------- ---------------------------
International Fund * * *
- --------------------------------- --------------------------- -------------------------- ---------------------------
One Year Portfolio - For the Fiscal Year For the Fiscal Period 154.33%
Class I Shares Ended 2/28/98 Ended 9/30/98
68.80% 96.56%
- --------------------------------- --------------------------- -------------------------- ---------------------------
One Year Portfolio - * * 154.33%
Class II Shares
- --------------------------------- --------------------------- -------------------------- ---------------------------
S-39
<PAGE>
<CAPTION>
- --------------------------------- --------------------------- -------------------------- ---------------------------
Three Year Portfolio - For the Fiscal Year For the Fiscal Period 257.98%
Class I Shares Ended 2/28/98 Ended 9/30/98
197.03% 121.63%
- --------------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Three Year Portfolio - * * 257.98%
Class II Shares
- --------------------------------- --------------------------- -------------------------- ---------------------------
Fixed Income Fund * * 39.70%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Target Select Fund * 803.02% 1,279.40%
- --------------------------------- --------------------------- -------------------------- ---------------------------
</TABLE>
* Not in operation during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The brokerage commissions paid for each Fund for the fiscal years ended
September 30, 1997, 1998, and 1999 were as follows:
<TABLE>
<CAPTION>
- ------------------------------- -----------------------------------------------------------
Total Dollar Amount of Brokerage Commissions Paid
-----------------------------------------------------------
1997 1998 1999
- ------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Large Cap Fund $ 2,586 $ 10,622 $43,087
- ------------------------------- ------------------- ------------------- -------------------
Growth Equity Fund $335,291 $464,404 $671,953
- ------------------------------- ------------------- ------------------- -------------------
Midcap Fund $ 17,029 $123,834 $352,280
- ------------------------------- ------------------- ------------------- -------------------
Small Cap Fund $235,029 $465,825 $546,802
- ------------------------------- ------------------- ------------------- -------------------
Micro Cap Fund * $ 6,974 $ 36,683
- ------------------------------- ------------------- ------------------- -------------------
Focused Fund * * *
- ------------------------------- ------------------- ------------------- -------------------
Top 20 Fund * * $ 57,574
- ------------------------------- ------------------- ------------------- -------------------
Technology Fund * * $ 13,527
- ------------------------------- ------------------- ------------------- -------------------
International Fund * * *
- ------------------------------- ------------------- ------------------- -------------------
One Year Portfolio N/A N/A $ 69
- ------------------------------- ------------------- ------------------- -------------------
Three Year Portfolio N/A N/A $ 141
- ------------------------------- ------------------- ------------------- -------------------
Fixed Income Fund * * $ 64
- ------------------------------- ------------------- ------------------- -------------------
Target Select Fund * $ 13,856 $ 28,450
- ------------------------------- ------------------- ------------------- -------------------
</TABLE>
*Not in operation during the period.
S-40
<PAGE>
The total amount of securities of each Broker/Dealer held by each Fund for the
fiscal year ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
- --------------------------------- ------------------------- --------------------------- ---------------------------
TOTAL AMOUNT OF
SECURITIES HELD BY EACH
FUND NAME OF BROKER/DEALER FUND TYPE OF SECURITY
- --------------------------------- ------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Large Cap Fund Morgan Stanley $ 76,151.24 Repurchase Agreement
- --------------------------------- ------------------------- --------------------------- ---------------------------
Growth Fund Morgan Stanley $ 2,713,821.44 Repurchase Agreement
Goldman Sachs $ 703,940.00 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Midcap Fund J.P. Morgan $ 4,451,363.63 Repurchase Agreement
Lehman Brothers $ 1,509,127.50 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Small Cap Fund J. P. Morgan $ 12,767,113.96 Repurchase Agreement
Hambrecht and Quist $ 3,220.576.88 Common Stock
Legg Mason Inc. $ 1,263,163.13 Common Stock
Raymond James Fin. Corp. $ 1,026,980.63 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Micro Cap Fund Morgan Stanley $ 413,708.25 Repurchase Agreement
- --------------------------------- ------------------------- --------------------------- ---------------------------
</TABLE>
VOTING
Each share held entitles the shareholder of record to one vote for each dollar
invested. In other words, each shareholder of record is entitled to one vote for
each dollar of net asset value of the shares held on the record date for the
meeting. Shares issued by each Fund have no preemptive, conversion, or
subscription rights. Each whole share shall be entitled to one vote and each
fractional share shall be entitled to a proportionate fractional vote. Each
Fund, as a separate series of the Trust, votes separately on matters affecting
only that Fund. Voting rights are not cumulative. Shareholders of each Class of
each Fund will vote separately on matters pertaining solely to that Fund or that
Class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Where the Trust's Prospectuses or Statements of Additional Information state
that an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (1) 67% or more of the
affected Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the affected Fund's outstanding shares, whichever is less.
S-41
<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a PRO RATA share in the net assets of the
portfolio, after taking into account additional distribution and shareholder
servicing expenses attributable to the Class II Shares. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Trustees of the
Trust may create additional series of shares or separate classes of funds. All
consideration received by the Trust for shares of any portfolio or separate
class and all assets in which such consideration is invested would belong to
that portfolio or separate class and would be subject to the liabilities related
thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust, and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
As of January 3, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
S-42
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF OF FUND'S
FUND OF BENEFICIAL OWNER SHARES SHARES
<S> <C> <C> <C>
Turner Large Cap Growth Equity Charles Schwab & Co. Inc. 326,965.2330 23.50%
Fund Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Connecticut General Life Insurance Co. 897,202.2430 64.49%
Attn: Carmen Rivera - H19B
280 Trumbull Street
Hartford, CT 06103-3509
Turner Growth Equity Fund Saxon & Co. TTEE 650,412.9000 5.53%
FBO C/F
Duane Morris & Heckscher LLP
A/C# 20-35-002-1029077
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
Retirement Plan for Employees of 906,465.6020 7.71%
Bridgeport Hospital
C/O People's Bank Trust Dept.
850 Main Street 13th Fl
Bridgeport, CT 06604-4917
Charles Schwab & Co. Inc. 2,057,015.3710 17.50%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
First Union National Bank 4,379,385.6290 37.26%
FBO Sheet Metal Workers Local #19
Annuity Self Directed Fund
A/C# 1546002697
CMG NC-1157
1525 W. WT Harris Blvd.
Charlotte, NC 28262-8522
Turner Midcap Growth Fund Charles Schwab & Co. Inc. 3,837,971.6920 41.82%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Copeland Associates 696,786.5820 7.59%
Smith Barney Corporate Trust Co.
2 Tower Center Blvd., Box 1063
East Brunswick, NJ 08816-3155
Turner Small Cap Growth Fund Charles Schwab & Co. Inc. 5,208,084.2850 56.95%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
S-43
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Turner Micro Cap Growth Charles Schwab & Co. Inc. 562,123.9250 29.24%
Institutional Class Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Donaldson Lufkin Jenrette 123,944.9990 6.45%
SECS Corp.
Pershing Division
P. O. Box 2052
Jersey City, NJ 07399
National Investors Services Corp. 410,344.6040 21.35%
FBBO Our Customers
55 Water Street, Floor 12
New York, NY 10041-3299
Turner Top 20 Fund Charles Schwab & Co Inc. 1,305,403.5240 40.36%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO, 80209
National Investors Services Corp 198,893.0500 6.15%
FBBO Our Customers
55 Water Street, Fl. 12
New York, NY 10041-1299
Turner Technology Fund Charles Schwab and Co. Inc 794,322.0860 52.04%
Attn: Mutual Funds/ Team S
4500 Cherry Creek Dr. S., Fl. 3
Denver, CO 80209
National Investors Services Corp 210,006.4770 13.76%
FBBO Our Customers
55 Water St. Fl 32
New York, NY, 10041-3299
Turner Short Duration Charles Schwab & Co. Inc. 432,182.9190 91.84%
Government Funds - One Year Attn: Mutual Funds/Team S
Portfolio Class I 4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Turner Short Duration NFSC FBBO # 179-397470 43,944.8840 6.69%
Government Funds-One Year Utah Festival Opera Company
Portfolio-Class II 59 S 100 W
Logan, UT, 84321-4515
NFSC FBBO # 379-070386 54,422.7980 8.28%
BSA Utah National Parks Council
250 W 500 N
Provo, UT, 84501-2819
S-44
<PAGE>
<CAPTION>
<S> <C> <C> <C>
NFSC FBBO #379-536272 89,197.2250 13.58%
UTA/ATO
Malecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0820
NFSC Cort Brambled Brent HA 110,215.6880 16.77%
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0830
NFSC FBBO #379-503940 79,558.2560 12.11%
C. Bramble D B Hales Jay E JE
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
P.O. Box 30810
Salt Lake City, UT, 84130-0830
Turner Short Duration Turner Investment Partners 844,278.8210 21.18%
Government Funds-Three Year FBO Teamsters Local #837
Portfolio-Class I Attn: Bob Gunning
12275 Townsend Rd.
Philadelphia, PA, 19154-1204
First Union National Bank Trust 1,976,308.6850 49.57%
FBO Sheet Metal Workers #19
A/C #1546002688
CHGJ64 NC1151
1525 West WT Harris Blvd.
Charlotte, NC, 28262
Bryn Mawr 861,246.7990 21.60%
Attn: Jerry Berenson
101 N. Merion Ave
Bryn Mawr, PA, 19010-2899
Charles Schwab & Co. 236,351.4490 5.93%
101 Montgomery St
San Francisco, CA, 94104-4122
Turner Short Duration NFSC FBBO #379-503916 35,264.1030 14.42%
Government Funds-Three Year Curt Brambled Brent MA
Portfolio-Class II C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
NFSC FBBO #379-503940 24,782.2720 10.13%
C. Bramble, D.B. Hales, Jay E. JE
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
S-45
<PAGE>
<CAPTION>
<S> <C> <C> <C>
NFSC FBBO #379-527793 115,823.4120 47.35%
B.H. Bastian Foundation
Bruce Bastian/Brent Erkelens
U/A 02/19/1999
51 W. Center St. #755
Orem, UT, 84057-4605
NFSC FBBO #379-536172 44,855.9670 18.34%
UYA/ATU
N. Halecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0810
Turner Core High Quality Fixed Oxford Foundation Inc. 259,563.6740 25.30%
Income Fund 2 S. Decatur St.
Strasburg, PA, 17579-1403
Banc of America Securities LLC 765,207.4200 74.60%
Attn: Mutual Funds-4th Floor
808-96071-16
600 Montgomery St
San Francisco, CA, 94131-2702
TIP Target Select Equity Fund Charles Schwab & Co. Inc. 23,811.6980 16.27%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Carolyn Turner TR 45,257.0300 30.92%
U/A Robert E. Turner Jr., Trust
9 Horseshoe Lane
Paoli, PA 19301-1909
Robert & Carolyn Turner Foundation 23,954.2260 16.36%
9 Horseshoe Lane
Paoli, PA 19301-1909
</TABLE>
S-46
<PAGE>
CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as the custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information and the Financial Highlights included in the prospectuses
have been audited by Ernst & Young LLP, 2001 Market Street, Philadelphia,
Pennsylvania 19103, independent auditors, as indicated by their report, with
respect thereto, and are included herein in reliance on their report given on
their authority as experts in accounting and auditing.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended September 30, 1999,
including notes thereto and the report of Ernst & Young LLP thereon, are herein
incorporated by reference. A copy of the 1999 Annual Report must accompany the
delivery of this Statement of Additional Information.
S-47
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities."
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA.
A-1
<PAGE>
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated A by Fitch are considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1, 1 +, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1, the highest rating category, reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2, the second highest rating category,
reflect a satisfactory degree of safety regarding timely payment but not as high
as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
A-2
<PAGE>
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>
Subject to Completion
Preliminary Prospectus
Dated March 2, 2000
Vanguard
Growth Equity Fund
Prospectus
_____, 2000
This prospectus contains financial data for the Fund through the fiscal year
ended September 30, 1999.
Information contained in this prospectus is g or amendment.
A registration statement for Vanguard Growth Equity Fund has been filed with the
Securities and Exchange Commission but has not yet become effective.This new
Fund is being formed through the proposed reorganization of an existing fund,
known as Turner Growth Equity Fund. Shareholders of Turner Growth Equity Fund
may or may not approve the reorganization proposal. If the proposal is not
approved by shareholders, the registration statement previously filed for
Vanguard Growth Equity Fund will be withdrawn.
Shares of Vanguard Growth Equity Fund may not be sold, nor may offers to buy be
accepted, prior to the time the registration statement becomes effective. This
communication shall not constitute an offer to buy, nor shall there be any sale
of these securities in any states in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
A MEMBER OF
THE VANGUARD GROUP[R]
<PAGE>
Vanguard Growth Equity Fund
Prospectus
__________ , 2000
A Growth Stock Mutual Fund
CONTENTS
o Fund Profile
o Additional Information
o A Word About Risk
o Who Should Invest
o Primary Investment Strategies
o The Fund and Vanguard
o Investment Advisers
o Dividends, Capital Gains, and Taxes
o Share Price
o Financial Highlights
o Investing with Vanguard
o Services and Account Features
o Types of Accounts
o Buying Shares
o Redeeming Shares
o Transferring Registration
o Fund and Account Updates
Glossary (inside back cover)
- --------------------------------------------------------------------------------
Why Reading This Prospectus Is Important
This prospectus explains the objective, risks, and strategies of Vanguard
Growth Equity Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
1
Fund Profile
The following profile summarizes key features of Vanguard Growth Equity Fund.
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
INVESTMENT STRATEGIES
The Fund invests primarily in common stocks and other equity securities of U.S.
companies with medium and large-capitalizations that are believed to have strong
earnings growth potential and to be reasonably valued at the time of purchase.
The Fund will invest in securities of companies that are diversified across
economic sectors, and will attempt to maintain sector weightings that
approximate those of the Russell 1000 Growth Index.
PRIMARY RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
[bullet] Investment style risk, which is the chance that returns from medium and
large-capitalization growth stocks will trail returns from other asset
classes or the overall stock market.
[bullet] Manager risk, which is the chance that poor security selection will
cause the Fund to underperform other funds with similar investment
objectives.
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years, and since inception, compare with those of a
broad-based securities market index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.*
- --------------------------------------------------------------------------------
Annual Total Returns
- --------------------------------------------------------------------------------
[BAR GRAPH OMITTED]
1993 15.38%
1994 -6.73%
1995 29.96%
1996 19.23%
1997 31.36%
1998 38.07%
1999 53.60%
- --------------------------------------------------------------------------------
The Fund's year-to-date return as of the most recent calendar quarter ended
March 31, 2000, was _____%.
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 39.67% (quarter ended December 31,1999) and the lowest return for a
quarter was -8.85% (quarter ended September 30,1998).
* Prior to ____ 2000, Vanguard Growth Equity Fund was organized as Turner Growth
Equity Fund and was sponsored by Turner Investment Partners, LLC, its
investment adviser. The reorganization brought the Fund into the Vanguard
Group, while maintaining the same investment objective, strategies and
adviser.
<PAGE>
2
- --------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1999
- --------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Vanguard Growth Equity Fund 53.60% 33.98% 23.68%
Russell 1000 Growth Index 33.16 34.21 22.08
- --------------------------------------------------------------------------------
*March 11, 1992
- --------------------------------------------------------------------------------
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based on amounts now in effect.*
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID directly FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the fund's assets)
Management Expenses: ____%
12b-1 Distribution Fee: None
Other Expenses: ____%
Total Annual Fund Operating Expenses: 0.65%
</TABLE>
* The information in the table has been restated to reflect current expenses
rather than last year's expenses because these amounts changed materially when
the Fund became a member of The Vanguard Group on ____, 2000.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$---- $---- $---- $----
- --------------------------------------------------------------------------------
This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>
3
PLAIN TALK ABOUT Fund Expenses All mutual funds have operating expenses. These
expenses, which are deducted from a fund's gross income, are expressed as a
percentage of the net assets of the fund. Vanguard Growth Equity Fund's
estimated expense ratio for its first full year of operations as a Vanguard fund
is 0.65%, or $6.50 per $1,000 of average net assets. The average growth and
equity mutual fund had expenses in 1999 of _____%, or $_____ per $1,000 of
average net assets, (derived from data provided by Lipper Inc., which reports on
the mutual fund industry)*.
PLAIN TALK ABOUT
The Costs of Investing
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
Additional Information
Dividends and Capital Gains
Distributed ____________
Investment Adviser
Turner Investment Partners, Inc.
Berwyn, PA, since inception
Inception Date
March 11, 1992
Net Assets as of September 30, 1999
$142.8 million
Suitable for IRAs
Yes
Minimum Initial Investment
$10,000; $1,000 for IRAs and custodial accounts for minors
Newspaper Abbreviation
- -------
Vanguard Fund Number
- -------
Cusip Number
- -------
Ticker Symbol
- -------
- --------------------------------------------------------------------------------
A Word About Risk
This prospectus describes risks you would face as an investor in Vanguard Growth
Equity Fund. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Growth Equity Fund,
you should also take into account your personal tolerance for the daily
fluctuations of the stock market.
Look for this [FLAG SYMBOL] symbol throughout the prospectus. It is used to
mark detailed information about each type of risk that you would confront as a
shareholder of the Fund.
- --------------------------------------------------------------------------------
<PAGE>
4
Who Should Invest
The Fund may be a suitable investment for you if:
[bullet] You wish to add a growth equity fund to your existing holdings, which
could include other stock investments as well as bond, money market,
and tax-exempt investments.
[bullet] You are seeking growth of capital over the long term--at least five
years.
[bullet] You are not looking for current income.
[bullet] You are seeking a fund that emphasizes companies with established
records of growth.
The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
PLAIN TALK ABOUT
Costs and Market-Timing
Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
The Fund has adopted the following policies, among others, to discourage
short-term trading:
[bullet] The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to
the efficient management of the Fund. A purchase request could be
rejected because of the timing of the investment or because of a
history of excessive trading by the investor.
[bullet] There is a limit on the number of times you can exchange into and out
of the Fund (see "Redeeming Shares" in the Investing with Vanguard
section).
[bullet] The Fund reserves the right to stop offering shares at any time.
PLAIN TALK ABOUT
Growth Funds and Value Funds
Growth investing and value investing are two styles employed by stock fund
managers. Growth funds generally focus on companies believed to have above-
average potential for growth in revenue and earnings. Reflecting the market's
high expectations for superior growth, the prices of such stocks are typically
above-average in relation to such measures as revenue, earnings, and book
value. Generally, growth stocks have below-average dividend yields relative to
value stocks. Value funds generally emphasize stocks of companies from which the
market does not expect strong growth. The prices of value stocks typically are
below-average in comparison to such factors as earnings and book value, and
these stocks typically have above-average dividend yields. Growth and value
stocks have, in the past, produced similar long-term returns, though each
category has periods when it outperforms the other.
<PAGE>
5
Primary Investment Strategies
This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective, long-term capital appreciation. It also explains how
the adviser implements these strategies. In addition, this section discusses
several important risks--market risk, investment style risk, and manager
risk--faced by investors in the Fund.
The Fund's Board of Trustees oversees the management of the Fund and may change
the investment strategies in the interest of shareholders.
PLAIN TALK ABOUT
Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks of publicly traded companies--and mutual funds that hold these stocks--
can be classified by the companies' market value, or capitalization. Market
capitalization changes over time, and there is no "official" definition of the
boundaries of large-, mid-, and small-cap stocks. Vanguard generally defines
large-capitalization (large-cap) funds as those holding stocks of companies
whose outstanding shares have a market value exceeding $12 billion; mid-cap
funds as those holding stocks of companies with a market value between $1
billion and $12 billion; and small-cap funds as those typically holding stocks
of companies with a market value of less than $1 billion. Vanguard periodically
reassesses these classifications.
Market Exposure
The Fund invests primarily in the common stocks of U.S. companies with medium
and large capitalizations, that are believed to have strong earnings growth
potential and that are reasonably valued at the time of purchase.
[FLAG SYMBOL] The Fund is subject to market risk, which is the possibility that
stock prices overall will decline over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and periods of falling
prices.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.
- --------------------------------------------------------------------------------
U.S. Stock Market Returns (1926-1999)
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
- --------------------------------------------------------------------------------
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on stocks
for all of the 5-year periods
<PAGE>
6
was 11.0%, returns for individual 5-year periods ranged from a -12.4% average
(from 1928 through 1932) to 28.6% (from 1995 through 1999). These average
returns reflect past performance on common stocks; you should not regard them as
an indication of future returns from either the stock market as a whole or this
Fund in particular.
[FLAG SYMBOL] The Fund is subject to investment style risk, which is the
possibility that returns from medium and large-capitalization growth stocks will
trail returns from other asset classes or the overall stock market. As a group,
medium and large-capitalization growth stocks tend to go through cycles of doing
better--or worse--than common stocks in general. These periods have, in the
past, lasted for as long as several years.
PLAIN TALK ABOUT
Fund Diversification
In general, the more diversified a fund's stock holdings, the less likely it is
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of its assets represented by its ten
largest holdings. The average U.S. equity mutual fund has about 34% of its
assets invested in its ten largest holdings, while some less-diversified funds
have more than 50% of their assets invested in the stocks of just ten companies.
Security Selection
Turner Investment Partners, Inc. (Turner), the Fund's adviser, seeks to buy
stocks of companies with strong earnings dynamics, and sell those with
deteriorating earnings prospects. Turner believes forecasts for market timing
and sector rotation are unreliable, and introduce an unacceptable level of risk.
Turner also believes that it is imprudent to be overly invested in any
individual security. Accordingly, Turner invests the Fund's assets across major
economic sectors and attempts to maintain sector exposure that approximates its
performance benchmark, the Russell 1000 Growth Index (the "Index"). In addition,
Turner generally invests no more than 2% of the Fund's assets in any one
security. However, a security's weighting within the Fund at the time of
purchase may equal up to twice its weighting within the Index, if such security
represents between 1% and 5% of the Index. For securities representing more than
5% of the Index, the Fund may invest in up to one and one-half times the Index
weighting. This policy allows Turner's stock selection process to be the primary
determinant of performance.
The Fund is run by Turner according to traditional methods of active
investment management. This means that securities are bought and sold according
to Turner's judgments about companies and their financial prospects, within the
context of the stock market and the economy in general.
The Fund is generally managed without regard to tax ramifications.
[FLAG SYMBOL] The Fund is subject to manager risk, which is the possibility that
the adviser may do a poor job of selecting stocks.
Turnover Rate
The Fund retains the right to sell securities regardless of how long the
securities have been held. Historically, due to its investment strategy, the
Fund has had a high turnover rate. The
<PAGE>
7
Fund's average turnover rate for the past five years has been about 216%. (A
turnover rate of 100% would occur, for example, if the Fund sold and replaced
securities valued at 100% of its net assets within a one-year period.)
PLAIN TALK ABOUT
Turnover Rate
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. The average turnover rate for all domestic stock funds is
approximately 86%, according to Morningstar, Inc.
Other Investment Policies and Risks
Besides investing in common stocks of growth companies, the Fund may make
certain other kinds of investments to achieve its objective.
The Fund may invest a portion of its assets in securities that are
convertible to common stocks, warrants, rights to purchase common stocks, and
American Depository Receipts (ADRs).
The Fund may also invest in stock futures, stock index futures, and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small movement in a futures contract may result in an immediate and substantial
loss (or gain) for a fund. This Fund will not use futures for speculative
purposes or as leveraged investments that magnify the gains or losses of an
investment. The Fund's obligation to purchase securities under futures contracts
will not exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
[bullet] To keep cash on hand to meet shareholder redemptions or other needs
while simulating full investment in stocks.
[bullet] To reduce the Fund's transaction costs or add value when these
instruments are favorably prices.
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.
<PAGE>
8
PLAIN TALK ABOUT
Derivatives
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
The Fund and Vanguard
The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 distinct investment portfolios holding assets worth
more than $___ billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.
PLAIN TALK ABOUT
Vanguard's Unique Corporate Structure
The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
Investment Adviser
The Fund employs Turner Investment Partners, Inc. ("Turner"), 1235 Westlakes
Drive, Suite 350, Berwyn, PA 19312 as its investment adviser. Turner manages the
Fund subject to the control of the Trustees and officers of the Fund.
Turner's advisory fee is paid quarterly. The fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter. In addition, the quarterly fee is increased or decreased based upon
Turner's performance in comparison to its benchmark index. For these purposes,
Turner's cumulative investment performance over a trailing 36-month period is
compared to the cumulative total return of the Russell 1000 Growth Index over
the same period.
For the fiscal year ended September 30, 1999, the investment advisory fees
paid to Turner represented an effective annual rate of 0.75% of the Fund's
average net assets. (Please note that these fees were calculated under a prior
advisory agreement. Had the
<PAGE>
9
current fee schedule been in place for fiscal 1999, the investment advisory fee
would have represented an effective annual rate of ___% of the Fund's average
net assets.)
The Fund has authorized Turner to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, Turner may
choose brokers who charge higher commissions. If more than one broker can obtain
the best available price and favorable execution of a transaction, then Turner
is authorized to choose a broker who, in addition to executing the transaction,
will provide research services to Turner or the Fund. Also, the Fund may direct
Turner to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for Turner or as an additional adviser. However, any such change
will be communicated to shareholders in writing.
PLAIN TALK ABOUT
The Fund's Adviser
Turner Investment Partners, Inc. is a professional advisory firm founded in
1990, specializing in growth equity investing. As of March 31, 2000, Turner had
discretionary management authority with respect to approximately $____ billion
in assets, including 10 non-Vanguard mutual funds with $____ in assets.
Robert E. Turner, CFA, Chairman and Chief Investment Officer of Turner since co-
founding the firm in 1990; has worked in investment management since 1981; B.S.
and M.B.A., Bradley University.
John Hammerschmidt, Senior Equity Portfolio Manager of Turner since 1992; has
worked in investment management since 1983; B.S., Lehigh University; M.B.A.,
Duke University.
Christopher McHugh, Senior Equity Portfolio Manager of Turner since 1990; has
worked in investment management since 1986; B.S., Philadelphia College of
Textiles and Science; M.B.A., St. Joseph's University.
Mark Turner, President of Turner since co-founding the firm in 1990; has worked
in investment management since 1982; B.S., Bradley University; M.B.A.,
University of Illinois.
PLAIN TALK ABOUT
Distributions
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term depending
on whether the fund held the securities for one year or less, or more than one
year.
<PAGE>
10
Dividends, Capital Gains, and Taxes
FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.
BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
[bullet] Distributions are taxable to you whether or not you reinvest these
amounts in additional Fund shares.
[bullet] Distributions declared in December--if paid to you by the end of
January--are taxable for federal income tax purposes as if received in
December.
[bullet] Any dividends and short-term capital gains that you receive are taxable
to you as ordinary income for federal income tax purposes.
[bullet] Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how
long you've owned shares in the Fund.
[bullet] Capital gains distributions may vary considerably from year to year as
a result of the Fund's normal investment activities and cash flows.
[bullet] A sale or exchange of Fund shares is a taxable event. This means that
you may have a capital gain to report as income, or a capital loss to
report as a deduction, when you complete your federal income tax
return.
[bullet] State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from
any sale or exchange of Fund shares.
GENERAL INFORMATION
Backup withholding. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
[bullet] provide us with your correct taxpayer identification number;
[bullet] certify that the taxpayer identification number is correct; and
[bullet] confirm that you are not subject to backup withholding.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.
Foreign investors. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
Invalid addresses. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
Tax consequences. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.
<PAGE>
11
PLAIN TALK ABOUT
"Buying a Dividend"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: on December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
Share Price
The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of regular trading on the New York Stock Exchange
(the NAV is not calculated on holidays or other days when the Exchange is
closed). Net asset value per share is computed by adding up the total value of
the Fund's investments and other assets, subtracting any of its liabilities
(debts), and then dividing by the number of Fund shares outstanding:
Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding
Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A Note on Pricing: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is _____.
Financial Highlights
The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). This information has been derived from the financial
statements audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.
<PAGE>
12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vanguard Growth Equity Fund(4)
Year Ended September 30,
-----------------------------------------------------------------------
Six
Months
Ended
March
31, 2000 1999 1998 1997 1996(2) 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.87 $16.64 $17.03 $14.97 $2.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income (0.05) (0.05) (0.03) 0.02 0.10
Net Realized and Unrealized Gain (Loss) on Investments 4.66 1.10 4.23 2.91 2.52
----------------------------------------------------------------------
Total from Investment Operations 4.61 1.05 4.20 2.93 2.62
----------------------------------------------------------------------
Distributions
Dividends from Net Investment Income -- -- -- (0.02) (0.11)
Distributions from Realized Capital Gains (1.60) (4.82) (4.59) (0.85)
Total Distributions (1.60) (4.82) (4.59) (0.87) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.88 $12.87 $16.64 $17.03 $14.97
====================================================================================================================================
Total Return(1) 38.16% 10.71% 32.61% 20.61% 21.15%
====================================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $142,824 $97,857 $99,590 $96,164 $115,819
Ratio of Total Expenses to Average Net Assets 0.96% 1.04% 1.02% 1.06%(3) 1.03%
Ratio of Net Income (Loss) to Average Net Assets (0.42)% (0.42)% (0.25)% 0.03%(3) 0.69%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.96% 1.12% 1.05% 1.06%(3) 1.03%
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers) (0.42)% (0.50)% (0.28) 0.03%(3) 0.69%
Turnover Rate 328.26% 249.58% 178.21% 147.79% 177.86%
====================================================================================================================================
</TABLE>
(1) Returns are for the period indicated and have not been annualized.
(2) On April 19, 1996, the Board of Trustees of the Fund voted to approve a
tax-free reorganization of the Fund. In connection with the reorganization,
the Fund changed its fiscal year end from October 31 to September 30,
effective September 30, 1996.
(3) Annualized.
(4) The Fund was organized as Turner Growth Equity Fund, and was not a member of
the Vanguard Group. On o, 2000, the Fund acquired all assets and liabilities
of Turner Growth Equity Fund in a tax-free reorganization. The Fund had no
operations prior to the reorganization.
<PAGE>
13
PLAIN TALK ABOUT
How to Read the Financial Highlights Table
The Fund began fiscal 1999 with a net asset value (price) of $12.87 per share.
During the year, the Fund's expenses exceeded its investment income by $0.05 per
share. The Fund earned $4.66 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.
Shareholders received $1.60 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
The earnings ($4.61 per share) minus the distributions ($1.60 per share)
resulted in a share price of $15.88 at the end of the year. This was an increase
of $4.01 per share (from $12.87 at the beginning of the year to $15.88 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was 38.16% for the year.
As of September 30, 1999, the Fund had $142.824 million in net assets. For the
year, its expense ratio was 0.96% ($9.60 per $1,000 of net assets); and its net
investment income amounted to (0.42)% of its average net assets. It sold and
replaced securities valued at 328.26% of its net assets.
<PAGE>
14
Investing with Vanguard
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer. Booklets providing detailed information are available on the services
marked with a [BOOKLET SYMBOL]. Please call us to request copies.
Services and Account Features
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
Telephone Redemptions (Sales and Exchanges)
Automatically set up for this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
Vanguard Direct Deposit Service [BOOKLET SYMBOL]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service [BOOKLET SYMBOL]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [BOOKLET SYMBOL]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend ExpressTM [BOOKLET SYMBOL]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
Vanguard Tele-Account(R) 1-800-662-6273 (ON-BOARD) [BOOKLET SYMBOL]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------
Access VanguardTM www.vanguard.com [COMPUTER SYMBOL]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:
[bullet] Open a new account.*
[bullet] Buy, sell, or exchange shares of most funds.
[bullet] Change your name/address.
<PAGE>
15
[bullet] Add/change fund options (including dividend options, Vanguard Fund
Express, bank instructions, checkwriting, and Vanguard Automatic
Exchange Service). (Some restrictions may apply.) Please call our
Client Services Department for assistance.
*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
Investor Information Department: 1-800-662-7447 (SHIP) Text Telephone:
1-800-952-3335 Call Vanguard for information on our funds, fund services, and
retirement accounts, and to request literature.
- --------------------------------------------------------------------------------
Client Services Department: 1-800-662-2739 (CREW) Text Telephone: 1-800-749-7273
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
Services for Clients of Vanguard's Institutional Division: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
Types of Accounts
Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
For One or More People
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
For Holding Personal Trust Assets [BOOKLET SYMBOL]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [BOOKLET SYMBOL]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
For an Organization [BOOKLET SYMBOL]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
For Third-Party Trustee Retirement Investments
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
Vanguard Prototype Plans
Open a variety of retirement accounts
using Vanguard prototype plans for individuals, sole proprietorships, and small
businesses. For more information, please call 1-800-662-2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A Note on Investing with Vanguard Through Other Firms
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------
<PAGE>
16
Buying Shares
You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
Minimum Investment to . . .
open a new account
$10,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).
add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A Note on Low Balances
The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
- --------------------------------------------------------------------------------
By Mail to . . . [ENVELOPE SYMBOL]
open a new account
Complete and sign the account registration form and enclose your check.
add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form. Please do not alter Invest-By-Mail
forms, since they are fund-and account-specific.
Make your check payable to: The Vanguard Group - ________
All purchases must be made in U.S. dollars, and checks must be drawn on
U.S. banks.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
By Telephone to . . . [PHONE SYMBOL]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type).
<PAGE>
17
add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.) Use Vanguard Fund Express (see
Services and Account Features) to transfer assets from your bank account. Call
Client Services before your first use to verify that this option is available.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you have requested a telephone transaction and a
confirmation number has been assigned, the transaction cannot be revoked. We
reserve the right to refuse any purchase request.
- --------------------------------------------------------------------------------
By Wire to Open a New Account or Add to an Existing Account [WIRE SYMBOL
OMITTED]
Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.
Wire to:
FRB ABA 021001088
HSBC Bank USA
For credit to:
Account: 000112046
Vanguard Incoming Wire Account
In favor of:
Vanguard Growth Equity Fund - ___________
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A Note on Large Purchases
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------
<PAGE>
18
Redeeming Shares
This section describes how you can redeem--that is, sell or exchange--the Fund's
shares.
When Selling Shares:
[bullet] Vanguard sends the redemption proceeds to you or a designated third
party.*
[bullet] You can sell all or part of your Fund shares at any time.
*May require a signature guarantee; see footnote on page 20. A signature
guarantee may be obtained from most commercial and savings banks, credit
unions, trust companies, or member firms of a U.S. stock exchange.
When Exchanging Shares:
[bullet] The redemption proceeds are used to purchase shares of a different
Vanguard fund.
[bullet] You must meet the receiving fund's minimum investment requirements.
[bullet] Vanguard reserves the right to revise or terminate the exchange
privilege, limit the amount of an exchange, or reject an exchange at
any time, without notice.
[bullet] In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification
number), you must include the guaranteed signatures of all current
account owners on your written instructions.
In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
Note: Once a redemption is initiated and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------
HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
The Vanguard funds whose shares you cannot exchange online or by telephone
are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund, Vanguard
International Stock Index Funds, Vanguard REIT Index Fund, Vanguard Total
International Stock Index Fund, and Vanguard Growth and Income Fund.
These funds do, however, permit online and telephone exchanges within IRAs and
other retirement accounts. If you sell shares of these funds online, you will
receive a redemption check at your address of record.
- --------------------------------------------------------------------------------
Online Requests [SYMBOL OF COMPUTER OMITTED]
Access Vanguard at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).
- --------------------------------------------------------------------------------
Telephone Requests [SYMBOL OF PHONE OMITTED]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.
<PAGE>
19
Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable
to provide:
[bullet] The ten-digit account number.
[bullet] The name and address exactly as registered on the account.
[bullet] The primary Social Security or employer identification number as
registered on the account.
[bullet] The Personal Identification Number, if applicable (for instance, Tele-
Account).
Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A Note on Unusual Circumstances
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
Mail Requests [SYMBOL OF ENVELOPE OMITTED]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
Vanguard Retirement Accounts:
For information on how to request distributions from:
[bullet] Traditional IRAs and Roth IRAs--call Client Services.
[bullet] SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing
and Money Purchase Pension (Keogh) Plans--call Individual Retirement
Plans at 1-800-662-2003.
Depending on your account registration type, additional documentation may
be required.
<PAGE>
20
Redeeming Shares (continued)
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division ...
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A Note on Large Redemptions
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for+cash.
- --------------------------------------------------------------------------------
OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express redemption.
- --------------------------------------------------------------------------------
Check Redemptions
Normally, Vanguard will mail your check within two business days of
a redemption.
- --------------------------------------------------------------------------------
Exchange Redemptions
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
Fund Express Redemptions
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.
- --------------------------------------------------------------------------------
FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:
Request in "Good Order"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
[bullet] The Fund name and account number.
[bullet] The amount of the transaction (in dollars or shares).
[bullet] Signatures of all owners exactly as registered on the account (for mail
requests).
[bullet] Signature guarantees (if required).*
[bullet] Any supporting legal documentation that may be required.
[bullet] Any outstanding certificates representing shares to be redeemed.
*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most banks, credit unions,
and licensed brokers.
<PAGE>
21
Transactions are processed at the next-determined share price after Vanguard has
received all required information.
- --------------------------------------------------------------------------------
Limits on Account Activity
Because excessive account transactions can disrupt the management of the Fund
and increase the Fund's costs for all shareholders, Vanguard limits account
activity as follows:
[bullet] You may make no more than two substantive "round trips" through the
Fund during any 12-month period.
[bullet] Your round trips through the Fund must be at least 30 days apart.
[bullet] The Fund may refuse a share purchase at any time, for any reason.
[bullet] Vanguard may revoke an investor's telephone exchange privilege at any
time, for any reason.
A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, a "round trip" covers transactions accomplished by any
combination of methods, including transactions conducted by check, wire, or
exchange to/from another Vanguard fund. "Substantive" means a dollar amount that
Vanguard determines, in its sole discretion, could adversely affect the
management of the Fund.
- --------------------------------------------------------------------------------
Return Your Share Certificates
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
All Trades Are Final
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
Uncashed Checks
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
Transferring Registration
You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
<PAGE>
22
For clients of Vanguard's Institutional Division. . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
Fund and Account Updates
STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income
tax returns.
In addition, you will receive financial reports about the Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the financial markets, a
report from the adviser, and the Fund's financial statements which include a
listing of the Fund's holdings.
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mail- ings to the same address. When two or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, notify our Client Services Department at
1-800-662-2739.
- --------------------------------------------------------------------------------
Confirmation Statement
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
Portfolio Summary [SYMBOL OF BOOKLET OMITTED]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
Fund Financial Reports
Mailed in October and April for this Fund.
- --------------------------------------------------------------------------------
Tax Statements
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement [SYMBOL OF BOOKLET OMITTED]
Issued quarterly for most taxable accounts opened after _____, 2000 (accompanies
your Portfolio Summary); shows the average cost of shares that you redeemed
during the calendar year, using only the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE>
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<PAGE>
(This page intentionally left blank.)
<PAGE>
Glossary of Investment Terms
Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.
Cash Reserves
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
Common Stock
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
Dividend Income
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
Expense Ratio
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.
Growth Stock Fund
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, the
prices of growth stocks often are relatively high in comparison with such
factors as revenue, earnings, book value, and dividends.
Investment Adviser
An organization that makes the day-to-day decisions regarding a fund's
investments.
Mutual Fund
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
Net Asset Value (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
Price/Earnings (P/E) Ratio
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.
Principal
The amount of your own money you put into an investment.
Securities
Stocks, bonds, and other investment vehicles.
Total Return
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
Volatility
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
Yield
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>
[VANGUARD LOGO OF SHIP OMITTED]
THE VANGUARD GROUP[R]
POST OFFICE BOX 2600
VALLEY FORGE, PA 19483-2600
For More Information
If you'd like more information about Vanguard Growth Equity Fund, the following
documents are available free upon request:
Annual/Semiannual Reports to Shareholders
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund.
The current annual and semiannual reports and the SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Fund or other Vanguard funds, please
contact us as follows:
The Vanguard Group
Investor Information
Department
P.O. Box 2600
Valley Forge, PA 19482-2600
Telephone:
1-800-662-7447 (SHIP)
Text Telephone:
1-800-952-3335
World Wide Web:
www.vanguard.com
If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:
Client Services Department
Telephone:
1-800-662-2739 (CREW)
Text Telephone:
1-800-749-7273
Information provided by the Securities and Exchange Commission (SEC)
You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, DC. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website (www.sec.gov), or you can
receive copies of this information, for a fee, by writing the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.
Fund's Investment Company Act
file number: 811-_______
[C] 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.
PO ___ N - _____
<PAGE>
PART B
VANGUARD[R] FENWAY FUNDS
(THE TRUST)
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 21, 2000;
REVISED MAY ___, 2000
This Statement is not a Prospectus but should be read in conjunction with the
Trust's current Prospectuses (dated January 21, 2000 for Vanguard Equity Income
Fund and May ___, 2000 for Vanguard Growth Equity Fund). To obtain the
Prospectuses or the most recent Annual Reports to Shareholders, which contain
the Trust's financial statements as hereby incorporated by reference, please
call:
INVESTOR INFORMATION DEPARTMENT
1-800-662-7447
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST .................................................B-__
INVESTMENT POLICIES ......................................................B-__
FUNDAMENTAL INVESTMENT LIMITATIONS .......................................B-__
PURCHASE OF SHARES .......................................................B-__
REDEMPTION OF SHARES .....................................................B-__
SHARE PRICE ..............................................................B-__
MANAGEMENT OF THE FUNDS...................................................B-__
YIELD AND TOTAL RETURNS ..................................................B-__
INVESTMENT ADVISORY SERVICES .............................................B-__
PORTFOLIO TRANSACTIONS ...................................................B-__
FINANCIAL STATEMENTS .....................................................B-__
COMPARATIVE INDEXES ......................................................B-__
DESCRIPTION OF THE TRUST
ORGANIZATION
The Trust was organized as Vanguard Equity Income Fund, Inc., a Maryland
corporation, in 1987, and was reorganized as Vanguard Equity Income, a Delaware
business trust, in May 1998. On March 1, 2000, the Trust was renamed Vanguard
Fenway Funds. The Trust is registered with the United States Securities and
Exchange Commission (the Commission) under the Investment Company Act of 1940
(the 1940 Act) as an open-end, diversified management company. It currently
offers the following funds:
VANGUARD EQUITY INCOME FUND
VANGUARD GROWTH EQUITY FUND
(INDIVIDUALLY, THE FUND; COLLECTIVELY THE FUNDS)
The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that each Fund may
issue.
SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the custodian for Vanguard Equity Income
Fund. The custodian for Vanguard
B-1
<PAGE>
Capital Growth Fund is First Union National Bank, PA4943, 530 Walnut Street,
Philadelphia, Pennsylvania 19106. The custodians are responsible for maintaining
the Funds' assets and keeping all necessary accounts and records.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Funds' independent accountants.
The accountants audit the Funds' financial statements and provide other related
services.
TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.
CHARACTERISTICS OF THE FUND'S SHARES
RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Funds' shares, other
than the possible future termination of the Funds. Each Fund may be terminated
by reorganization into another mutual fund or by liquidation and distribution of
its assets. Unless terminated by reorganization or liquidation, the Funds will
continue indefinitely.
SHAREHOLDER LIABILITY. The Funds are organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a shareholder of a Fund will
not be personally liable for payment of the Fund's debts except by reason of his
or her own conduct or acts. In addition, a shareholder could incur a financial
loss on account of a Fund obligation only if the Fund itself had no remaining
assets with which to meet such obligation. We believe that the possibility of
such a situation arising is extremely remote.
DIVIDEND RIGHTS. The shareholders of a Fund are entitled to receive any
dividends or other distributions declared for such Fund. No shares have priority
or preference over any other shares of the same Fund with respect to
distributions. Distributions will be made from the assets of a Fund, and will be
paid ratably to all shareholders of the Fund according to the number of shares
of such Fund held by shareholders on the record date.
VOTING RIGHTS. Shareholders are entitled to a vote on a matter if: (i) a
shareholder vote is required under the 1940 Act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a material
degree the rights and preferences of the shares of any Fund; or (iii) the
Trustees determine that it is necessary or desirable to obtain a shareholder
vote. The 1940 Act requires a shareholder vote under various circumstances,
including to elect or remove Trustees upon the written request of shareholders
representing 10% or more of a Fund's net assets, and to change any fundamental
policy of a Fund. Shareholders of each Fund receive one vote for each dollar of
net asset value owned on the record date, and a fractional vote for each
fractional dollar of net asset value owned on the record date. However, only the
shares of the Fund affected by a particular matter are entitled to vote on that
matter. Voting rights are non-cumulative and cannot be modified without a
majority vote.
LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rata share of the applicable Fund's net assets.
PREEMPTIVE RIGHTS. There are no preemptive rights associated with each
Fund's shares.
CONVERSION RIGHTS. There are no conversion rights associated with each
Fund's shares.
REDEMPTION PROVISIONS. Each Fund's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.
SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.
CALLS OR ASSESSMENT. Each Fund's shares, when issued, are fully paid and
non-assessable.
B-2
<PAGE>
TAX STATUS OF THE FUNDS
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. This special tax status means that a
Fund will not be liable for federal tax on income and capital gains distributed
to shareholders. In order to preserve its tax status, each Fund must comply with
certain requirements. If a Fund fails to meet these requirements in any taxable
year, it will be subject to tax on its taxable income at corporate rates, and
all distributions from earnings and profits, including any distributions of net
tax-exempt income and net long-term capital gains, will be taxable to
shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make
substantial distributions before regaining its tax status as a regulated
investment company.
INVESTMENT POLICIES
The following policies supplement the Funds' investment objectives and policies
set forth in the Prospectuses. Vanguard Equity Income Fund intends to invest at
least 65% of its total assets in equity securities intended to produce income.
Vanguard Growth Equity Fund intends to invest at least 65% of its total assets
in common stocks of growth companies.
FUTURES CONTRACTS AND OPTIONS
Each Fund may enter into futures contracts, options, and options on futures
contracts in order to maintain cash reserves while simulating full investment.
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. Futures contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S.
Government Agency. Assets committed to futures contracts will be segregated to
the extent required by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to the market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. Each Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures
B-3
<PAGE>
contracts with the expectation of realizing profits from fluctuations in the
value of the underlying securities. Each Fund intends to use futures contracts
only for bona fide hedging purposes. Regulations of the CFTC applicable to each
Fund require that all of its futures transactions constitute bona fide hedging
transactions except to the extent that the aggregate initial margins and
premiums required to establish any non-hedging positions do not exceed five
percent of the value of the respective Fund's portfolio.
Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of a Fund's income to fluctuations in the
market value of its securities, the use of futures contracts may be a more
effective means of hedging this exposure. While the Funds will incur commission
expenses in both opening and closing out futures positions, these costs are
lower than transaction costs incurred in the purchase and sale of the underlying
securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. Each Fund will
not enter into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the Fund's total assets. In addition, each Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under these contracts would exceed 20% of the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures may be closed
out only on an Exchange which provides a secondary market for such futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular futures contract at any specific time. Thus, it may not be
possible to close a futures position. In the event of adverse price movements,
each Fund would continue to be required to make daily cash payments to maintain
its required margin. In such situations, if the Fund has insufficient cash, it
may have to sell portfolio securities to meet daily margin requirements at a
time when it may be disadvantageous to do so. In addition, each Fund may be
required to make delivery of the instruments underlying the futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge. Each Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out.
A 15% decrease in the value of the futures contract would result in a loss
equal to 150% of the original margin deposit if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the contract. However, because the futures strategies of
each Fund are engaged in only for hedging purposes, the Advisers do not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. Each Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.
Utilization of futures transactions by each Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that each Fund could both lose money on futures contracts and also
experience a decline in the value of its portfolio securities. There is also the
risk of loss by each Fund of margin deposits in the event of bankruptcy of a
broker with whom the respective Fund has an open position in a futures contract
or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a
B-4
<PAGE>
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions that
each Fund has identified as hedging transactions, each Fund is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts held as of the end of
the year as well as those actually realized during the year. In most cases, any
gain or loss recognized with respect to a futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Furthermore, sales of
futures contracts which are intended to hedge against a change in the value of
securities held by each Fund may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition. The Funds may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Funds.
In order for each Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such securities or currencies. It is anticipated that
any net gain realized from the closing out of futures contracts will be
considered qualifying income for purposes of the 90% requirement.
Each Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes including unrealized
gains at the end of the Fund's fiscal year on futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised on the nature of the
payments.
REPURCHASE AGREEMENTS
Each Fund, along with other members of The Vanguard Group, may invest in
repurchase agreements with commercial banks, brokers or dealers either for
defensive purposes due to market conditions or to generate income from its
excess cash balances. A repurchase agreement is an agreement under which a Fund
acquires a fixed-income security (generally a security issued by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement and are held by a custodian bank until
repurchased. In addition, each Fund's Board of Trustees will monitor repurchase
agreement transactions generally and will establish guidelines and standards for
review by the investment adviser of the creditworthiness of any bank, broker or
dealer party to a repurchase agreement
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, a
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to the liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by a Fund not within the control of
a Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
B-5
<PAGE>
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Funds'
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
LENDING OF SECURITIES
Each Fund may lend its investment securities to qualified institutional
investors (typically brokers, dealers, banks or other financial institutions)
who need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its investment securities, a Fund attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Fund. The terms, the
structure and the aggregate amount of such loans must be consistent with the
1940 Act and the Rules and Regulations or interpretations of the Commission
thereunder. These provisions limit the amount of securities a Fund may lend to
33 1/3% of the Fund's total assets, and require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit or securities issued or guaranteed by the United States Government having
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Fund at any time and (d) the Fund receive
reasonable interest on the loan (which may include the Fund's investing any cash
collateral in interest bearing short-term investments), any distribution on the
loaned securities and any increase in their market value. Loan arrangements made
by a Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which presently require the
borrower, after notice, to redeliver the securities within the normal settlement
time of three business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Funds' Board of Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on the loan, the loan must be called and the securities voted.
VANGUARD INTERFUND LENDING PROGRAM
The Commission has issued an exemptive order permitting each Fund to participate
in Vanguard's interfund lending program. This program allows the Vanguard funds
to borrow money from and loan money to each other for temporary or emergency
purposes. The program is subject to a number of conditions, including the
requirement that no fund may borrow or lend money through the program unless it
receives a more favorable interest rate than is available from a typical bank
for a comparable transaction. In addition, a fund may participate in the program
only if and to the extent that such participation is consistent with the fund's
investment objective and other investment policies. The Boards of Trustees of
the Vanguard funds are responsible for ensuring that the interfund lending
program operates in compliance with all conditions of the Commission's exemptive
order.
TEMPORARY INVESTMENTS
Each Fund may take temporary defensive measures that are inconsistent with the
Fund's normal fundamental or non-fundamental investment policies and strategies
in response to adverse market, economic, political or other conditions. Such
measures could include investments in (a) highly liquid short-term fixed income
securities issued by or on behalf of municipal or corporate issuers, obligations
of the U.S. Government and its agencies, commercial paper, and bank certificates
of deposit; (b) repurchase agreements involving any such securities; (c) shares
of other investment companies which have investment objectives consistent with
those of the Fund; and (d) other
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<PAGE>
money market instruments. There is no limit on the extent to which a Fund may
take temporary defensive measures. In taking such measures, a Fund may fail to
achieve its investment objective.
FOREIGN INVESTMENTS
As indicated in the Prospectuses, Vanguard Equity Income Fund and Vanguard
Growth Equity Fund each may invest up to 20% of its total assets in securities
of foreign companies. Investors should recognize that investing in foreign
companies involves certain special considerations which are not typically
associated with investing in U.S. companies.
CURRENCY RISK. Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, Vanguard Equity
Income Fund and Vanguard Growth Equity Fund will be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.
The investment policies of each Fund permit it to enter into forward foreign
currency exchange contracts in order to hedge holdings and commitments against
changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
FEDERAL TAX TREATMENT OF NON-U.S. TRANSACTIONS. Special rules govern the
Federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option or similar
financial instrument if such instrument is not marked to market. The disposition
of a currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the marking-to-market rules
applicable to other futures contracts unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. The Treasury Department issued regulations under which
certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Internal Revenue Code of
1986, as amended, and the Treasury regulations) will be integrated and treated
as a single transaction or otherwise treated consistently for purposes of the
Code. Any gain or loss attributable to the foreign currency component of a
transaction engaged in by the Fund which is not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction. It is anticipated that some of the
non-U.S. dollar-denominated investments and foreign currency contracts the Fund
may make or enter into will be subject to the special currency rules described
above.
COUNTRY RISK. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of
B-7
<PAGE>
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in companies in
those countries.
Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of foreign securities will be somewhat greater than the expenses
for the custodial arrangements for handling U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income the Fund receives from its foreign investments.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities that may not be sold or disposed of in the
ordinary course of business within seven business days at approximately the
value at which they are being carried on a Fund's books.
Each Fund may invest in restricted, privately placed securities that, under
the Commission's rules, may be sold only to qualified institutional buyers.
Because these securities can be resold only to qualified institutional buyers,
they may be considered illiquid securities--meaning that they could be difficult
for a Fund to convert to cash if needed.
If a substantial market develops for a restricted security held by a Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Funds' Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the Securities Act of 1933 (the 1933
Act). While the Funds' investment advisers determine the liquidity of restricted
securities on a daily basis, the Board oversees and retains ultimate
responsibility for the advisers' decisions. Several factors the Board considers
in monitoring these decisions include the valuation of a security, the
availability of qualified institutional buyers, and the availability of
information about the security's issuer.
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institutional (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.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
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<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or undconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when- issued security or forward commitment prior to settlement
if it deems appropriate.
FUNDAMENTAL INVESTMENT LIMITATIONS
Each Fund is subject to the following fundamental investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the Fund's shares. For these purposes, a "majority" of the Fund's
shares means shares representing the lesser of: (i) 67% or more of the votes
cast to approve a change, so long as shares representing more than 50% of the
Fund's net assets value are present or represented by proxy; or (ii) more than
50% of a Fund's net asset value.
BORROWING. Vanguard Equity Income Fund may not borrow money, except for
temporary purposes in an amount not exceeding 15% of the Fund's net assets.
Vanguard Growth Equity Fund may not borrow money in an amount exceeding 33 1/3%
of the value of its total assets, provided that, for purposes of this
limitation, investment strategies which either obligate the Fund to purchase
securities or require the Fund to segregate assets are not considered to be
borrowings. For Vanguard Growth Equity Fund, asset coverage of at least 300% is
required for all borrowings, except where the Fund has borrowed for temporary
purposes in amounts not exceeding 5%. Each Fund may borrow money through banks,
or Vanguard's interfund lending program only, and must comply with all
applicable regulatory conditions. Each Fund may not make any additional
investments whenever outstanding borrowings exceed 5% of net assets.
COMMODITIES. The Fund may not invest in commodities, except that each Fund
may invest in stock futures contracts, stock options and options on stock
futures contracts. No more than 5% of the Fund's total assets may be used as
initial margin deposit for futures contracts, and no more than 20% of the Fund's
total assets may be obligated under futures contracts or options at any time.
DIVERSIFICATION. With respect to 75% of its total assets, the Fund may not:
(i) purchase more than 10% of the outstanding voting securities of any one
issuer, or (ii) purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's securities. This
limitation does not apply to obligations of the United States Government, its
agencies, or instrumentalities.
INDUSTRY CONCENTRATION. The Fund may not invest more than 25% of its total
assets in any one industry.
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<PAGE>
INVESTING FOR CONTROL. The Fund may not invest in a company for the purpose
of controlling its management.*
INVESTMENT COMPANIES. The Fund may not invest in any other investment
company, except through a merger, consolidation or acquisition of assets, or to
the extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objectives
and investment policies consistent with those of the Fund.*
LOANS. The Fund may not lend money to any person except by purchasing fixed
income securities that are publicly distributed, by entering into repurchase
agreements, by lending its portfolio securities, or through Vanguard's interfund
lending program.
MARGIN. The Fund may not purchase securities on margin or sell securities
short, except as permitted by the Fund's investment policies relating to
commodities.*
PLEDGING ASSETS. The Fund may not pledge, mortgage or hypothecate more than
15% of its net assets.*
REAL ESTATE. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate.
SENIOR SECURITIES. The Fund may not issue senior securities, except in
compliance with the 1940 Act.
UNDERWRITING. The Fund may not engage in the business of underwriting
securities issued by other persons. The Fund will not be considered an
underwriter when disposing of its investment securities.
* For Vanguard Growth Equity Fund, this is a non-fundamental limitation and may
be changed by the Fund's Board of Trustees.
None of these limitations prevents the Funds from participating in The
Vanguard Group (Vanguard). Because the Trust is a member of the Group, each Fund
may own securities issued by Vanguard, make loans to Vanguard, and contribute to
Vanguard's costs or other financial requirements. See "Management of the Funds"
for more information.
The investment limitations set forth above are considered at the time
investment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction.
PURCHASE OF SHARES
Each Fund reserves the right in its sole discretion (i) to suspend the offerings
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Fund, and (iii) to reduce or waive
the minimum investment for, or any other restrictions on, initial and subsequent
investments for certain fiduciary accounts or under circumstances where certain
economies can be achieved in sales of the Fund's shares.
TRADING SHARES THROUGH CHARLES SCHWAB
Each Fund has authorized Charles Schwab & Co., Inc. (Schwab) to accept on its
behalf purchase and redemption orders under certain terms and conditions. Schwab
is also authorized to designate other intermediaries to accept purchase and
redemption orders on each Fund's behalf subject to those terms and conditions.
Under this arrangement, a Fund will be deemed to have received a purchase or
redemption order when Schwab or, if applicable, Schwab's authorized designee,
accepts the order in accordance with each Fund's instructions. Customer orders
that are properly transmitted to each Fund by Schwab, or if applicable, Schwab's
authorized designee, will be priced as follows:
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<PAGE>
Orders received by Schwab BEFORE 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on the
Fund's net asset value calculated at the close of trading that day. Orders
received by Schwab AFTER 3 p.m. Eastern time, will be sent to Vanguard on the
following business day and your share price will be based on the Fund's net
asset value calculated at the close of trading that day.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange is closed, or trading on the
Exchange is restricted as determined by the Commission, (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for each Fund to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Each Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period.
No charge is made by the Funds for redemptions. Shares redeemed may be
worth more or less than what was paid for them, depending on the market value of
the securities held by the Funds.
SHARE PRICE
Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the close of the
New York Stock Exchange (the Exchange) generally 4:00 p.m. Eastern time on each
day that the Exchange is open for trading.
Portfolio securities for which market quotations are readily available
(includes those securities listed on national securities exchanges, as well as
those quoted on the NASDAQ Stock Market) will be valued at the last quoted sales
price on the day the valuation is made. Such securities which are not traded on
the valuation date are valued at the mean of the bid and ask prices. Price
information on exchange-listed securities is taken from the exchange where the
security is primarily traded. Any foreign securities are valued at the latest
quoted sales price available before the time when assets are valued. Securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities.
Short-term instruments (those acquired with remaining maturities of 60 days
or less) may be valued at cost, plus or minus any amortized discount or premium,
which approximates market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service may be determined without regard to bid or last sale prices of each
security, but take into account institutional-size transactions in similar
groups of securities as well as any developments related to specific securities.
Other assets and securities for which no quotations are readily available
or which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.
The share price for each Fund can be found daily in the mutual fund
listings of most major newspapers under the heading of Vanguard Funds.
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<PAGE>
MANAGEMENT OF THE FUNDS
OFFICERS AND TRUSTEES
The Officers of the Funds manage their day-to-day operations and are responsible
to the Funds' Board of Trustees. The Trustees set broad policies for each Fund
and choose its Officers. The following is a list of Trustees and Officers of
each Fund and a statement of their present positions and principal occupations
during the past five years. As a group, the Fund's Trustees and Officers own
less than 1% of the outstanding shares of the Fund. Each Trustee also serves as
a Director of The Vanguard Group, Inc., and as a Trustee of each of the 103
funds administered by Vanguard (93 in the case of Mr. MacLaury). The mailing
address of the Trustees and Officers of the Funds is Post Office Box 876, Valley
Forge, PA 19482.
JOHN J. BRENNAN, (DOB: 7/29/1954) CHAIRMAN, CHIEF EXECUTIVE OFFICER & TRUSTEE*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc., and
Trustee of each of the investment companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) TRUSTEE
Vice President, Chief Information Officer, and member of the Executive Committee
of Johnson & Johnson (Pharmaceuticals/Consumer Products); Director of Johnson &
Johnson*MERCK Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY, (DOB: 5/7/1931) TRUSTEE
President Emeritus of The Brookings Institution (Independent Non-Partisan
Research Organization); Director of American Express Bank, Ltd., The St. Paul
Companies, Inc. (Insurance and Financial Services), and National Steel Corp.
ALFRED M. RANKIN, JR., (DOB: 10/8/1941) TRUSTEE
Chairman, President, Chief Executive Officer, and Director of NACCO Industries,
Inc. (Machinery/ Coal/Appliances); and Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals).
JOHN C. SAWHILL, (DOB: 6/12/1936) TRUSTEE
President and Chief Executive Officer of The Nature Conservancy (Non-Profit
Conservation Group); Director of Pacific Gas and Electric Co., Procter & Gamble
Co., NACCO Industries (Machinery/Coal/ Appliances), and Newfield Exploration Co.
(Energy); formerly, Director and Senior Partner of McKinsey & Co., and President
of New York University.
JAMES O. WELCH, JR., (DOB: 5/13/1931) TRUSTEE
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chairman
and Director of RJR Nabisco (Food and Tobacco Products); Director of TECO
Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON, (DOB: 3/2/1936) TRUSTEE
Retired Chairman of Rohm & Haas Co. (Chemicals); Director of Cummins Engine Co.
(Diesel Engine Company), and The Mead Corp. (Paper Products); and Trustee of
Vanderbilt University.
RAYMOND J. KLAPINSKY, (DOB: 12/7/1938) SECRETARY*
Managing Director of The Vanguard Group, Inc.; Secretary of The Vanguard Group,
Inc. and of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS, (DOB: 5/21/1957) TREASURER*
Principal of The Vanguard Group, Inc.; Treasurer of each of the investment
companies in The Vanguard Group.
ROBERT D. SNOWDEN, (DOB: 9/4/1961) CONTROLLER*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
* OFFICERS OF THE FUND ARE "INTERESTED PERSONS" AS DEFINED IN THE 1940 ACT.
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THE VANGUARD GROUP
Each Fund is a member of The Vanguard Group of Investment Companies, which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Funds and the other funds in The Vanguard
Group obtain at cost virtually all of their corporate management, administrative
and distribution services. Vanguard also provides investment advisory services
on an at-cost basis to certain of the Vanguard funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the funds and also
furnishes the funds with necessary office space, furnishings and equipment. Each
fund pays a share of Vanguard's total expenses which are allocated among the
funds under methods approved by the Board of Trustees of each fund. In addition,
each fund bears its own direct expenses such as legal, auditing and custodian
fees. In order to generate additional revenues for Vanguard and thereby reduce
the funds' expenses, Vanguard also provides certain administrative services to
other organizations.
The funds' Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the funds.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the 1940 Act. The Code is designed to prevent unlawful practices in
connection with the purchase or sale of securities by persons associated with
Vanguard. Under Vanguard's Code of Ethics, certain Officers and employees of
Vanguard who are considered access persons are permitted to engage in personal
securities transactions. However, such transactions are subject to procedures
and guidelines similar to, and in many cases more restrictive than, those
recommended by a blue ribbon panel of mutual fund industry executives.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the funds.
The amounts which each of the funds have invested are adjusted from time to time
in order to maintain the proportionate relationship between each fund's relative
net assets and its contribution to Vanguard's capital. At May 31, 2000, Vanguard
Equity Income Fund had contributed $___ to Vanguard, representing ___% of the
Fund's net assets and ___% of Vanguard's capitalization. (Vanguard Growth Equity
Fund had not commenced operations as a Vanguard fund as of May 31, 2000.) The
Amended and Restated Funds' Service Agreement provides as follows: (a) each
Vanguard fund may be called upon to invest up to 0.40% of its current assets in
Vanguard, and (b) there is no other limitation on the dollar amount that each
Vanguard fund may contribute to Vanguard's capitalization.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the funds by third parties.
DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc., provides all distribution and marketing activities for
the funds in the Group. The principal distribution expenses are for advertising,
promotional materials and marketing personnel. Distribution services may also
include organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
Trustees and Officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each fund, and
whether to organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the funds based upon relative net assets. The remaining one
half of those expenses is allocated among the funds based upon each fund's sales
for the preceding 24 months relative to the total sales of the funds as a Group,
provided, however, that no fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
the average distribution expense rate for The Vanguard Group, and that no fund
shall incur annual distribution expenses in excess of 20/100 of 1% of its
average month-end net assets.
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During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following approximate amounts of The Vanguard
Group's management (including transfer agency), distribution, and marketing
expenses: $4,423,000, $5,443,000, and $7,897,000, respectively.
Prior to joining the Vanguard Group, Vanguard Growth Equity Fund was party
to an administration agreement, under which, for the fiscal years ended
September 30, 1997, 1998, and 1999, the Fund paid the following administrative
fees, net of waivers: $110,759, $114,049, and $117,203, respectively.
INVESTMENT ADVISORY SERVICES. An experienced investment management staff
employed directly by Vanguard provides investment advisory services to Vanguard
Equity Income Fund and many Vanguard funds. These services are provided on an
internalized, at-cost basis. The compensation and other expenses of this staff
are paid by the funds utilizing these services.
TRUSTEE COMPENSATION
The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table appearing below, and each fund pays a
proportionate share of the Trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by the
Vanguard Group, Inc., not the funds.
INDEPENDENT TRUSTEES. The funds compensate their independent Trustees--that
is, the ones who are not also officers of the fund--in three ways:
[bullet] The independent Trustees receive an annual fee for their service to the
Funds, which is subject to reduction based on absences from scheduled
Board meetings.
[bullet] The independent Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.
[bullet] Upon retirement, the independent Trustees receive an aggregate annual
fee of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement,
or until each Trustee's death.
"INTERESTED" TRUSTEE. Mr. Brennan serves as a Trustee, but is not paid in
this capacity. He is, however, paid in his role as officer of The Vanguard
Group, Inc.
COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Funds for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard funds. All information shown is for the fiscal year
ended September 30, 1999:
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VANGUARD FENWAY FUNDS
TRUSTEES' COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS ESTIMATED FROM ALL
COMPENSATION PART OF THESE ANNUAL VANGUARD
FROM THESE FUNDS' BENEFITS UPON FUNDS PAID TO
NAMES OF TRUSTEES FUNDS EXPENSES RETIREMENT TRUSTEES(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Bogle (2)...................... None None None None
John J. Brennan........................ None None None None
Barbara Barnes Hauptfuhrer (3)......... $167 $21 $15,000 $0
JoAnn Heffernan Heisen................. $667 $37 $15,000 $80,000
Bruce K. MacLaury...................... $697 $62 $12,000 $75,000
Alfred M. Rankin, Jr................... $667 $44 $15,000 $80,000
John C. Sawhill........................ $667 $57 $15,000 $80,000
James O. Welch, Jr..................... $667 $65 $15,000 $80,000
J. Lawrence Wilson..................... $667 $48 $15,000 $80,000
<FN>
(1) THE AMOUNTS REPORTED IN THIS COLUMN REFLECT THE TOTAL COMPENSATION PAID TO
EACH TRUSTEE FOR HIS OR HER SERVICE AS TRUSTEE OF 103 VANGUARD FUNDS (93 IN
THE CASE OF MR. MACLAURY).
(2) MR. BOGLE HAS RETIRED FROM THE VANGUARD EQUITY INCOME FUND'S BOARD,
EFFECTIVE DECEMBER 31, 1999.
(3) MRS. HAUPTFUHRER HAS RETIRED FROM VANGUARD EQUITY INCOME FUND'S BOARD,
EFFECTIVE DECEMBER 31, 1998.
</FN>
</TABLE>
YIELD AND TOTAL RETURNS
The yield of Vanguard Equity Income Fund for the 30-day period ended September
30, 1999 was 2.64%. The yield is calculated daily. The average annual total
return of Vanguard Equity Income Fund for one, five, and ten years ended
September 30, 1999, was 12.56%, 19.53% and 12.96%, respectively.
The yield of Vanguard Growth Equity Fund for the 30-day period ended September
30, 1999 was 0.00%. The yield is calculated daily. The average annual total
return of Vanguard Growth Equity Fund for the one-, and five-years ended
September 30, 1999, and since inception, was 38.16%, 24.63%. and 19.17%,
respectively.
SEC YIELDS
Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, 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 reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
B-15
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of return for
the periods of one year, five years, ten years or the life of a Fund, all ended
on the last day of a recent month. Average annual total return quotations will
reflect changes in the price of each Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over such periods
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)(1/n)-1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION
We calculate the Fund's average annual after-tax total return by finding the
average annual compounded rate of return over the 1-, 5-, and 10-year periods
that would equate the initial amount invested to the after-tax value, according
to the following formulas:
AFTER-TAX RETURN:
P (1+T)(n) = ATV
Where:
P = a hypothetical initial payment of $1,000
T = average annual after-tax total return
n = number of years
ATV = after-tax value at the end of the 1-, 5-, or 10-year periods
of a hypothetical $1,000 payment made at the beginning of
the time period, assuming no liquidation of the investment
at the end of the measurement periods.
INSTRUCTIONS.
1. Assume all distributions by each Fund are reinvested--less the taxes due on
such distributions--at the price on the reinvestment dates during the
period. Adjustments may be made for subsequent re-characterizations of
distributions.
2. Calculate the taxes due on distributions by each Fund by applying the
highest federal marginal tax rates to each component of the distributions
on the reinvestment date (e.g., ordinary income, short-term capital gain,
long-term capital gain, etc.). For periods after December 31, 1997, the
federal marginal tax rates used for the calculations are 39.6% for ordinary
income and short-term capital gains and 20% for long-term capital gains.
Note that the applicable tax rates may vary over the measurement period.
Assume no taxes are due on the portions of any distributions classified as
exempt interest or non-taxable (i.e., return of capital). Ignore any
potential tax liabilities other than federal tax liabilities (e.g., state
and local taxes).
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the Fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees.
4. State the total return quotation to the nearest hundredth of one percent.
B-16
<PAGE>
CUMULATIVE TOTAL RETURN
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P)-1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
INVESTMENT ADVISORY SERVICES
VANGUARD EQUITY INCOME FUND
The Fund currently has four investment advisers: Newell Associates (Newell),
525 University Avenue, Palo Alto, California 94301; John A. Levin & Co., Inc.
(Levin), One Rockefeller Plaza, 19th Floor, New York, NY 10020; Wellington
Management Company, LLP (Wellington Management), 75 State Street, Boston MA
02109; and The Vanguard Group, Inc. (Vanguard), Post Office Box 2600, Valley
Forge, PA 19482. Prior to January 1, 1995, Newell was the sole investment
adviser to the Fund. Spare, Kaplan, Bischel & Associates (Spare Kaplan) served
as an adviser to the Fund from 1995 through 1999. Levin was added as an
investment adviser effective January 1, 1995. Vanguard was added as an adviser
effective January 16, 1998. Wellington Management was added as an adviser
effective January 1, 2000. The Fund has entered into investment advisory
agreements with Newell, Levin, and Wellington Management which provide that the
advisers manage the investment and reinvestment of the Fund's assets and
continuously review, supervise and administer the Fund's investment program. The
advisers discharge their responsibilities subject to the control of the Officers
and Trustees of the Fund.
The proportion of the net assets of the Fund managed by each adviser is
established by the Board of Trustees, and may be changed in the future as
circumstances warrant. As of March 31, 2000, Newell was responsible for
approximately ___% of the Fund's investment, and Levin was responsible for
approximately ___%, and Wellington Management was responsible for approximately
___%. Vanguard's advisory role is limited; it currently manages just the Fund's
cash reserves, which normally represent about 5% of the Fund's assets.
NEWELL ASSOCIATES
The Fund pays Newell an advisory fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the average month-end net assets managed by Newell for the
quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $250 million............................ .200%
Next $500 million............................. .150%
Next $250 million............................. .100%
Over $1 billion............................... .080%
B-17
<PAGE>
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following advisory fees owed to Newell:
$1,526,568, $1,851,435, and $2,150,288, respectively.
JOHN A. LEVIN & CO., INC.
The Fund pays Levin a basic advisory fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the average month-end assets of the Fund managed by Levin
(Levin Portfolio) for the quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $100 million ..................... 0.40%
Next $200 million ...................... 0.25%
NEXT $200 MILLION ...................... 0.30%
NEXT $500 MILLION ...................... 0.25%
OVER $1 BILLION ........................ 0.10%
The basic fee paid to Levin, as provided above, may be increased or
decreased by applying an incentive/penalty adjustment to the basic fee
reflecting the investment performance of the Levin Portfolio relative to the
return of the Standard and Poor's 500 Composite Stock Price Index (S&P 500
Index), an index which emphasizes large capitalization companies.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Levin under the investment advisory agreement:
THREE YEAR PERFORMANCE PERFORMANCE FEE
DIFFERENTIAL VS. THE S&P 500 INDEX ADJUSTMENT*
---------------------------------- ---------------
Less than 0% ............................ -0.40 x Basic Fee
Between 0% and 3% ....................... -0.20 x Basic Fee
Between 3% and 6% ....................... 0.00 x Basic Fee
Between 6% and 9% ....................... 0.20 x Basic Fee
More than 9% ............................ 0.40 x Basic Fee
* FOR PURPOSES OF THIS CALCULATION, THE BASIC FEE IS CALCULATED BY APPLYING A
QUARTERLY RATE BASED ON THE ANNUAL BASIC FEE RATE USING AVERAGE ASSETS OVER THE
SAME PERIOD OVER WHICH THE PERFORMANCE IS MEASURED.
The investment performance of the Levin Portfolio, for any period,
expressed as a percentage of the "Levin Portfolio Unit Value" at the beginning
of such period, will be the sum of: (i) the change in the Levin Portfolio Unit
Value during such period; (ii) the unit value of the Fund's cash distributions
from the Levin Portfolio's net investment income and realized net capital gains
(whether long-term or short-term) having an ex-dividend date occurring within
such period; and (iii) the unit value of capital gains taxes paid or accrued
during such period by the Fund for undistributed long-term capital gains
realized from the Levin Portfolio.
The Levin Portfolio Unit Value will be determined by dividing the total net
assets of the Levin Portfolio by a given number of units. On the initial date of
the agreement, the number of units in the Levin Portfolio will equal the total
shares outstanding of the Fund. After such initial date, as assets are added to
or withdrawn from the Levin Portfolio, the number of units of the Levin
Portfolio will be adjusted based on the unit value of the Levin Portfolio on the
day such changes are executed.
The investment record of the S&P 500 Index will be calculated monthly by
(i) multiplying the total return for the month (change in market price plus
dividends) of each stock included in the S&P 500 Index by its weighings in the
S&P 500 Index at the beginning of the month, and (ii) adding the values
discussed in (i). For any period, therefore, the investment record of the S&P
500 Index will be the compounded monthly returns of the S&P 500 Index.
B-18
<PAGE>
For the purposes of determining the incentive/penalty fee adjustment, the
net assets managed by Levin will be averaged over the same period as the
investment performance of those assets and the investment record of the S&P 500
Index are computed.
Under the Fund's investment advisory agreement with Levin, the maximum
performance adjustment for an incentive fee is made at a difference of +9
percentage points from the performance of the index over a thirty-six month
period. The maximum performance adjustment for a penalty fee is made at a
difference of less than +0 percentage points from the performance of the index
over a thirty-six month period. On a per year basis, these maximum adjustments
effectively would occur at differences from the index of +3 percentage points
and less than +0 percentage point, respectively.
In the event of termination of this Agreement, the fee paid to Levin shall
be computed on the basis of the period ending on the last business day on which
this Agreement is in effect subject to a pro rata adjustment based on the number
of days elapsed in the current fiscal quarter as a percentage of the total
number of days in such quarter.
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following advisory fees owed to Levin:
1997 1998 1999
-------- ---------- ----------
Basic Fee........................ $781,369 $1,084,801 $1,583,863
Increase or Decrease for
Performance Adjustment........... (228,534) (290,030) (402,526)
-------- ---------- ----------
Total............................ $552,835 $ 794,771 $1,181,337
======== ========== ==========
WELLINGTON MANAGEMENT COMPANY, LLP
The Fund pays Wellington Management a basic advisory fee at the end of each
fiscal quarter, calculated by applying a quarterly rate, based on the following
annual percentage rates, to the average month-end net assets of the Fund managed
by Wellington Management (Wellington Management Portfolio) for the quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $1 billion.............................. .125%
Next $4 billion............................... .100%
Over $5 billion............................... .080%
The basic fee paid to Wellington Management, as provided above, may be
increased or decreased by applying an incentive/penalty adjustment to the basic
fee reflecting the investment performance of the Wellington Management Portfolio
relative to the return of the Lipper Equity Income average.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Wellington Management under the investment advisory agreement:
THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE LIPPER EQUITY PERFORMANCE FEE
INCOME AVERAGE ADJUSTMENT*
-------------- -----------------
Exceeds by 3% to 6%...................... 0.10 x Basic Fee
Exceeds by more than 6%.................. 0.20 x Basic Fee
Trails by 3% to 6%....................... -0.10 x Basic Fee
Trails by more than 6%................... -0.20 x Basic Fee
* FOR PURPOSES OF THIS CALCULATION, THE BASIC FEE IS CALCULATED BY APPLYING A
QUARTERLY RATE BASED ON THE ANNUAL BASIC FEE RATE USING AVERAGE ASSETS OVER
THE SAME PERIOD OVER WHICH THE PERFORMANCE IS MEASURED.
B-19
<PAGE>
The Performance Fee Adjustment will not be fully operable until the quarter
ending December 31, 2002. Until that time, the following transition rules will
apply:
(A) JANUARY 1, 2000 THROUGH SEPTEMBER 30, 2000. Wellington Management's
compensation will be the Basic Fee. No Performance Fee Adjustment will apply
during this period.
(B) OCTOBER 1, 2000 THROUGH DECEMBER 31, 2002. Beginning October 1, 2000,
the Performance Fee Adjustment will take effect on a progressive basis with
regards to the number of months elapsed between January 1, 2000, and the quarter
for which Wellington Management's fee is being computed. During this period, the
Performance Fee Adjustment will be multiplied by a fraction. The fraction will
equal the number of months elapsed since January 1, 2000, divided by thirty-six.
(C) ON AND AFTER DECEMBER 31, 2002. For the quarter ending December 31,
2002, and thereafter, the Performance Fee Adjustment will be fully operable. The
period used to calculate the Adjustment shall be the 36 months preceding the end
of the quarter for which the fee is being computed.
The investment performance of the Wellington Management Portfolio for any
period, expressed as a percentage of the "Wellington Management Portfolio unit
value" at the beginning of such period, will be calculated in a manner
consistent with the total return methodology used by Lipper Inc., to calculate
investment performance.
The "Wellington Management Portfolio unit value" will be determined by
dividing the total net assets of the Wellington Management Portfolio by a given
number of units. Initially, the number of units in the Wellington Management
Portfolio will equal the total shares outstanding of the Fund on January 1,
2000. Subsequently, as assets are added to or withdrawn from the Wellington
Management Portfolio, the number of units of the Wellington Management Portfolio
will be adjusted based on the unit value of the Wellington Management Portfolio
on the day such changes are executed. Any cash buffer maintained by the Fund
outside of the Wellington Management Portfolio shall neither be included in the
total net assets of the Wellington Management Portfolio nor included in the
computation of the Wellington Management Portfolio Unit Value.
The investment record of the Lipper Equity Income average for any period
will be obtained from an independent source at the end of each applicable
quarter. The calculation will be based on the thirty-six month period ending
with the applicable quarter and will be gross of applicable costs and expenses.
In the event of termination of this agreement with Wellington Management,
the fees will be computed on the basis of the period ending on the last business
day on which this agreement is in effect, subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter.
This agreement became effective on January 1, 2000, and will continue in
effect until December 31, 2002, and thereafter, only so long as such continuance
is approved at least annually by votes of the Fund's Board of Trustees who are
not parties to the agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. In
addition, the question of continuance of the advisory agreement may be presented
to the shareholders of the Fund; in such event, such continuance will be
effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
The Fund's Board of Trustees may, without the approval of shareholders,
provide for:
[bullet] The employment of a new investment adviser pursuant to the terms of a
new advisory agreement, either as a replacement for an existing adviser
or as an additional adviser.
[bullet] A change in the terms of an advisory agreement.
[bullet] The continued employment of an existing adviser on the same advisory
contract terms where a contract has been assigned because of a change
in control of the adviser.
Any such change will be communicated to shareholders in writing.
B-20
<PAGE>
DESCRIPTION OF THE ADVISERS
NEWELL ASSOCIATES. Newell Associates, a California corporation, was founded
in 1986 to provide investment management services to institutions. Newell
Associates uses its proprietary Relative Yield Strategy to determine when stocks
are undervalued and, therefore, candidates for purchase or overvalued and,
therefore, candidates for sale. The officers of the corporation are: Roger D.
Newell, Chairman; Robert A. Huret, Vice Chairman; and Jennifer C. Newell, CFA,
President.
JOHN A. LEVIN & CO. INC. John A. Levin, which commenced operations in 1982,
provides investment advisory services to institutional and private clients,
including registered investment trusts and several private investment
partnerships. The investment process at Levin emphasizes identifying investment
value through fundamental research. John A. Levin, a founding principal and
Chairman and Chief Executive Officer of Levin, and Jeffrey A. Kigner,
Co-Chairman and Chief Investment Officer of Levin, are responsible for managing
the portion of the Fund's assets managed by Levin. Levin is an indirect
subsidiary of Baker, Fentress & Company.
WELLINGTON MANAGEMENT COMPANY, LLP.Wellington Management is a professional
investment advisory firm that provides services to individuals, employee benefit
plans, endowment funds, and other institutions. The firm was founded in 1928,
and is organized as a Massachusetts limited liability partnership. The managing
partners of Wellington Management are Duncan M. McFarland, Laurie A. Gabriel,
and John R. Ryan. Mr. Ryan is the portfolio manager who is primarily responsible
for Wellington Management's portion of the Fund.
THE VANGUARD GROUP.The Vanguard Group is a family of more than 100 funds
holding assets worth more than $530 billion. Vanguard serves as an investment
adviser to the Fund and currently manages about $320 billion in total assets.
VANGUARD GROWTH EQUITY FUND
TURNER INVESTMENT PARTNERS. The Fund pays Turner a Basic Fee at the end of
each fiscal quarter, calculated by applying a quarterly rate, based on the
following annual percentage rates, to the average month-end net assets of the
Fund.
NET ASSETS ANNUAL RATE
---------- -----------
First $200 million.................................... 0.50%
Next $300 million..................................... 0.40%
Next $1.5 billion..................................... 0.30%
Over $2 billion....................................... 0.20%
The Basic Fee paid to Turner, as provided above, may be increased or
decreased by applying performance adjustment ("Adjustment"). The Adjustment will
be calculated as a percentage of the Basic Fee and will change proportionately
with the investment performance of the Fund relative to the return of the
Russell 1000 Growth Index for the 36-month period ending with the then-ended
quarter.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Turner under the investment advisory agreement.
CUMULATIVE 36-MONTH ADJUSTMENT AS A
PERFORMANCE OF PORTFOLIO PERCENTAGE OF BASIC FEE (B)
------------------------ ---------------------------
VERSUS THE INDEX (A)
TRAILS BY MORE THAN 9% -75%
TRAILS BY 0% TO 9% LINEAR DECREASE FROM 0% TO 75%
EXCEEDS BY 0% TO 9% LINEAR INCREASE FROM 0% TO +75%
EXCEEDS BY MORE THAN 9% +75%
B-21
<PAGE>
(a) During the first thirty-six month (36) period, inception-to-date Fund
performance versus performance of the Index for the same period will be
utilized. Subject to the transition rules provided for below, the +/-9% hurdle
rate illustrated in the table above will be multiplied by a fraction, the
numerator being the months elapsed since inception and the denominator being
thirty-six (36).
For purposes of the Adjustment calculator, the Basic Fee is calculated by
applying the above rate schedule against the average month-end net assets over
the same time period for which the performance is measured.
(b) Linear application of the adjustment provides for an infinite number of
results within the stated range. Example: Cumulative 36-month performance of
Portfolio versus the Index is +7.2%. Accordingly, a performance fee adjustment
of +60% [(7.2% divided by 9.0%) times 75% maximum] of the Basic Fee would be due
and payable.
The Adjustment will not be fully operable until the Fund has operated under this
Agreement for a full 36 months. Until that time, the following transition rules
will apply:
(a) JUNE 1, 2000 THROUGH MAY 31, 2001. Adviser compensation will be the Basic
Fee. No Adjustment will apply during this period.
(b) JUNE 1, 2001 THROUGH MAY 31, 2003. Beginning June 1, 2001 the Adjustment
will take effect on a progressive basis with regards to the number of months
elapsed between June 1, 2000 and the quarter end for which the Adviser fee is
being computed. During this period, the Adjustment that has been determined as
provided above will be multiplied by a fraction. The fraction's numerator will
equal the number of months that have elapsed since June 1, 2000 and the
denominator will be thirty-six (36).
(c) ON AND AFTER JUNE 1, 2003. Commencing June 1, 2003, the adjustment will be
fully operable.
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Growth Equity Fund incurred the following investment advisory fees:**
1997 1998 1999
-------- -------- --------
BASIC FEE.......................... $694,046 $664,499 $987,424
ADVISORY FEE WAIVED................ $ 24,250 $76,793 $0
** THESE FEES WERE PAID UNDER A PRIOR INVESTMENT ADVISORY FEE STRUCTURE.
DESCRIPTION OF THE ADVISER
TURNER INVESTMENT PARTNERS. Turner Investment Partners is a professional
advisory firm, founded in March 1990. Robert E. Turner is the Chairman and
controlling shareholder of the Adviser. As of December 31, 1999, Turner had
discretionary management authority with respect to approximately $___, provides
investment advisory services to $5.6 billion of assets. Turner has provided
investment advisory services to investment companies since 1992.
DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS
The Fund's current agreements are renewable for successive one-year periods,
only if each renewal is specifically approved by a vote of the Fund's Board of
Trustees, including the affirmative votes of a majority of Trustees who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of
considering such approval. An agreement is automatically terminated if assigned,
and may be terminated without penalty at any time (1) by vote of the Board of
Trustees of the Fund on 60 days' written notice to the adviser, or (2) by the
adviser upon 90 days' written notice to the Fund.
B-22
<PAGE>
PORTFOLIO TRANSACTIONS
The investment advisory agreements authorize the Advisers (with the approval of
the Fund's Board of Trustees) to select the brokers or dealers that will execute
the purchases and sales of portfolio securities for the Fund and direct the
Advisers to use their best efforts to obtain the best available price and most
favorable execution as to all transactions for the Fund. The Advisers have
undertaken to execute each investment transaction at a price and commission
which provides the most favorable total cost or proceeds reasonably obtainable
under the circumstances.
In placing portfolio transactions, each Adviser will use its best judgment
to choose the broker most capable of providing the brokerage services necessary
to obtain the best available price and most favorable execution. The full range
and quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information and
provide other services in addition to execution services to the Fund and/or the
Adviser. Each Adviser considers such information useful in the performance of
its obligations under the agreement, but is unable to determine the amount by
which such services may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Fund's Board of Trustees, each Adviser may cause the Fund to pay
a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the Adviser to the Fund.
Currently, it is the Fund's policy that each Adviser may at times pay
higher commissions in recognition of brokerage services felt necessary for the
achievement of better execution of certain securities transactions that
otherwise might not be available. Each Adviser will only pay such higher
commissions if it believes this to be in the best interest of the Fund. Some
brokers or dealers who may receive such higher commissions in recognition of
brokerage services related to execution of securities transactions are also
providers of research information to the Adviser and/or the Fund. However, each
Adviser has informed the Fund that it generally will not pay higher commission
rates solely for the purpose of obtaining research services.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by each Adviser. If purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these other clients serviced by the Adviser are considered at or about the
same time, transactions in such securities will be allocated among the Fund and
such other clients in a manner deemed equitable by the Adviser. Although there
may be no specified formula for allocating such transactions, the allocation
methods used, and the results of such allocations, will be subject to periodic
review by the Fund's Board of Trustees.
During the fiscal years ended September 30, 1997, 1998 and 1999, Vanguard
Equity Income Fund paid $1,097,967, $1,404,979, and $1,624,448 respectively, in
brokerage commissions. During the fiscal years ended September 30, 1997, 1998,
and 1999, Vanguard Growth Equity Fund paid $335,291, $464,404, and $671,953,
respectively, in brokerage commissions.
5% SHAREHOLDERS
As of May 31, 2000, the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of
the shares of the Vanguard Growth Equity Fund. 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.
B-23
<PAGE>
FINANCIAL STATEMENTS
Vanguard Equity Income Fund's financial statements for the year ended September
30, 1999, including the financial highlights for each of the five fiscal years
in the period ended September 30, 1999, appearing in the Vanguard Equity Income
Fund 1999 Annual Report to Shareholders, and the report thereon of
PricewaterhouseCoopers LLP, independent accountants, also appearing therein, are
incorporated by reference in this Statement of Additional Information.
For a more complete discussion of the performance, please see each Fund's
Annual Report to Shareholders, which may be obtained without charge.
The financial statements of Turner Growth Equity Fund for the fiscal year
ended September 30, 1999, including notes thereto and the report of Ernest &
Young LLB thereon, are also incorporated by reference in this Statement of
Additional Information. (Prior to ___, 2000, Vanguard Growth Equity Fund was
organized as Turner Growth Equity Fund.)
COMPARATIVE INDEXES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or any
of the member funds of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group, including
Vanguard Equity Income Fund, may, from time to time, use one or more of the
following unmanaged indexes for comparative performance purposes.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--includes stocks selected by
Standard & Poor's Index Committee to include leading companies in leading
industries and to reflect the U.S. stock market.
STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.
STANDARD & POOR'S 500/BARRA VALUE INDEX--consists of the stocks in the Standard
& Poor's 500 Composite Stock Price Index with the lowest price-to-book ratios,
comprising 50% of the market capitalization of the S&P 500.
STANDARD & POOR'S SMALLCAP 600/BARRA VALUE INDEX--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
STANDARD & POOR'S SMALLCAP 600/BARRA GROWTH INDEX--contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.
RUSSELL 1000 VALUE INDEX--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.
WILSHIRE 5000 EQUITY INDEX--consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily listing pricing is
available.
WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 1000 GROWTH INDEX--
RUSSELL 3000 STOCK INDEX--a diversified portfolio of over 3,000 common stocks
accounting for over 90% of the market value of publicly traded stocks in the
U.S.
RUSSELL 2000 STOCK INDEX--composed of the 2,000 smallest securities in the
Russell 3000, representing approximately 7% of the Russell 3000 total market
capitalization.
RUSSELL 2000 VALUE INDEX--contains stocks from the Russell 2000 Index with a
less-than-average growth orientation.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia and the Far East.
B-24
<PAGE>
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
SALOMON BROTHERS BROAD INVESTMENT-GRADE BOND INDEX--is a market-weighted index
that contains over 4,800 individually priced investment-grade corporate bonds
rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
LEHMAN LONG-TERM TREASURY BOND INDEX--is a market-weighted index that contains
individually priced U.S. Treasury Securities with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX--consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (Baa) BOND INDEX--all publicly offered fixed rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $100 million outstanding. This index
includes over 1,500 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $100 million
principal outstanding and maturity greater than 10 years.
BOND BUYER MUNICIPAL BOND INDEX--is a yield index on current coupon high grade
general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
of four high grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX--65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's 500/BARRA
Value Index, and 12.5% Standard & Poor's Utilities Index and 12.5% Standard &
Poor's Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
over 4,000 individually priced U.S. Treasury, agency, corporate, and mortgage
pass-through securities corporate rated BBB- or better. The Index has a market
value of over $5 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains over 1,500 individually priced U.S. Treasury,
agency, and corporate investment grade bonds rated BBB- or better with
maturities between 1 and 5 years. The index has a market value of over $1.6
trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX--is a
market weighted index that contains over 1,500 individually priced U.S.
Treasury, agency, and corporate securities rated BBB- or better with maturities
between 5 and 10 years. The index has a market value of over $800 billion.
B-25
<PAGE>
LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market weighted
index that contains over 1,900 individually priced U.S. Treasury, agency, and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $1.1 trillion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper Inc. Lipper defines a small company
growth fund as a fund that by prospectus or portfolio practice, limits its
investments to companies on the basis of the size of the company. From time to
time, Vanguard may advertise using the average performance and/or the average
expense ratio of the small company growth funds. (This fund category was first
established in 1982. For years prior to 1982, the results of the Lipper Small
Company Growth category were estimated using the returns of the Funds that
constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Inc.
LIPPER GENERAL EQUITY FUND AVERAGE--an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Inc.
LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed income
funds with similar investment objectives and policies, as measured by Lipper
Inc.
LIPPER EQUITY INCOME FUND AVERAGE--an industry benchmark of average equity
income funds with similar investment objectives and policies, as measured by
Lipper Inc.
SAI065-05/16/2000
B-26
<PAGE>
[TURNER LOGO OMITTED]
Annual Report
September 30, 1999
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Turner Growth Equity Fund
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- --------------------------------------------------------------------------------
Turner Top 20 Fund
- --------------------------------------------------------------------------------
Turner Technology Fund
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds
- Three Year Portfolio
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds
- One Year Portfolio
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
- --------------------------------------------------------------------------------
Portfolios of The TIP Funds [LOGO OMITTED]
<PAGE>
Contents
1 Letter to shareholders
3 Total returns of Turner Funds
5 Investment review:
Turner Large Cap Growth Equity Fund
7 Investment review:
Turner Growth Equity Fund
9 Investment review:
Turner Midcap Growth Fund
11 Investment review:
Turner Small Cap Growth Fund
13 Investment review:
Turner Micro Cap Growth Fund
15 Investment review:
Turner Top 20 Fund
17 Investment review:
Turner Technology Fund
19 Investment review:
Turner Short Duration Government
Funds-Three Year Portfolio
21 Investment review:
Turner Short Duration Government
Funds-One Year Portfolio
23 Investment review:
Turner Core High Quality Fixed
Income Fund
25 Financial statements
64 Report of Independent Auditors
Turner Funds
The Turner Funds, Portfolios of the TIP Funds, offer a series of ten no-load
mutual funds to individual and institutional investors. The minimum initial
investment in a Turner Fund for regular accounts is $2,500 and $2,000 for
individual retirement accounts. The minimum amount for subsequent investments is
$50.
Turner Investment Partners, Inc., based in Berwyn, Pennsylvania, serves as the
investment adviser to the Turner Funds. The firm, founded in 1990, invests more
than $3 billion in equity, fixed-income, and balanced portfolios on behalf of
individuals and institutions.
Shareholder services
Turner Funds shareholders receive annual and semiannual reports and monthly
account statements. Shareholders who have questions about their accounts may
call a toll-free telephone number, 1-800-224-6312. Or they may write to Turner
Funds, Box 419805, Kansas City, Missouri 64141.
<PAGE>
Letter to shareholders
- --------------------------------------------------------------------------------
To our shareholders
What a difference a year makes. At this time last year, we were assuring
investors that despite all signs to the contrary, the global financial markets
were not headed toward a catastrophic meltdown.
This year, we are happy to report that our confidence was well founded, and that
the world's financial picture is in fact brighter than ever. And, we are pleased
to inform our investors of truly outstanding results across our entire family of
equity and fixed income funds.
For the year ended September 30, 1999, the Turner funds delivered performance
that stood out even in the crowded environment of today's mutual fund industry.
This included a breathtaking 113.46% total return for our Micro Cap Growth Fund.
Our other funds performed as follows:
[BULLET] Turner Large Cap Growth Equity Fund: 42.97%
[BULLET] Turner Growth Equity Fund: 38.16%
[BULLET] Turner Midcap Growth Fund: 84.07%
[BULLET] Turner Small Cap Growth Fund: 59.14%
[BULLET] Turner Top 20 Fund: 39.90%*
[BULLET] Turner Technology Fund: 40.60%*
[BULLET] Turner Short Duration -
Three Year Fund (Institutional Class): 2.89%
[BULLET] Turner Short Duration -
One Year Fun (Institutional Class): 5.34%
[BULLET] Turner Core High Quality
Fixed Income Fund: 0.48%*
*Inception Date: 7/1/99
These results took place against a backdrop of strong overall market
performance. After a rocky start, the domestic equity markets rallied strongly,
eventually leading the S&P 500 Index to a total return of 27.80% for the fiscal
year. This is an exceptional result by any historical standard. And it makes it
all the more remarkable that all of our equity funds significantly outperformed
their indices.
Affirmation of our investment approach.
Performance like this was bound to attract the attention of the financial media.
And in 1999, the Turner Funds and their portfolio managers became favorite
subjects of major newspaper, magazine, and broadcast reports.
These included prominent appearances in Fortune, Forbes, Barron's, Investment
News, and Mutual Funds magazine. In addition, several of our individual funds
received high ratings from Morningstar, Inc.
And while this increased level of attention is of course gratifying, we are more
pleased that 1999 continued to affirm the value of the Turner Funds investment
approach. This approach is based on the philosophy that earnings expectations
drive stock prices.
Our investment philosophy and process lead us to create portfolios that are
fully invested at all times and maintain sector weightings that are neutral or
well diversified relative to their benchmark indices. This helps us avoid risks
associated with sector rotation and market timing, and allows us to focus our
efforts exclusively on stock selection.
Investing lessons of the past decade.
During our first ten years as an independent investment firm, we have learned a
great deal about what it takes to achieve above-average results in the
challenging world of investing. And we recently condensed this knowledge into
six fundamental lessons that we believe can benefit any investor. They are:
1. Understand fully and completely what makes stocks go up and down.
Earnings growth is the essence of stock investing: Stocks of companies with good
earnings ultimately go up, and the stocks of companies with poor earnings
ultimately go down. That's why we above all seek to invest in companies with
earnings that are growing at a rate meeting or exceeding Wall Street's
expectations.
2. Don't take on risks you can't control. Our stock funds are fully
invested and sector neutral because the entire history of the market tells us
that market timing and sector rotation present a risk of selling at the bottom
and buying at the top. The best way to avoid that risk and consistently
outperform a benchmark is to look like that benchmark.
3. Be the best stock pickers possible. A multifaceted investment process is
vital in selecting good stocks because many factors contribute to stocks'
performance. Our own process involves a combination of many quantitative,
fundamental, and technical analyses.
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
4. Don't get too big. Generating superior investment performance becomes
increasingly difficult once a portfolio's assets grow beyond a certain point. To
maximize our own returns, we have established asset limits for our institutional
stock portfolios and mutual funds.
5. Align the firm's goals with the client's. Investment managers have a
pronounced tendency to equate success with gaining assets rather than with
putting the client first. Instead, we focus on how to do one's best for the
client. For instance, we compensate the members of our investment team based on
how they perform. If they don't provide our clients with above-average returns,
they don't receive above-average bonuses.
6. Be willing to adjust to changes in the market. For example, the
quantitative modeling process that I developed back in 1985 worked very well, by
all accounts. Through back-testing, however, we found it was working better in
growth sectors such as technology, than in value sectors such as energy. So we
adjusted the model's value factors to give greater weight in the value sectors.
The result: improved returns in the value sectors. The investment environment is
continually changing, and you must adapt. Study the market, and alter your
activities to reflect what you've learned.
An age of infinite opportunities.
As we enter the new millennium, we look back with pride over what we have
accomplished thus far. And we are looking forward with excitement over the
nearly infinite opportunities that are available to investors during this golden
age of capitalism. While our task as money managers is more complex than ever,
it is also more rewarding because of the potential gains that global economic
growth and productivity-enhancing technology have put within our reach.
We therefore feel privileged to serve as your eyes and ears on the market, and
thank you for entrusting us to identify the very best of what the markets have
to offer - now and in the future.
/s/ signature omitted
- ---------------------
Robert E. Turner
Chairman and Chief Investment Officer
Turner Investment Partners, Inc.
[PHOTO OMITTED]
Bob Turner
2 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Performance
- -------------------------------------------------------------------------------
Total returns of Turner Funds*
Through September 30, 1999
<TABLE>
<CAPTION>
Since Three Year One Three Five
inception Months To Date Year Year Year
(annualized) (annualized) (annualized)+
Equity
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Turner Large Cap Growth Equity Fund (1.77)% 10.20% 42.97% n/a n/a 31.15%
Lipper Large-Cap Growth Funds Average 3.64 8.75 37.86 n/a n/a 23.71
Russell Top 200 Growth Index (3.40) 5.89 34.26 n/a n/a 27.29
S&P 500 Index (6.24) 5.36 27.80 n/a n/a 22.06
- -----------------------------------------------------------------------------------------------------------------------
Turner Growth Equity Fund (1.00) 9.97 38.16 26.58% 24.63% 19.17
Lipper Large-Cap Growth Funds Average 3.64 8.75 37.86 25.04 24.02 17.93
Russell 1000 Growth Index (3.66) 6.40 34.85 26.87 26.79 19.30
S&P 500 Index (6.24) 5.36 27.80 25.09 25.03 19.05
- -----------------------------------------------------------------------------------------------------------------------
Turner Midcap Growth Fund 3.95 45.80 84.07 n/a n/a 38.93
Lipper Mid-Cap Growth Funds Average 0.53 17.83 50.88 n/a n/a 13.41
Russell Midcap Growth Index (5.01) 8.47 37.19 n/a n/a 17.25
- -----------------------------------------------------------------------------------------------------------------------
Turner Small Cap Growth Fund 3.42 27.99 59.14 15.54 29.26 26.63
Lipper Small-Cap Growth Funds Average 0.85 13.57 43.76 9.58 15.03 12.68
Russell 2000 Growth Index (4.92) 7.27 32.63 7.14
12.16 9.85
- -----------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 20.17 51.95 113.46 n/a n/a 59.94
Lipper Small-Cap Core Funds Average (3.77) 4.66 24.96 n/a n/a (4.46)
Russell 2000 Growth Index (4.92) 7.27 32.63 n/a n/a 0.71
- -----------------------------------------------------------------------------------------------------------------------
Turner Top 20 Fund 39.90 n/a n/a n/a n/a 39.90**
Lipper Multi-Cap Core Funds Average (6.34) n/a n/a n/a n/a (6.34)
S&P 500 Index (6.24) n/a n/a n/a n/a (6.24)
- -----------------------------------------------------------------------------------------------------------------------
Turner Technology Fund 40.60 n/a n/a n/a n/a 40.60**
Lipper Science & Technology Funds Average 7.02 n/a n/a n/a n/a 7.02
Pacific Exchange Technology 100 Index 4.62 n/a n/a n/a n/a 4.62
- -----------------------------------------------------------------------------------------------------------------------
Fixed income
=======================================================================================================================
Turner Short Duration Government Funds-
Three Year Portfolio (Institutional Class) 1.10% 2.19% 2.89% 6.00% 6.56% 6.02%
Lipper Short-Intermediate U.S. Government
Funds Average 0.81 0.41 0.69 5.3 5.94 5.05
Lehman Brothers 1-3 Year U.S. Government
Bond Index 1.24 2.41 3.18 5.98 6.36 5.76
- -----------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio (Institutional Class) 1.40 4.10 5.34 5.92 6.33 6.08
Lipper Ultra-Short Obligation Funds Average 1.14 3.28 4.28 5.35 5.57 5.31
Merrill Lynch Three-Month
U.S. Treasury Bill Index 1.27 3.54 4.70 5.15 5.36 5.23
- -----------------------------------------------------------------------------------------------------------------------
Turner Core High Quality
Fixed Income Fund 0.48 n/a n/a n/a n/a 0.48**
Lipper General Bond Funds Average (0.22) n/a n/a n/a n/a (0.22)
Lehman Brothers Aggregate Bond Index 0.68 n/a n/a n/a n/a 0.68
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Past performance is no guarantee of future results.
** Returns are cumulative.
Source: Lipper Analytical Services.
+ The inception dates for each Turner Fund are as follows: Turner Large Cap
Growth Equity Fund, February 1, 1997; Turner Growth Equity Fund, March 11,
1992; Turner Midcap Growth Fund, October 1, 1996; Turner Small Cap Growth
Fund, February 7, 1994; Turner Micro Cap Growth Fund, March 1, 1998; Turner
Top 20 Fund, July 1, 1999; Turner Technology Fund, July 1, 1999; Turner
Short Duration Government Funds-Three Year Portfolio (Institutional Class
Shares), March 1, 1994; Turner Short Duration Government Funds-One Year
Portfolio (Institutional Class Shares), March 1, 1994; and Turner Core High
Quality Fixed Income Fund, July 1, 1999.
SEI Investments Distribution Co., Oaks, PA acts as distributor of the
Turner Funds. The performance data quoted represents past performance and
the principal value and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. This information must be preceded or accompanied by a
prospectus for the Turner Funds. Investors should read the prospectus
carefully before investing.
TURNER FUNDS 1999 ANNUAL REPORT | 3
<PAGE>
Performance
- --------------------------------------------------------------------------------
Lipper Inc. performance rankings of mutual funds
Periods ending September 30, 1999
<TABLE>
<CAPTION>
One Two Five Seven
year years years years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large-Cap Growth Funds
Turner Large Cap Growth Equity Fund
Ranking vs. competitors 72/331 26/257 -- --
Percentile ranking 21 10 -- --
- -----------------------------------------------------------------------------------------------------------------
Large-Cap Growth Funds
Turner Growth Equity Fund
Ranking vs. competitors 118/331 70/257 44/130 30/70
Percentile ranking 35 27 33 42
- -----------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Funds
Turner Midcap Growth Fund
Ranking vs. competitors 26/228 7/197 -- --
Percentile ranking 11 3
- -----------------------------------------------------------------------------------------------------------------
Small-Cap Growth Funds
Turner Small Cap Growth Fund
Ranking vs. competitors 52/247 32/201 2/82 --
Percentile ranking 21 16 2 --
- -----------------------------------------------------------------------------------------------------------------
Small-Cap Core Funds
Turner Micro Cap Growth Fund
Ranking vs. competitors 6/175 -- -- --
Percentile ranking 3
- -----------------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government Funds
Turner Short Duration Government Funds -
Three Year Portfolio (Institutional Class)
Ranking vs. competitors 8/91 2/86 9/58 --
Percentile ranking 9 2 15 --
- -----------------------------------------------------------------------------------------------------------------
Ultra-Short Obligation Funds
Turner Short Duration Government Funds -
One Year Portfolio (Institutional Class)
Ranking vs. competitors 1/29 2/27 2/18 --
Percentile ranking 1 7 11 --
- -----------------------------------------------------------------------------------------------------------------
Source: Lipper Inc.
</TABLE>
4 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund 42.97%
Lipper Large-Cap Growth Funds Average 37.86
S&P 500 Index 27.80
Russell Top 200 Growth Index 34.26
================================================================================
The Turner Large Cap Growth Equity Fund continued to outperform its benchmarks
by a substantial margin during the 12-month period ended September 30, 1999. The
fund achieved a total return of 42.97%, compared with 34.26% for the Russell Top
200 Growth Index and 27.80% for the S&P 500 Index.
This superior performance was attributable to strong stock selection and
decisive timing within key portfolio sectors. And it was accomplished while
remaining sector-diversified relative to the Russell Top 200 Growth Index
The year was marked by a return to favor of mid-cap and small-cap issues, which
had long been overshadowed by their larger counterparts. This trend continued
through the end of the fiscal year, but was not enough to dampen the performance
of high-quality, large-cap growth issues.
The portfolio's strongest performers for the year included perennial growth
leader Microsoft, which continued to advance despite antitrust concerns and
fundamental changes in its business model. Cisco Systems also continued to
perform strongly thanks to its unique position as the predominant mover of
Internet traffic. And even staid old IBM produced fireworks as a result of its
success in embracing Internet commerce. In the healthcare sector, Johnson &
Johnson and Bristol-Myers Squibb benefited from robust earnings growth and
promising product pipelines.
Looking ahead, we are optimistic that large cap stocks will remain market
leaders. Companies in this sector have the strong cash flows needed to fund
aggressive research and development programs. In addition, recent efforts to
streamline operations and decision-making have given large companies the agility
to adapt quickly to the rapid changes brought on by the e-commerce revolution.
As always, however, we will look beyond the obvious to locate those stocks that
appear to offer the strongest potential for above-average growth.
Growth of a $10,000 Investment in the Turner Large Cap Growth Fund:
February 1, 1997-September 30, 1999 *
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
42.97% 31.15%
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Russell S&P
Large Cap Top 200 500
--------- ------- ------
1/31/97 10,000 10,000 10,000
Sep. 97 12,279 12,013 12,199
Sep. 98 14,399 14,165 13,304
Sep. 99 20,586 19,018 17,003
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Large Cap Growth
Equity Fund is February 1, 1997.
TURNER FUNDS 1999 ANNUAL REPORT | 5
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Large Cap Growth Equity Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations exceeding $10 billion at the time of purchase that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell Top 200 Growth
Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o CUSIP #900297508
o Top 10 holdings
(1) Microsoft, (2) Cisco Systems, (3) Johnson & Johnson, (4) Intel, (5)
Bristol-Myers Squibb, (6) Lucent Technologies, (7) America Online, (8)
Procter & Gamble, (9) Wal-Mart Stores, (10) IBM
o % in 10 largest holdings 43.8%
o Number of holdings 44
o Price/earnings ratio 42.2
o Weighted average market capitalization $124.7 billion
o % of holdings with positive earnings surprises 68.0%
o % of holdings with negative earnings surprises 12.3%
o Net assets $8.5 million
[FUND PROFILE GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Top 200 Growth Index
[BAR GRAPH OMITTED]
44.3% Technology
19.3% Health care
15.9% Consumer discretionary/services
10.7% Consumer staples
4.2% Financial services
2.6% Producer durables
2.6 Utilities/communication
1.0% Materials/processing
Portfolio managers
[PHOTO OMITTED]
John F. Hammerschmidt has served as the lead product manager of the Large Cap
Growth Equity Fund since its inception in 1997. John joined Turner in 1992.
Previously he was vice president of government securities trading with S. G.
Warburg. He holds a bachelor's degree from Lehigh University and an MBA degree
from Duke University.
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Large Cap Growth Equity Fund.
A Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Large Cap Growth Equity Fund. Mark joined Turner when it was founded in
1990. He previously served as vice president and senior portfolio manager with
First Maryland Asset Management. He earned a bachelor's degree from Bradley
University and an MBA degree from the University of Illinois.
6 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Growth Equity Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Growth Equity Fund 38.16%
Lipper Large-Cap Growth Funds Average 37.86
S&P 500 Index 27.80
Russell 1000 Growth Index 34.85
- --------------------------------------------------------------------------------
In a year marked by exceptional market volatility, the Turner Growth Equity Fund
handily outperformed its benchmarks, delivering a total return of 38.16%. By
comparison, the Russell 1000 Growth Index returned 34.85%, while the S&P 500
Index yielded 27.80%.
The fund's outperformance is attributable to careful stock selection which
focused on companies with outstanding management, world-class products and
services, and long-term records of superior performance.
The top ten holdings of the fund at year-end were without exception household
names, including Microsoft, Cisco Systems, Intel, Johnson & Johnson,
Bristol-Myers Squibb, Lucent Technologies, Procter & Gamble, Wal-Mart Stores,
Home Depot, and Schering Plough. Among their many other attributes, all ten are
ranked among "America's Most Admired Companies" in their respective categories
by Fortune magazine.
Looking ahead, we believe that the growth sector will continue to dominate the
markets well into the future. In fact, we are convinced that a sea-change in the
markets has placed growth stocks in a position of uncontested dominance over
their value-oriented counterparts.
Of course, this does not mean that this sector is forever immune to volatility.
But through our identification of best-of-class companies, we anticipate that
the Growth Equity Fund will continue to live up to its name.
Growth of a $10,000 Investment in the Turner Growth Equity Fund:
March 31, 1992-September, 30, 1999 *
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Growth S&P 500 Russell 1000
Equity Fund Composite Index Growth Index
------------- --------------- ------------
3/31/92 10,000 10,000 10,000
Sep. 92 10,055 10,511 10,326
Sep. 93 12,734 11,871 10,942
Sep. 94 12,352 12,309 11,583
Sep. 95 14,900 15,965 15,311
Sep. 96 18,314 19,209 18,588
Sep. 97 24,286 26,976 25,335
Sep. 98 26,887 29,420 28,147
Sep. 99 37,147 37,598 37,957
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
38.16% 26.58% 24.63% 19.17%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Growth Equity Fund is
March 11, 1992. Returns are calculated from the first full month following the
fund's inception date.
TURNER FUNDS 1999 ANNUAL REPORT | 7
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Growth Equity Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Growth Equity Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks that, in Turner's opinion, have
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell 1000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o Ticker symbol TRGEX
o CUSIP #900297102
o Top 10 holdings (1) Microsoft, (2) Cisco Systems, (3) Intel, (4) Johnson &
Johnson, (5) Bristol-Myers Squibb, (6) Lucent Technologies, (7) Procter &
Gamble, (8) Wal-Mart Stores, (9) Home Depot, (10) Schering-Plough
o % in 10 largest holdings 36.9%
o Number of holdings 97
o Price/earnings ratio 39.9
o Weighted average market capitalization $105.6 billion
o % of holdings with positive earnings surprises 73.6%
o % of holdings with negative earnings surprises 9.7%
o Net assets $142.8 million
[GROWTH EQUITY GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 1000 Growth Index
36.3% Technology
16.7% Health care
15.3% Consumer discretionary/services
9.0% Consumer staples
5.1% Financial services
4.5% Utilities/communication
3.5% Producer durables
1.2% Materials/processing
0.9% Energy
0.4% Autos/transportation
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, has served as the lead product manager of the Growth Equity
Fund since its inception in 1992. A Chartered Financial Analyst, Bob previously
was senior investment manager with Meridian Investment Company. He earned
bachelor's and MBA degrees at Bradley University.
[PHOTO OMITTED]
John F. Hammerschmidt serves as a comanager of the Growth Equity Fund. John
joined Turner in 1992. Previously he was vice president of government securities
trading with S. G. Warburg. He holds a bachelor's degree from Lehigh University
and an MBA degree from Duke University.
[PHOTO OMITTED]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Growth Equity Fund. Mark joined Turner when it was founded in 1990. He
previously served as vice president and senior portfolio manager with First
Maryland Asset Management. He earned a bachelor's degree from Bradley University
and an MBA degree from the University of Illinois.
8 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Midcap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund 84.07%
Lipper Mid-Cap Growth Funds Average 50.88
Russell Midcap Growth Index 37.19
- --------------------------------------------------------------------------------
During the 12 months ended September 30, 1999, the Turner Midcap Growth Fund
added to its outstanding record by soaring 84.07%. In doing so, the fund more
than doubled the performance of the Russell Midcap Growth Index, which returned
37.19%.
Among the strongest performing sectors of the portfolio were technology,
healthcare and producer durables. Broadcasting/media, specialty retailing,
biotechnology, semiconductor and networking stocks were especially profitable.
Only our consumer-stables positions lagged.
What is particularly notable about the fund's superior performance is that it
was achieved while maintaining an average price earnings ratio (P/E Ratio) just
over 33 relative to the Russell Midcap P/E Ratio of 34. In light of the
favorable earnings prospects of our holdings, we think Midcap Growth can perform
relatively well in favorable or unfavorable economic conditions.
The companies in the Midcap Growth Fund are well-known, well-capitalized
organizations with dominant market positions and reputations for innovation.
They include "dot-com" address provider Network Solutions; electronics retailers
Best Buy and Circuit City; payroll processing leader Paychex; Internet
advertising giant DoubleClick; advertising conglomerate Interpublic Group;
adhesive products maker Avery Denison; printer manufacturer Lexmark
International; food distributor Sysco, and fiber optics leader JDS Uniphase.
Looking ahead, we believe that the Midcap Growth Fund has strong prospects for
the future, thanks to its continued emphasis on finding leaders in a dynamic
market place. And while it is unrealistic to expect consecutive years of
performance of this caliber, we believe the fund is well positioned for a wide
range of market environments.
Growth of a $10,000 Investment in the Turner Midcap Growth Fund:
October 31, 1996-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Midcap Growth Russell Midcap Growth Index
-------------------- ---------------------------
10/31/96 10,000 10,000
Sep. 97 14,248 13,117
Sep. 98 14,425 11,887
Sep. 99 26,552 16,309
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
84.07% 38.93%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Midcap Growth Fund is
October 1, 1996.
TURNER FUNDS 1999 ANNUAL REPORT | 9
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Midcap Growth Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks with market capitalizations between
$1 billion and $8 billion at the time of purchase that Turner believes offer
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell Midcap Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o Ticker symbol TMGFX
o CUSIP #900297409
o Top 10 holdings (1) Network Solutions, (2) Best Buy, (3) Paychex, (4)
DoubleClick, (5) Interpublic Group, (6) Bausch & Lomb, (7) Circuit City, (8)
Lexmark International, (9) SPX, (10) JDS Uniphase
o % in 10 largest holdings 13.9%
o Number of holdings 113
o Price/earnings ratio 33.8
o Weighted average market capitalization $5.2 billion
o % of holdings with positive earnings surprises 71.1%
o % of holdings with negative earnings surprises 5.9%
o Net assets $148.8 million
[MIDCAP FUND GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Midcap Growth Index
[BAR GRAPH OMITTED]
27.4% Technology
24.4% Consumer discretionary/services
11.1% Health care
9.1% Financial services
6.5% Producer durables
5.4% Utilities/communication
3.4% Materials/processing
3.0% Consumer staples
2.6% Energy
1.9% Autos/transportation
Portfolio managers
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
[PHOTO OMITTED]
William C. McVail serves as a comanager of the Midcap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
10 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Small Cap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund 59.14%
Lipper Small-Cap Growth Funds Average 43.76
Russell 2000 Growth Index 32.63
- --------------------------------------------------------------------------------
Small-cap growth stocks performed extremely well during the year ended September
30, 1999. But the Turner Small Cap Growth Fund performed even better. For the
period, the fund returned a whopping 59.14% -- nearly doubling the performance
of the Russell 2000 Growth Index, which returned 32.63%.
This performance is even more notable in light of the fact that some key
sectors, including financial services and producer durables, spent a good
portion of the year out of the market's favor. However, any underperformance was
more than made up by the fund's outstanding holdings in such areas as consumer
discretionary/ services and technology.
Top performers in the portfolio included cable equipment maker ANTEC; specialty
software creator Mercury Interactive; investment banker Hambrecht & Quist;
videoconferencing leader Polycom; pharmaceutical innovator Jones Pharma;
security software producer Symantec; French software developer Business Objects;
communications equipment maker Powerwave Technologies; help desk software
developer Peregrine Systems; and home products retailer Linens 'N Things.
Overall, more than 63% of the portfolio's holdings reported positive earnings
surprises, while just over five percent reported negative earnings surprises.
Looking ahead, we continue to favor selected consumer, telecommunications, and
bandwidth-technology stocks that have contributed so much to our recent results.
And we continue to find outstanding values in the small-cap sector, which is so
rich with innovative, energetic young companies.
Growth of a $10,000 Investment in the Turner Small Cap Growth Fund:
February 28, 1994-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Small Frank Russell
Cap Growth 2000 Growth Index
------------ -----------------
2/28/94 10,000 10,000
Sep. 94 10,303 9,618
Sep. 95 15,812 12,328
Sep. 96 24,103 13,881
Sep. 97 28,114 17,123
Sep. 98 23,362 12,872
Sep. 99 37,179 17,072
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
59.14% 15.54% 29.26% 26.63%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Small Cap Growth Fund
is February 7, 1994. Returns are calculated from the first full month following
the fund's inception date.
TURNER FUNDS 1999 ANNUAL REPORT | 11
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Small Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations at the time of purchase not exceeding $2 billion that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[SMALL CAP GRAPH OMITTED]
o Ticker symbol TSCEX
o CUSIP #900297300
o Top 10 holdings ((1) ANTEC, (2) Mercury Interactive, (3) Hambrecht & Quist,
(4) Polycom, (5) Jones Pharma, (6) Symantec, (7) Business Objects, (8)
Powerwave Technologies, (9) Peregrine Systems, (10) Linens 'N Things
o % in 10 largest holdings 12.9%
o Number of holdings 146
o Price/earnings ratio 28.1
o Weighted average market capitalization $1.3 billion
o % of holdings with positive earnings surprises 73.6%
o % of holdings with negative earnings surprises 3.5%
o Net assets $254.1 million
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 2000 Growth Index
23.9% Consumer discretionary/services
22.8% Technology
13.3% Health care
10.9% Financial services
10.0% Producer durables
6.2% Materials/processing
5.6% Utilities/communication
1.7% Energy
1.6% Autos/transportation
1.3% Consumer staples
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
William C. McVail serves as the lead product manager of the Small Cap Growth
Fund. Before joining Turner in 1998, Bill was a portfolio manager at PNC Equity
Advisors. A Chartered Financial Analyst, Bill received a bachelor's degree from
Vassar College.
[PHOTO OMITTED]
Frank L. Sustersic serves as a comanager of the Small Cap Growth Fund. A
Chartered Financial Analyst, Frank joined Turner in 1994. Previously he was an
investment officer and fund manager with First Fidelity Bank Corporation. He
holds a bachelor's degree from the University of Pennsylvania.
[PHOTO OMITTED]
Christopher K. McHugh serves as a comanager of the Small Cap Growth Fund. Chris
joined Turner when it was founded in 1990 and previously held a position as
performance specialist at Provident Capital Management. He earned a bachelor's
degree at the Philadelphia College of Textiles and Science and an MBA degree at
St. Joseph's University.
12 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Micro Cap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 113.46%
Lipper Small-Cap Core Funds Average 24.96
Russell 2000 Growth Index 32.63
- --------------------------------------------------------------------------------
Those who believe that triple-digit annual returns are the sole province of
certain Internet stocks are likely to think that the performance figures of the
Turner Micro Cap Growth Fund are a misprint. But they are not. For the 12 months
ended September 30, 1999, the fund delivered an astonishing return of 113.46%.
In doing so, the fund more than tripled the performance of its key benchmark,
the Russell 2000 Growth Index, which recorded an annual return of 32.63%.
We are pleased to report that this performance has not come at the expense of
diversification. Throughout the year, the fund was represented in all ten market
sectors -- unlike other micro-cap funds which invest primarily in technology
stocks while maintaining only token weightings in other sectors.
The fund was aided by a general strength in growth stocks; particularly those in
the technology sector. However, the real story was stock selection. Our
fundamental analysis and proprietary quantitative model led us to companies that
were clearly poised for above-average growth. And over the course of the year,
more than 46% of our holdings came through with positive earnings surprises,
while only three percent delivered negative surprises.
Our top ten holdings were among the best-performing stocks in the portfolio. Our
largest holding, CD-ROM producer Zomax, rose more than 1,000% during the year.
Other superior performers included cell phone manufacturer Audiovox; electronics
retailer Rex Stores; video game creator THQ, Inc.; specialty circuits
manufacturer Zoran; cardiac products leader Zoll Medical; broadcast equipment
maker California Amplifier; and remote control producer Universal Electronics.
Looking ahead, one cannot expect performance of this level to repeat itself --
especially as the fund grows in size. However, we believe that micro-cap stocks
remain a fertile area for exceptional rates of growth. And we believe that our
strategy of seeking the most promising stocks in each industry sector will
continue to provide an effective method for outperforming the overall market.
Growth of a $10,000 Investment in the Turner Micro Cap Growth Fund:
March 1, 1998-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Micro Cap Russell 2000
Growth Fund Growth Index
---------------- ------------
2/98 10,000 10,000
9/98 9,882 7,625
9/99 21,093 10,113
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
113.46% 59.94%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Micro Cap Growth Fund
is March 1, 1998.
TURNER FUNDS 1999 ANNUAL REPORT | 13
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Micro Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks that, in Turner's opinion,
have strong earnings growth potential and market capitalizations not exceeding
$500 million at the time of purchase. The fund's economic-sector weightings stay
within a range that's not more than 50% above or below the sector weightings of
the Russell 2000 Growth Index.
The Fund participates in the Initial Public Offering ("IPO") market, and a
significant portion of the fund's returns are attributable to its investment in
IPOs, which have a magnified impact due to the fund's relatively small asset
base. There is no guarantee that as the fund's assets grow, it will continue to
experience substantially similar performance by investing in IPOs.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[MICRO CAP GRAPH OMITTED]
o Ticker symbol TMCGX
o CUSIP #872524301
o Top 10 holdings (1) Zomax, (2) Audiovox, (3) Rex Stores, (4) THQ, (5) Zoran,
(6) Eclipse Surgical Technologies, (7) Zoll Medical, (8) California Amplifier,
(9) Homeseekers.com, (10) Universal Electronics
o % in 10 largest holdings 16.1%
o Number of holdings 126
o Price/earnings ratio 34.4
o Weighted average market capitalization $300 million
o % of holdings with positive earnings surprises 56.9%
o % of holdings with negative earnings surprises 3.4%
o Net assets $13.0 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
31.1% Technology
27.4% Consumer discretionary/services
12.2% Health care
5.2% Financial services
5.0% Materials/processing
4.1% Energy
3.9% Producer durables
3.5% Utilities/communication
2.6% Autos/transportation
0.9% Consumer staples
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Frank L. Sustersic has served as the lead product manager of the Micro Cap
Growth Fund since its inception in 1998. A Chartered Financial Analyst, Frank
joined Turner in 1994. Previously he was an investment officer and fund manager
with First Fidelity Bank Corporation. He holds a bachelor's degree from the
University of Pennsylvania.
[PHOTO OMITTED]
William C. McVail serves as the comanager of the Micro Cap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO OMITTED]
Christopher J. Perry serves as the comanager of the Micro Cap Growth Fund. Chris
joined Turner in 1998 after serving as a research analyst at the Pennsylvania
Merchant Group. A Chartered Financial Analyst, he earned a bachelor's degree at
Villanova University and an MBA degree at Drexel University.
14 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Top 20 Fund
Total return
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Top 20 Fund 39.90%
Lipper Multi-Cap Core Funds Average 24.96
S&P 500 Index (6.24)
- --------------------------------------------------------------------------------
The Turner Top 20 Fund, which invests in the 15-25 stocks on which we are the
most bullish, recorded a bullish initial performance in the third quarter. Top
20 climbed 39.90% to beat the S&P 500 Index's 6.24% loss by 46.14 percentage.
Our holdings were culled from the approximately 250 stocks in all capitalization
ranges that we own in our other stock funds -- the stocks that we think are the
best of the best. In essence, we regard the fund as a distillation of our
ability to pick good stocks. As the market fluctuated in the quarter, we moved
in and out of our holdings adroitly. For instance, we reaped gains in technology
stocks, then sold a portion of them to buy health-care stocks and benefit from
their subsequent rally. Our holdings remain broadly diversified by sector and
security, with investments in seven sectors and typical weightings in individual
stocks of about 5%; we think such an approach should produce smoother returns
over time.
Growth of a $10,000 Investment in the Turner Top 20 Fund:
July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner S&P
------ -----
6/98 10,000 10,000
9/99 13,990 9,375
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
39.90%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Top 20 Fund is
July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 15
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Top 20 Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Top 20 Fund seeks capital appreciation. It invests in common stock
and other equity securities of companies, regardless of their market
capitalization, that Turner believes have strong earnings potential. The
portfolio will contain a total of 15-25 stocks representing Turner's favorite
investment ideas.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[TOP 20 GRAPH OMITTED]
o Ticker symbol TTOPX
o CUSIP #87252R862
o Top 10 holdings (1) NetZero, (2) Yahoo!, (3) America Online, (4) JDS Uniphase,
(5) InterNAP Network Services, (6) Scientific-Atlanta, (7) Johnson & Johnson,
(8) Micron Technology, (9) Abercrombie & Fitch, (10) Bausch & Lomb
o % in 10 largest holdings 53.8%
o Number of holdings 21
o Price/earnings ratio 39.8
o Weighted average market capitalization $57.3 billion
o % of holdings with positive earnings surprises 68.8%
o % of holdings with negative earnings surprises 19.1%
o Net assets $16.1 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
35.9% Technology
28.1% Consumer discretionary/services
9.9% Health care
9.8% Producer durables
8.5% Energy
4.6% Financial services
4.3% Consumer staples
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
[PHOTO OMITTED]
William C. McVail serves as a comanager of the Midcap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
16 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Technology Fund
Total return
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Technology Fund 40.60%
Lipper Science & Technology Funds Average 24.96
Pacific Exchange Technology 100 Index 4.62
- --------------------------------------------------------------------------------
Performance was generally bleak for the 10 sectors of the stock market in the
third quarter, but the technology sector was a notable exception. The Pacific
Exchange Technology 100 Index, for one, advanced 4.62%. The Turner Technology
Fund began operation in the quarter and made the most of this favorable
environment: it soared 40.60% to outdistance the PSE Tech Index by 35.98
percentage points.
During the summer, technology stocks bottomed after a tough second quarter and
came roaring back. Seeing an enormous buying opportunity, we scooped up selected
Internet, software, and semiconductor shares, then rode their ascent. For
instance, software stocks were so beaten down that they were selling at
price/earnings multiples below their growth rates, which is highly unusual.
Going forward, we especially like the fundamentals of enterprise-resource-
planning software firms, which should benefit from future capital spending on
technology.
Growth of a $10,000 Investment in the Turner Technology Fund:
July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Pacific
------ -------
6/99 10,000 10,000
9/99 14,060 10,467
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
40.60%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Technology Fund is
July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 17
<PAGE>
Investment Review
- --------------------------------------------------------------------------------
Turner Technology Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Technology Fund seeks capital appreciation. It invests in common
stock of companies that develop new technologies and that may experience
exceptional growth in sales and earnings driven technology related products and
services. Stock selection will not be based on company size, but rather on an
assessment of a company's fundamental prospects.
The Fund participates in the Initial Public Offering ("IPO") market, and a
significant portion of the fund's returns are attributable to its investment in
IPOs, which have a magnified impact due to the fund's relatively small asset
base. There is no guarantee that as the fund's assets grow, it will continue to
experience substantially similar performance by investing in IPOs.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[TECH GRAPH OMITTED]
o Ticker symbol TTECX
o CUSIP #87252R870
o Top 10 holdings (1) InterNAP Network Services, (2) Amazon.com, (3) NetZero,
(4) Microsoft, (5) Priceline.com, (6) Network Solutions, (7) Ciena, (8)
Intuit, (9) America Online, (10) JDS Uniphase
o % in 10 largest holdings 39.9%
o Number of holdings 39
o Price/earnings ratio 42.9
o Weighted average market capitalization $45.1 billion
o % of holdings with positive earnings surprises 68.5%
o % of holdings with negative earnings surprises 15.3%
o Net assets $8.3 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
56.9% Technology
24.4% Consumer discretionary/services
8.7% Producer durables
2.9% Utilities/communication
2.6% Health care
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
18 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Short Duration Government Funds-
Three Year Portfolio
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio (Institutional Class) 2.89%
Lipper Short/Intermediate U.S. Government
Funds Average 0.69
Lehman Brothers 1-3 Year
U.S. Government Bond Index 3.18
- --------------------------------------------------------------------------------
In a challenging year for all fixed income investors, the Turner Short Duration
- -- Three Year Fund Institutional Class delivered strong results, with a total
return of 2.89%. By comparison, the Lehman Brothers 1-3 Year U.S.
Government Bond Index returned only a slightly higher 3.18%.
During the fiscal year, fixed income securities were hit by two rate hikes by
the Federal Reserve Board, each pushing short rates up by 0.25%. The Fed's goal
in each case was to tap the brakes on the economy and preempt inflation.
Throughout the period, we held the fund's average weighted maturity to a
relatively conservative 2.2 years. This positioned us to take advantage of
higher yields as they became available. We also maintained our level of quality,
focusing primarily on U.S. Treasury notes and government agency securities.
The new year offers considerable challenge as the economy continues to grow at a
healthy pace and inflation fears rise. In the face of this the Turner Short
Duration Government Fund-Three Year Portfolio will continue to invest in high
quality instruments and to manage interest rate risk carefully. We will seek to
benefit from an eventual fall in rates, which we expect, without exposing our
investors to undue risk.
Growth of a $10,000 Investment in the Turner Short Duration Government Funds-
Three Year Portfolio, Institutional Class:
March 31, 1994-September 30, 1999 *
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Short Duration Lehman 1-3 yr
--------------------- -------------
1/31/94 10,000 10,000
Sep 94 10,089 10,049
Sep 95 10,976 10,871
Sep 96 11,637 11,488
Sep 97 12,463 12,279
Sep 98 13,469 13,253
Sep 99 13,858 13,676
Annualized total returns
Periods ending September 30, 1999
Past one Past three Past five Since
year years years inception
Institutional Class Shares
2.89% 6.00% 6.56% 6.02%
Advisor Class Shares
-- -- -- 5.64%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-Three Year Portfolio (Institutional Class) is March 1, 1994.
TURNER FUNDS 1999 ANNUAL REPORT | 19
<PAGE>
Investment Review
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-Three Year Portfolio seeks to produce
maximum total return consistent with preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a three-year Treasury bill.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[THREE YEAR GRAPH]
o Ticker symbol TSDGX, Institutional Class Shares
o CUSIP #872524202, Institutional Class Shares
o Top 10 holdings (1) U.S. Treasury Notes, 5.75%, 10/31/00, (2) U.S. Treasury
Notes, 5.00%, 02/28/01, (3) U.S. Treasury Notes, 7.00%, 07/15/06, (4) Federal
Home Loan Mortgage Corporation, 9.50%, 06/15/06, (5) Spiegel Credit Card,
7.50%, 1995-A, (6) Federal Home Loan Mortgage Corporation Gold, 7.50%,
10/14/29, (7) U.S. Treasury Notes, 6.375%, 08/15/02, (8) Structured Assets SEC
Corporation Variable %, 10/30/07, (9) Fleet Credit Card, 1998-A, (10) Ford
Motor Credit, 5.75%, 02/23/04
o % in 10 largest holdings 57.4%
o Number of holdings 44
o Average effective duration 1.7 years
o Average maturity 2.3 years
o Average yield to maturity 6.13%
o Average credit quality Agency
o Convexity (0.21)
o Net assets $38.8 million
- --------------------------------------------------------------------------------
Sector weightings:
47.6% Mortgage-backed securities
30.1% Treasury securities
11.6% Asset-backed securities
7.4% Corporates
3.3% Other
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-One Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
20 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Short Duration Government Funds-
One Year Portfolio
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio (Institutional Class) 5.34%
Lipper Ultra-Short Obligation Funds Average 4.28
Merrill Lynch 3 Month
U.S. Treasury Bill Index 4.70
- --------------------------------------------------------------------------------
For the 12 months ended September 30, 1999, the Turner Short Duration - One Year
Fund Institutional Class delivered a strong total return of 5.34%. By contrast,
the Merrill Lynch 3 Month U.S. Treasury Bill Index reported a total return of
4.70%.
The fund benefited from the Federal Reserve Board's two rate hikes late in the
fiscal year, each of which boosted short-term yields by 0.25%. Because of these
actions, short-term instruments actually outperformed intermediate-term
securities for the year.
The fund also took advantage of the incremental yield opportunities available at
the longer end of its maturity spectrum. And, it boosted returns still further
by holding a sizeable proportion of government-backed collateralized mortgage
obligation (CMO) securities, which offer higher income levels than Treasury
issues of comparable maturities.
Looking ahead, we believe the potential for additional rate increases remains
fairly strong for the early part of calendar year 2000. Once the Federal Reserve
Board is satisfied that any Y2K-related concerns have been put to rest, the
strength of the economy and tightness in the labor markets could make a
compelling case for additional action. Whether or not this occurs, we believe
the fund is well positioned to continue delivering yields well in excess of the
rate of inflation.
Growth of a $10,000 Investment in the Turner Short Duration Government Funds-
One Year Portfolio, Institutional Class
March 1, 1998-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Short Duration Merrill Lynch 3-month
--------------------- ---------------------
3/3/94 10,000 10,000
Sep.94 10,231 10,235
Sep 95 10,935 10,837
Sep 96 11,704 11,431
Sep 97 12,428 12,047
Sep 98 13,201 12,693
Sep 99 13,906 13,289
Annualized total returns
Periods ending September 30, 1999
Past one Past three Past five Since
year years years inception
Institutional Class Shares
5.34% 5.92% 6.33% 6.08%
Advisor Class Shares
5.00% -- -- 5.22%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-One Year Portfolio (Institutional Class) is March 1, 1994.
TURNER FUNDS 1999 ANNUAL REPORT | 21
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-One Year Portfolio seeks to produce
maximum total return consistent with the preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a one-year Treasury note.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[ONE YEAR GRAPH OMITTED]
o CUSIP #872524103, Institutional Class Shares
o Top 10 holdings (1) Federal National Mortgage Association, 5.84375%, 06/25/00,
(2) Federal Home Loan Mortgage Corporation, 5.85%, 11/15/05, (3) U.S. Treasury
Notes, 5.75%, 10/31/00, (4) Federal Home Loan Mortgage Corporation, 6.50%,
09/15/06, (5) Morgan Stanley, 6.85%, 02/15/20, (6) Federal National Mortgage
Association, 5.84375%, 06/25/08, (7) Government National Mortgage Association,
6.375%, (8) Federal Home Loan Mortgage Corporation, 6.00%, 11/15/05, (9)
Federal Home Loan Mortgage Corporation, 5.70%, 07/15/05, (10) Federal Home
Loan Mortgage Corporation, 7.00%, 10/15/18
o % in 10 largest holdings 69.6%
o Number of holdings 33
o Average effective duration 0.4 years
o Average maturity 0.5 years
o Average yield to maturity 5.73%
o Average credit quality Agency
o Convexity (0.18)
o Net assets $6.4 million
- --------------------------------------------------------------------------------
Sector weightings:
47.6% Mortgage-backed securities
30.1% Treasury securities
11.6% Asset-backed securities
7.4% Corporates
3.3% Other
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-Three Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
22 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Core High Quality
Fixed Income Fund
Total return
Period ending September 30, 1999*
- --------------------------------------------------------------------------------
Turner Core High Quality
Fixed Income Fund 0.48%
Lipper General Bond Funds Average 4.28
Lehman Brothers Aggregate
Bond Index 0.68
- --------------------------------------------------------------------------------
Interest rates rose at most maturities in the third quarter, but not enough to
prevent the Turner Core High Quality Fixed Income Fund from recording a positive
return, 0.48%. That return was below the 0.68% performance of the bond market,
as represented by the Lehman Brothers Aggregate Bond Index. Our results were
enhanced by the portfolio's high average credit quality (better-quality
securities outperformed), significant positions in Treasury, mortgage-backed,
and asset-backed securities (those three sectors outperformed), and a
conservative average duration (longer durations underperformed). Conversely, our
results would have been better if we had owned more bonds with above-average
yields, especially more mortgage pass-throughs, which have done well lately. We
are keeping our average duration in neutral territory to capture more yield than
we would with a more conservative positioning.
Growth of a $10,000 Investment in the Turner Core High Quality Fixed Income
Fund: July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Lehman
------ ------
6/98 10,000 10,000
9/99 10,047 10,068
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
0.48%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Core High Quality
Fixed Income Fund is July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 23
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Core High Quality Fixed Income Fund seeks current income and capital
appreciation, an objective that emphasizes total return rather than just yield
alone. It invests in investment-grade fixed-income securities, including U.S.
government, corporate, mortgaged-backed and asset-backed securities.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[CORE HIGH GRAPH OMITTED]
o Ticker symbol THQFX
o CUSIP #87252R847
o Top 10 holdings (1) U.S. Treasury Notes, 7.00%, 07/15/06, (2) U.S. Treasury
Notes, 8.125%, 05/15/21, (3) Spiegel Credit Card, 7.50%, 1995-A, (4) FNCI,
6.00%, 02/01/13, (5) Federal National Mortgage Association, 6.00%, 12/25/22,
(6) Federal Home Loan Mortgage Corporation, 6.00%, 6/01/29, (7) Federal Home
Loan Mortgage Corporation Gold Pool, 7.50%, 10/01/28, (8) FNCL, 6.00%,
04/01/28, (9) Federal Home Loan Mortgage Corporation, 9.50%, 06/15/06, (10)
Olympic Auto, 6.15%, 1995-D
o % in 10 largest holdings 85.8%
o Number of holdings 26
o Average effective duration 5.0 years
o Average maturity 8.5 years
o Average yield to maturity 6.49%
o Average credit quality Agency
o Convexity 0.09
o Net assets $10.0 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
44.1% Mortgage-backed securities
38.1% Treasury securities
13.7% Corporates
2.2% Asset-backed securities
1.9% Other
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-Three Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
24 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--100.3%
- ----------------------------------------------------------
Beauty products--4.7%
- ----------------------------------------------------------
Colgate-Palmolive 2,530 $ 116
Procter & Gamble 3,015 283
-----
Total Beauty products 399
-----
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--2.8%
- ----------------------------------------------------------
AT&T Corp-Liberty Media, Cl A* 3,740 139
Clear Channel Communications* 1,220 97
-----
Total Broadcasting, newspapers &
advertising 236
-----
- ----------------------------------------------------------
Communications equipment--7.7%
- ----------------------------------------------------------
Juniper Networks* 910 166
Lucent Technologies 5,490 356
Nokia 1,460 131
-----
Total Communications equipment 653
-----
- ----------------------------------------------------------
Computers & services--12.7%
- ----------------------------------------------------------
Cisco Systems* 7,094 486
EMC* 2,380 170
IBM 2,170 263
Sun Microsystems* 1,660 154
-----
Total Computers & services 1,073
-----
- ----------------------------------------------------------
Drugs--11.4%
- ----------------------------------------------------------
American Home Products 3,990 166
Bristol-Myers Squibb 5,500 371
Genentech* 1,405 206
Schering Plough 5,030 219
-----
Total Drugs 962
-----
- ----------------------------------------------------------
Electronics--3.4%
- ----------------------------------------------------------
Micron Technology 1,610 107
Solectron* 2,500 180
-----
Total Electronics 287
-----
Value
Shares (000)
- ----------------------------------------------------------
Financial services--2.1%
- ----------------------------------------------------------
American Express 610 $ 82
Automatic Data Processing 2,080 93
-----
Total Financial services 175
-----
- ----------------------------------------------------------
Food, beverage & tobacco--2.5%
- ----------------------------------------------------------
Anheuser Busch 1,120 78
Seagram 2,880 131
-----
Total Food, beverage & tobacco 209
-----
- ----------------------------------------------------------
Insurance--2.1%
- ----------------------------------------------------------
American International Group 2,097 182
-----
Total Insurance 182
-----
- ----------------------------------------------------------
Internet services--6.4%
- ----------------------------------------------------------
Amazon.com* 1,310 105
America Online* 2,885 300
Yahoo* 790 142
-----
Total Internet services 547
-----
- ----------------------------------------------------------
Medical products & services--7.9%
- ----------------------------------------------------------
Amgen* 2,190 178
Johnson & Johnson 4,375 402
Medtronic 2,400 85
-----
Total Medical products & services 665
-----
- ----------------------------------------------------------
Miscellaneous manufacturing--1.0%
- ----------------------------------------------------------
Tyco International 810 84
-----
Total Miscellaneous manufacturing 84
-----
- ----------------------------------------------------------
Multimedia--0.9%
- ----------------------------------------------------------
CBS 1,705 79
-----
Total Multimedia 79
-----
TURNER FUNDS 1999 ANNUAL REPORT | 25
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Retail--9.1%
- ----------------------------------------------------------
CVS 3,430 $ 140
Home Depot 3,043 209
Kroger* 2,950 65
Safeway* 2,300 88
Wal-Mart Stores 5,635 268
-----
Total Retail 770
-----
- ----------------------------------------------------------
Semiconductors/instruments--9.9%
- ----------------------------------------------------------
Intel 5,010 372
Jds Uniphase* 1,920 219
Texas Instruments 2,970 244
-----
Total Semiconductors/instruments 835
-----
- ----------------------------------------------------------
Software & programming--13.1%
- ----------------------------------------------------------
BMC Software* 2,490 178
Computer Associates 2,220 136
Microsoft* 6,800 616
Oracle* 3,890 177
-----
Total Software & programming 1,107
-----
- ----------------------------------------------------------
Telephones & telecommunications--2.6%
- ----------------------------------------------------------
Qwest Communications
International* 4,530 134
Sprint (PCS Group)* 1,150 86
-----
Total Telephones &
telecommunications 220
-----
- ----------------------------------------------------------
Total common stocks
(Cost $7,993) 8,483
==========================================================
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--0.9%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$76,151 (collateralized by U.S. Treasury
Note, par value $73,410, 7.25%,
08/15/04: market value $77,918) $76 $ 76
- ----------------------------------------------------------
Total repurchase agreement
(Cost $76) 76
==========================================================
Total investments--101.2%
(Cost $8,069) 8,559
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--(1.2%) (100)
==========================================================
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio Shares (unlimited authorization
-- no par value) based on 447,615
outstanding shares of beneficial interest 6,352
Accumulated net realized
gain on investments 1,617
Net unrealized appreciation
on investments 490
- ----------------------------------------------------------
Total net assets--100.0% $8,459
==========================================================
Net asset value, offering and
redemption price per share $18.90
==========================================================
*Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the financial statements.
26 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Schedule of investments
Turner Growth Equity Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--98.8%
- ----------------------------------------------------------
Aircraft--0.5%
- ----------------------------------------------------------
Allied Signal 12,440 $ 746
-------
Total Aircraft 746
-------
- ----------------------------------------------------------
Beauty products--4.5%
- ----------------------------------------------------------
Colgate-Palmolive 36,650 1,677
Procter & Gamble 50,900 4,772
-------
Total Beauty products 6,449
-------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--2.4%
- ----------------------------------------------------------
AT&T Corp-- Liberty Media, Cl A* 30,785 1,143
Clear Channel Communications* 13,695 1,094
Omnicom Group 14,245 1,128
-------
Total Broadcasting, newspapers
& advertising 3,365
-------
- ----------------------------------------------------------
Communications--0.8%
- ----------------------------------------------------------
Vodafone Airtouch PLC, ADR 4,950 1,177
-------
Total Communications 1,177
-------
- ----------------------------------------------------------
Communications equipment--7.0%
- ----------------------------------------------------------
Ciena* 38,880 1,419
Comcast, Special, Cl A 29,970 1,195
Juniper Networks* 3,650 665
Lucent Technologies 76,360 4,954
Nokia 11,970 1,075
Scientific-Atlanta 14,480 718
-------
Total Communications equipment 10,026
-------
- ----------------------------------------------------------
Computers & services--10.8%
- ----------------------------------------------------------
Brocade Communications Systems* 3,050 641
Cisco Systems* 92,895 6,369
EMC* 25,155 1,797
Foundry Networks* 4,530 571
IBM 23,265 2,824
Lexmark International Group, Cl A* 8,620 694
Network Appliance* 10,110 724
Sun Microsystems* 19,340 1,799
-------
Total Computers & services 15,419
-------
Value
Shares (000)
- ----------------------------------------------------------
Drugs--8.0%
- ----------------------------------------------------------
American Home Products 25,240 $ 1,047
Biogen* 13,150 1,036
Bristol-Myers Squibb 79,335 5,355
Genentech* 7,190 1,052
Schering Plough 67,890 2,962
-------
Total Drugs 11,452
-------
- ----------------------------------------------------------
Electronics--3.8%
- ----------------------------------------------------------
Atmel* 19,550 661
LSI Logic* 12,955 667
Maxim Integrated Products* 10,430 658
Microchip Technology* 13,700 704
Micron Technology 14,100 939
Motorola 8,105 713
Solectron* 15,390 1,105
-------
Total Electronics 5,447
-------
- ----------------------------------------------------------
Entertainment--1.0%
- ----------------------------------------------------------
Time Warner 23,735 1,442
-------
Total Entertainment 1,442
-------
- ----------------------------------------------------------
Financial services--3.4%
- ----------------------------------------------------------
American Express 10,525 1,417
Citigroup 24,892 1,095
Concord EFS* 30,405 627
Goldman Sachs Group 11,540 704
Paychex 30,650 1,046
-------
Total Financial services 4,889
-------
- ----------------------------------------------------------
Food, beverage & tobacco--2.9%
- ----------------------------------------------------------
Anheuser Busch 20,060 1,405
Pepsi Bottling Group 26,870 458
Sara Lee 32,120 753
Seagram 32,480 1,478
-------
Total Food, beverage & tobacco 4,094
-------
- ----------------------------------------------------------
Gas/natural gas--0.5%
- ----------------------------------------------------------
Enron 17,200 710
-------
Total Gas/natural gas 710
-------
TURNER FUNDS 1999 ANNUAL REPORT | 27
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of Investments
Turner Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Glass products--0.5%
- ----------------------------------------------------------
Corning 11,010 $ 755
-------
Total Glass products 755
-------
- ----------------------------------------------------------
Healthcare--0.8%
- ----------------------------------------------------------
PE Biosystems 15,730 1,136
-------
Total Healthcare 1,136
-------
- ----------------------------------------------------------
Insurance--1.2%
- ----------------------------------------------------------
Aflac 16,890 707
American International Group 12,081 1,050
-------
Total Insurance 1,757
-------
- ----------------------------------------------------------
Internet services--5.5%
- ----------------------------------------------------------
Amazon.com* 10,740 859
America Online* 22,885 2,380
Internet Capital Group* 6,810 598
Netzero* 40,690 1,058
Priceline.com* 11,680 753
RealNetworks* 7,070 739
Yahoo* 7,750 1,391
-------
Total Internet services 7,778
-------
- ----------------------------------------------------------
Machinery--1.2%
- ----------------------------------------------------------
Applied Materials* 13,375 1,039
Eaton 7,310 631
-------
Total Machinery 1,670
-------
- ----------------------------------------------------------
Medical products & services--8.9%
- ----------------------------------------------------------
Amgen* 25,780 2,101
Bausch & Lomb 23,140 1,526
Columbia/HCA Healthcare 50,290 1,066
Johnson & Johnson 62,810 5,771
Medimmune* 7,470 744
Medtronic 42,320 1,502
-------
Total Medical products & services 12,710
-------
- ----------------------------------------------------------
Miscellaneous business services--0.7%
- ----------------------------------------------------------
Automatic Data Processing 23,360 1,042
-------
Total Miscellaneous business services 1,042
-------
- ----------------------------------------------------------
Miscellaneous manufacturing--0.8%
- ----------------------------------------------------------
Tyco International 11,010 1,137
-------
Total Miscellaneous manufacturing 1,137
-------
Value
Shares (000)
- ----------------------------------------------------------
Multimedia--1.0%
- ----------------------------------------------------------
CBS 30,490 $ 1,410
-------
Total Multimedia 1,410
-------
- ----------------------------------------------------------
Petroleum & fuel products--0.4%
- ----------------------------------------------------------
Burlington Resources 16,860 620
-------
Total Petroleum & fuel products 620
-------
- ----------------------------------------------------------
Printing & publishing--1.1%
- ----------------------------------------------------------
Tribune 30,080 1,496
-------
Total Printing & publishing 1,496
-------
- ----------------------------------------------------------
Restaurants--0.8%
- ----------------------------------------------------------
McDonald's 25,020 1,076
-------
Total Restaurants 1,076
-------
- ----------------------------------------------------------
Retail--6.8%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 18,230 621
CVS 18,260 745
Home Depot 43,430 2,980
Kroger* 44,985 992
Safeway* 16,250 619
Wal-Mart Stores 79,290 3,771
-------
Total Retail 9,728
-------
- ----------------------------------------------------------
Semiconductors/instruments--7.6%
- ----------------------------------------------------------
Intel 85,540 6,357
Jds Uniphase* 12,310 1,401
KLA-Tencor* 10,280 668
Lam Research* 11,790 719
Texas Instruments 20,160 1,658
-------
Total Semiconductors/instruments 10,803
-------
- ----------------------------------------------------------
Software & programming--11.7%
- ----------------------------------------------------------
BMC Software* 15,650 1,120
Checkpoint Software* 8,110 685
Computer Associates 19,020 1,165
Electronic Arts* 9,580 693
Inktomi* 5,720 687
Intuit* 11,510 1,009
Microsoft* 97,450 8,825
Oracle* 25,100 1,142
Siebel Systems* 10,670 711
Veritas Software* 8,920 677
-------
Total Software & programming 16,714
-------
28 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of Investments
Turner Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Steel & steel works--0.5%
- ----------------------------------------------------------
Alcoa 12,050 $ 748
-------
Total Steel & steel works 748
-------
- ----------------------------------------------------------
Telephones & telecommunications--3.2%
- ----------------------------------------------------------
McLeodusa, Cl A* 18,190 774
Nextel Communications, Cl A* 16,630 1,128
Nextlink Communications* 15,190 788
Qwest Communications
International* 24,700 730
Sprint (PCS Group)* 14,740 1,099
-------
Total Telephones & telecommunications 4,519
-------
- ----------------------------------------------------------
Wholesale--0.5%
- ----------------------------------------------------------
Sysco 20,880 732
-------
Total Wholesale 732
-------
- ----------------------------------------------------------
Total common stocks
(Cost $128,224) 141,047
==========================================================
Face Amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--1.9%
- ----------------------------------------------------------
Morgan Stanley, 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$2,713,821 (collateralized by
GNMA, par value $3,784,310,
7.50%, matures 10/15/28:
market value $2,768,098) $2,714 $ 2,714
- ----------------------------------------------------------
Total repurchase agreement
(Cost $2,714) 2,714
==========================================================
- ----------------------------------------------------------
Total investments--100.7%
(Cost $130,938) 143,761
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--(0.7%) (937)
==========================================================
- ----------------------------------------------------------
Total net assets--100.0% $142,824
==========================================================
* Non-income producing security.
ADR - American Depository Receipts
Cl - Class
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 29
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of investments
Turner Midcap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--96.9%
- ----------------------------------------------------------
Automotive--0.6%
- ----------------------------------------------------------
Lear* 25,070 $ 882
-------
Total Automotive 882
-------
- ----------------------------------------------------------
Banks--2.1%
- ----------------------------------------------------------
National Commerce Bancorporation 54,790 1,204
Northern Trust 14,000 1,169
TCF Financial 24,480 699
-------
Total Banks 3,072
-------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--5.5%
- ----------------------------------------------------------
Hispanic Broadcasting* 9,020 687
Interpublic Group 48,700 2,003
Outdoor Systems* 53,931 1,928
TMP Worldwide* 27,530 1,676
Young & Rubicam* 41,480 1,825
-------
Total Broadcasting, newspapers
& advertising 8,119
-------
- ----------------------------------------------------------
Chemicals--1.7%
- ----------------------------------------------------------
Avery Dennison 28,340 1,495
W.R. Grace* 60,980 979
-------
Total Chemicals 2,474
-------
- ----------------------------------------------------------
Communications equipment--3.2%
- ----------------------------------------------------------
Antec* 14,880 790
Ciena* 44,810 1,636
Juniper Networks* 6,190 1,127
Scientific-Atlanta 24,810 1,230
-------
Total Communications equipment 4,783
-------
- ----------------------------------------------------------
Computers & services--7.3%
- ----------------------------------------------------------
Affiliated Computer Services, Cl A* 28,580 1,161
Brocade Communications Systems* 5,590 1,174
Comverse Technology* 12,890 1,216
Fiserv* 45,915 1,492
Foundry Networks* 9,280 1,169
Lexmark International Group, Cl A* 24,250 1,952
Network Appliance* 17,060 1,222
Safeguard Scientifics* 21,030 1,430
-------
Total Computers & services 10,816
-------
Value
Shares (000)
- ----------------------------------------------------------
Drugs--1.9%
- ----------------------------------------------------------
Biogen* 20,630 $ 1,626
Forest Laboratories* 27,630 1,164
-------
Total Drugs 2,790
-------
- ----------------------------------------------------------
Consumer staples--0.7%
- ----------------------------------------------------------
Dial 42,740 1,090
-------
Total Consumer staples 1,090
-------
- ----------------------------------------------------------
Electrical services--0.7%
- ----------------------------------------------------------
Calpine* 12,390 1,054
-------
Total Electrical services 1,054
-------
- ----------------------------------------------------------
Electronics--5.1%
- ----------------------------------------------------------
Atmel* 27,130 917
Gemstar International* 23,350 1,824
LSI Logic* 19,980 1,029
Maxim Integrated Products* 20,490 1,293
Micron Technology 20,500 1,365
Sawtek* 33,440 1,170
-------
Total Electronics 7,598
-------
- ----------------------------------------------------------
Financial services--3.4%
- ----------------------------------------------------------
Capital One Financial 18,360 716
Concord EFS* 65,820 1,358
Lehman Brothers Holdings 25,880 1,509
SLM Holding 33,990 1,462
-------
Total Financial services 5,045
-------
- ----------------------------------------------------------
Food, beverage & tobacco--3.1%
- ----------------------------------------------------------
Dean Foods 28,040 1,221
Paychex 59,640 2,035
Pepsi Bottling Group 81,030 1,383
-------
Total Food, beverage & tobacco 4,639
-------
- ----------------------------------------------------------
Household furniture & fixtures--0.8%
- ----------------------------------------------------------
Ethan Allen Interiors 40,095 1,276
-------
Total Household furniture & fixtures 1,276
-------
- ----------------------------------------------------------
Internet services--12.8%
- ----------------------------------------------------------
Ariba * 6,250 903
CMGI* 13,100 1,343
30 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Midcap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
C-Net* 18,270 $ 1,023
Doubleclick* 17,080 2,035
Exodus Communications* 15,140 1,091
Infospace.com* 30,450 1,252
Internap Network Services* 28,110 1,255
Internet Capital Group* 16,330 1,435
Looksmart* 25,980 619
Network Solutions, Cl A* 23,340 2,144
Netzero* 40,080 1,042
Phone.com* 5,560 842
Priceline.com* 21,350 1,377
RealNetworks* 10,240 1,071
Ticketmaster Online-CitySearch* 64,740 1,566
-------
Total Internet services 18,998
-------
- ----------------------------------------------------------
Machinery--2.0%
- ----------------------------------------------------------
Lennox International* 70,590 1,094
SPX 21,420 1,944
-------
Total Machinery 3,038
-------
- ----------------------------------------------------------
Medical products & services--8.7%
- ----------------------------------------------------------
Allergan 13,340 1,467
Bausch & Lomb 29,940 1,974
C.R. Bard 28,060 1,321
Express Scripts, Cl A* 13,770 1,078
Medimmune* 17,810 1,775
MiniMed* 13,440 1,320
St. Jude Medical 23,380 736
Stryker 27,140 1,388
Visx* 23,950 1,894
-------
Total Medical products & services 12,953
-------
- ----------------------------------------------------------
Paper & paper products--1.0%
- ----------------------------------------------------------
Smurfit-Stone Container* 71,470 1,546
-------
Total Paper & paper products 1,546
-------
- ----------------------------------------------------------
Petroleum services--1.9%
- ----------------------------------------------------------
Cooper Cameron* 29,530 1,115
Devon Energy 19,060 790
Eog Resources 43,760 930
-------
Total Petroleum services 2,835
-------
Value
Shares (000)
- ----------------------------------------------------------
Retail--10.8%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 52,280 $ 1,781
American Eagle Outfitters* 28,140 1,363
AnnTaylor Stores* 25,630 1,048
Bed Bath & Beyond* 38,990 1,362
Best Buy* 33,320 2,068
Brinker International* 58,820 1,595
Circuit City Stores 46,290 1,953
Drugstore.com* 22,660 821
Linens N Things* 20,090 678
Outback Steakhouse* 26,655 679
Tiffany & Company 26,850 1,609
TJX 39,500 1,108
-------
Total Retail 16,065
-------
- ----------------------------------------------------------
Semiconductors/instruments--9.1%
- ----------------------------------------------------------
Applied Micro Circuits* 12,660 722
Broadcom, Cl A* 9,980 1,088
E-Tek Dynamics* 23,750 1,288
GlobeSpan* 10,840 684
Jds Uniphase* 17,070 1,943
KLA-Tencor* 21,460 1,395
Lam Research* 18,980 1,158
Lattice Semiconductor* 24,720 734
PE Biosystems 16,400 1,185
QLogic* 12,700 887
RF Micro Devices* 29,620 1,355
SDL* 13,870 1,058
-------
Total Semiconductors/instruments 13,497
-------
- ----------------------------------------------------------
Software & programming--7.8%
- ----------------------------------------------------------
Electronic Arts* 16,460 1,191
Electronics for Imaging* 18,120 931
Inktomi* 11,160 1,340
Intuit* 12,220 1,071
J.D. Edwards & Company* 51,370 1,064
Mercury Interactive* 21,330 1,377
Portal Software* 31,850 1,234
Siebel Systems* 17,740 1,182
Verisign* 10,740 1,144
Veritas Software* 14,650 1,112
-------
Total Software & programming 11,646
-------
TURNER FUNDS 1999 ANNUAL REPORT | 31
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of investments
Turner Midcap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Technology--0.4%
- ----------------------------------------------------------
Redback Networks* 6,360 $ 687
-------
Total Technology 687
-------
- ----------------------------------------------------------
Telephones & telecommunications--6.3%
- ----------------------------------------------------------
Allegiance Telecommunications* 28,480 1,499
McLeodusa, Cl A* 39,140 1,666
Nextel Communications, Cl A* 17,610 1,194
Nextlink Communications* 25,300 1,312
NTL* 11,690 1,123
Pinnacle Holdings* 41,540 1,085
RNC* 35,590 1,459
-------
Total Telephones & telecommunications 9,338
-------
- ----------------------------------------------------------
Total common stocks
(Cost $132,982) 144,241
==========================================================
- ----------------------------------------------------------
Rights--0.0%
- ----------------------------------------------------------
Internet Capital Group Rights 1,032 --
US Interactive Rights 516 --
- ----------------------------------------------------------
Total rights
(Cost $0) --
==========================================================
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--3.0%
- ----------------------------------------------------------
Morgan Stanley, 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$4,451,363 (collateralized by
GNMA, par value $6,207,240,
7.50%, 10/15/28:
market value $4,640,391) $4,451 $ 4,451
- ----------------------------------------------------------
Total repurchase agreement
(Cost $4,451) 4,451
==========================================================
- ----------------------------------------------------------
Total investments--99.9%
(Cost $137,433) 148,692
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--0.1% 138
==========================================================
- ----------------------------------------------------------
Total net assets--100.0% $148,830
==========================================================
* Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the financial statements.
32 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--97.2%
- ----------------------------------------------------------
Air Transportation--0.8%
- ----------------------------------------------------------
Atlas Air* 48,860 $ 1,069
SkyWest 46,870 1,028
--------
Total Air transportation 2,097
--------
- ----------------------------------------------------------
Automotive--0.9%
- ----------------------------------------------------------
Avis Rent A Car* 61,430 1,282
Tower Automotive* 46,000 911
--------
Total Automotive 2,193
--------
- ----------------------------------------------------------
Banks--1.9%
- ----------------------------------------------------------
Community First Bankshares 80,170 1,353
Silicon Valley Bancshares* 46,970 1,133
Webster Financial 53,500 1,364
Westamerica Bancorporation 35,510 1,074
--------
Total Banks 4,924
--------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--7.1%
- ----------------------------------------------------------
Acme Communications* 29,260 907
Entercom Communications* 32,590 1,173
Flycast Communications* 50,780 2,311
Insight Communications* 40,610 1,162
Lamar Advertising* 43,840 2,170
Modem Media Poppe Tyson* 46,290 1,713
Radio One* 27,960 1,160
Salem Communications, Cl A* 46,480 1,185
TMP Worldwide* 44,370 2,701
True North Communications 55,790 2,029
Wink Communications* 36,920 1,613
--------
Total Broadcasting, newspapers &
advertising 18,124
--------
- ----------------------------------------------------------
Chemicals--1.6%
- ----------------------------------------------------------
OM Group 48,210 1,850
W.R. Grace* 134,080 2,154
--------
Total Chemicals 4,004
--------
Value
Shares (000)
- ----------------------------------------------------------
Commericial services--2.5%
- ----------------------------------------------------------
Abacus Direct* 11,090 $ 1,352
ACNielsen* 50,340 1,142
Profit Recovery Group International* 43,290 1,932
Quanta Services* 65,930 1,933
--------
Total Commericial services 6,359
--------
- ----------------------------------------------------------
Communications equipment--4.0%
- ----------------------------------------------------------
Antec* 79,230 4,209
Polycom* 66,180 3,154
Powerwave Technologies* 59,730 2,880
--------
Total Communications equipment 10,243
--------
- ----------------------------------------------------------
Computers & services--1.6%
- ----------------------------------------------------------
Digex* 48,440 1,147
Digital Insight* 18,610 279
Jack Henry & Associates 40,490 1,496
Packeteer* 31,380 1,069
--------
Total Computers & services 3,991
--------
- ----------------------------------------------------------
Containers & packaging--0.9%
- ----------------------------------------------------------
Ball 26,420 1,164
Gaylord Container* 156,830 1,117
--------
Total Containers & packaging 2,281
--------
- ----------------------------------------------------------
Drugs--5.7%
- ----------------------------------------------------------
Alkermes* 31,000 893
Alpharma, Cl A 72,530 2,561
Biovail International* 32,780 1,664
Gilead Sciences* 15,770 1,012
IDEC Pharmaceuticals* 19,040 1,790
Jones Pharmaceuticals 94,155 3,104
King Pharmaceuticals* 50,840 1,779
QLT PhotoTherapeutics* 21,440 1,639
--------
Total Drugs 14,442
--------
- ----------------------------------------------------------
Electrical services--0.7%
- ----------------------------------------------------------
Calpine* 21,210 1,804
--------
Total Electrical services 1,804
--------
TURNER FUNDS 1999 ANNUAL REPORT | 33
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Electronics--3.4%
- ----------------------------------------------------------
DII Group* 70,040 $ 2,465
DSP Group* 53,190 2,121
Optical Coating Laboratories 21,890 2,015
Sawtek* 57,000 1,995
--------
Total Electronics 8,596
--------
- ----------------------------------------------------------
Entertainment--0.3%
- ----------------------------------------------------------
Argosy Gaming* 56,300 746
--------
Total Entertainment 746
--------
- ----------------------------------------------------------
Financial services--3.8%
- ----------------------------------------------------------
Hambrecht & Quist* 65,810 3,221
Legg Mason 32,970 1,263
Metris 60,780 1,789
NCO Group* 44,220 2,078
Private Business* 74,040 352
Raymond James Financial 51,510 1,027
--------
Total Financial services 9,730
--------
- ----------------------------------------------------------
Food, beverage & tobacco--1.3%
- ----------------------------------------------------------
Aurora Foods * 63,980 1,024
Beringer Wine Estates Holdings* 29,320 1,204
Smithfield Foods* 36,550 978
--------
Total Food, beverage & tobacco 3,206
--------
- ----------------------------------------------------------
Healthcare--0.7%
- ----------------------------------------------------------
Chemdex* 61,510 1,895
--------
Total Healthcare 1,895
--------
- ----------------------------------------------------------
Household furniture & fixtures--0.5%
- ----------------------------------------------------------
Ethan Allen Interiors 42,790 1,361
--------
Total Household furniture & fixtures 1,361
--------
- ----------------------------------------------------------
Insurance--2.1%
- ----------------------------------------------------------
Annuity & Life Re Holdings 40,200 1,000
E.W. Blanch Holdings 15,000 977
Financial Security Assurance
Holdings 29,640 1,532
Radian Group 42,310 1,817
--------
Total Insurance 5,326
--------
Value
Shares (000)
- ----------------------------------------------------------
Internet services--3.7%
- ----------------------------------------------------------
Go2Net* 19,360 $ 1,254
ITXC* 40,390 1,285
Keynote Systems* 17,070 427
Looksmart* 46,270 1,102
Multex.com* 62,140 792
Network Solutions, Cl A* 20,930 1,923
Phone.com* 9,170 1,389
VerticalNet* 33,300 1,232
--------
Total Internet services 9,404
--------
- ----------------------------------------------------------
Machinery--3.3%
- ----------------------------------------------------------
Advanced Energy Industries* 65,740 2,030
Asyst Technologies* 60,150 1,985
Brooks Automation* 23,420 411
Lennox International* 65,260 1,012
PRI Automation* 47,740 1,725
SPX 12,560 1,140
--------
Total Machinery 8,303
--------
- ----------------------------------------------------------
Measuring devices--1.0%
- ----------------------------------------------------------
Mettler-Toledo International* 84,800 2,512
--------
Total Measuring devices 2,512
--------
- ----------------------------------------------------------
Medical products & services--7.4%
- ----------------------------------------------------------
Advanced Paradigm* 31,230 1,710
Conmed* 59,840 1,466
Dendrite International* 48,930 2,312
Eclipse Surgical Technologies* 94,200 1,554
Express Scripts, Cl A* 26,930 2,107
Hooper Holmes 90,090 2,309
MiniMed* 19,690 1,935
Patterson Dental* 53,900 2,671
Summit Technology* 72,320 1,324
Techne* 44,530 1,397
--------
Total Medical products & services 18,785
--------
- ----------------------------------------------------------
Miscellaneous manufacturing--1.5%
- ----------------------------------------------------------
Dexter 47,400 1,769
Kemet* 64,340 2,057
--------
Total Miscellaneous manufacturing 3,826
--------
34 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Statement of net assets
Turner Small Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Petroleum & fuel products--1.0%
- ----------------------------------------------------------
Global Industries* 99,890 $ 812
Ocean Energy* 174,752 1,780
--------
Total Petroleum & fuel products 2,592
--------
- ----------------------------------------------------------
Retail--13.0%
- ----------------------------------------------------------
American Eagle Outfitters* 54,100 2,620
AnnTaylor Stores* 63,130 2,580
Buca* 68,360 889
Children's Place* 87,520 2,330
Cost Plus* 31,900 1,547
Drugstore.com* 26,820 972
Foodmaker* 78,620 1,961
Insight Enterprises* 50,100 1,628
Linens N Things* 83,360 2,813
Pacific Sunwear of California* 78,210 2,192
Papa John's International* 49,180 2,029
Rex Stores* 43,820 1,358
Stamps.com* 30,980 1,077
Sunglass Hut International* 141,870 1,499
Tuesday Morning* 96,380 2,434
United Rentals* 74,180 1,613
Yankee Candle* 55,230 1,067
Zale* 64,290 2,463
--------
Total Retail 33,072
--------
- ----------------------------------------------------------
Semiconductors/instruments--8.9%
- ----------------------------------------------------------
Alpha Industries* 35,420 1,998
Applied Micro Circuits* 31,590 1,801
Cymer* 56,960 1,976
GlobeSpan* 19,320 1,220
Harmonic* 14,200 1,858
Lam Research* 37,300 2,275
Lattice Semiconductor* 76,400 2,268
MIPS Technologies* 67,060 2,133
SDL* 36,370 2,776
TranSwitch* 33,380 1,903
Varian Semiconductor Equipment
Associates* 64,480 1,358
Zoran* 43,740 1,186
--------
Total Semiconductors/instruments 22,752
--------
Value
Shares (000)
- ----------------------------------------------------------
Software & programming--10.4%
- ----------------------------------------------------------
Agile Software* 28,320 $ 1,812
Business Objects ADR* 49,520 2,922
Clarify* 29,000 1,459
E.piphany* 27,500 1,341
Kana Communications* 34,430 1,717
Mercury Interactive* 55,980 3,614
MicroStrategy* 33,390 1,872
Peregrine Systems* 69,110 2,816
Quest Software* 29,180 1,357
Symantec* 84,600 3,043
Verity* 35,920 2,472
Vignette* 21,540 1,949
--------
Total Software & programming 26,374
--------
- ----------------------------------------------------------
Specialty construction--0.5%
- ----------------------------------------------------------
U.S. Aggregates* 82,920 1,156
--------
Total Specialty construction 1,156
--------
- ----------------------------------------------------------
Telephones & telecommunications--5.8%
- ----------------------------------------------------------
AirGate PCS* 49,020 1,219
Caprock Communications* 15,290 356
CommScope * 52,630 1,710
Dycom Industries* 47,180 1,990
Focal Communications* 68,360 1,752
Intermedia Communications* 59,080 1,285
ITC Deltacom* 76,660 2,108
Pinnacle Holdings* 99,200 2,592
Price Communications* 64,627 1,620
--------
Total Telephones & telecommunications 14,632
--------
- ----------------------------------------------------------
Wholesale--0.9%
- ----------------------------------------------------------
Amerisource Health, Cl A* 37,300 884
WESCO International* 95,940 1,355
--------
Total Wholesale 2,239
--------
- ----------------------------------------------------------
Total common stocks
(Cost $211,888) 246,969
- ----------------------------------------------------------
TURNER FUNDS 1999 ANNUAL REPORT | 35
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--5.0%
- ----------------------------------------------------------
JP Morgan 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$12,767,114 (collateralized by GNMA,
par value $17,803,206, 7.50%,
matures 10/15/28: market
value $13,022,457) $12,767 $ 12,767
- ----------------------------------------------------------
Total repurchase agreement
(Cost $12,767) 12,767
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--102.2%
(Cost $224,655) 259,736
- ----------------------------------------------------------
Other assets and liabilities, net--(2.2%) (5,659)
- ----------------------------------------------------------
Value
(000)
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio Shares (unlimited authorization--
no par value) based on 7,429,338
outstanding shares of beneficial interest $167,680
Accumulated net realized gain on investments 51,316
Net unrealized appreciation on investments 35,081
- ----------------------------------------------------------
Total net assets--100.0% $254,077
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share $34.20
- ----------------------------------------------------------
*Non-income producing security.
ADR - American Depository Receipt
Cl - Class
The accompanying notes are an integral part of the
financial statements.
36 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--96.0%
- ----------------------------------------------------------
Agricultural biotechnology--1.3%
- ----------------------------------------------------------
Strategic Diagnostics* 18,500 $ 168
--------
Total Agricultural biotechnology 168
--------
- ----------------------------------------------------------
Athletic footwear--1.2%
- ----------------------------------------------------------
Saucony Inc* 9,900 156
--------
Total Athletic footwear 156
--------
- ----------------------------------------------------------
Automotive--1.2%
- ----------------------------------------------------------
Monaco Coach* 3,165 77
Oshkosh Truck 2,775 74
--------
Total Automotive 151
--------
- ----------------------------------------------------------
Banks--1.0%
- ----------------------------------------------------------
PFF Bancorp* 4,700 97
Trico Bancshares 2,000 37
--------
Total Banks 134
--------
- ----------------------------------------------------------
Building & construction supplies--1.8%
- ----------------------------------------------------------
Dayton Superior* 2,000 34
Mobile Mini* 6,600 144
NVR* 980 49
--------
Total Building & construction supplies 227
--------
- ----------------------------------------------------------
Communications equipment--1.9%
- ----------------------------------------------------------
California Amplifier* 12,500 181
Catapult Communications* 4,100 64
--------
Total Communications equipment 245
--------
- ----------------------------------------------------------
Computers & services--8.5%
- ----------------------------------------------------------
Cybex Computer Products* 1,350 45
Digital Insight* 1,400 21
Homeseekers.com* 14,000 175
In Focus Systems* 7,200 121
Mercury Computer Systems* 3,000 102
Mti Technology* 6,000 138
Netscout Systems* 2,200 47
Radisys* 1,700 67
Rare Medium Group* 15,000 158
Zomax* 9,000 233
--------
Total Computers & services 1,107
--------
Value
Shares (000)
- ----------------------------------------------------------
Consumer products--0.7%
- ----------------------------------------------------------
Steven Madden* 7,400 $ 96
--------
Total Consumer products 96
--------
- ----------------------------------------------------------
Containers & packaging--0.7%
- ----------------------------------------------------------
Gaylord Container* 12,000 85
--------
Total Containers & packaging 85
--------
- ----------------------------------------------------------
Electronics--1.9%
- ----------------------------------------------------------
Anaren Microwave* 2,450 69
Universal Electronics* 7,500 173
--------
Total Electronics 242
--------
- ----------------------------------------------------------
Entertainment--5.9%
- ----------------------------------------------------------
Alliance Gaming* 9,600 76
Argosy Gaming* 10,000 132
Boyd Gaming* 20,700 124
Isle of Capris Casinos* 9,500 95
THQ* 5,000 216
WMS Industries* 10,700 124
---------
Total Entertainment 767
---------
- ----------------------------------------------------------
Environmental services--0.9%
- ----------------------------------------------------------
Stericycle* 7,600 112
--------
Total Environmental services 112
--------
- ----------------------------------------------------------
Financial services--2.8%
- ----------------------------------------------------------
Ace Cash Express* 4,000 58
Creditrust* 5,150 116
Financial Federal* 3,900 74
Onyx Acceptance* 9,500 72
Rock Financial 2,700 49
--------
Total Financial services 369
--------
- ----------------------------------------------------------
Food, beverage & tobacco--0.4%
- ----------------------------------------------------------
Agribrands International* 1,100 55
--------
Total Food, beverage & tobacco 55
--------
- ----------------------------------------------------------
Gas/natural gas--0.6%
- ----------------------------------------------------------
Cascade Natural Gas 2,100 38
RGC Resources 1,700 34
--------
Total Gas/natural gas 72
--------
TURNER FUNDS 1999 ANNUAL REPORT | 37
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Household furniture & fixtures--0.3%
- ----------------------------------------------------------
Stanley Furniture* 2,060 $ 44
--------
Total Household furniture & fixtures 44
--------
- ----------------------------------------------------------
Household products--1.2%
- ----------------------------------------------------------
Salton* 5,300 160
--------
Total Household products 160
--------
- ----------------------------------------------------------
Insurance--1.3%
- ----------------------------------------------------------
Farm Family Holdings* 970 38
Guarantee Life 3,200 98
Penn Treaty American* 1,450 30
--------
Total Insurance 166
--------
- ----------------------------------------------------------
Leasing & renting--0.7%
- ----------------------------------------------------------
Dollar Thrifty Automotive* 4,700 97
--------
Total Leasing & renting 97
--------
- ----------------------------------------------------------
Machinery--1.8%
- ----------------------------------------------------------
Moog, Cl A* 2,100 61
Photon Dynamics* 8,000 168
--------
Total Machinery 229
--------
- ----------------------------------------------------------
Medical products & services--8.9%
- ----------------------------------------------------------
Advanced Paradigm* 1,700 93
Collagenex Pharmaceuticals* 4,200 74
Eclipse Surgical Technologies* 12,000 198
Endocare* 7,300 46
Exactech* 6,600 89
Hooper Holmes 2,000 51
Molecular Devices* 2,850 78
PolyMedica* 7,000 163
Staar Surgical* 8,000 95
Syncor International* 2,200 83
Zoll Medical* 6,000 182
--------
Total Medical products & services 1,152
--------
- ----------------------------------------------------------
Metal--0.8%
- ----------------------------------------------------------
Century Aluminum 9,100 98
--------
Total Metal 98
--------
- ----------------------------------------------------------
Miscellaneous business services--1.0%
- ----------------------------------------------------------
Peapod* 13,000 131
--------
Total Miscellaneous business services 131
--------
Value
Shares (000)
- ----------------------------------------------------------
Miscellaneous manufacturing--2.9%
- ----------------------------------------------------------
Aeroflex* 5,650 $ 69
Jakks Pacific* 3,050 114
LSI Industries 2,400 55
Shuffle Master* 7,200 59
Uniroyal Technology* 7,500 73
--------
Total Miscellaneous manufacturing 370
--------
- ----------------------------------------------------------
Petroleum & fuel products--4.1%
- ----------------------------------------------------------
Basin Exploration* 3,400 82
Comstock Resources* 14,100 58
Edge Petroleum* 16,000 102
Frontier Oil* 9,500 65
HS Resources* 7,000 115
Key Energy Group* 23,000 114
--------
Total Petroleum & fuel products 536
--------
- ----------------------------------------------------------
Pharmaceutical--1.8%
- ----------------------------------------------------------
Corixa* 6,500 87
United Therapeutics* 5,000 144
--------
Total Pharmaceutical 231
--------
- ----------------------------------------------------------
Photography--0.6%
- ----------------------------------------------------------
Pinnacle Systems* 1,800 76
--------
Total Photography 76
--------
- ----------------------------------------------------------
Professional services--0.5%
- ----------------------------------------------------------
ICT Group* 9,000 65
--------
Total Professional services 65
--------
- ----------------------------------------------------------
Retail--11.6%
- ----------------------------------------------------------
Chico's Fas* 5,000 136
Factory 2u Stores* 4,200 125
Garden Fresh Restaurant* 4,050 62
Genesco* 8,000 100
Hot Topic* 4,500 123
Intertan* 7,000 137
Rare Hospitality International* 3,500 76
Rex Stores* 7,050 219
Seaway Food Town 2,400 67
Shop At Home* 12,000 108
Taco Cabana, Cl A* 5,500 53
Ugly Duckling* 10,000 71
Ultimate Electronics* 8,400 131
Wilsons Leather Experts* 6,300 101
--------
Total Retail 1,509
--------
38 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Semiconductors/instruments--10.8%
- ----------------------------------------------------------
Advanced Digital Information* 5,000 $ 139
Cohu 5,400 114
Elantec Semiconductor* 5,500 97
ESS Technology* 5,300 70
Ibis Technology* 2,800 97
Keithley Instruments 6,300 89
Measurement Specialties* 4,400 81
Parlex* 6,400 98
Pericom Semiconductor* 6,500 97
Silicon Storage Technology* 7,600 107
Three-Five Systems* 3,600 80
Triquint Semiconductor* 2,250 129
Zoran* 7,300 198
--------
Total Semiconductors/instruments 1,396
--------
- ----------------------------------------------------------
Software & programming--6.5%
- ----------------------------------------------------------
Ardent Software* 2,100 57
Avt* 2,230 68
Bluestone Software* 6,000 139
Broadbase Software * 5,000 80
JDA Software Group* 5,500 64
Mission Critical Software* 2,000 89
Pervasive Software* 2,900 100
Sapiens International* 6,100 68
Unify* 4,100 92
Verity* 1,300 89
--------
Total Software & programming 846
--------
- ----------------------------------------------------------
Steel & steel works--1.5%
- ----------------------------------------------------------
Maverick Tube* 5,700 95
NS Group* 9,000 97
--------
Total Steel & steel works 192
--------
- ----------------------------------------------------------
Telephones & telecommunications--5.2%
- ----------------------------------------------------------
Audiovox, Cl A* 13,000 228
Lightbridge* 6,100 120
Metro One Telecommunications* 6,700 129
Orckit Communications* 2,400 85
Periophonics* 3,700 116
--------
Total Telephones & telecommunications 678
--------
Shares/face Value
amount (000) (000)
- ----------------------------------------------------------
Transportation services--1.4%
- ----------------------------------------------------------
Arkansas Best* 7,300 $ 90
Forward Air* 4,000 95
--------
Total Transportation services 185
--------
- ----------------------------------------------------------
Water utilities--1.1%
- ----------------------------------------------------------
Artesian Resources, Cl A 2,800 70
E'town 1,350 67
--------
Total Water utilities 137
--------
- ----------------------------------------------------------
Wholesale--1.2%
- ----------------------------------------------------------
Advanced Marketing Systems 3,755 74
D&K Healthcare Resources* 3,700 86
--------
Total Wholesale 160
--------
- ----------------------------------------------------------
Total common stocks
(Cost $9,849) 12,444
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--3.2%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$413,708, (collateralized by U.S.
Treasury Notes, par value $398,882,
7.25%, matures 08/15/04: market
value $423,306) $414 414
- ----------------------------------------------------------
Total repurchase agreement
(Cost $414) 414
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--99.2%
(Cost $10,263) 12,858
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--0.8% 105
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $12,963
- ----------------------------------------------------------
*Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 39
<PAGE>
Schedule of investments
Turner Top 20 Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--97.5%
- ----------------------------------------------------------
Communications equipment--12.8%
- ----------------------------------------------------------
Ciena* 16,000 $ 584
Nokia 7,400 665
Scientific-Atlanta 16,320 809
--------
Total Communications equipment 2,058
--------
- ----------------------------------------------------------
Computers & services--4.0%
- ----------------------------------------------------------
Cisco Systems* 9,500 651
--------
Total Computers & services 651
--------
- ----------------------------------------------------------
Electronics--8.2%
- ----------------------------------------------------------
Atmel* 16,000 541
Micron Technology 11,800 785
--------
Total Electronics 1,326
--------
- ----------------------------------------------------------
Financial services--4.4%
- ----------------------------------------------------------
Automatic Data Processing 16,000 714
--------
Total Financial services 714
--------
- ----------------------------------------------------------
Food, beverage & tobacco--4.1%
- ----------------------------------------------------------
Anheuser Busch 9,500 666
--------
Total Food, beverage & tobacco 666
--------
- ----------------------------------------------------------
Gas/natural gas--4.1%
- ----------------------------------------------------------
Enron 16,000 660
--------
Total Gas/natural gas 660
--------
- ----------------------------------------------------------
Internet services--27.4%
- ----------------------------------------------------------
America Online* 8,200 853
Internap Network services* 18,630 831
Netzero* 41,000 1,066
Priceline.com* 11,000 709
Yahoo* 5,280 948
--------
Total Internet services 4,407
--------
- ----------------------------------------------------------
Medical products & services--9.6%
- ----------------------------------------------------------
Bausch & Lomb 11,200 738
Johnson & Johnson 8,725 802
--------
Total Medical products & services 1,540
--------
Shares/face Value
amount (000) (000)
- ----------------------------------------------------------
Oil field services--4.1%
- ----------------------------------------------------------
Baker Hughes 23,000 $ 667
--------
Total Oil field services 667
--------
- ----------------------------------------------------------
Retail--4.9%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 23,000 783
--------
Total Retail 783
--------
- ----------------------------------------------------------
Semiconductors/instruments--9.5%
- ----------------------------------------------------------
Jds Uniphase* 7,350 837
Lam Research* 11,275 688
--------
Total Semiconductors/instruments 1,525
--------
- ----------------------------------------------------------
Software & programming--4.4%
- ----------------------------------------------------------
Microsoft* 7,830 709
--------
Total Software & programming 709
--------
- ----------------------------------------------------------
Total common stock (Cost $14,900) 15,706
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--1.0%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$164,964 (collateralized by U.S.
Treasury Notes, par value $159,027,
7.25%, matures 08/15/04: market
value $168,791) $165 165
- ----------------------------------------------------------
- ----------------------------------------------------------
Total repurchase agreement
(Cost $165) 165
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--98.5%
(Cost $15,065) 15,871
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--1.5% 241
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $16,112
- ----------------------------------------------------------
* Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
40 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Technology Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--89.8%
- ----------------------------------------------------------
Communications equipment--8.5%
- ----------------------------------------------------------
Ciena* 6,760 $ 247
Juniper Networks* 1,000 182
Lucent Technologies 1,920 125
Scientific-Atlanta 3,100 154
--------
Total Communications equipment 708
--------
- ----------------------------------------------------------
Computers & services--4.8%
- ----------------------------------------------------------
Cisco Systems* 2,860 196
EMC* 2,850 204
--------
Total Computers & services 400
--------
- ----------------------------------------------------------
Drugs--1.2%
- ----------------------------------------------------------
Biogen* 1,300 102
--------
Total Drugs 102
--------
- ----------------------------------------------------------
Electronics--10.9%
- ----------------------------------------------------------
Atmel* 5,325 180
Gemstar International* 2,860 223
LSI Logic* 2,500 129
Micron Technology 3,350 223
Sawtek* 4,170 146
--------
Total Electronics 901
--------
- ----------------------------------------------------------
Internet services--32.7%
- ----------------------------------------------------------
Amazon.com* 4,790 383
America Online* 2,245 233
CMGI* 1,500 154
Infospace.com* 3,800 156
Internap Network services* 9,410 420
Network Solutions, Cl A* 3,070 282
Netzero* 12,630 328
Priceline.com* 4,670 301
RealNetworks* 1,070 112
Ticketmaster Online-CitySearch* 5,805 140
Yahoo* 1,140 205
--------
Total Internet services 2,714
--------
- ----------------------------------------------------------
Machinery--1.9%
- ----------------------------------------------------------
Applied Materials* 2,040 158
--------
Total Machinery 158
--------
Value
Shares (000)
- ----------------------------------------------------------
Medical products & services--1.3%
- ----------------------------------------------------------
Amgen* 1,265 $ 103
--------
Total Medical products & services 103
--------
- ----------------------------------------------------------
Semiconductors/instruments--12.5%
- ----------------------------------------------------------
Broadcom, Cl A* 1,650 180
GlobeSpan* 3,560 225
Jds Uniphase* 2,000 228
KLA-Tencor* 2,280 148
RF Micro Devices* 3,080 141
Texas Instruments 1,400 115
--------
Total Semiconductors/instruments 1,037
--------
- ----------------------------------------------------------
Software & programming--13.3%
- ----------------------------------------------------------
Computer Associates 2,230 137
Electronics for Imaging* 2,230 115
Intuit* 2,670 234
Microsoft* 3,465 314
Oracle* 3,000 136
Verisign* 1,550 165
--------
Total Software & programming 1,101
--------
- ----------------------------------------------------------
Telephones & telecommunications--2.7%
- ----------------------------------------------------------
McLeodusa, Cl A* 2,970 126
Nextel Communications, Cl A* 1,470 100
--------
Total Telephones & telecommunications 226
--------
- ----------------------------------------------------------
Total common stocks
(Cost $7,138) 7,450
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--89.8%
(Cost $7,138) 7,450
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--10.2% 846
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $8,296
- ----------------------------------------------------------
* Non-income producing producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 41
<PAGE>
Schedule of investments
Turner Short Duration Government Funds-
Three Year Portfolio
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--11.5%
- ----------------------------------------------------------
Fleet Credit Card Master Trust,
Ser 1998-A, Cl A (A)
5.630%, 07/15/2003 $1,400 $1,398
Hyundai Auto Receivables Trust,
Ser 1998-A, Cl A2
6.050%, 07/15/2004 890 889
Olympic Automobile Receivables
Trust, Ser 1996-A, Cl A5
6.000%, 02/15/2002 250 250
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 1,900 1,915
- ----------------------------------------------------------
Total asset-backed securities
(Cost $4,455) 4,452
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--9.0%
- ----------------------------------------------------------
Citicorp Mortgage Securities,
Ser 1994-10, Cl A4
6.250%, 06/25/2024 15 15
Countrywide Home Loans,
Ser 1997-2, Cl A11
7.500%, 04/25/2027 2 2
Goldman Sachs Mortgage Securities,
Ser 1998-C1, Cl A1
6.060%, 10/18/2030 979 946
Residential Funding Mortgage
Securization, Ser 1993-S23, Cl A7
6.500%, 06/25/2008 310 309
Securitized Asset Sales,
Ser 1993-7, Cl TA2
6.250%, 12/25/2023 650 648
Structured Asset Securities,
Ser 1997-2, Cl 1A (A)
7.124%, 10/30/2007 1,559 1,566
- ----------------------------------------------------------
Total collateralized mortgage
obligations (Cost $3,487) 3,486
- ----------------------------------------------------------
- ----------------------------------------------------------
Corporate obligations--4.9%
- ----------------------------------------------------------
Ford Motor Credit
5.750%, 02/23/2004 1,450 1,391
Phillips Petroleum
9.000%, 06/01/2001 500 519
- ----------------------------------------------------------
Face amount Value
(000) (000)
- ----------------------------------------------------------
Total corporate obligations
(Cost $1,906) $1,910
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government agency obligations--0.9%
- ----------------------------------------------------------
FNMA MTN
6.710%, 03/13/2002 $360 361
- ----------------------------------------------------------
Total U.S. government agency obligations
(Cost $362) 361
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government mortgage-
backed bonds--39.7%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1093, Cl F
7.500%, 06/15/2006 408 414
FHLMC CMO/REMIC,
Ser 1361, Cl D
6.000%, 11/15/2005 285 285
FHLMC CMO/REMIC,
Ser 1411, Cl G
6.500%, 07/15/2018 330 331
FHLMC CMO/REMIC,
Ser 1430, Cl G
7.000%, 10/15/2018 491 491
FHLMC CMO/REMIC,
Ser 1457, Cl PH
7.000%, 06/15/2006 834 839
FHLMC CMO/REMIC,
Ser 1465, Cl E
6.500%, 09/15/2006 546 547
FHLMC CMO/REMIC,
Ser 1497, Cl D
6.400%, 02/15/2019 330 330
FHLMC CMO/REMIC,
Ser 1501, Cl F
6.100%, 11/15/2016 275 274
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 2,041 2,114
FHLMC CMO/REMIC,
Ser 1862, Cl FD (A)
6.188%, 12/15/2022 388 389
FHLMC CMO/REMIC,
Ser 1900, Cl FA (A)
5.988%, 03/15/2009 634 636
42 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Short Duration Government Funds-
Three Year Portfolio
Face amount Value
(000) (000)
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 2043, Cl CD
6.000%, 09/15/2016 $ 570 $ 565
FHLMC TBA (B)
7.500%, 11/01/2029 1,815 1,823
FHLMC, Pool #G10288
6.000%, 09/01/2009 398 390
FHLMC, Pool #G10446
6.500%, 02/01/2011 824 816
FNMA CMO/REMIC,
Ser 1993-88, Cl F (A)
5.906%, 06/25/2000 850 852
FNMA, Pool #252209
6.000%, 01/01/2019 1,236 1,171
FNMA, Pool #6222
9.000%, 04/01/2016 286 301
FNMA, Pool #8245
8.000%, 12/01/2008 582 596
GNMA ARM (A), Pool #8108
6.375%, 03/20/2016 891 904
GNMA ARM (A), Pool #8254
6.625%, 08/20/2017 85 86
GNMA ARM (A), Pool #8266
6.625%, 09/20/2017 206 210
GNMA ARM (A), Pool #8426
6.125%, 11/20/2018 192 195
GNMA, Pool #351122
6.500%, 07/15/2008 596 592
GNMA, Pool #357343
6.500%, 10/15/2008 245 244
- ----------------------------------------------------------
Total U.S. government
mortgage-backed bonds
(Cost $15,407) 15,395
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--29.9%
- ----------------------------------------------------------
U.S. Treasury Notes
5.750%, 10/31/2000 4,495 4,506
5.000%, 02/28/2001 2,642 2,621
8.000%, 05/15/2001 300 311
6.375%, 08/15/2002 1,600 1,626
7.000%, 07/15/2006 2,309 2,424
6.000%, 08/15/2004 94 95
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $11,598) 11,583
- ----------------------------------------------------------
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--7.1%
- ----------------------------------------------------------
J.P. Morgan, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$2,758,665 (collateralized by
GNMA, par value $3,846,642,
7.50%, matures 10/15/28: market
value $2,813,838) $2,759 $ 2,759
- ----------------------------------------------------------
Total repurchase agreement
(Cost $2,759) 2,759
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--103.0%
(Cost $39,974) 39,946
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--(3.0%) (1,172)
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $38,774
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share-
institutional class shares $9.84
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and redemption
price per share-adviser class shares $9.80
- ----------------------------------------------------------
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of Net Assets
is the rate in effect on September 30, 1999.
(B) When issued security
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
MTN - Medium Term Notes
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
TBA - To be announced
The accompanying notes are an integral part of the financial
statements.
TURNER FUNDS 1999 ANNUAL REPORT | 43
<PAGE>
Statement of net assets
Turner Short Duration Government Funds-
One Year Portfolio
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--1.9%
- ----------------------------------------------------------
Fleet Credit Card Master Trust,
Ser 1998-A, Cl A (A)
5.630%, 07/15/2003 $ 40 $ 40
Hyundai Auto Receivables Trust,
Ser 1998-A, Cl A2
6.050%, 07/15/2004 50 50
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 30 30
- ----------------------------------------------------------
Total asset-backed securities
(Cost $120) 120
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--5.1%
- ----------------------------------------------------------
Morgan Stanley Capital I,
Ser 1997-C1, Cl A1A
6.850%, 02/15/2020 322 323
- ----------------------------------------------------------
Total collateralized mortgage
obligations (Cost $322) 323
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government agency obligations--20.4%
- ----------------------------------------------------------
FHLMC Discount Note
5.330%, 10/13/1999 800 798
FNMA Discount Note
5.293%, 10/06/1999 500 500
- ----------------------------------------------------------
Total U.S. government agency
obligations (Cost $1,299) 1,298
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government
mortgage-backed bonds--63.5%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1301, Cl E
7.000%, 03/15/2005 64 64
FHLMC CMO/REMIC,
Ser 1361, Cl D
6.000%, 11/15/2005 219 218
FHLMC CMO/REMIC,
Ser 1430, Cl G
7.000%, 10/15/2018 186 186
FHLMC CMO/REMIC,
Ser 1457, Cl PH
7.000%, 06/15/2006 133 134
Face amount Value
(000) (000)
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1465, Cl E
6.500%, 09/15/2006 $ 442 $ 443
FHLMC CMO/REMIC,
Ser 1501, Cl F
6.100%, 11/15/2016 9 9
FHLMC CMO/REMIC,
Ser 1506, Cl EA
5.700%, 07/15/2005 200 199
FHLMC CMO/REMIC,
Ser 1549, Cl D
5.850%, 11/15/2005 603 602
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 90 93
FHLMC CMO/REMIC,
Ser 1862, Cl FD (A)
6.188%, 12/15/2022 71 71
FHLMC CMO/REMIC,
Ser 1900, Cl FA (A)
5.988%, 03/15/2009 70 70
FNMA CMO/REMIC,
Ser 1992-70, Cl H
7.000%, 04/25/2006 95 95
FNMA CMO/REMIC,
Ser 1993-76, Cl F (A)
5.906%, 06/25/2008 280 281
FNMA CMO/REMIC,
Ser 1993-88, Cl F (A)
5.906%, 06/25/2000 607 608
FNMA CMO/REMIC,
Ser 1996-35, Cl C
7.000%, 05/25/2020 95 95
GNMA ARM (A), Pool #8108
6.375%, 03/20/2016 217 221
GNMA ARM (A), Pool #8111
6.375%, 03/20/2016 47 48
GNMA ARM (A), Pool #8287
6.125%, 11/20/2017 158 158
GNMA ARM (A), Pool #8297
6.125%, 12/20/2017 67 68
GNMA ARM (A), Pool #8333
6.375%, 03/20/2018 101 102
44 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of investments
Turner Short Duration Government Funds-
One Year Portfolio
Face amount Value
(000) (000)
- ----------------------------------------------------------
GNMA ARM (A), Pool #8392
6.625%,08/20/2018 $ 96 $ 98
GNMA ARM (A), Pool #8405
6.625%, 09/20/2018 77 78
GNMA ARM (A), Pool #8462
6.375%, 02/20/2019 37 38
GNMA ARM (A), Pool #8489
6.375%, 04/20/2019 62 62
- ----------------------------------------------------------
Total U.S. government
mortgage-backed bonds (Cost $4,042) 4,041
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--12.7%
- ----------------------------------------------------------
U.S. Treasury Notes
5.625%, 11/30/1999 180 180
5.750%, 10/31/2000 600 602
5.000%, 02/28/2001 26 26
- ----------------------------------------------------------
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $806) 808
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--103.6%
(Cost $6,589) 6,590
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--(3.6%) (228)
- ----------------------------------------------------------
Value
(000)
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio shares of institutional class
shares (unlimited authorization--
no par value) based on 319,084
outstanding shares of beneficial interest $3,202
Portfolio shares of adviser class shares
(unlimited authorization--no par
value) based on 312,453 outstanding
shares of beneficial interest 3,156
Accumulated net realized gain on investments 3
Net unrealized appreciation on investments 1
- ----------------------------------------------------------
Total net assets--100.0% $6,362
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share-
institutional class shares $10.05
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and redemption
price per share-adviser class shares $10.10
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of Net Assets
is the rate in effect on September 30, 1999.
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 45
<PAGE>
Statement of net assets
Turner Core High Quality Fixed Income Fund
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--13.6%
- ----------------------------------------------------------
Olympic Automobile Receivables
Trust, Ser 1995-D, Cl A5
6.150%, 07/15/2001 $ 349 $ 349
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 1,000 1,008
- ----------------------------------------------------------
Total Asset-backed securities
(Cost $1,357) 1,357
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--0.7%
- ----------------------------------------------------------
Drexel Burnham Lambert CMO/REMIC
Trust, Ser S, Cl 2
9.000%, 08/01/2018 25 25
Goldman Sachs Mortgage Securities II,
Ser 1998-C1, Cl A1
6.060%, 10/18/2030 42 41
- ----------------------------------------------------------
Total Collateralized mortgage
obligations (Cost $67) 66
- ----------------------------------------------------------
- ----------------------------------------------------------
Corporate obligations--1.7%
- ----------------------------------------------------------
Ford Motor Credit
5.750%, 02/23/2004 60 58
Heinz H.J.
6.750%, 10/15/1999 100 100
Phillips Petroleum
9.000%, 06/01/2001 15 16
- ----------------------------------------------------------
Total Corporate obligations (Cost $173) 174
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government
mortgage-backed bonds--43.3%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1538, Cl J
6.500%, 06/15/2008 160 157
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 380 393
FHLMC, Pool #C16814
7.500%, 10/01/2028 466 469
FHLMC, Pool #C27092
6.000%, 06/01/2029 600 561
FNMA, Pool #251617
6.000%, 03/01/2013 830 801
Face amount Value
(000) (000)
- ----------------------------------------------------------
FNMA, Pool #398280
6.000%, 03/01/2013 $ 114 $ 109
FNMA, Pool #416657
6.000%, 04/01/2028 472 440
FNMA, Pool #421677
6.000%, 03/01/2028 93 86
FNMA, Pool #481600
6.000%, 02/01/2029 35 33
FNMA, Ser 1993-198, Cl K
6.000%, 12/25/2022 834 784
FNMA, Ser 1998-63, Cl PG
6.000%, 03/25/2027 100 92
GNMA ARM (A), Pool #8103
6.375%, 02/20/2016 57 57
GNMA TBA (B)
7.500%, 10/01/2029 50 50
GNMA, Pool #484384
7.500%, 09/15/2028 113 113
GNMA, Pool #491479
6.500%, 06/15/2029 199 191
- ----------------------------------------------------------
Total U.S. government mortgage-
backed bonds (Cost $4,437) 4,336
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--37.7%
- ----------------------------------------------------------
U.S. Treasury Bonds
7.875%, 02/15/2021 200 233
8.125%, 05/15/2021 1,070 1,277
7.000%, 07/15/2006 2,143 2,250
6.000%, 08/15/2004 17 17
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $3,918) 3,777
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--1.3%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$125,797, (collateralized by U.S.
Treasury Notes, par value $121,269,
7.250%, matures 08/15/04: market
value $128,715) 126 126
- ----------------------------------------------------------
Total repurchase agreement
(Cost $126) 126
- ----------------------------------------------------------
46 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of Net Assets
Turner Core High Quality Fixed Income Fund
Value
(000)
- ----------------------------------------------------------
Total investments--98.3%
(Cost $10,078) $ 9,836
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--1.7% 173
- ----------------------------------------------------------
- -----------------------------------------------------------
Net assets:
- -----------------------------------------------------------
Portfolio Shares (unlimited authorization--
no par value) based on 1,009,986
outstanding shares of beneficial interest 10,357
Accumulated net realized loss on investments (106)
Net unrealized depreciation on investments (242)
- ----------------------------------------------------------
Total net assets--100.0% $10,009
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share $9.91
- ----------------------------------------------------------
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of
Net Assets
is the rate in effect on September 30, 1999.
(B) When issued security
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
TBA - To be announced
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 47
<PAGE>
Statement of assets and liabilities (000)
<TABLE>
<CAPTION>
Turner Growth Turner Midcap
Equity Fund Growth Fund
- ----------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
- ----------------------------------------------------------------------------------------------------
Investment securities at cost $ 130,938 $ 137,433
- ----------------------------------------------------------------------------------------------------
Investment securities at value 143,761 148,692
Cash 1 --
Dividend and interest receivable 46 22
Receivable for investment securities sold 9,934 8,896
Capital shares sold 161 467
Other receivable -- --
Other assets 18 19
- ----------------------------------------------------------------------------------------------------
Total assets 153,921 158,096
- ----------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 1,757 5,303
Capital shares redeemed 9,162 3,957
Accrued expenses 178 6
- ----------------------------------------------------------------------------------------------------
Total liabilities 11,097 9,266
- ----------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 92,958 118,551
Portfolio capital of adviser class shares -- --
Accumulated net investment loss -- (6)
Accumulated net realized gain (loss) on investments 37,043 19,026
Net unrealized appreciation (depreciation) on investments 12,823 11,259
- ----------------------------------------------------------------------------------------------------
Total net assets $ 142,824 $ 148,830
- ----------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 8,991,335 5,830,229
Adviser class shares -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 15.88 $ 25.53
- ----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ --
- ----------------------------------------------------------------------------------------------------
48 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<CAPTION>
Turner Micro Cap Turner
Growth Fund Top 20 Fund
- -------------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
- -------------------------------------------------------------------------------------------------------
Investment securities at cost $ 10,263 $ 15,065
- -------------------------------------------------------------------------------------------------------
Investment securities at value 12,858 15,871
Cash -- --
Dividend and interest receivable -- --
Receivable for investment securities sold 738 3,227
Capital shares sold 41 627
Other receivable -- --
Other assets 17 1
- -------------------------------------------------------------------------------------------------------
Total assets 13,654 19,726
- -------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 641 3,580
Capital shares redeemed -- 13
Accrued expenses 50 21
- -------------------------------------------------------------------------------------------------------
Total liabilities 691 3,614
- -------------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 8,153 12,765
Portfolio capital of adviser class shares -- --
Accumulated net investment loss -- --
Accumulated net realized gain (loss) on investments 2,215 2,541
Net unrealized appreciation (depreciation) on investments 2,595 806
- -------------------------------------------------------------------------------------------------------
Total net assets $ 12,963 $ 16,112
- -------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 614,741 1,152,022
Adviser class shares -- --
- -------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 21.09 $ 13.99
- -------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ --
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Turner Government Funds-
Technology Fund Three Year Portfolio
- -----------------------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- -----------------------------------------------------------------------------------------------------------------
Assets:
- -----------------------------------------------------------------------------------------------------------------
Investment securities at cost $ 7,138 $ 39,974
- -----------------------------------------------------------------------------------------------------------------
Investment securities at value 7,450 39,946
Cash 141 --
Dividend and interest receivable 1 322
Receivable for investment securities sold 1,550 1,679
Capital shares sold 516 200
Other receivable -- 66
Other assets -- 4
- -----------------------------------------------------------------------------------------------------------------
Total assets 9,658 42,217
- -----------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 1,338 3,176
Capital shares redeemed 14 85
Accrued expenses 10 182
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,362 3,443
- -----------------------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 6,716 38,966
Portfolio capital of adviser class shares -- 87
Accumulated net investment loss -- (34)
Accumulated net realized gain (loss) on investments 1,268 (217)
Net unrealized appreciation (depreciation) on investments 312 (28)
- -----------------------------------------------------------------------------------------------------------------
Total net assets $ 8,296 $ 38,774
- -----------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 589,991 3,933,129
Adviser class shares -- 8,909
- -----------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 14.06 $ 9.84
- -----------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ 9.80
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 49
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of operations (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth Turner Midcap Turner Small Cap
Growth Equity Fund Equity Fund Growth Fund Growth Fund
- -----------------------------------------------------------------------------------------------------------------------
year ended year ended year ended year ended
9/30/99 9/30/99 9/30/99 9/30/99
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend $ 36 $ 605 $ 210 $291
Interest 4 101 137 259
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 40 706 347 550
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 57 987 524 2,008
Investment advisory fee waiver (57) -- (2) (67)
Administrator fees 65 117 70 176
Administrator fee waiver -- -- -- --
Custodian fees 5 15 14 20
Transfer agent fees 21 96 46 271
Professional fees 15 58 40 70
Trustee fees 2 3 5 5
Registration fees 13 (10) 33 (1)
Pricing fees -- 1 1 2
Printing fees 1 47 13 58
Shareholder service fees -- -- -- --
Amortization of
deferred organizational
costs 4 5 5 4
Insurance and other fees -- 28 2 14
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 126 1,347 751 2,560
Less: Reimbursements from adviser (50) -- -- --
Directed brokerage -- (132) (28) (50)
- -----------------------------------------------------------------------------------------------------------------------
Net expenses 76 1,215 723 2,510
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (36) (509) (376) (1,960)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
from securities sold 1,821 37,857 20,948 61,638
Net unrealized appreciation
(depreciation) of
investment securities 307 658 10,401 30,895
- -----------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments 2,128 38,515 31,349 92,533
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resultin
from operations $2,092 $38,006 $30,973 $90,573
- -----------------------------------------------------------------------------------------------------------------------
50 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<CAPTION>
Turner Micro Cap Turner Turner Technology
Growth Fund Top 20 Fund Fund
- --------------------------------------------------------------------------------------------------
year ended 7/1/99 thru 7/1/99 thru
9/30/99 9/30/99(+) 9/30/99(+)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend $ 16 $ 2 $ 1
Interest 13 9 4
- --------------------------------------------------------------------------------------------------
Total investment income 29 11 5
- --------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 66 26 12
Investment advisory fee waiver (66) (19) (12)
Administrator fees 68 16 16
Administrator fee waiver -- (10) (10)
Custodian fees 4 2 2
Transfer agent fees 20 7 7
Professional fees 8 3 2
Trustee fees 3 -- --
Registration fees 11 6 4
Pricing fees 1 -- --
Printing fees 5 1 --
Shareholder service fees -- -- --
Amortization of deferred
organizational costs 3 -- --
Insurance and other fees -- -- 1
- --------------------------------------------------------------------------------------------------
Total expenses 123 32 22
Less: Reimbursements from adviser (64) -- (7)
Directed brokerage -- -- --
- --------------------------------------------------------------------------------------------------
Net expenses 59 32 15
- --------------------------------------------------------------------------------------------------
Net investment income (loss) (30) (21) (10)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) from
securities sold 2,292 2,562 1,278
Net unrealized appreciation
(depreciation) of
investment securities 2,652 806 312
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4,944 3,368 1,590
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $4,914 $3,347 $1,580
- --------------------------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds-
------------------------- Turner Core
Three Year One Year High Quality
Portfolio Portfolio Fixed Income Fund
- --------------------------------------------------------------------------------------------
year ended year ended 7/1/99 thru
9/30/99 9/30/99 9/30/99(+)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend $ -- $ -- $ --
Interest 1,304 101 151
- --------------------------------------------------------------------------------------------
Total investment income 1,304 101 151
- --------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 51 5 12
Investment advisory fee waiver (51) (5) (12)
Administrator fees 46 17 16
Administrator fee waiver -- -- (10)
Custodian fees 6 9 2
Transfer agent fees 35 31 7
Professional fees 54 21 3
Trustee fees 2 2 --
Registration fees 38 19 7
Pricing fees 4 1 --
Printing fees 27 16 1
Shareholder service fees -- 1 --
Amortization of deferred
organizational costs -- -- --
Insurance and other fees 2 -- 1
- --------------------------------------------------------------------------------------------
Total expenses 214 117 27
Less: Reimbursements from adviser (165) (116) (16)
Directed brokerage -- -- --
- --------------------------------------------------------------------------------------------
Net expenses 49 1 11
- --------------------------------------------------------------------------------------------
Net investment income (loss) 1,255 100 140
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from
securities sold (177) -- (106)
Net unrealized appreciation
(depreciation) of
investment securities (264) (1) 18
- --------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (441) (1) (88)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 814 $ 99 $ 52
- --------------------------------------------------------------------------------------------
</TABLE>
(+) Commenced operations on July 1, 1999.
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 51
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth
Growth Equity Fund Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
year year year year
ended ended ended ended
9/30/99 9/30/98 9/30/99 9/30/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (36) $ (2) $ (509) $ (378)
Net realized gain (loss) from
securities sold 1,821 (170) 37,857 17,188
Net unrealized appreciation
(depreciation) of investments 307 169 658 (7,481)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 2,092 (3) 38,006 9,329
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- (1) -- --
Realized capital gains -- (72)
(12,236) (26,503)
Return of capital -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (73) (12,236) (26,503)
- ----------------------------------------------------------------------------------------------------------------------------
Capital share transactions:(1)
Proceeds from shares issued 4,366 3,876 34,770 22,658
Proceeds from shares issued in
lieu of cash distributions -- 73 11,874 25,911
Increase from In-Kind Transfer -- -- 4,270 --
Cost of shares redeemed (2,327) (246) (31,717) (33,128)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 2,039 3,703 19,197 15,441
- ----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,131 3,627 44,967 (1,733)
- ----------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 4,328 701 97,857 99,590
- ----------------------------------------------------------------------------------------------------------------------------
End of year (4) $8,459 $4,328 $142,824 $97,857
- ----------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 255 282 2,274 1,638
Issued in lieu of cash distributions -- 6 890 2,320
Issued in connection with In-Kind Transfer -- -- 273 --
Redeemed (134) (18) (2,051) (2,339)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 121 270 1,386 1,619
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Commenced operations on March 1, 1998.
(3) Commenced operations on July 1, 1999.
(4) Includes undistributed net investment income (loss) and/or distributions in
excess of net investment income (000) of $(6) and $(3) for the Midcap Growth
Fund, and $(0) and $(1) for the Small Cap Growth Fund as of September 30,
1999, and September 30, 1998, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
52 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Turner Midcap Turner Small Cap
Growth Fund GrowthFund
- -------------------------------------------------------------------------------------------------------------------------------
year year year year
ended ended ended ended
9/30/99 9/30/98 9/30/99 9/30/98
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (376) $ (124) $(1,960) $ (1,609)
Net realized gain (loss) from
securities sold 20,948 (1,546) 61,638 (6,168)
Net unrealized appreciation
(depreciation) of investments 10,401 524 30,895 (22,875)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 30,973 (1,146) 90,573 (30,652)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- -- -- --
Realized capital gains -- (358) -- (1,521)
Return of capital -- -- -- (1,148)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (358) -- (2,669)
Capital share transactions:(1)
Proceeds from shares issued 127,616 28,977 87,818 96,936
Proceeds from shares issued in
lieu of cash distributions -- 320 -- 2,289
Increase from In-Kind Transfer -- -- -- --
Cost of shares redeemed (34,341) (8,356) (71,848) (71,832)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 93,275 20,941 15,970 27,393
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 124,248 19,437 106,543 (5,928)
Net assets:
Beginning of year 24,582 5,145 147,534 153,462
- -------------------------------------------------------------------------------------------------------------------------------
End of year (4) $148,830 $24,582 $254,077 $147,534
- -------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 5,625 1,939 3,160 3,783
Issued in lieu of cash distributions -- 24 -- 99
Issued in connection with In-Kind Transfer -- -- -- --
Redeemed (1,567) (553) (2,596) (2,840)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 4,058 1,410 564 1,042
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Turner Turner
Growth Fund Top 20 Fund Technology Fund
- ---------------------------------------------------------------------------------------------------------------------------------
year 3/1/98 7/1/99 7/1/99
ended thru thru thru
9/30/99 9/30/98 (2) 9/30/99(3) 9/30/99 (3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (30) $ (11) $ (21) $ (10)
Net realized gain (loss) from
securities sold 2,292 (47) 2,562 1,278
Net unrealized appreciation
(depreciation) of investments 2,652 (57) 806 312
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 4,914 (115) 3,347 1,580
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- -- -- --
Realized capital gains -- -- -- --
Return of capital -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- --
Capital share transactions:(1)
Proceeds from shares issued 6,101 3,087 13,557 7,914
Proceeds from shares issued in
lieu of cash distributions -- -- -- --
Increase from In-Kind Transfer -- -- -- --
Cost of shares redeemed (895) (129) (792) (1,198)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 5,206 2,958 12,765 6,716
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 10,120 2,843 16,112 8,296
Net assets:
Beginning of year 2,843 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (4) $12,963 $2,843 $16,112 $8,296
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 380 300 1,223 696
Issued in lieu of cash distributions -- -- -- --
Issued in connection with In-Kind Transfer -- -- -- --
Redeemed (53) (12) (71) (106)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 327 288 1,152 590
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 ANNUAL REPORT | 53
<PAGE>
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Short Duration Government Funds-
Three Year Portfolio
- --------------------------------------------------------------------------------------------------------------
year ended 3/1/98 thru year ended
9/30/99 9/30/98 2/28/98
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment activities:
Net investment income $ 1,255 $ 469 $ 967
Net realized gain (loss) from securities sold (177) 74 54
Net unrealized appreciation (depreciation) of investments (264) 119 98
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 814 662 1,119
- --------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (1,258) (461) (966)
Adviser class (1) -- --
Realized capital gains
Institutional class (156) (10) --
Adviser class -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (1,415) (471) (966)
- --------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 10,962 666 3,854
Proceeds from shares issued in lieu of cash distributions 1,276 476 967
Increase from In-Kind transfers 18,947 -- --
Cost of shares redeemed (3,912) (4,862) (7,239)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 27,273 (3,720) (2,418)
- --------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued 192 -- --
Proceeds from shares issued in lieu of cash distributions 1 -- --
Cost of shares redeemed (106) -- --
- --------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 87 -- --
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions 27,360 (3,720) (2,418)
- --------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 26,759 (3,529) (2,265)
- --------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 12,015 15,544 17,809
- --------------------------------------------------------------------------------------------------------------
End of year (3) $38,774 $12,015 $15,544
- --------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 1,100 66 383
Issued in lieu of cash distributions 128 47 96
Issued in connection with In-Kind Transfers 1,926 -- --
Redeemed (393) (481) (722)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 2,761 (368) (243)
- --------------------------------------------------------------------------------------------------------------
Adviser class
Issued 20 -- --
Issued in lieu of cash distributions -- -- --
Redeemed (11) -- --
- --------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 9 -- --
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 2,770 (368) (243)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Commenced operations on July 1, 1999.
(3) Includes undistributed net investment income (000) of $(34), $10 and $2 for
the Three Year Fund, $0, $2 and $0 for the One Year Fund, as of September
30, 1999, September 30, 1998 and February 28, 1998, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0 The
accompanying notes are an integral part of the financial statements.
54 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Turner Short Duration Turner Core
Government Funds- High Quality
One Year Portfolio Fixed Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
year ended 3/1/98 thru year ended 7/1/99 thru
9/30/99 9/30/98 2/28/98 9/30/99 (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment income $ 100 $ 37 $ 66 $ 140
Net realized gain (loss) from securities sold -- 1 1 (106)
Net unrealized appreciation (depreciation) of investments (1) -- 1 18
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 99 38 68 52
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (77) (35) (66) (140)
Adviser class (25) -- -- --
Realized capital gains
Institutional class -- (1) -- --
Adviser class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (102) (36) (66) (140)
- ----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 3,414 5 827 18
Proceeds from shares issued in lieu of cash distributions 76 36 66 139
Increase from In-Kind transfers -- -- -- 10,120
Cost of shares redeemed (1,272) (247) (564) (180)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 2,218 (206) 329 10,097
- ----------------------------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued 3,642 -- -- --
Proceeds from shares issued in lieu of cash distributions 23 -- -- --
Cost of shares redeemed (509) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 3,156 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions 5,374 (206) 329 10,097
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,371 (204) 331 10,009
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 991 1,195 864 --
- ----------------------------------------------------------------------------------------------------------------------------------
End of year (3) $6,362 $ 991 $1,195 $10,009
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 340 -- 82 2
Issued in lieu of cash distributions 8 4 7 14
Issued in connection with In-Kind Transfers -- -- -- 1,012
Redeemed (127) (56) (18) (18)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 221 (21) 33 1,010
- ----------------------------------------------------------------------------------------------------------------------------------
Adviser class
Issued 360 -- -- --
Issued in lieu of cash distributions 2 -- -- --
Redeemed 50 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 312 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 533 (21) 33 1,010
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 ANNUAL REPORT | 55
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
Net Realized and
asset Net unrealized Distributions Distributions
value, investment gains from net from Return Net asset
beginning income (losses) on investment capital OF value end
of period (loss) investments income gains capital of period
- -------------------------------------------------------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $13.22 (0.08) 5.76 -- -- -- $18.90
1998 $12.28 (0.01) 1.98 (0.01) (1.02) -- $13.22
1997 (1) $10.00 0.01 2.27 -- -- -- $12.28
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 $12.87 (0.05) 4.66 -- (1.60) -- $15.88
1998 $16.64 (0.05) 1.10 -- (4.82) -- $12.87
1997 $17.03 (0.03) 4.23 -- (4.59) -- $16.64
1996 (2) $14.97 0.02 2.91 (0.02) (0.85) -- $17.03
1995 $12.46 0.10 2.52 (0.11) -- -- $14.97
1994 $13.12 0.10 (0.66) (0.10) -- -- $12.46
- -------------------------
Turner Midcap Growth Fund
- -------------------------
1999 $13.87 (0.06) 11.72 -- -- -- $25.53
1998 $14.22 (0.07) 0.22 -- (0.50) -- $13.87
1997 (3) $10.00 (0.03) 4.36 -- (0.11) -- $14.22
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 $21.49 (0.26) 12.97 -- -- -- $34.20
1998 $26.35 (0.23) (4.19) -- (0.25) (0.19) $21.49
1997 $23.13 (0.07) 3.80 -- (0.51) -- $26.35
1996 (2) $16.08 (0.08) 8.17 -- (1.04) -- $23.13
1995 $10.90 (0.06) 5.24 -- -- -- $16.08
1994 (4) $10.00 (0.02) 0.92 -- -- -- $10.90
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) $ 9.88 (0.05) 11.26 -- -- -- $21.09
1998 (6) $10.00 (0.04) (0.08) -- -- -- $ 9.88
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) $10.00 (0.02) 4.01 -- -- -- $13.99
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) $10.00 (0.02) 4.08 -- -- -- $14.06
</TABLE>
* Annualized
+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations on February 1, 1997.
(2) On April 19, 1996, the Board of Trustees of the Adviser Inner Circle Funds
voted to approve a tax-free reorganization of the Turner Funds. In
connection with the reorganization, the Funds changed their fiscal year end
from October 31 to September 30, effective September 30, 1996.
(3) Commenced operations on October 1, 1996.
(4) Commenced operations on February 7, 1994.
56 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of Ratio of
net expenses net expenses expenses
to average net to average Ratio of net to average
Net assets (including net assets investment net assets
assets end directed (including income (loss) (excluding
Total of period brokerage waivers and to average waivers and
return+ (000) arrangements) reimbursements) net assets reimbursements)
- ----------------------------------------------------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 42.97% $ 8,459 1.00% 1.00% (0.47)% 2.41%
1998 17.26% $ 4,328 1.00% 1.00% (0.10)% 7.70%
1997 (1) 22.80% $ 701 1.00%* 1.00%* 0.20%* 26.45%*
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 38.16% $142,824 0.92% 0.96% (0.42)% 0.96%
1998 10.71% $ 97,857 1.00% 1.04% (0.42)% 1.12%
1997 32.61% $ 99,590 0.96% 1.02% (0.25)% 1.05%
1996 (2) 20.61% $ 96,164 0.94%* 1.06%* 0.03%* 1.06%*
1995 21.15% $115,819 0.94% 1.03% 0.69% 1.03%
1994 (4.28)% $112,959 0.95% 0.95% 0.86% 1.08%
- -------------------------
Turner Midcap Equity Fund
- -------------------------
1999 84.07% $148,830 1.03% 1.08% (0.58)% 1.08%
1998 1.24% $ 24,582 1.23% 1.34% (0.79)% 1.73%
1997 (3) 43.77% $ 5,145 1.25%* 1.25%* (0.62)%* 7.96%*
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 59.14% $254,077 1.25% 1.27% (1.00)% 1.31%
1998 (16.90)% $147,534 1.25% 1.28% (0.99)% 1.41%
1997 16.64% $153,462 1.24% 1.24% (0.84)% 1.33%
1996 (2) 52.90% $ 67,425 1.25%* 1.25%* (0.88)%* 1.54%*
1995 47.52% $ 13,072 1.25% 1.25% (0.68)% 2.39%
1994 (4) 12.35% $ 4,806 1.09%* 1.09%* (0.27)%* 4.32%*
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) 113.46% $ 12,963 0.90% 0.90% (0.47)% 2.86%
1998 (6) (1.20)% $ 2,843 1.25%* 1.25%* (0.64)%* 8.18%*
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) 39.90% $ 16,112 1.35%* 1.35%* (0.87)%* 2.55%*
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) 40.60% $ 8,296 1.35%* 1.35%* (0.87)%* 3.89%*
<CAPTION>
- ---------------------------------------------------------------------------------
Ratio of net
investment
income (loss)
to average
net assets
(excluding Portfolio
waivers and turnover
reimbursements) rate
- ---------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C>
1999 (1.88)% 370.71%
1998 (6.80)% 234.93%
1997 (1) (25.25)% 346.47%
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 (0.42)% 328.26%
1998 (0.50)% 249.58%
1997 (0.28)% 178.21%
1996 (2) 0.03%* 147.79%
1995 0.69% 177.86%
1994 0.73% 164.81%
- -------------------------
Turner Midcap Equity Fund
- -------------------------
1999 (0.58)% 290.79%
1998 (1.18)% 304.29%
1997 (3) (7.33)%* 348.29%
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 (1.04)% 223.61%
1998 (1.12)% 167.73%
1997 (0.93)% 130.68%
1996 (2) (1.17)%* 149.00%
1995 (1.82)% 183.49%
1994 (4) (3.50)%* 173.92%
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) (2.43)% 239.32%
1998 (6) (7.57)%* 128.53%
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) (2.07)%* 369.11%
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) (3.41)%* 317.32%
</TABLE>
(5) On January 25, 1999 shareholders of the Alpha Select Turner Micro Cap
Growth Fund (the "Funds") approved a tax-free reorganization under which
all assets and liabilities of the Fund were transferred to the TIP Turner
Micro Cap Growth Fund.
(6) Commenced operations on March 1, 1998.
(7) Commenced operations on July 1, 1999.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 57
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Realized and
Net asset unrealized Distributions Distributions
value, Net gains from net from Net asset Net assets
beginning investment (losses) on investment capital value end Total end of
of period income investments income gains of period return+ period (000)
- ------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (1) $10.25 0.55 (0.27) (0.55) (0.14) $ 9.84 2.89% $38,687
1998 (2) $10.10 0.35 0.15 (0.34) (0.01) $10.25 5.09% $12,015
1998 (3) $10.00 0.59 0.10 (0.59) -- $10.10 7.07% $15,544
1997 $10.04 0.58 (0.01) (0.59) (0.02) $10.00 5.45% $17,809
1996 $ 9.80 0.60 0.23 (0.59) -- $10.04 8.73% $11,027
1995 (4) $10.00 0.61 (0.22) (0.59) -- $ 9.80 4.08% $ 7,065
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) $ 9.95 0.68 (0.13) (0.70) -- $ 9.80 5.64% $ 87
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) $10.09 0.54 (0.02) (0.56) -- $10.05 5.34% $ 3,207
1998 (2) $10.08 0.35 -- (0.33) (0.01) $10.09 3.50% 991
1998 (3) $10.06 0.60 0.02 (0.60) -- $10.08 6.34% 1,195
1997 $10.03 0.60 0.03 (0.60) -- $10.06 6.32% 864
1996 $ 9.99 0.64 0.05 (0.65) -- $10.03 7.09% 398
1995 (4) $10.00 0.53 (0.02) (0.52) -- $ 9.99 5.21% 145
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) $10.11 0.47 0.02 (0.50) -- $10.10 5.00% $ 3,155
1998 (7) $10.08 0.30 0.03 (0.30) -- $10.11 3.26% --
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) $10.00 0.14 (0.09) (0.14) -- $ 9.91 0.48% $10,009
</TABLE>
* Annualized
+ Returns are for the period indicated and have not been annualized.
(1) On January 25, 1999 shareholders of the Alpha Select Turner Short Duration
Government Funds-Three Year Portfolio (the "Fund") approved a tax-free
reorganization under which all assets and liabilities of the Fund were
transferred to the TIP Turner Short Duration Government Funds-Three Year
Portfolio.
(2) On November 10, 1997 the Board of Trustees of TIP Institutional Funds
(formerly, The Solon Funds) approved a change in the Turner Short Duration
Government Funds Three Year and One Year Portfolios' year end from February
28 to September 30, effective March 1, 1998.
(3) On January 22, 1998, shareholders of both the Three Year and One Year Funds
approved a change in the advisor from Solon Asset Management, L.P. to
Turner Investment Partners, Inc.
(4) Commenced operations on March 1, 1994.
(5) Commenced operations on April 28, 1999.
58 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net
Ratio of investment
expenses income (loss)
Ratio of net to average to average Average Average
Ratio of investment net assets net assets debt debt
net expenses income (excluding (excluding per share outstanding
to average to average waivers and waivers and Interest during during
net assets net assets reimbursements) reimbursements) expense the period (9) the period (9)(10)
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 (1) 0.24% 6.21% 1.31% 5.14% -- -- --
1998 (2) 0.24%* 5.84%* 1.49%* 4.59%* -- -- --
1998 (3) 0.24% 5.85% 1.21% 4.88% -- -- --
1997 0.24% 5.80% 1.21% 4.83% 0.02% $0.04 $ 56,238
1996 0.24% 6.18% 1.45% 4.97% 0.12% $0.28 $256,115
1995 (4) 0.15% 6.21% 1.18% 5.18% 0.04% $0.08 $ 75,604
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) 0.48%* 5.71%* 0.95%* 5.24%* -- -- --
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) 0.00% 5.50% 6.53% (1.03)% -- -- --
1998 (2) 0.00%* 5.88%* 10.83%* (4.95)%* -- -- --
1998 (3) 0.00% 5.97% 8.83% (2.86)% -- -- --
1997 0.00% 5.91% 10.25% (4.34)% -- -- --
1996 0.00% 6.46% 16.47% (10.01)% -- -- --
1995 (4) 0.00% 5.74% 27.89% (22.15)% -- -- --
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) 0.23% 5.13% 6.76% (1.40)% -- --
1998 (7) 0.25%* 5.63%* 11.08%* (5.20)%* -- -- --
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) 0.45%* 5.67%* 1.99%* 4.13%* -- -- --
<CAPTION>
- --------------------------------------------------------------------------------
Average
shares
outstanding Portfolio
during turnover
the period rate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
1999 (1) -- 257.98%
1998 (2) -- 121.63%
1998 (3) -- 197.03%
1997 1,320,830 279.00%
1996 901,238 251.00%
1995 (4) 895,472 405.00%
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) -- 257.98%
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) -- 154.33%
1998 (2) -- 96.56%
1998 (3) -- 68.80%
1997 -- 81.82%
1996 -- --
1995 (4) -- --
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) -- 154.33%
1998 (7) -- 96.56%
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) -- 39.70%
</TABLE>
(6) On May 24, 1999 shareholders of the Alpha Select Turner Short Duration
Government Funds-One Year Portfolio (the "Fund") approved a tax-free
reorganization under which all assets and liabilities of the Fund were
transferred to the TIP Turner Short Duration Government Funds-One Year
Portfolio.
(7) Commenced operations on February 27, 1998.
(8) Commenced operations on July 1, 1999.
(9) Average based upon amounts outstanding at each month end.
(10) There was no debt outstanding at the end of any period presented.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 59
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Notes to financial statements
September 30, 1999
1. Organization:
TIP Funds (the "Trust"), a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company with 19 portfolios. The financial statements included herein
are those of the Turner Large Cap Growth Equity Fund (formerly Turner Ultra
Large Cap Growth Fund) (the "Large Cap Growth Equity Fund"), the Turner Growth
Equity Fund (the "Growth Equity Fund"), the Turner Midcap Growth Fund (the
"Midcap Growth Fund"), the Turner Small Cap Growth Fund (the "Small Cap Growth
Fund"), the Turner Micro Cap Growth Fund (the "Micro Cap Growth Fund"), the
Turner Top 20 Fund (the "Top 20 Fund"), the Turner Technology Fund (the
"Technology Fund"), the Turner Short Duration Government Funds-Three Year
Portfolio (the "Three Year Portfolio"), the Turner Short Duration Government
Funds-One Year Portfolio (the "One Year Portfolio"), and the Turner Core High
Quality Fixed Income Fund (the "Core High Quality Fixed Income Fund") (each a
"fund" and collectively the "Funds"). The Turner Short Duration Government
Funds-Three Year and One Year Portfolios are registered to offer two classes of
shares, Institutional Class Shares and Adviser Class Shares. The financial
statements of the remaining portfolios are presented separately. The assets of
each fund are segregated, and a shareholder's interest is limited to the fund in
which shares are held. The Funds' prospectus provides a description of each
fund's investment objectives, policies, and strategies.
As of September 30, 1999, the Turner International Growth Fund and the Turner
Focused Large Cap Equity Fund had not yet commenced operations.
The Turner Small Cap Growth Fund was closed to new investors as of August 30,
1997.
2. Significant accounting policies:
The following is a summary of the significant accounting policies followed by
the Funds.
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. Market value
for debt obligations is determined on the basis of last reported sales price,
or if no sales are reported, as is the case with most securities traded over
the counter, the mean between representative bid and asked quotations.
Short-term securities with maturities of 60 days or less may be carried at
amortized cost, which approximates market value. Fixed income securities for
which market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed
income securities whose prices are more readily obtainable and whose
durations are comparable to the securities being valued. Subject to the
foregoing, other securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board
of Trustees.
Federal income taxes--It is each 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.
Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the trade date. Such securities are included in
the portfolio and are subject to market fluctuations during this period. On
the date of the commitment to purchase or sell, the Funds designate specific
assets with a current value at least equal to the amount of the commitment to
be used for settling the commitment.
Net asset value per share--The net asset value per share of each 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
60 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
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 funds may be delayed or limited.
Expenses--Expenses that are directly related to one of the funds 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 to shareholders--Distributions from net investment income are
declared and paid to Shareholders at least annually for the Large Cap Growth
Equity Fund, the Midcap Growth Fund, the Small Cap Growth Fund, the Micro Cap
Growth Fund, the Top 20 Fund, and the Technology Fund; quarterly for the
Growth Equity Fund; and declared daily and paid monthly for the Three Year
Portfolio, One Year Portfolio and the Core High Quality Fixed Income Fund.
Any net realized capital gains on sales of securities for all Funds are
distributed to Shareholders at least annually.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations. Certain book/tax differences are either temporary or permanent
in nature. To the extent these differences are permanent, they are charged or
credited to paid-in-capital or accumulated net realized gain, as appropriate,
in the period that the differences arise.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and expenses
during the reported period. Actual results could differ from those estimates.
3. Organization costs and transactions with affiliates:
Organization costs have been capitalized by each Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by a Fund will be reduced by the unamortized organizational costs
in the same ratio as the number of shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers and trustees of the Trust.
4. Administration, shareholder servicing, and distribution agreements:
The Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee.
For these administrative services, the Administrator is entitled to a fee from
the Trust, which is calculated daily and paid monthly, at an annual rate of .09%
of the Trust's average daily net assets up to $250 million, .07% on the next
$250 million, .06% on the next $250 million, .05% on the next $1.25 billion and
.04% of such assets in excess on $2 billion. Each Fund is subject to a minimum
annual fee of $65,000 for the first class of shares and $15,000 for each
additional class of shares, which may be reduced at the sole discretion of the
Administrator.
The Growth Equity Fund, the Midcap Growth Fund, and the Small Cap Growth Fund
have directed certain portfolio trades to brokers who paid a portion of its
expenses. For the period ended September 30, 1999, the Funds expenses were
reduced by $131,755, $27,561 and $50,019 respectively, under this arrangement.
DST Systems, Inc., (the "Transfer Agent"), serves as the transfer agent and
dividend disbursing agent for the Funds under a transfer agency agreement with
the Trust.
Prior to January 1, 1998, administrative services were provided to the Three
Year and One Year Funds by Solon Asset Management, L.P. for an annual fee of
.07% of the average daily net assets of each Fund.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 28, 1996. The Distributor receives no fees for its distribution services
under this agreement.
The Three Year and One Year Portfolios have adopted a shareholder service plan
and agreement for their Adviser Class Shares. Under the shareholder service plan
and agreement both funds pay the Distributor a shareholder servicing fee at an
annual rate of 0.25% of the average daily net assets of the Adviser Class Shares
of each fund.
TURNER FUNDS 1999 ANNUAL REPORT | 61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. Investment advisory agreement:
The Trust and Turner Investment Partners, Inc. the "Adviser" are parties to an
Investment Advisory Agreement dated April 28, 1996 under which the Adviser
receives an annual fee equal to .75% of the average daily net assets of the
Large Cap Growth Equity, Growth Equity, and Midcap Growth Equity Funds, 1.00% of
the Small Cap Growth and Micro Cap Growth Funds, 1.10 of the Top 20 and
Technology Funds, .25% of the Three Year and One Year Funds and .50% of the Core
High Quality Fixed Income Fund. The Adviser has voluntarily agreed to waive all
or a portion of its fees and to reimburse expenses in order to limit their total
operating expenses (as a percentage of daily net assets on an annualized basis)
to not more than 1.00% of the Large Cap Growth Equity and Growth Equity Funds,
1.25% of the Small Cap Growth, Midcap Growth Equity and Micro Cap Growth Funds,
1.35% of the Top 20 and Technology Funds, .36% and .61% of the Three Year and
One Year Funds, Institutional shares and Adviser shares, respectively, and .45%
of the Core High Quality Fixed Income Fund. Fee waivers and expense
reimbursements are voluntary and may be terminated at any time. On January 1,
1998, Turner Investment Partners, Inc., acquired substantially all of the assets
and liabilities of Solon Asset Management, L.P. (the Three Year Portfolio and
One Year Portfolio prior investment adviser).
6. Investment transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended September 30, 1999, are as follows
(000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner
Large Cap Growth Midcap Small Cap Micro Cap Turner
Growth Equity Growth Growth Growth Top 20
Equity Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
Government -- -- -- -- -- --
Other 29,486 427,617 286,698 452,858 20,391 58,450
Sales
Government -- -- -- -- -- --
Other 27,386 422,503 199,990 442,558 15,633 46,112
- --------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds Turner Core
Turner ---------------------- High Quality
Technology Three Year One Year Fixed Income
Fund Portfolio Portfolio Fund
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases
Government -- 56,149 1,354 5,661
Other 23,591 3,201 372 142
Sales
Government -- 31,026 688 3,465
Other 17,731 6,090 191 938
- --------------------------------------------------------------------------
</TABLE>
At September 30, 1999, the total cost of securities for Federal income tax
purposes was $8,150,595 for the Large Cap Growth Equity Fund, $15,277,927 for
the Top 20 Fund, and $7,237,620 for the Technology Fund. The cost of securities
and net realized gains or losses on securities sold for the remaining Funds was
not materially different from amounts reported for financial reporting purposes.
The aggregate gross unrealized appreciation and depreciation for securities held
by the Funds at September 30, 1999, are as follows (000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner
Large Cap Growth Midcap Small Cap Micro Cap Turner
Growth Equity Growth Growth Growth Top 20
Equity Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation 762 17,202 18,406 48,240 2,976 1,153
Aggregate gross
unrealized
depreciation (354) (4,379) (7,147) (13,159) (381) (560)
- --------------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) 408 12,823 11,259 35,081 2,595 593
- --------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds Turner Core
Turner ----------------------- High Quality
Technology Three Year One Year Fixed Income
Fund Portfolio Portfolio Fund
- ----------------------------------------------------------------------------
Aggregate gross
unrealized
appreciation 596 91 5 8
Aggregate gross
unrealized
depreciation (384) (119) (4) (250)
- ----------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) 212 (28) 1 (242)
- ----------------------------------------------------------------------------
</TABLE>
62 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
7. In Kind Transfers of Securities
During the period ended September 30, 1999, the Growth Equity Fund issued
273,210 shares of beneficial interest in exchange for portfolio assets from
certain accounts managed by Turner Investment Partners, Inc., at their then
current value of $4,270,277.
During the period ended September 30, 1999, the Three Year Portfolio issued
1,925,533 shares of beneficial interest in exchange for portfolio assets from
certain accounts managed by Turner Investment Partners, Inc., at their then
current value of $18,947,249.
During the period ended September 30, 1999, the Core HighQuality Fixed Income
Fund issued 1,012,284 shares of beneficial interest in exchange for portfolio
assets from certain accounts managed by Turner Investment Partners, Inc., at
their then current value of $10,120,317 which includes $260,485 of net
unrealized loss.
8. Line of credit:
Pursuant to a credit agreement dated May 21, 1997, First Union National Bank
provides an uncommitted line of credit to the Large Cap Growth Equity Fund, the
Growth Equity Fund, the Midcap Growth Fund and the Small Cap Growth Fund,
Portfolios of the TIP Funds, for short-term or emergency purposes, such as
funding shareholder redemptions. These loans are for the respective benefit of
and repayable from the respective assets of each Fund. The aggregate principal
amount of all borrowings may not exceed 10% of each Fund, net assets and the
maximum principal amount that the Bank will loan is $10,000,000. Borrowings
under the line of credit are charged interest based on the federal funds rate
determined at the date of borrowing and are secured by investment securities of
the borrowing portfolio. Each Fund is individually, and not jointly, liable for
its particular advances under the line. There is no commitment fee on the unused
portion of the line of credit. There were no borrowings under the line of credit
during the period ended September 30, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 63
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the TIP Funds:
We have audited the accompanying statements of net assets of the Turner Large
Cap Growth Fund, the Turner Small Cap Growth Fund, the Turner Short Duration
Government Funds -- One Year Portfolio, and the Turner Core High Quality Fixed
Income Fund and the statement of assets and liabilities of the Turner Growth
Equity Fund, the Turner Mid Cap Growth Fund, the Turner Micro Cap Growth Fund,
the Turner Top 20 Fund, the Turner Technology Fund and the Turner Short Duration
Government Funds -- Three Year Portfolio, including the schedules of portfolio
investments, as of September 30, 1999, and the related statements of operations
for the year then ended, the statements of changes in net assets for the periods
presented therein and the financial highlights for the periods ended September
30, 1996 through September 30, 1999 presented therein. We have also audited the
financial highlights for the periods ended February 28, 1995 and February 28,
1996 for the Turner Short Duration Government Funds -- Three Year Portfolio and
the Turner Short Duration Government Funds -- One Year Portfolio. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the periods ended October 31, 1994 and October 31, 1995 for the
Turner Growth Equity Fund and the Turner Small Cap Growth Fund were audited by
other auditors whose report dated December 5, 1995 expressed an unqualified
opinion on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
TIP Funds at September 30, 1999, the results of their operations for the year
then ended, the changes in their net assets for each of the periods presented
therein, and financial highlights for the periods ended September 30, 1996
through September 30, 1999 presented therein, and for the periods ended February
28, 1995 and February 28, 1996 presented therein for the Turner Short Duration
Government Funds -- Three Year Portfolio and the Turner Short Duration
Government Funds -- One Year Portfolio in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
-----------------------------------
Philadelphia, Pennsylvania
November 8, 1999
64 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
EVENT SUBSEQUENT TO AUDITOR'S REPORT (unaudited)
On February 25, 2000, the Board of Trustees of the TIP Funds approved a Plan to
reorganize the Turner Growth Equity Fund into a similar fund that is being
created by the Vanguard Group called the Vanguard Growth Equity Fund, subject to
shareholder and regulatory approval.
<PAGE>
- --------------------------------------------------------------------------------
Notice to Shareholders
of
Turner Funds
(Unaudited)
For shareholders that do not have a September 30, 1999 tax year end, this notice
is for informational purposes only. For shareholders with a September 30, 1999,
please consult your tax advisor as to the pertinence of this notice. For the
fiscal year ended September 30, 1999, each portfolio is designating the
following items with regard to distributions paid during the year.
<TABLE>
<CAPTION>
Long Term
(20% Rate) Ordinary
Capital Gain Income Tax Exempt Total Qualifying
Fund Distributions Distributions Interest Distributions Dividends (1)
---- ------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Turner Large Cap Growth Equity Fund ......... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Growth Equity Fund ................... 66.75% 33.25% 0.00% 100.00% 4.38%
Turner Midcap Growth Fund ................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Small Cap Growth Fund ................ 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Micro Cap Growth Fund ................ 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Top 20 Fund .......................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Technology Fund ...................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Short Duration Government
Funds-Three Year Portfolio ............. 3.43% 96.57% 0.00% 100.00% 0.00%
Turner Short Duration Government
Funds-One Year Portfolio ............... 0.00% 100.00% 0.00% 100.00% 0.00%
Turner Core High Quality Fixed Income ....... 0.00% 100.00% 0.00% 100.00% 0.00%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction and is reflected as a percentage of "Ordinary
Income Distributions".
TURNER FUNDS 1999 ANNUAL REPORT | 65
<PAGE>
- --------------------------------------------------------------------------------
NOTES
<PAGE>
- --------------------------------------------------------------------------------
NOTES
<PAGE>
[LOGO OMITTED]
TURNER
--------
FUNDS
--------------------------------
Turner Funds
1235 Westlake Drive
Berwyn, Pennsylvania 19312
Telephone: 1-800=224-6312
Email: [email protected]
Web Site: www.turner-invest.com
<PAGE>
1999 Turner Funds Semiannual Report
(Unaudited)
Portfolios of the TIP Funds and Alpha Select Funds
Turner Large Cap Growth Equity Fund
Turner Growth Equity Fund
Turner Midcap Growth Fund
Turner Small Cap Growth Fund
Turner Micro Cap Growth Fund
Turner Short Duration Government Funds-Three Year Portfolio
Turner Short Duration Government Funds-One Year Portfolio
"The story for the six-month period ended March 31 is one of outperformance
by six of our seven stock and bond mutual funds. Even more important, the
longer-term record (which is the true measure of investment success) is equally
admirable: six of our funds have outperformed since their inceptions. In short,
the story of the Turner Funds is one of solid investment success over time. It
is a story that should bring cheer to the shareholders who have entrusted us
with their assets."
Letter to shareholders, page 2
<PAGE>
Contents
1 Total returns of Turner Funds
2 Letter to shareholders
5 Investment review:
Turner Large Cap Growth Equity Fund
7 Investment review:
Turner Growth Equity Fund
9 Investment review:
Turner Midcap Growth Fund
11 Investment review:
Turner Small Cap Growth Fund
13 Investment review:
Turner Micro Cap Growth Fund
15 Investment review:
Turner Short Duration Government
Funds-Three Year Portfolio
17 Investment review: Turner Short Duration Government Funds-One Year Portfolio
19 Financial statements
48 Fund trustees
Turner Funds
The Turner Funds, Portfolios of both the TIP Funds and Alpha Select Funds, offer
a series of seven no-load mutual funds to individual and institutional
investors. The minimum initial investment in a Turner Fund for regular accounts
is $2,500 and $2,000 for individual retirement accounts. The minimum amount for
subsequent investments is $500.
Turner Investment Partners, Inc., based in Berwyn, Pennsylvania, serves as the
investment adviser to the Turner Funds. The firm, founded in 1990, invests more
than $3 billion in equity, fixed-income, and balanced portfolios on behalf of
individuals and institutions.
Shareholder services
Turner Funds shareholders receive annual and semiannual reports and quarterly
account statements. Shareholders who have questions about their accounts may
call a toll-free telephone number, 1-800-224-6312. Or they may write to Turner
Funds, Box 419805, Kansas City, Missouri 64141.
<PAGE>
Performance
Total returns of Turner Funds*
Periods ending March 31, 1999
<TABLE>
<CAPTION>
Past six Past 12 Past three Past five Since
months months years years inception
(annualized) (annualized) (annualized)+
Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Turner Large Cap
Growth Equity Fund 43.87% 41.20% -- -- 40.07%
Lipper Growth Funds Average 28.23 13.56 -- -- 21.32
S&P 500 Index 27.34 18.46 -- -- 27.56
Russell Top 200 Growth Index 35.72 33.61 -- -- 35.31
- ---------------------------------------------------------------------------------------------------------------------------
Turner Growth Equity Fund 35.81 33.02 31.16% 24.71% 20.37
Lipper Capital Appreciation
Funds Average 28.71 11.84 15.05 16.49 13.83
S&P 500 Index 27.34 18.46 28.08 26.25 20.14
Russell 1000 Growth Index 34.81 28.11 31.02 25.70 20.80
- ---------------------------------------------------------------------------------------------------------------------------
Turner Midcap Growth Fund 52.78 34.80 -- -- 37.74
Lipper Mid-Cap Funds Average 23.42 0.24 -- -- 13.31
Russell Midcap Growth Index 30.79 8.90 -- -- 18.77
- ---------------------------------------------------------------------------------------------------------------------------
Turner Small Cap Growth Fund 32.20 0.32 15.57 26.67 24.99
Lipper Small Cap
Funds Average 12.53 (15.48) 8.03 12.11 13.91
Russell 2000 Growth Index 21.56 (11.04) 5.76 10.76 9.00
- ---------------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 45.95 33.52 -- -- 40.01
Lipper Micro Cap Funds Average 21.08 (12.35) -- -- (6.63)
Russell 2000 Growth Index 21.56 (11.04) -- -- (6.75)
- ---------------------------------------------------------------------------------------------------------------------------
Fixed income
- ---------------------------------------------------------------------------------------------------------------------------
Turner Short Duration
Government Funds-
Three Year Portfolio 1.33 6.16 6.45 6.56 6.31
Lipper Short/Intermediate U.S.
Government Funds Average 0.34 5.33 5.92 5.78 5.38
Lehman Brothers 1-3 Year
U.S. Government Bond Index 1.38 6.09 6.32 6.19 5.98
- ---------------------------------------------------------------------------------------------------------------------------
Turner Short Duration
Government Funds-
One Year Portfolio
(Institutional Class) 2.74 5.92 6.18 6.26 6.18
Lipper Ultra-Short Obligation
Funds Average 2.21 5.22 5.60 5.46 5.39
Merrill Lynch Three-Month
U.S. Treasury Bill Index 2.19 4.98 5.23 5.28 5.25
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Past performance is no guarantee of future results. The investment return and
principal value of an investment will fluctuate, so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
+ The inception dates for each Turner Fund are as follows: Turner Large Cap
Growth Equity Fund, February 1, 1997; Turner Growth Equity Fund, March 11, 1992;
Turner Midcap Growth Fund, October 1, 1996; Turner Small Cap Growth Fund,
February 7, 1994; Turner Micro Cap Growth Fund, March 1, 1998; Turner Short
Duration Government Funds-Three Year Portfolio, March 1, 1994; and Turner Short
Duration Government Funds-One Year Portfolio (Institutional Class Shares), March
1, 1994.
TURNER FUNDS 1999 SEMIANNUAL REPORT | 1
<PAGE>
Letter to shareholders
- -------------------------------------------------------------------------------
To our shareholders
Active management--the traditional investment approach of buying and selling
stocks in an effort to continuously capitalize on the best investment
opportunities--has acquired a bad name in recent years. One reason: the mutual
funds of most active mangers have failed to beat their benchmark on indices.
Over the past year, for example, fewer than 20% of actively managed diversified
U.S. stock funds beat the S&P 500 Index, according to Lipper Inc. data.
Indeed, much of the allure of index funds--funds that invest by weighting a
portfolio to match an index so as to simply replicate its performance--can be
attributed to the failure of investment managers to outperform the benchmarks.
As a result investors have adopted an if-you-can't-beat-'em, join-'em attitude:
why pay extra fees for active management when it's underperforming the simple,
more economical alternative of "passive" indexing?
Our story: solid success
Active management can't beat indexing? That's not true for the Turner Funds. The
story for the six-month period ended March 31 is one of outperformance by six of
our seven stock and bond mutual funds (see table, page 1). Even more important,
the longer-term record (which is the true measure of investment success) is
equally admirable: six of our funds have outperformed since their inceptions. In
short, the story of the Turner Funds is one of solid investment success over
time. It is a story that should bring cheer to the shareholders who have
entrusted us with their assets.
It's said that the hardest thing about being successful is continuing to be
successful. In the future we shall seek to continue succeeding by doing better
what we do best: to scrupulously follow our investment disciplines, to refine
those disciplines whenever possible, and to capitalize on the ever-changing
opportunities in the capital markets. For details on how our funds fared in
capitalizing on the opportunities that were presented in the near term, over the
past six months, see the Investment review section beginning on page 5. Briefly,
here are the results for that time period for each of our funds:
o The Turner Large Cap Growth Equity Fund, benefiting from the market's
continued preference for the stocks of large companies that are household names
like Microsoft, General Electric, and Pfizer, returned 43.87%. Its margins of
outperformance: 16.53 percentage points over the S&P 500 Index and 8.15
percentage points over the Russell Top 200 Growth Index of the biggest of the
big growth stocks.
o The Turner Growth Equity Fund gained 35.81%. Its margins of outperformance:
8.47 percentage points over the S&P 500 Index and 1.00 percentage point over the
Russell 1000 Growth Index.
o The Turner Midcap Growth Fund had a stellar six months, advancing 52.78%--the
best absolute showing of any of our mutual funds. Its margin of outperformance:
21.99 percentage points over the Russell Midcap Growth Index.
o The Turner Small Cap Growth Fund continued to reinforce its status as one of
the elite small-cap funds, with a return of 32.20%. Its margin of
outperformance: 10.64 percentage points over the Russell 2000 Growth Index.
o The Turner Micro Cap Growth Fund, our newest fund, which opened on March 1,
1998, widened its already sizable performance advantage over the Russell 2000
Growth Index. Micro Cap Growth soared 45.95%. Its margin of outperformance:
24.39 percentage points--the best relative result of any of our mutual funds.
o The Turner Short Duration Government Funds-Three Year Portfolio did a worthy
job of coping with rising interest rates and declining bond prices, advancing
1.33%. That return fell just slightly short--0.05 percentage points short, to be
precise--of the performance of the fund's benchmark, the Lehman Brothers 1-3
Year U.S. Government Bond Index.
o The Turner Short Duration Government Fund-One Year Portfolio's modest maturity
average provided excellent protection from the negative effects of rising rates.
The fund's Institutional Class returned 2.74%. Its margin of outperformance:
0.55 percentage points over the Merrill Lynch Three-Month U.S. Treasury Bill
Index.
2 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
Funds rank high
Altogether, our funds continued to bolster their footholds in the upper reaches
of the mutual-fund summit. In light of our organizational mission to provide
clients with consistently superior investment returns, we take a singular pride
in how our funds rank versus their peers, according to Lipper Inc. (see table,
below).
In short, for the longest applicable time spans, all the Turner Funds rank no
lower than the top 13th percentile versus their peers, according to the Lipper
ratings.
Among other things, our stock funds drew strength from the popularity of growth
investing. Beyond that, our funds profited from superior stock selection on our
part, which we think is a testament to the effectiveness of our investment
process, which employs a blend of quantitative, fundamental, and technical
methods. Also, our performance was enhanced by the remarkable strength of the
American economy, now in its eighth consecutive year of expansion; American
corporations' global profit leadership and surpassing proficiency at production,
management, and marketing; and an inflation rate that continues to be markedly
below the historical average.
About the stock market's prospects, we think as long as earnings hold up
reasonably well (and we think they will generally), this remarkable bull of a
Lipper Inc. performance rankings of mutual funds
Periods ending March 31, 1999
<TABLE>
<CAPTION>
One Two Five Seven
year years years years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Funds
Turner Large Cap Growth Equity Fund
Ranking vs. competitors 40/1,022 25/787 -- --
Percentile ranking 3 3 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Funds
Turner Growth Equity Fund
Ranking vs. competitors 44/251 24/213 13/99 8/64
Percentile ranking 17 11 13 12
- ---------------------------------------------------------------------------------------------------------------------------
Mid-Cap Funds
Turner Midcap Growth Fund
Ranking vs. competitors 13/301 3/279 -- --
Percentile ranking 3 1
- ---------------------------------------------------------------------------------------------------------------------------
Small-Cap Funds
Turner Small Cap Growth Fund
Ranking vs. competitors 97/664 35/494 1/230 --
Percentile ranking 14 7 1 --
- ---------------------------------------------------------------------------------------------------------------------------
Micro-Cap Funds
Turner Micro Cap Growth Fund
Ranking vs. competitors 3/48 -- -- --
Percentile ranking 6
- ---------------------------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government Funds
Turner Short Duration Government Funds -
Three Year Portfolio
Ranking vs. competitors 9/97 45/88 7/52 --
Percentile ranking 9 51 13 --
- ---------------------------------------------------------------------------------------------------------------------------
Ultra-Short Obligation Funds
Turner Short Duration Government Funds -
One Year Portfolio (Institutional Class)
Ranking vs. competitors 3/27 4/25 2/15 --
Percentile ranking 11 16 13 --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Lipper Inc.
TURNER FUNDS 1999 SEMIANNUAL REPORT | 3
<PAGE>
Letter to shareholders
- -------------------------------------------------------------------------------
market should continue raging. Also, we think the above-average market
volatility--a common metaphor for the intensity of market moves recently has
been the roller coaster--will continue to be in evidence. We think any
corrections (market declines of 10%) will be concentrated and followed by the
market regaining its momentum.
Short maturities advantageous
Our bond funds coped admirably with a split personality by the bond market in
the past six months. Early in the period the bond market was in the grip of a
flight to quality, with Treasury securities being the prime beneficiaries of
that trend. Beginning in November, however, a flight to yield prevailed. The
premium yields of even highly-rated corporate and mortgage-backed securities
that no one wanted earlier were now much prized. That schizophrenia, moreover,
was compounded by a significant rise in interest rates. At the end of March,
rates at all maturities were 0.14 to 1.06 percentage points higher than they
were last October 1. In such an environment, shorter maturities--which are less
sensitive to rate changes--are the best investments, and the short average
maturities of our two bond mutual funds proved helpful. Also helpful were our
high average credit quality and our mix of Treasury, collateralized
mortgage-obligation, and asset-backed securities.
Even with their recent rise, interest rates are still relatively low by
historical standards. Because we think it will be difficult for interest rates
to move significantly lower, we think an investment strategy like ours should
fare well over the next six months. With just 0.27 percentage points separating
two-year and ten-year rates, we think it makes a great deal of sense to stick
with short maturities; our research indicates that the two-year note provides
more than 90% of the yield of the 10-year note with less than 50% of the risk.
With the continuing support of our shareholders and staff, we look forward to
further success in the months and years ahead. As always, we remain committed to
our mission of delivering superior investment returns and service to you. And as
always, we welcome your questions or comments.
/s/ Bob Turner
----------------
Robert E. Turner
Chairman
TIP Funds and Alpha Select Funds
April 5, 1999
[PHOTO]
Bob Turner
4 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund 43.87%
Lipper Growth Funds Average 28.23
S&P 500 Index 27.34
Russell Top 200 Growth Index 35.72
- --------------------------------------------------------------------------------
Like a Sherman tank, large-cap growth stocks continued to bulldoze over anything
in their path during the past six months: concerns about corporate
profitability, lofty stock-market valuations, rising interest rates, Russia's
massive debt default, Asian and Latin American recessions, even the impeachment
of President Clinton. As has been the case for the past five years, the Russell
Top 200 Growth Index of the biggest stocks powered its way to yet another
outsized gain: 35.72%--a return, incredibly, more than three times the size of
the historical average gain of large stocks for an entire year. It was the best
performance of any general index in any capitalization segment.
The Turner Large Cap Growth Equity Fund (formerly the Turner Ultra Large Cap
Growth Fund) did notably better, soaring 43.87%--a performance edge of 8.12
percentage points over the Russell Top 200 Growth and 16.53 percentage points
over the broader-based S&P 500 Index.
Large Cap's results by sector were exceptional. Nine of our 10 sector
investments outperformed their corresponding Russell Top 200 Growth Index
sectors. Strong returns in the technology, consumer-discretionary/services,
producer-durables, and utilities/communication sectors accounted for most of the
performance premium. Our sole underperforming sector was energy, where we failed
to match the strong gains sparked by a rise in oil prices late in the period.
Among individual stocks, our biggest winners (up 70% or more) included EMC and
Microsoft in technology; Amgen in health care; America Online, Home Depot, and
Wal-Mart Stores in consumer discretionary/services; Applied Materials in
producer durables; and MCI WorldCom in utilities/communication.
Over the past six months, the big surprise was the resiliency of large stocks in
the face of weaker earnings. We think the big surprise in 1999 may be that
corporate America's earnings will be stronger than anticipated. As long as
Growth of a $10,000 Investment in the
Turner Large Cap Growth Equity Fund:
February 1, 1997-March 31, 1999*
[GRAPHIC]
In the printed version of the document,
a line graph appears which depicts the following plot points:
<TABLE>
<CAPTION>
Russell Top 200 Turner Large Cap Growth
Growth Index S&P 500 INDEX Equity Fund
--------------- ------------- -----------------------
<S> <C> <C> <C>
Beginning 1.00 1.00 1.00
1997
February 1.00 1.01 1.00
March 0.95 0.97 0.94
April 1.02 1.02 1.03
May 1.09 1.09 1.09
June 1.14 1.13 1.14
July 1.24 1.23 1.25
August 1.15 1.16 1.17
September 1.20 1.22 1.23
October 1.16 1.18 1.21
November 1.22 1.23 1.26
December 1.24 1.26 1.29
1998
January 1.29 1.27 1.32
February 1.38 1.36 1.42
March 1.44 1.43 1.47
April 1.46 1.45 1.51
May 1.42 1.42 1.46
June 1.53 1.48 1.57
July 1.53 1.46 1.58
August 1.32 1.25 1.33
September 1.42 1.33 1.44
October 1.53 1.44 1.52
November 1.65 1.53 1.67
December 1.80 1.62 1.87
1999
January 1.91 1.68 2.06
February 1.83 1.63 1.95
March 1.92 1.70 2.07
</TABLE>
*These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Large Cap Growth
Equity Fund is February 1, 1997.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- -------------------------------------
Past one year Since inception
41.20% 40.07%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 5
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
interest rates stay relatively low, large-cap companies' earnings and share
prices are likely to continue doing well, a judgment based in part on our
research of how in the long run the share prices of large companies have tended
to correlate inversely with the level of interest rates. And based on our
investment disciplines and fundamental analysis of earnings prospects, we find
no lack of attractive candidates for investment among the stocks in our
universe.
- --------------------------------------------------------------------------------
Fund objective
The Turner Large Cap Growth Equity Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations exceeding $10 billion at the time of purchase that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell Top 200 Growth
Index.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o CUSIP #900297508
o Top 10 holdings (1) Microsoft, (2) General Electric, (3) Pfizer, (4) Cisco
Systems, (5) Merck, (6) Intel, (7) Procter & Gamble, (8) America Online, (9)
Seagram, (10) Johnson & Johnson
o % in 10 largest holdings 43.7%
o Number of holdings 42
o Price/earnings ratio 38.8
o Weighted average market capitalization $139.2 billion
o % of holdings with positive earnings surprises 60.7%
o % of holdings with negative earnings surprises 8.3%
o Assets $8.8 million
[MARKET CAPITALIZATION GRAPH]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Top 200 Growth Index
neutral to Russell Top 200 Growth Index
32.6% Technology
22.1% Health Care
15.7% Consumer discretionary/services
12.2% Consumer staples
6.6% Financial services
4.2% Utilities/communication
3.3% Producer durables
1.2% Materials/processing
Portfolio managers
[PHOTO]
John F. Hammerschmidt has served as the lead product manager of the Large Cap
Growth Equity Fund since its inception in 1997. John joined Turner in 1992.
Previously he was vice president of government securities trading with S. G.
Warburg. He holds a bachelor's degree from Lehigh University and an MBA degree
from Duke University.
[PHOTO]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Large Cap Growth Equity Fund.
A Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Large Cap Growth Equity Fund. Mark joined Turner when it was founded in
1990. He previously served as vice president and senior portfolio manager with
First Maryland Asset Management. He earned a bachelor's degree from Bradley
University and an MBA degree from the University of Illinois.
6 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
Turner Growth Equity Fund
Total return
Six-month period ending March 31, 1999
- ---------------------------------------------------------
Turner Growth Equity Fund 35.81%
Lipper Capital Appreciation Funds Average 28.71
S&P 500 Index 27.34
Russell 1000 Growth Index 34.81
- ---------------------------------------------------------
Excellent stock selection and an overweighting in strong-performing big stocks
powered the Turner Growth Equity Fund to a 35.81% return in the past six months.
That result outperformed both the large growth stocks in the Russell 1000 Growth
Index by 1.00 percentage point and the diverse range of large stocks in the S&P
500 Index by 8.47 percentage points.
Six of Growth Equity's 10 sector investments outperformed their corresponding
Russell 1000 Growth Index sectors. (In our sector-neutral approach that's a
distinguishing aspect of our growth-stock investment process, the weighting of
our combined investments in each sector closely matches the weighting of the
analogous sector in the index.) Investments in the technology,
consumer-discretionary/services, producer-durables, and utilities/communication
sectors provided the lion's share of Growth Equity's margin of outperformance.
Our sector-neutral approach also helped performance late in the quarter,
enabling us to exploit a rally in cyclical stocks that many growth managers may
have missed out on. Our energy investments lagged and lost money.
Our weighted average market capitalization rose markedly since last September,
an increase due partly to the continued robust appreciation in share prices of
the large stocks we owned. Indeed, some of our biggest winners, with returns
exceeding 30%, included such behemoths as Cisco Systems, EMC, Intel, IBM,
Microsoft, Network Appliance, Sun Microsystems, and Yahoo! in technology; Amgen
in health care; Amazon.com, America Online, Best Buy, Gap, Home Depot, Time
Warner, and Wal-Mart Stores in consumer discretionary/services; Walgreen in
consumer staples; Corning in materials/processing; Applied Materials,
KLA-Tencor, and Teradyne in producer durables; Firstar in financial services;
and MCI WorldCom and Qwest Communications in utilities/communication.
Growth of a $10,000 investment in the
Turner Growth Equity Fund:
April 1, 1992-March 31, 1999*
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
RUSSELL 1000 TURNER GROWTH
S&P 500 INDEX GROWTH INDEX EQUITY FUND
------------- ------------ -------------
Beginning 1.00 1.00 1.00
1992
April 1.03 1.01 1.00
May 1.03 1.01 1.02
June 1.02 0.99 0.98
July 1.06 1.03 1.02
August 1.04 1.02 0.99
September 1.05 1.03 1.01
October 1.06 1.05 1.03
November 1.09 1.09 1.09
December 1.11 1.10 1.12
1993
January 1.11 1.09 1.13
February 1.13 1.07 1.13
March 1.15 1.10 1.16
April 1.12 1.05 1.13
May 1.15 1.09 1.17
June 1.16 1.08 1.18
July 1.15 1.06 1.20
August 1.20 1.10 1.25
September 1.19 1.09 1.27
October 1.21 1.12 1.31
November 1.20 1.12 1.27
December 1.22 1.14 1.29
1994
January 1.26 1.16 1.31
February 1.22 1.14 1.29
March 1.17 1.09 1.21
April 1.18 1.09 1.22
May 1.20 1.11 1.20
June 1.17 1.08 1.16
July 1.21 1.11 1.19
August 1.26 1.17 1.25
September 1.23 1.16 1.24
Wednesday, April 01, 1992 through Wednesday, March 31, 1999
Growth of a Unit Value
RUSSELL 1000 TURNER GROWTH
S&P 500 INDEX GROWTH INDEX EQUITY FUND
------------- ------------ -------------
October 1.26 1.19 1.25
November 1.21 1.15 1.19
December 1.23 1.17 1.20
1995
January 1.26 1.19 1.20
February 1.31 1.24 1.24
March 1.35 1.28 1.26
April 1.39 1.31 1.28
May 1.45 1.35 1.31
June 1.48 1.40 1.36
July 1.53 1.46 1.44
August 1.53 1.46 1.44
September 1.60 1.53 1.49
October 1.59 1.53 1.52
November 1.66 1.59 1.58
December 1.69 1.60 1.56
1996
January 1.75 1.65 1.58
February 1.77 1.68 1.60
March 1.79 1.69 1.62
April 1.81 1.73 1.70
May 1.86 1.79 1.77
June 1.87 1.79 1.77
July 1.78 1.69 1.62
August 1.82 1.73 1.69
September 1.92 1.86 1.83
October 1.98 1.87 1.82
November 2.13 2.01 1.93
December 2.09 1.97 1.86
1997
January 2.22 2.11 2.00
February 2.24 2.09 1.94
March 2.14 1.98 1.81
April 2.27 2.11 1.89
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Growth Equity Fund is
March 11, 1992. Returns are calculated from the first full month following the
fund's inception date.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- --------------------------------------------
Past one Past three Past five Since
year years years inception
33.02% 31.16% 24.71% 20.37%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 7
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Growth Equity Fund
Also contributing to Growth Equity's results was our avoidance of stocks that
declined sharply, such as Rite-Aid, which we sold as it came under growing
technical pressure in early March. Subsequently the stock was pounded when the
company reported disappointing fourth-quarter earnings. Our use of a broad range
of quantitative, fundamental, and technical indicators and our nimbleness in
eliminating individual positions is especially useful now, as the market remains
volatile and punishes the stocks of companies with earnings problems.
- -------------------------------------------------------------------------------
Fund objective
The Turner Growth Equity Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks that, in Turner's opinion, have
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell 1000 Growth Index.
- -------------------------------------------------------------------------------
Fund profile
March 31, 1999
o Ticker symbol TRGEX
o CUSIP #900297102
o Top 10 holdings (1) Microsoft, (2) General Electric, (3) Cisco Systems, (4)
Merck, (5) Intel, (6) Pfizer, (7) America Online, (8) Procter & Gamble, (9)
Johnson & Johnson, (10) Wal-Mart Stores
o % in 10 largest holdings 34.4%
o Number of holdings 86
o Price/earnings ratio 37.0
o Weighted average market capitalization $115.9 billion
o % of holdings with positive earnings surprises 65.0%
o % of holdings with negative earnings surprises 6.5%
o Assets $138.0 million
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 1000 Growth Index
[GRAPH]
30.5% Technology
20.1% Health care
18.8% Consumer discretionary/services
10.8% Consumer staples
8.2% Financial services
3.8% Producer durables
3.8% Utilities/communication
2.0% Materials/processing
0.8% Energy
0.5% Auto/transportation
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, has served as the lead product manager of the Growth Equity
Fund since its inception in 1992. A Chartered Financial Analyst, Bob previously
was senior investment manager with Meridian Investment Company. He earned
bachelor's and MBA degrees at Bradley University.
[PHOTO]
John F. Hammerschmidt serves as a comanager of the Growth Equity Fund. John
joined Turner in 1992. Previously he was vice president of government securities
trading with S. G. Warburg. He holds a bachelor's degree from Lehigh University
and an MBA degree from Duke University.
[PHOTO]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Growth Equity Fund. Mark joined Turner when it was founded in 1990. He
previously served as vice president and senior portfolio manager with First
Maryland Asset Management. He earned a bachelor's degree from Bradley University
and an MBA degree from the University of Illinois.
8 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund 52.78%
Lipper Mid-Cap Funds Average 23.42
Russell Midcap Growth Index 30.79
- --------------------------------------------------------------------------------
Since its inception in 1996, the Turner Midcap Growth Fund has always scored
high in Lipper's performance rankings for mid-cap mutual funds. True to form,
Midcap Growth's 52.78% return for the past six months ranked in the fourth
Lipper percentile. In relative terms, the return outdistanced the Russell Midcap
Growth Index's performance by 21.99 percentage points.
Midcap Growth's results were achieved against a strong backdrop for mid-cap
growth stocks. In the past six months, with little fanfare, mid-cap growth
stocks have staged a rally comparing favorably with that of their much-hyped
siblings, large-cap stocks. Indeed, the Russell Midcap Growth Index actually
outperformed the S&P 500 Index. In our judgment, the Russell index's recent
surge is just further corroboration of the risk/reward benefits that mid-cap
stocks have dispensed over eight decades: high return potential, ample
liquidity, and relatively moderate volatility.
Much of Midcap Growth's performance advantage in the past six months can be
traced to returns exceeding 80% in three sectors that have spearheaded the
latest rally: technology, utilities/communication, and consumer
discretionary/services. Overall, our stock selection was good, with seven of our
10 sector investments beating their corresponding Russell Midcap Growth Index
sectors.
Investments in various sectors related in some way to the Internet were
especially strong: At Home, Broadcom, eBay, Intuit, RealNetworks, and Xilinx in
technology; Amazon.com, DoubleClick, and Lycos in consumer
discretionary/services; Charles Schwab in financial services; and Global
Crossing in utilities/communication. What's more, we avoided huge losses in any
of our holdings, an ability we consider critical to investment success. We were
dissatisfied by our subpar relative returns in energy, autos/transportation, and
financial services.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Growth of a $10,000 investment in the
Turner Midcap Growth Fund:
October 1, 1996-March 31, 1999*
RUSSELL MIDCAP TURNER MIDCAP
GROWTH FUND GROWTH FUND
-------------- -------------
Beginning 1.00 1.00
1996
October 0.99 1.01
November 1.05 1.06
December 1.03 1.03
1997
January 1.07 1.10
Februry 1.05 1.05
March 0.99 0.99
April 1.02 1.02
May 1.11 1.14
June 1.14 1.18
July 1.25 1.33
August 1.23 1.34
September 1.30 1.44
October 1.23 1.40
November 1.24 1.42
December 1.26 1.45
1998
January 1.24 1.43
February 1.35 1.55
March 1.41 1.65
April 1.43 1.69
May 1.37 1.60
June 1.41 1.75
July 1.35 1.65
August 1.09 1.32
September 1.17 1.46
October 1.26 1.49
November 1.35 1.61
December 1.49 1.84
1999
January 1.53 2.03
February 1.46 1.94
March 1.54 2.22
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worht more or less
than their original costs. The inception date of the Turner Midcap Growth Fund
is October 1, 1996.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- --------------------------------------------------
Past one year Since inception
34.80% 37.74%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 9
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
In our judgment, our holdings still offer enticing return potential, based on
their considerable past and prospective earnings power. For instance, over the
past five years, the companies we own have increased their earnings per share at
an annualized 21.2%, versus the S&P 500 stocks' 16.8% rate. For the rest of
1999, we think a particularly fertile field for investment will be companies
that provide products and services for improving Internet commerce and
increasing the bandwidth (the amount of data that can be accommodated in a fixed
amount of time) of electronic systems ranging from computers to digital
telephone networks.
- --------------------------------------------------------------------------------
Fund objective
The Turner Midcap Growth Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks with market capitalizations between
$1 billion and $8 billion at the time of purchase that Turner believes offer
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell Midcap Growth Index.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o Ticker symbol TMGFX
o CUSIP #900297409
o Top 10 holdings (1) Charles Schwab, (2) Omnicom Group, (3) Amazon.com, (4)
Providian Financial, (5) Yahoo!, (6) Bausch & Lomb, (7) Capital One
Financial, (8) U.S. Foodservice, (9) VISX, (10) Network Solutions
o % in 10 largest holdings 13.3%
o Number of holdings 109
o Price/earnings ratio 35.5
o Weighted average market capitalization $7.5 billion
o % of holdings with positive earnings surprises 65.1%
o % of holdings with negative earnings surprises 10.9%
o Assets $60.3 million
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Midcap Growth Index
[GRAPH]
27.4% Consumer discretionary/services
20.6% Technology
13.0% Financial services
12.2% Health care
5.7% Producer durables
5.0% Materials/processing
4.9% Consumer staples
2.4% Energy
2.3% Utilities/communication
1.9% Autos/transportation
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St.
Joseph's University.
[PHOTO]
William C. McVail serves as a comanager of the Midcap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
10 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund 32.20%
Lipper Small Cap Funds Average 12.53
Russell 2000 Growth Index 21.56
- --------------------------------------------------------------------------------
The Turner Small Cap Growth Fund reinforced its #1 Lipper five-year ranking
among 230 small-cap funds by returning 32.20% in the past six months. In the
process, Small Cap Growth outperformed the Russell 2000 Growth Index by 10.64
percentage points.
Small Cap Growth's edge was due mainly to solid stock selection (six of 10
sector investments outperformed) and perceptive technical analysis (which
enabled us to generally avoid the severe losses that pitted the small-cap
landscape). As was the case with most of our stock mutual funds, Small Cap
Growth's biggest contributions to performance came from its two biggest sector
positions, technology and consumer discretionary/services, which have a combined
weighting of about 46% and generated returns of more than 60% in aggregate. Our
more modest utilities/communication holdings also registered a 60%-plus return.
Consumer-staples and energy investments were a significant drag on results.
Among our best-performing stocks, certain common themes were apparent: the
pervasive influence of the Internet on the nation's business life;
technology-inspired increases in productivity; the accelerating convergence of
telecommunications, computer, and television technologies; and growth in
consumer spending. Profitable investments reflecting those themes included
Concentric Network, Geotel Communications, Macromedia, Metromedia Fiber Network,
MIPS Technologies, Network Solutions, New Era of Networks, QLogic, and RF Micro
Devices in technology; American Eagle Outfitters, CNET, DoubleClick, Exodus
Communications, TMP Worldwide, and Williams-Sonoma in consumer
discretionary/services; Dycom Industries in materials/processing; Novellus
Systems in producer durables; Knight/Trimark Group in financial services; and
Adelphia Communications, Nextlink Communications, and RCN in
utilities/communication.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Growth of a $10,000 investment in the
Turner Small Cap Growth Fund:
March 1, 1994-March 31, 1999*
RUSSELL 2000 TURNER SMALL CAP
GROWTH INDEX GROWTH FUND
------------ ----------------
Beginning 1.00 1.00
1994
March 0.94 0.95
April 0.94 0.96
May 0.92 0.94
June 0.88 0.91
July 0.89 0.94
August 0.96 1.00
September 0.96 1.03
October 0.97 1.07
November 0.93 1.03
December 0.95 1.08
1995
January 0.94 1.05
February 0.98 1.10
March 1.01 1.16
April 1.02 1.19
May 1.04 1.22
June 1.11 1.34
July 1.19 1.51
August 1.21 1.52
September 1.23 1.58
October 1.17 1.58
November 1.22 1.74
December 1.25 1.81
1996
January 1.24 1.80
February 1.30 1.88
March 1.32 2.00
April 1.42 2.28
May 1.50 2.45
June 1.40 2.35
July 1.23 2.09
August 1.32 2.26
September 1.39 2.41
October 1.33 2.31
November 1.37 2.35
December 1.39 2.33
1997
January 1.43 2.36
Februry 1.34 2.17
March 1.25 1.94
April 1.23 1.96
May 1.42 2.26
June 1.46 2.41
July 1.54 2.60
August 1.59 2.62
September 1.71 2.81
October 1.61 2.65
November 1.57 2.59
December 1.57 2.68
1998
January 1.55 2.66
February 1.69 2.89
March 1.76 3.08
April 1.77 3.11
May 1.64 2.89
June 1.66 3.09
July 1.52 2.81
August 1.17 2.13
September 1.29 2.34
October 1.35 2.36
November 1.46 2.59
December 1.59 2.90
1999
January 1.66 3.07
February 1.51 2.75
March 1.56 3.09
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Small Cap Growth Fund
is February 7, 1994. Returns are calculated from the first full month following
the fund's inception date.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- --------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
0.32% 15.57% 26.67% 24.99%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 11
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
Although small-cap stocks' performance has picked up in recent months, their
much-anticipated outperformance over other asset classes has yet to materialize.
When that period of outperformance will begin is at best a subject for informed
conjecture, but we do think that when it does begin, it will be fostered by a
sustained cycle of superior earnings growth by small-cap companies.
Interestingly, the potential catalyst is in place: the earnings prospects of
small stocks markedly exceed those of larger stocks, according to the consensus
of Wall Street analysts. What's more, small caps' growth potential can be
purchased at a discount: the Russell 2000 Index's average price/earnings ratio,
based on trailing 12-month earnings, is 38% lower than that of the large-cap S&P
500 Index.
- --------------------------------------------------------------------------------
Fund objective
The Turner Small Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations at the time of purchase not exceeding $2 billion that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o Ticker symbol TSCEX
o CUSIP #900297300
o Top 10 holdings (1) MIPS Technologies, (2) Exodus Communications, (3) Visual
Networks, (4) TMP Worldwide, (5) Multex.com, (6) Smurfit-Stone Container, (7)
DoubleClick, (8) Patterson Dental, (9) The BISYS Group, (10) Profit Recovery
Group
o % in 10 largest holdings 13.3%
o Number of holdings 132
o Price/earnings ratio 21.8
o Weighted average market capitalization $1.5 billion
o % of holdings with positive earnings surprises 64.9%
o % of holdings with negative earnings surprises 10.1%
o Assets $196.0 million
[MARKET CAPITALIZATION GRAPH]
<PAGE>
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 2000 Growth Index
[GRAPH]
23.3% Technology
22.6% Consumer discretionary/services
15.2% Financial services
12.6% Health care
7.4% Producer durables
6.0% Utilities/communication
5.6% Materials/processing
2.3% Energy
2.2% Autos/transportation
1.1% Consumer staples
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
William C. McVail serves as the lead product manager of the Small Cap Growth
Fund. Before joining Turner in 1998, Bill was a portfolio manager at PNC Equity
Advisors. A Chartered Financial Analyst, Bill received a bachelor's degree from
Vassar College.
[PHOTO]
Frank L. Sustersic serves as a comanager of the Small Cap Growth Fund. A
Chartered Financial Analyst, Frank joined Turner in 1994. Previously he was an
investment officer and fund manager with First Fidelity Bank Corporation. He
holds a bachelor's degree from the University of Pennsylvania.
[PHOTO]
Christopher K. McHugh serves as a comanager of the Small Cap Growth Fund. Chris
joined Turner when it was founded in 1990 and previously held a position as
performance specialist at Provident Capital Management. He earned a bachelor's
degree at the Philadelphia College of Textiles and Science and an MBA degree at
St. Joseph's University.
12 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 45.95%
Lipper Micro Cap Funds Average 21.08
Russell 2000 Growth Index 21.56
- --------------------------------------------------------------------------------
In December, Morningstar named the Turner Micro Cap Growth Fund one of the 10
best-performing new mutual funds of 1998, from a universe of 189 funds started
during the year. Over the past six months Micro Cap Growth continued to build on
its strong initial achievements, delivering a 45.95% return that represented an
outperformance of 24.39 percentage points over the Russell 2000 Growth Index.
Since its March 1, 1998, inception, Micro Cap Growth has gained an annualized
40.01%--46.76 percentage points above the index's negative return.
For the most recent six months, Micro Cap Growth's superior results can be
attributed mainly to these factors:
One, elevated returns in its three biggest sector positions: consumer
discretionary/services, technology, and health care, which altogether accounted
for 67% of holdings. In a sector that recorded a barely positive return in the
index, our materials/processing investments were up 40%, adding significant
value to our performance as well.
Two, our growth-investing style remained in favor. By and large the market was
driven by fundamentals: the stocks that did best had the best earnings and the
best earnings prospects--in short, growth stocks. The preference for growth
stocks was such during the period that the Russell 2000 Growth Index
outperformed its value counterpart by 3.28 percentage points.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Growth of a $10,000 investment in the
Turner Micro Cap Growth Fund:
March 1, 1998-March 31, 1999*
RUSSELL 2000 TURNER MICRO CAP
GROWTH INDEX GROWTH FUND
------------ ----------------
Beginning 1.00 1.00
1998
March 1.04 1.08
April 1.05 1.14
May 0.97 1.11
June 0.98 1.14
July 0.90 1.12
August 0.69 0.89
September 0.76 0.99
October 0.80 1.00
November 0.86 1.17
December 0.94 1.39
1999
January 0.99 1.47
February 0.90 1.43
March 0.93 1.44
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Micro Cap Growth Fund
is March 1, 1998.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- --------------------------------------------
Past one year Since inception
33.52% 40.01%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 13
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
And three, excellent outcomes in our largest positions in individual stocks--the
stocks in which we had the greatest confidence in their performance. We seek to
emphasize the stocks of companies doing business in very specific, profitable
niches they can dominate, and our most lucrative individual holdings are in fact
succeeding by dominating their niches. To cite several examples in the
consumer-discretionary/services and health-care sectors: Shop at Home, which
sells consumer products through interactive TV programs transmitted via
satellite; K-Swiss, which has produced a strong brand image and demand for its
athletic shoes and a series of positive earnings surprises in an industry
encountering sagging profits; and Laser Vision Centers, which performs
outpatient laser surgery to correct vision problems.
We remain enthused about the return potential of our holdings. Perhaps most
significantly, the companies we own have growth rates exceeding the forward
price/earnings ratios of their shares--a price/earnings multiple-to-growth-rate
ratio of 0.66, evidence of compelling return potential, in our judgment.
- --------------------------------------------------------------------------------
Fund objective
The Turner Micro Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks that, in Turner's opinion,
have strong earnings growth potential and market capitalizations not exceeding
$500 million at the time of purchase. The fund's economic-sector weightings stay
within a range that's not more than 50% above or below the sector weightings of
the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o CUSIP #872524301
o Top 10 holdings (1) Creditrust, (2) Summit Technologies, (3) Advance
Paradigm, (4) Photon Dynamics, (5) Forward Air, (6) SoftNet Systems, (7) Rock
Financial, (8) D&K Healthcare Resources, (9) Laser Vision Centers, (10)
Gaylord Container
o % in 10 largest holdings 16.6%
o Number of holdings 115
o Price/earnings ratio 24.0
o Weighted average market capitalization $260 million
o % of holdings with positive earnings surprises 38.9%
o % of holdings with negative earnings surprises 6.0%
o Assets $6.1 million
[GRAPH]
<PAGE>
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
28.2% Consumer discretionary/services
21.8% Technology
16.9% Health care
8.0% Financial services
6.3% Materials/processing
4.5% Utilities/communication
4.4% Producer durables
4.3% Autos/transportation
2.2% Consumer staples
2.0% Energy
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
Frank L. Sustersic has served as the lead product manager of the Micro Cap
Growth Fund since its inception in 1998. A Chartered Financial Analyst, Frank
joined Turner in 1994. Previously he was an investment officer and fund manager
with First Fidelity Bank Corporation. He holds a bachelor's degree from the
University of Pennsylvania.
[PHOTO]
William C. McVail serves as the comanager of the Micro Cap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO]
Christopher J. Perry serves as the comanager of the Micro Cap Growth Fund. Chris
joined Turner in 1998 after serving as a research analyst at the Pennsylvania
Merchant Group. A Chartered Financial Analyst, he earned a bachelor's degree at
Villanova University and an MBA degree at Drexel University.
14 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-Three Year Portfolio 1.33%
Lipper Short/Intermediate
U.S. Government Funds Average 0.34
Lehman Brothers 1-3 Year
U.S. Government Bond Index 1.38
- --------------------------------------------------------------------------------
Despite rising interest rates and declining bond prices at all maturities, the
Turner Short Duration Government Funds-Three Year Portfolio produced a positive
return of 1.33% in the past six months. However, the Three Year Portfolio
slightly underperformed its benchmark, the Lehman Brothers 1-3 Year U.S.
Government Bond Index, by 0.05 percentage points.
The Three Year Portfolio's modest shortfall can be attributed to two factors:
One, it had a substantial weighting in Treasury securities, the worst-performing
sector in the investment-grade market. After embracing the safety of Treasuries
last fall in the wake of Russia's massive debt default and Asia's economic
crises, investors reversed course; they concluded that the worst was probably
over for foreign economies, so riskier bonds that offered markedly higher yields
were now more attractive and the safety (and modest yields) of Treasuries were
now less attractive. As a result, demand for Treasuries slackened, and their
prices fell sharply.
And two, its average duration (its interest-rate sensitivity) was slightly
longer than that of the index. With rates rising, we would have more effectively
protected the prices of our holdings had we set our duration shorter. As a rule
we are conservative in our duration policies; we limit interest-rate risk by
setting our fixed-income funds' average durations moderately close to those of
the indexes--a maximum range of 20% above or below the index. Although our
duration was well within the high end of the range, in this case we would have
been better served with an even more conservative positioning.
Growth of a $10,000 investment in the
Turner Short Duration Government Funds-Three Year Portfolio:
March 1, 1994-March 31, 1999*
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Tuesday, March 01, 1994 through Wednesday, March 31, 1999
Growth of a Unit Value
Lehman
1-3 Year Turner
Government Three Year
Bond Index Portfolio
---------- ----------
Beginning 1.00 1.00
1994
March 0.99 1.01
April 1.00 1.01
May 1.00 1.01
June 1.00 1.01
July 1.01 1.02
August 1.01 1.03
September 1.01 1.03
October 1.01 1.03
November 1.01 1.03
December 1.01 1.04
1995
January 1.02 1.05
February 1.03 1.06
March 1.04 1.07
April 1.04 1.08
May 1.06 1.10
June 1.06 1.10
July 1.07 1.11
August 1.08 1.12
September 1.08 1.12
October 1.09 1.13
November 1.09 1.14
December 1.10 1.15
1996
January 1.11 1.16
February 1.11 1.17
March 1.11 1.17
April 1.11 1.17
May 1.11 1.17
June 1.11 1.18
July 1.12 1.19
August 1.12 1.19
September 1.13 1.22
October 1.14 1.22
November 1.15 1.23
December 1.15 1.23
1997
January 1.15 1.23
February 1.16 1.24
March 1.15 1.24
April 1.16 1.25
May 1.17 1.25
June 1.17 1.26
July 1.19 1.28
August 1.19 1.28
September 1.19 1.29
October 1.20 1.30
November 1.20 1.30
December 1.21 1.31
1998
January 1.22 1.32
February 1.22 1.32
March 1.22 1.33
April 1.22 1.34
May 1.23 1.34
June 1.24 1.35
July 1.24 1.36
August 1.25 1.37
September 1.26 1.39
October 1.27 1.40
November 1.27 1.40
December 1.27 1.40
1999
January 1.29 1.41
February 1.29 1.42
March 1.29 1.43
(C) Frank Russell Company
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-Three Year Portfolio is March 1, 1994.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
- ---------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
6.16% 6.45% 6.56% 6.31%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 15
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio
On the plus side, our substantial position in mortgage-backed securities did
well (mortgages were the best- performing investment-grade sector). Our
commercial mortgage-backed holdings received a boost when that class of
securities was added to the Lehman Brothers Aggregate Bond Index in the first
quarter.
In light of the potential risks posed by the conflict between Serbia and Kosovo
and the narrowing of yield spreads, we are adding to our position in Treasuries;
they tend to outperform when spreads are narrow (as is the case now) or in times
of international turmoil.
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-Three Year Portfolio seeks to produce
maximum total return consistent with the preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a three-year Treasury note.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o Ticker symbol TSDGX
o CUSIP #872524202
o Top 10 holdings (1) U.S. Treasury Notes, 5.50%, 05/31/00, (2) U.S. Treasury
Notes, 6.25%, 06/30/02, (3) U.S. Treasury Notes, 5.00%, 02/28/01, (4) FNCI,
6.00%, 01/01/19, (5) CWHL, 7.50%, 1997-2 A11, 04/25/27, (6) Federal Home Loan
Mortgage Corporation, 9.50%, 161 F, 06/15/06, (7) Federal Home Loan Mortgage
Corporation - Gold, 6.00%, 04/19/99, (8) U.S. Treasury Notes, 5.75%,
10/31/00, (9) Contimortgage Home Equity Loan Trust Series 1996-2, A5,
04/15/11, (10) Structured Asset Securities Corporation, Variable Coupon,
10/30/07
o Number of holdings 27
o Average effective duration 1.8 years
o Average maturity 2.5 years
o Average yield to maturity 5.29%
o Average credit quality Agency
o Convexity (0.18)
o Assets $18.8 million
- --------------------------------------------------------------------------------
Sector weightings:
[GRAPH]
47.5% Treasury securities
44.1% Mortgage-backed securities
4.8% Asset-backed securities
2.9% Agency securities
0.7% Other
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-Three Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
16 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
Turner Short Duration Government Funds-
One Year Portfolio
Total return
Six-month period ending March 31, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-One Year Portfolio
(Institutional Class) 2.74%
Lipper Ultra-Short Obligation Funds Average 2.21
Merrill Lynch Three-Month
U.S. Treasury Bill Index 2.19
- --------------------------------------------------------------------------------
In general, when interest rates rise, shorter maturities are best at protecting
fixed-income principal. For the Turner Short Duration Government Funds-One Year
Portfolio, that proved to be the case in the past six months, a time in which
any security with a maturity of five years or longer lost money. (Indeed, the
peril of investing in long bonds was readily apparent during this time, as the
30-year Treasury was down 8.33%.) In contrast, the One Year Portfolio's
Institutional Class did an excellent job of protecting principal, earning a
2.74% return and outperforming the Merrill Lynch Three-Month U.S. Treasury Bill
Index by an impressive differential, 0.55 percentage points.
Traditionally, a prime benefit of the One Year Portfolio has been that it offers
a significantly higher yield than a money-market investment does and only
incrementally higher risk; a one-year security, for instance, has rarely
recorded a negative annual return. The average duration of the One Year
Portfolio now is very short (and very protective): 0.4 years. Yet its yield to
maturity of 5.07% represents a not-inconsiderable premium of 57 basis points
over a six-month Treasury bill.
That yield premium and conservative maturity structure were the primary reasons
for the One Year Portfolio's outperformance. In general, our security selection
was commendable, and we took profits in certain collateralized mortgage
obligations, part of a sector, mortgage-backed securities, that outperformed all
others in the investment-grade market. A sizable number of our mortgage holdings
are discount mortgages (securities selling below their redemption value), which
we think offer attractive total-return potential.
Growth of a $10,000 investment in the
Turner Short Duration Government Funds-One Year Portfolio (Institutional Class):
March 1, 1994-March 31, 1999*
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
Tuesday, March 01, 1994 through Wednesday, March 31, 1999
Growth of a Unit Value
Merrill Lynch Turner
Three-Month One Year
Treasury Index Portfolio
-------------- ----------
Beginning 1.00 1.00
1994
March 1.00 1.00
April 1.01 1.01
May 1.01 1.01
June 1.01 1.01
July 1.02 1.02
August 1.02 1.02
September 1.03 1.02
October 1.03 1.03
November 1.03 1.03
December 1.04 1.04
1995
January 1.04 1.05
February 1.05 1.05
March 1.05 1.06
April 1.06 1.06
May 1.06 1.07
June 1.07 1.08
July 1.07 1.08
August 1.08 1.09
September 1.08 1.09
October 1.09 1.10
November 1.09 1.11
December 1.10 1.12
1996
January 1.10 1.12
February 1.11 1.13
March 1.11 1.13
April 1.12 1.14
May 1.12 1.14
June 1.13 1.15
July 1.13 1.16
August 1.14 1.16
September 1.14 1.17
October 1.15 1.18
November 1.15 1.18
December 1.16 1.19
1997
January 1.16 1.19
February 1.17 1.20
March 1.17 1.20
April 1.18 1.21
May 1.18 1.22
June 1.19 1.22
July 1.19 1.23
August 1.20 1.24
September 1.20 1.24
October 1.21 1.25
November 1.21 1.26
December 1.22 1.26
1998
January 1.22 1.27
February 1.23 1.28
March 1.23 1.28
April 1.24 1.29
May 1.25 1.29
June 1.25 1.30
July 1.26 1.30
August 1.26 1.31
September 1.27 1.32
October 1.27 1.32
November 1.28 1.33
December 1.28 1.34
1999
January 1.29 1.34
February 1.29 1.35
March 1.30 1.36
(C) Frank Russell Company
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-One Year Portfolio (Institutional Class) is March 1, 1994.
- --------------------------------------------------------------------------------
Annualized total returns
Periods ending March 31, 1999
Past one Past three Past five Since
year years years inception
5.92% 6.18% 6.26% 6.18%
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 17
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio
Also, we think six-month maturities offer an attractive premium to an inflation
rate that's the lowest in decades. So we are seeking to augment our positions at
the shortest end of the yield curve, in the money markets; about 80% of our
current investments have a maturity of one year or less. Also, although we
currently have almost equal weightings in Treasuries and mortgages, we plan to
add more Treasuries in coming months; in our analysis, Treasuries offer a
favorable risk/reward tradeoff now: zero credit risk and relatively competitive
yields, a combination that we think should do well in the months ahead,
especially if military actions in Yugoslavia intensify.
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-One Year Portfolio seeks to produce
maximum total return consistent with preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a one-year Treasury bill.
- --------------------------------------------------------------------------------
Fund profile
March 31, 1999
o CUSIP #872524103 (Institutional Class)
o Top 10 holdings (1) U.S. Treasury Note, 5.625%, 11/30/99, (2) FHLMC, 9.50%,
161F, 06/15/06, (3) FHLMC, 4.80%, 04/14/99, (4) FHLMC, 4.816%, 04/01/99, (5)
GNMA, 6.125%, #8297, (6) U.S. Treasury Note, 5.75%, 10/31/00, (7) GNMA,
6.875%, #8489, (8) FHLMC, 4.80%, 04/01/99, (9) NationsBank Credit Card Master
Trust, 1996 Class A, (10) FHLMC, 4.84%, 04/06/99
o Number of holdings 20
o Average effective duration 0.4 years
o Average maturity 0.5 years
o Average yield to maturity 5.07%
o Average credit quality Agency
o Convexity 0
o Assets $1.2 million
[CREDIT QUALITY GRAPH]
- --------------------------------------------------------------------------------
Sector weightings:
28.6% Mortgage-backed securities
26.9% Treasury securities
12.6% Asset-backed securities
31.9% Other
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-One Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
18 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
March 31, 1999
Value
Shares (000)
- --------------------------------------------------------------------------------
Common stocks--97.5%
- --------------------------------------------------------------------------------
Aircraft--1.0%
- --------------------------------------------------------------------------------
Allied Signal 1,850 $ 91
---------
Total Aircraft 91
---------
- --------------------------------------------------------------------------------
Beauty products--4.9%
- --------------------------------------------------------------------------------
Gillette 2,050 122
Procter & Gamble 3,145 308
---------
Total Beauty products 430
---------
- --------------------------------------------------------------------------------
Broadcasting, newspapers, and advertising--3.3%
- --------------------------------------------------------------------------------
AT&T Corp-Liberty Media, Cl A* 2,400 126
Fox Entertainment Group, Cl A* 6,165 167
---------
Total Broadcasting, newspapers,
and advertising 293
---------
- --------------------------------------------------------------------------------
Communications equipment--3.3%
- --------------------------------------------------------------------------------
Northern Telecom Ltd 1,700 106
Tellabs* 1,900 186
---------
Total Communications equipment 292
---------
- --------------------------------------------------------------------------------
Computers and services--18.5%
- --------------------------------------------------------------------------------
America Online* 2,090 305
Cisco Systems* 4,022 441
EMC* 1,500 192
Microsoft* 6,270 562
Sun Microsystems* 1,045 131
---------
Total Computers and services 1,631
---------
- --------------------------------------------------------------------------------
Drugs--16.2%
- --------------------------------------------------------------------------------
Abbott Laboratories 3,665 172
Eli Lilly 2,455 208
Merck 4,595 368
Pfizer 3,350 465
Schering Plough 4,020 222
---------
Total Drugs 1,435
---------
- --------------------------------------------------------------------------------
Electronics--2.8%
- --------------------------------------------------------------------------------
Motorola 3,400 249
---------
Total Electronics 249
---------
Value
Shares (000)
- --------------------------------------------------------------------------------
Entertainment--2.8%
- --------------------------------------------------------------------------------
Time Warner 1,210 $ 86
Walt Disney 5,100 159
---------
Total Entertainment 245
---------
- --------------------------------------------------------------------------------
Financial services--6.6%
- --------------------------------------------------------------------------------
American Express 700 82
Citigroup 2,080 133
Household International 3,470 158
Morgan Stanley, Dean Witter,
Discover & Company 2,100 210
---------
Total Financial services 583
---------
- --------------------------------------------------------------------------------
Food, beverage, and tobacco--6.0%
- --------------------------------------------------------------------------------
Coca-Cola Company 675 41
Coca-Cola Enterprises 2,440 74
PepsiCo 3,780 148
Seagram 5,350 268
---------
Total Food, beverage, and tobacco 531
---------
- --------------------------------------------------------------------------------
Household products--6.0%
- --------------------------------------------------------------------------------
General Electric 4,800 531
---------
Total Household products 531
---------
- --------------------------------------------------------------------------------
Machinery--2.3%
- --------------------------------------------------------------------------------
Applied Materials* 3,290 203
---------
Total Machinery 203
---------
- --------------------------------------------------------------------------------
Medical products and services--2.8%
- --------------------------------------------------------------------------------
Amgen* 2,130 159
Medtronic 1,180 85
---------
Total Medical products and services 244
---------
- --------------------------------------------------------------------------------
Miscellaneous consumer products--3.0%
- --------------------------------------------------------------------------------
Johnson & Johnson 2,855 268
---------
Total Miscellaneous consumer products 268
---------
- --------------------------------------------------------------------------------
Miscellaneous manufacturing--1.1%
- --------------------------------------------------------------------------------
Tyco International Limited 1,410 101
---------
Total Miscellaneous manufacturing 101
---------
- --------------------------------------------------------------------------------
Retail--7.3%
- --------------------------------------------------------------------------------
Home Depot 2,893 180
Safeway* 2,018 104
Wal-Mart Stores 2,575 237
Walgreen 4,540 128
---------
Total Retail 649
---------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 19
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
Shares/face Value
amount (000) (000)
- --------------------------------------------------------------------------------
Semiconductors/instruments--5.4%
- --------------------------------------------------------------------------------
Intel 2,930 $ 348
Texas Instruments 1,280 127
---------
Total Semiconductors/instruments 475
---------
- --------------------------------------------------------------------------------
Telephones and telecommunication--4.2%
- --------------------------------------------------------------------------------
AT&T 1,365 109
MCI WorldCom* 2,950 261
---------
Total Telephones and
telecommunication 370
---------
- --------------------------------------------------------------------------------
Total Common stocks (cost $7,549) 8,621
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase agreement--1.1%
- --------------------------------------------------------------------------------
Morgan Stanley, 4.50%, dated 03/31/99,
matures 4/01/99, repurchase price
$95,461 (collateralized by U.S. Treasury
Note, par value $230,657, 7.75%,
02/15/01, market value $249,450) $95 95
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $95) 95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--98.6%
(cost $7,644) 8,716
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities, net: 1.4% 121
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited authorization
--no par value) based on 464,695
outstanding shares of beneficial interest 6,652
Accumulated net investment loss (12)
Accumulated net realized
gain on investments 1,125
Net unrealized appreciation
on investments 1,072
- --------------------------------------------------------------------------------
Total net assets--100.0% $8,837
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $19.02
- --------------------------------------------------------------------------------
*Non-income producing security
Cl - Class
The accompanying notes are an integral part of the financial statements.
Statement of net assets
Turner Growth Equity Fund
March 31, 1999
Value
Shares (000)
- --------------------------------------------------------------------------------
Common stocks--99.4%
- --------------------------------------------------------------------------------
Aircraft--1.1%
- --------------------------------------------------------------------------------
Allied Signal 29,770 $ 1,464
---------
Total Aircraft 1,464
---------
- --------------------------------------------------------------------------------
Automotive--0.5%
- --------------------------------------------------------------------------------
Ford Motor 11,270 640
---------
Total Automotive 640
---------
- --------------------------------------------------------------------------------
Banks--1.4%
- --------------------------------------------------------------------------------
BankAmerica 9,420 665
Chase Manhattan 7,620 620
Firstar 7,660 686
---------
Total Banks 1,971
---------
- --------------------------------------------------------------------------------
Beauty products--3.9%
- --------------------------------------------------------------------------------
Gillette 29,090 1,729
Procter & Gamble 37,280 3,651
---------
Total Beauty products 5,380
---------
- --------------------------------------------------------------------------------
Broadcasting, newspapers, and advertising--3.3%
- --------------------------------------------------------------------------------
AT&T Corp-Liberty Media, Cl A* 19,090 1,005
Cox Communications, Cl A* 9,990 755
Fox Entertainment Group, Cl A* 23,500 637
Omnicom Group 10,670 853
Outdoor Systems* 20,480 614
Young & Rubicam* 17,060 695
---------
Total Broadcasting, newspapers,
and advertising 4,559
---------
- --------------------------------------------------------------------------------
Communications equipment--2.5%
- --------------------------------------------------------------------------------
Northern Telecom Ltd 17,380 1,080
Tellabs* 24,520 2,397
---------
Total Communications equipment 3,477
---------
- --------------------------------------------------------------------------------
Computers and services--15.7%
- --------------------------------------------------------------------------------
America Online* 25,560 3,732
Cisco Systems* 45,920 5,031
EMC* 21,980 2,808
Microsoft* 80,020 7,172
Sun Microsystems* 12,730 1,592
Teradyne* 13,040 711
Yahoo* 3,970 668
---------
Total Computers and services 21,714
---------
20 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Drugs--14.3%
- --------------------------------------------------------------------------------
Abbott Laboratories 47,780 $ 2,237
American Home Products 36,590 2,387
Cardinal Health 17,700 1,168
Eli Lilly 21,160 1,796
Merck 62,390 5,003
Pfizer 33,760 4,684
Schering Plough 44,810 2,479
---------
Total Drugs 19,754
---------
- --------------------------------------------------------------------------------
Electronics--3.6%
- --------------------------------------------------------------------------------
General Motors, Cl H* 13,890 701
LSI Logic* 23,340 728
Motorola 32,020 2,345
Xilinx* 27,600 1,120
---------
Total Electronics 4,894
---------
- --------------------------------------------------------------------------------
Entertainment--2.7%
- --------------------------------------------------------------------------------
Time Warner 26,320 1,870
Walt Disney 59,220 1,843
---------
Total Entertainment 3,713
---------
- --------------------------------------------------------------------------------
Financial services--5.5%
- --------------------------------------------------------------------------------
American Express 11,210 1,317
Associates First Capital 13,150 592
Charles Schwab 11,380 1,094
Citigroup 11,650 744
Fannie Mae 15,350 1,063
Freddie Mac 18,270 1,044
Household International 16,000 730
Providian Financial 9,360 1,030
---------
Total Financial services 7,614
---------
- --------------------------------------------------------------------------------
Food, beverage, and tobacco--4.6%
- --------------------------------------------------------------------------------
Anheuser Busch 13,440 1,024
Coca-Cola Company 27,780 1,705
Pepsi Bottling Group* 29,400 638
PepsiCo 49,270 1,931
Seagram 20,590 1,029
---------
Total Food, beverage, and tobacco 6,327
---------
- --------------------------------------------------------------------------------
Gas/natural gas--0.8%
- --------------------------------------------------------------------------------
Enron 16,660 1,070
---------
Total Gas/natural gas 1,070
---------
Value
Shares (000)
- --------------------------------------------------------------------------------
Glass products--0.5%
- --------------------------------------------------------------------------------
Corning 11,650 $ 699
---------
Total Glass products 699
---------
- --------------------------------------------------------------------------------
Household products--5.0%
- --------------------------------------------------------------------------------
General Electric 62,690 6,935
---------
Total Household products 6,935
---------
- --------------------------------------------------------------------------------
Insurance--0.8%
- --------------------------------------------------------------------------------
American International Group 8,450 1,019
---------
Total Insurance 1,019
---------
- --------------------------------------------------------------------------------
Machinery--1.2%
- --------------------------------------------------------------------------------
Applied Materials* 27,170 1,676
---------
Total Machinery 1,676
---------
- --------------------------------------------------------------------------------
Medical products and services--3.2%
- --------------------------------------------------------------------------------
Amgen* 31,870 2,386
Bausch & Lomb 10,530 684
Guidant* 22,670 1,372
---------
Total Medical products and services 4,442
---------
- --------------------------------------------------------------------------------
Miscellaneous business services--3.3%
- --------------------------------------------------------------------------------
At Home, Cl A* 5,100 803
Automatic Data Processing 17,040 705
BMC Software* 18,830 698
Ebay* 4,160 571
Network Solutions, Cl A* 5,920 626
Novell* 44,220 1,114
---------
Total Miscellaneous business services 4,517
---------
- --------------------------------------------------------------------------------
Miscellaneous consumer products--3.5%
- --------------------------------------------------------------------------------
Clorox 11,300 1,324
Johnson & Johnson 37,330 3,497
---------
Total Miscellaneous consumer products 4,821
---------
- --------------------------------------------------------------------------------
Miscellaneous manufacturing--1.5%
- --------------------------------------------------------------------------------
Tyco International Limited 28,780 2,065
---------
Total Miscellaneous manufacturing 2,065
---------
- --------------------------------------------------------------------------------
Retail--12.0%
- --------------------------------------------------------------------------------
Amazon.com* 3,740 644
American Stores 29,120 961
Best Buy* 14,060 731
Costco* 11,410 1,045
Dayton Hudson 14,790 985
TURNER FUNDS 1999 SEMIANNUAL REPORT | 21
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Growth Equity Fund
Value
Shares (000)
- --------------------------------------------------------------------------------
Gap 15,670 $ 1,055
Home Depot 34,040 2,119
Lowe's 16,550 1,001
McDonald's 23,170 1,050
Safeway* 34,710 1,781
TJX 19,520 664
Tricon Global Restaurants* 10,150 713
Wal-Mart Stores 31,980 2,948
Walgreen 31,920 902
---------
Total Retail 16,599
---------
- --------------------------------------------------------------------------------
Semiconductors/instruments--4.7%
- --------------------------------------------------------------------------------
Intel 40,540 4,819
KLA-Tencor* 15,260 741
Texas Instruments 9,480 941
---------
Total Semiconductors/instruments 6,501
---------
- --------------------------------------------------------------------------------
Telephones and telecommunication--3.8%
- --------------------------------------------------------------------------------
AT&T 15,056 1,202
MCI WorldCom* 24,960 2,211
Metromedia Fiber Network, Cl A* 13,680 709
Qwest Communications
International* 15,800 1,139
---------
Total Telephones and telecommunication 5,261
---------
- --------------------------------------------------------------------------------
Total Common stocks (cost $111,654) 137,112
- --------------------------------------------------------------------------------
Shares/face Value
amount (000) (000)
- --------------------------------------------------------------------------------
Repurchase agreement--0.5%
- --------------------------------------------------------------------------------
Morgan Stanley, 4.95%, dated 03/31/99,
matures 4/01/98, repurchase price
$741,670 (collateralized by U.S.
Treasury Note, par value $739,335,
5.625%, matures 10/31/99,
market value $760,212) $742 $742
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $742) 742
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--99.9%
(cost $112,396) 137,854
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities, net: 0.1% 147
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited authorization
--no par value) based on 8,841,515
outstanding shares of beneficial interest 90,670
Accumulated net investment loss (238)
Accumulated net realized
gain on investments 22,111
Net unrealized appreciation
on investments 25,458
- --------------------------------------------------------------------------------
Total net assets--100.0% $138,001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $15.61
- --------------------------------------------------------------------------------
*Non-income producing security
Cl - Class
The accompanying notes are an integral part of the financial statements.
22 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Statement of net assets
Turner Midcap Growth Fund
March 31, 1999
Value
Shares (000)
- --------------------------------------------------------------------------------
Common stocks--90.7%
- --------------------------------------------------------------------------------
Air transportation--1.8%
- --------------------------------------------------------------------------------
Delta Air Lines 10,070 $ 700
US Airways Group* 7,530 368
---------
Total Air transportation 1,068
---------
- --------------------------------------------------------------------------------
Apparel/textiles--0.8%
- --------------------------------------------------------------------------------
Tommy Hilfiger* 7,340 506
---------
Total Apparel/textiles 506
---------
- --------------------------------------------------------------------------------
Banks--3.3%
- --------------------------------------------------------------------------------
Firstar 6,090 545
North Fork Bancorporation 18,650 394
Northern Trust 5,860 520
Zions Bancorp 8,255 549
---------
Total Banks 2,008
---------
- --------------------------------------------------------------------------------
Broadcasting, newspapers, and advertising--5.7%
- --------------------------------------------------------------------------------
Cablevision Systems, Cl A* 5,750 426
Harte-Hanks 15,000 412
Omnicom Group 10,610 848
Outdoor Systems* 23,421 703
TMP Worldwide* 7,400 480
Young & Rubicam* 13,540 552
---------
Total Broadcasting,
newspapers, and advertising 3,421
---------
- --------------------------------------------------------------------------------
Car rental--0.7%
- --------------------------------------------------------------------------------
Hertz, Cl A 7,700 412
---------
Total Car rental 412
---------
- --------------------------------------------------------------------------------
Computers and services--6.4%
- --------------------------------------------------------------------------------
Jabil Circuit* 9,240 374
Network Appliance* 10,200 516
New Era of Networks* 5,280 358
SunGard Data Systems* 6,050 242
Teradyne* 12,340 673
Veritas Software* 6,440 520
Visual Networks* 10,710 400
Yahoo* 4,570 769
---------
Total Computers and services 3,852
---------
<PAGE>
Value
Shares (000)
- --------------------------------------------------------------------------------
Drugs--2.6%
- --------------------------------------------------------------------------------
Biogen* 4,750 $ 543
Cardinal Health 7,470 493
Forest Laboratories* 9,310 525
---------
Total Drugs 1,561
---------
- --------------------------------------------------------------------------------
Electronics--2.3%
- --------------------------------------------------------------------------------
General Motors, Cl H* 7,510 379
LSI Logic* 14,090 439
Xilinx* 13,440 545
---------
Total Electronics 1,363
---------
- --------------------------------------------------------------------------------
Financial services--5.1%
- --------------------------------------------------------------------------------
Bear Stearns 8,500 380
Capital One Financial 4,810 726
Charles Schwab 12,560 1,207
Providian Financial 7,030 773
---------
Total Financial services 3,086
---------
- --------------------------------------------------------------------------------
Food, beverage, and tobacco--1.5%
- --------------------------------------------------------------------------------
Adolph Coors, Cl B 11,680 631
Pepsi Bottling Group* 12,390 269
---------
Total Food, beverage, and tobacco 900
---------
- --------------------------------------------------------------------------------
Glass products--1.1%
- --------------------------------------------------------------------------------
Corning 11,380 683
---------
Total Glass products 683
---------
- --------------------------------------------------------------------------------
Household furniture and fixtures--0.5%
- --------------------------------------------------------------------------------
Ethan Allen Interiors 6,510 271
---------
Total Household furniture and fixtures 271
---------
- --------------------------------------------------------------------------------
Insurance--0.9%
- --------------------------------------------------------------------------------
Jefferson Pilot 7,860 532
---------
Total Insurance 532
---------
- --------------------------------------------------------------------------------
Lumber and wood products--0.8%
- --------------------------------------------------------------------------------
Georgia-Pacific Group 6,790 504
---------
Total Lumber and wood products 504
---------
- --------------------------------------------------------------------------------
Machinery--0.9%
- --------------------------------------------------------------------------------
Baker Hughes 22,000 535
---------
Total Machinery 535
---------
- --------------------------------------------------------------------------------
Measuring devices--0.9%
- --------------------------------------------------------------------------------
Waters* 4,870 512
---------
Total Measuring devices 512
---------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 23
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Midcap Growth Fund
Value
Shares (000)
- --------------------------------------------------------------------------------
Medical products and services--6.7%
- --------------------------------------------------------------------------------
Allergan 6,350 $ 558
Bausch & Lomb 11,400 741
Biomet* 10,440 438
C.R. Bard 7,530 380
Guidant* 11,490 695
Patterson Dental* 12,200 528
Visx* 6,550 705
---------
Total Medical products and services 4,045
---------
- --------------------------------------------------------------------------------
Miscellaneous business services--16.8%
- --------------------------------------------------------------------------------
At Home, Cl A* 4,200 661
Bisys Group* 6,245 351
BMC Software* 7,160 265
Ceridian* 9,060 331
CMG Information Services * 1,970 361
CSG Systems International* 15,230 601
Doubleclick* 3,830 697
Ebay* 2,820 387
E*Trade Group* 6,650 388
Exodus Communications* 4,590 617
Fiserv* 9,830 527
Ims Health 12,450 412
InfoSpace.com* 4,490 398
Intuit* 3,860 393
iVillage* 4,640 466
Lycos* 7,570 651
Network Solutions, Cl A* 6,650 703
Novell* 16,230 409
Peregrine Systems* 14,320 481
Priceline.com* 5,740 476
RealNetworks* 4,460 545
---------
Total Miscellaneous business services 10,120
---------
- --------------------------------------------------------------------------------
Miscellaneous consumer products--2.0%
- --------------------------------------------------------------------------------
Clorox 4,420 518
Dial 20,000 687
---------
Total Miscellaneous consumer products 1,205
---------
- --------------------------------------------------------------------------------
Miscellaneous manufacturing--0.6%
- --------------------------------------------------------------------------------
Ecolab 10,580 376
---------
Total Miscellaneous manufacturing 376
---------
- --------------------------------------------------------------------------------
Paper and paper products--1.0%
- --------------------------------------------------------------------------------
Smurfit-Stone Container* 32,450 627
---------
Total Paper and paper products 627
---------
Value
Shares (000)
- --------------------------------------------------------------------------------
Petroleum and fuel products--0.6%
- --------------------------------------------------------------------------------
Anadarko Petroleum 9,890 $ 373
---------
Total Petroleum and fuel products 373
---------
- --------------------------------------------------------------------------------
Petroleum refining--0.7%
- --------------------------------------------------------------------------------
Valero Energy 17,697 440
---------
Total Petroleum refining 440
---------
- --------------------------------------------------------------------------------
Retail--13.7%
- --------------------------------------------------------------------------------
Abercrombie & Fitch, Cl A* 5,435 500
Amazon.com* 4,700 809
American Eagle Outfitters* 5,830 418
AnnTaylor Stores* 12,370 547
Bed Bath & Beyond* 16,390 598
Best Buy* 13,050 679
Brinker International* 25,310 653
Circuit City Stores 6,860 526
Dollar Tree Stores* 7,681 238
Linens N Things* 11,470 520
Office Depot* 13,990 515
Outback Steakhouse* 12,085 396
Papa John's International* 8,540 377
Staples* 18,370 604
Tiffany & Company 6,990 522
Tricon Global Restaurants* 5,520 388
---------
Total Retail 8,290
---------
- --------------------------------------------------------------------------------
Rubber and plastic--0.6%
- --------------------------------------------------------------------------------
Sealed Air* 7,865 387
---------
Total Rubber and plastic 387
---------
- --------------------------------------------------------------------------------
Semiconductors/instruments--6.5%
- --------------------------------------------------------------------------------
E-Tek Dynamics* 16,560 594
KLA-Tencor* 8,460 411
Lam Research* 8,680 252
Mips Technologies* 9,710 592
Novellus Systems* 8,190 451
PMC-Sierra* 5,940 423
QLogic* 4,820 324
RF Micro Devices* 5,010 479
Vitesse Semiconductor* 8,090 410
---------
Total Semiconductors/instruments 3,936
---------
- --------------------------------------------------------------------------------
Steel and steel works--0.5%
- --------------------------------------------------------------------------------
AK Steel Holding 13,960 315
---------
Total Steel and steel works 315
---------
- --------------------------------------------------------------------------------
Telephones and telecommunication--2.9%
- --------------------------------------------------------------------------------
Covad Communications Group* 4,020 264
24 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Shares/face Value
amount (000) (000)
- --------------------------------------------------------------------------------
Geotel Communications* 9,450 $ 434
Level 3 Communications* 3,900 284
Metromedia Fiber Network, Cl A* 7,840 406
Qwest Communications
International* 4,740 342
---------
Total Telephones and telecommunication 1,730
---------
- --------------------------------------------------------------------------------
Testing laboratories--0.9%
- --------------------------------------------------------------------------------
Medimmune* 9,100 539
---------
Total Testing laboratories 539
---------
- --------------------------------------------------------------------------------
Wholesale--1.9%
- --------------------------------------------------------------------------------
Amerisource Health* 12,440 425
US Foodservice* 15,330 713
---------
Total Wholesale 1,138
---------
- --------------------------------------------------------------------------------
Total Common stocks (cost $43,924) 54,735
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase agreement--9.0%
- --------------------------------------------------------------------------------
J.P. Morgan 4.95%, dated 03/31/99,
matures 04/01/99, repurchase price
$5,410,857 (collateralized by
GNMA, par value $5,522,502,
6.50%, matures 02/15/29, market
value $5,519,075) $5,411 5,411
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $5,411) 5,411
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--99.7%
(cost $49,335) 60,146
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities, net: 0.3% 163
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited authorization
--no par value) based on 2,846,350
outstanding shares of beneficial interest 45,689
Accumulated net investment loss (105)
Accumulated net realized
gain on investments 3,914
Net unrealized appreciation
on investments 10,811
- --------------------------------------------------------------------------------
Total net assets--100.0% $60,309
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $21.19
- --------------------------------------------------------------------------------
*Non-income producing security
Cl - Class
The accompanying notes are an integral part of the financial statements.
Statement of net assets
Turner Small Cap Growth Fund
March 31, 1999
Value
Shares (000)
- --------------------------------------------------------------------------------
Common stocks--98.6%
- --------------------------------------------------------------------------------
Air transportation--1.3%
- --------------------------------------------------------------------------------
Atlas Air* 58,290 $ 1,679
Skywest 30,900 892
---------
Total Air transportation 2,571
---------
- --------------------------------------------------------------------------------
Apparel/textiles--0.4%
- --------------------------------------------------------------------------------
Mohawk Industries* 27,270 818
---------
Total Apparel/textiles 818
---------
- --------------------------------------------------------------------------------
Automotive--0.8%
- --------------------------------------------------------------------------------
Avis Rent A Car* 53,580 1,483
---------
Total Automotive 1,483
---------
- --------------------------------------------------------------------------------
Banks--2.9%
- --------------------------------------------------------------------------------
Astoria Financial 28,890 1,444
City National 50,840 1,570
Golden State Bancorp* 62,480 1,390
Hubco 40,350 1,354
---------
Total Banks 5,758
---------
- --------------------------------------------------------------------------------
Broadcasting, newspapers, and advertising--3.3%
- --------------------------------------------------------------------------------
Adelphia Communications, Cl A* 33,020 2,080
Antec* 43,400 933
Lamar Advertising* 24,390 828
TMP Worldwide* 39,600 2,567
---------
Total Broadcasting, newspapers,
and advertising 6,408
---------
- --------------------------------------------------------------------------------
Building and construction--1.0%
- --------------------------------------------------------------------------------
Jacobs Engineering Group* 48,230 1,902
---------
Total Building and construction 1,902
---------
- --------------------------------------------------------------------------------
Communications equipment--1.2%
- --------------------------------------------------------------------------------
Concord Communications* 27,100 1,545
Polycom* 38,820 728
---------
Total Communications equipment 2,273
---------
- --------------------------------------------------------------------------------
Computers and services--5.4%
- --------------------------------------------------------------------------------
Advantage Learning Systems* 38,740 1,203
Network Appliance* 32,240 1,632
New Era of Networks* 19,270 1,305
Powerwave Technologies* 50,040 1,420
Sandisk* 42,870 1,136
TURNER FUNDS 1999 SEMIANNUAL REPORT | 25
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
TSI International Software* 27,110 $ 1,323
Visual Networks* 70,360 2,630
---------
Total Computers and services 10,649
---------
- --------------------------------------------------------------------------------
Consumer products--0.8%
- --------------------------------------------------------------------------------
Ferro 61,210 1,515
---------
Total Consumer products 1,515
---------
- --------------------------------------------------------------------------------
Drugs--1.8%
- --------------------------------------------------------------------------------
Alpharma, Cl A 40,760 1,600
Jones Pharmaceuticals 54,110 1,880
---------
Total Drugs 3,480
---------
- --------------------------------------------------------------------------------
Electronics--0.5%
- --------------------------------------------------------------------------------
Electro Scientific Industries* 21,500 1,000
---------
Total Electronics 1,000
---------
- --------------------------------------------------------------------------------
Environmental services--0.6%
- --------------------------------------------------------------------------------
Calpine* 30,900 1,126
---------
Total Environmental services 1,126
---------
- --------------------------------------------------------------------------------
Financial services--3.1%
- --------------------------------------------------------------------------------
CMAC Investment 21,780 849
Knight/Trimark Group, Cl A* 22,790 1,527
Legg Mason 31,880 1,074
Metris 28,870 1,166
NCO Group* 40,590 1,502
---------
Total Financial services 6,118
---------
- --------------------------------------------------------------------------------
Food, beverage, and tobacco--1.1%
- --------------------------------------------------------------------------------
Aurora Foods* 56,980 933
Suiza Foods* 33,990 1,145
---------
Total Food, beverage, and tobacco 2,078
---------
- --------------------------------------------------------------------------------
Insurance--2.9%
- --------------------------------------------------------------------------------
Annuity & Life Re Holdings 40,200 920
Financial Security
Assurance Holdings 29,640 1,471
Mutual Risk Management 55,750 2,132
Reinsurance Group of America 27,795 1,183
---------
Total Insurance 5,706
---------
Value
Shares (000)
- --------------------------------------------------------------------------------
Machinery--1.4%
- --------------------------------------------------------------------------------
Brooks Automation* 45,480 $ 1,018
SPX 32,660 1,647
---------
Total Machinery 2,665
---------
- --------------------------------------------------------------------------------
Measuring devices--1.5%
- --------------------------------------------------------------------------------
Advanced Energy Industries* 54,040 1,273
Mettler-Toledo International* 70,330 1,741
---------
Total Measuring devices 3,014
---------
- --------------------------------------------------------------------------------
Medical products and services--9.5%
- --------------------------------------------------------------------------------
Advanced Paradigm* 29,250 1,848
Alternative Living Services* 50,070 1,001
Conmed* 48,420 1,501
Covance* 70,400 1,764
Express Scripts* 13,130 1,128
Hooper Holmes 68,100 1,064
IDEXX Laboratories* 54,310 1,300
Minimed* 9,380 953
Patterson Dental* 53,900 2,331
Resmed* 12,810 362
TLC Laser Center* 40,000 1,287
Trigon Healthcare* 37,930 1,299
Visx* 17,760 1,910
Xomed Surgical Products* 24,500 962
---------
Total Medical products and services 18,710
---------
- --------------------------------------------------------------------------------
Miscellaneous business services--21.8%
- --------------------------------------------------------------------------------
Acnielsen* 36,720 996
Affiliated Computer Services, Cl A* 21,660 991
Autoweb.com* 33,590 1,197
Bisys Group* 40,260 2,265
C-Net* 15,790 1,455
Checkfree Holdings* 34,670 1,476
Critical Path* 15,970 1,230
CSG Systems International* 45,960 1,813
Digital River* 20,660 826
Doubleclick* 13,100 2,385
E*Trade Group* 23,250 1,356
Electronics for Imaging* 52,830 2,060
Exodus Communications* 21,040 2,830
Infoseek* 18,970 1,404
iVillage* 21,670 2,178
Macromedia* 49,600 2,247
Metzler Group* 4,250 133
Micromuse* 33,080 1,522
Miningo.com* 16,400 1,468
Multex.com* 40,570 2,536
26 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Netgravity* 30,880 $ 1,278
Network Solutions, Cl A* 8,930 944
Onemain.com* 22,600 819
Peregrine Systems* 55,820 1,877
Profit Recovery Group International* 57,010 2,252
Psinet* 25,340 1,078
RealNetworks* 17,240 2,106
---------
Total Miscellaneous business services 42,722
---------
- --------------------------------------------------------------------------------
Miscellaneous consumer products--0.7%
- --------------------------------------------------------------------------------
Regis 51,240 1,364
---------
Total Miscellaneous consumer products 1,364
---------
- --------------------------------------------------------------------------------
Paper and paper products--1.2%
- --------------------------------------------------------------------------------
Smurfit-Stone Container* 126,840 2,450
---------
Total Paper and paper products 2,450
---------
- --------------------------------------------------------------------------------
Petroleum and fuel products--2.3%
- --------------------------------------------------------------------------------
Global Industries* 143,020 1,448
Ocean Energy* 163,022 1,111
Petroleum Geo Services*, ADR 50,790 775
Veritas DGC* 82,580 1,172
---------
Total Petroleum and fuel products 4,506
---------
- --------------------------------------------------------------------------------
Professional services--1.8%
- --------------------------------------------------------------------------------
Consolidated Graphics* 18,990 1,097
Education Management* 48,900 1,504
FYI* 26,780 857
---------
Total Professional services 3,458
---------
- --------------------------------------------------------------------------------
Retail--8.1%
- --------------------------------------------------------------------------------
99 Cents Only Stores* 49,000 2,079
American Eagle Outfitters* 18,380 1,318
AnnTaylor Stores* 39,820 1,760
Children's Place* 55,970 1,508
Claire's Stores 37,060 1,116
Cost Plus* 38,400 1,128
CSK Auto* 33,200 994
Foodmaker* 54,230 1,383
Linens N Things* 48,740 2,212
Papa John's International* 32,040 1,414
Ruby Tuesday 50,930 885
---------
Total Retail 15,797
---------
Value
Shares (000)
- --------------------------------------------------------------------------------
Semiconductors/instruments--8.6%
- --------------------------------------------------------------------------------
Applied Micro Circuits* 35,570 $ 1,521
Genesis Microchip* 37,290 886
Lam Research* 59,210 1,717
MIPS Technologies* 56,290 3,434
Novellus Systems* 18,140 1,000
PMC-Sierra* 23,060 1,642
QLogic* 25,560 1,716
RF Micro Devices* 20,900 2,000
TranSwitch* 36,810 1,666
Ultratech Stepper* 92,560 1,307
---------
Total Semiconductors/instruments 16,889
---------
- --------------------------------------------------------------------------------
Specialty construction--1.2%
- --------------------------------------------------------------------------------
Gaylord Container* 132,230 992
United Rentals* 49,660 1,415
---------
Total Specialty construction 2,407
---------
- --------------------------------------------------------------------------------
Steel and steel works--1.0%
- --------------------------------------------------------------------------------
AK Steel Holding 85,300 1,925
---------
Total Steel and steel works 1,925
---------
- --------------------------------------------------------------------------------
Technology, services--1.0%
- --------------------------------------------------------------------------------
Devry* 68,670 1,991
---------
Total Technology, services 1,991
---------
- --------------------------------------------------------------------------------
Telephones and telecommunication--9.6%
- --------------------------------------------------------------------------------
Commscope* 94,680 1,982
Concentric Network* 24,400 1,824
Dycom Industries* 34,210 1,488
Geotel Communications* 46,430 2,130
Gilat Satellite Networks Limited* 17,500 1,050
Intermedia
Communications of Florida* 40,450 1,077
L-3 Communications Corp* 38,120 1,763
Nextlink Communications* 24,520 1,373
RNC Corportion* 58,880 1,976
Viatel* 34,050 970
Western Wireless, Cl A* 50,320 1,824
Winstar Communications* 39,140 1,422
---------
Total Telephones and telecommunication 18,879
---------
- --------------------------------------------------------------------------------
Wholesale--1.8%
- --------------------------------------------------------------------------------
Amerisource Health* 37,300 1,275
Aviation Sales* 20,650 919
Priority Healthcare, Cl B* 30,680 1,388
---------
Total Wholesale 3,582
---------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 27
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Small Cap Growth Fund
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
Total Common stocks (cost $152,266) $193,244
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase agreement--0.5%
- --------------------------------------------------------------------------------
Morgan Stanley 4.95%, dated 03/31/99,
matures 4/01/99, repurchase price
$887,846 (collateralized by U.S.
Treasury Note, par value $885,052,
5.625%, matures 10/31/99, market
value $910,042) $888 888
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $888) 888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--99.1%
(cost $153,154) 194,132
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities, net: 0.9% 1,821
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited authorization
--no par value) based on
6,896,724 outstanding shares
of beneficial interest 151,348
Accumulated net investment loss (861)
Accumulated net realized
gain on investments 4,488
Net unrealized appreciation
on investments 40,978
- --------------------------------------------------------------------------------
Total net assets--100.0% $195,953
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $28.41
- --------------------------------------------------------------------------------
*Non-income producing security
ADR - American Depository Receipt
Cl - Class
The accompanying notes are an integral part of the financial statements.
Statement of net assets
Turner Micro Cap Growth Fund
March 31, 1999
Value
Shares (000)
- --------------------------------------------------------------------------------
Common stocks--99.3%
- --------------------------------------------------------------------------------
Banks--1.3%
- --------------------------------------------------------------------------------
First Oak Brook 1,040 $ 18
Flushing Financial 2,110 30
Trico Bancshares 2,000 32
---------
Total Banks 80
---------
- --------------------------------------------------------------------------------
Beauty products--0.8%
- --------------------------------------------------------------------------------
Styling Technology* 3,700 47
---------
Total Beauty Products 47
---------
- --------------------------------------------------------------------------------
Building and construction--1.9%
- --------------------------------------------------------------------------------
M.D.C. Holdings 1,900 27
National R.V. Holdings* 2,650 59
UNIFAB International* 3,600 29
---------
Total Building and construction 115
---------
- --------------------------------------------------------------------------------
Building and construction supplies--2.9%
- --------------------------------------------------------------------------------
Dayton Superior* 2,000 35
Elcor 1,170 41
Mobile Mini* 4,400 57
NVR* 980 41
---------
Total Building and construction supplies 174
---------
- --------------------------------------------------------------------------------
Communications equipment--1.3%
- --------------------------------------------------------------------------------
Teltrend* 1,400 22
Tut Systems* 1,200 60
---------
Total Communications equipment 82
---------
- --------------------------------------------------------------------------------
Computers and services--8.2%
- --------------------------------------------------------------------------------
Ardent Software* 2,100 34
Avt Corp* 2,230 53
Clarify* 1,300 35
Cybex Computer Products* 1,350 24
Fourth Shift* 6,400 34
Netplex Group* 20,200 67
Pinnacle Systems* 900 41
Smith-Gardner and Associates* 3,200 45
Symix Systems* 1,050 16
TSI International Software* 840 41
Unify* 4,100 62
Verity* 1,300 44
---------
Total Computers and services 496
---------
28 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Consumer products--1.5%
- --------------------------------------------------------------------------------
K-Swiss, Cl A 2,000 $ 51
Steven Madden Ltd* 4,700 40
---------
Total Consumer products 91
---------
- --------------------------------------------------------------------------------
Drugs--2.1%
- --------------------------------------------------------------------------------
Kendle International* 2,250 45
Medco Research* 3,100 81
---------
Total Drugs 126
---------
- --------------------------------------------------------------------------------
Electronics--1.0%
- --------------------------------------------------------------------------------
Anaren Microwave* 2,450 59
---------
Total Electronics 59
---------
- --------------------------------------------------------------------------------
Entertainment--2.8%
- --------------------------------------------------------------------------------
Argosy Gaming* 10,000 53
THQ* 3,000 61
WMS Industries* 7,300 56
---------
Total Entertainment 170
---------
- --------------------------------------------------------------------------------
Environmental services--1.9%
- --------------------------------------------------------------------------------
Stericycle* 3,800 51
U.S. Liquids* 3,000 65
---------
Total Environmental services 116
---------
- --------------------------------------------------------------------------------
Financial services--6.4%
- --------------------------------------------------------------------------------
Ace Cash Express* 4,000 51
Creditrust* 6,000 119
Financial Federal* 2,600 49
First Cash* 2,900 26
NCO Group* 1,280 47
Rock Financial 5,400 97
---------
Total Financial services 389
---------
- --------------------------------------------------------------------------------
Food, beverage, and tobacco--2.3%
- --------------------------------------------------------------------------------
Agribrands International* 1,100 36
IL Fornaio American* 5,900 58
WLR Foods* 6,000 44
---------
Total Food, beverage, and tobacco 138
---------
- --------------------------------------------------------------------------------
Gas/natural gas--1.1%
- --------------------------------------------------------------------------------
Cascade Natural Gas 2,100 31
Roanoke Gas 1,700 33
---------
Total Gas/natural gas 64
---------
- --------------------------------------------------------------------------------
Household furniture and fixtures--0.9%
- --------------------------------------------------------------------------------
Pulaski Furniture 850 17
Stanley Furniture* 2,060 40
---------
Total Household furniture and fixtures 57
---------
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Insurance--1.1%
- --------------------------------------------------------------------------------
Farm Family Holdings* 970 $ 31
Penn Treaty American* 1,450 36
---------
Total Insurance 67
---------
- --------------------------------------------------------------------------------
Leasing and renting--1.9%
- --------------------------------------------------------------------------------
Dollar Thrifty Automotive* 4,280 74
Neff 5,500 44
---------
Total Leasing and renting 118
---------
- --------------------------------------------------------------------------------
Machinery--2.6%
- --------------------------------------------------------------------------------
Moog, Cl A* 1,750 53
Photon Dynamics* 13,100 103
---------
Total Machinery 156
---------
- --------------------------------------------------------------------------------
Medical products and services--11.8%
- --------------------------------------------------------------------------------
Advanced Paradigm* 1,700 107
Biomatrix* 1,000 78
Brookdale Living Communities* 3,000 52
CareMatrix* 3,050 58
Empi* 2,500 54
Hooper Holmes 2,000 31
Laser Vision Centers* 2,400 92
Molecular Devices* 2,850 77
Summit Technology* 10,000 110
Syncor International* 2,200 61
---------
Total Medical products and services 720
---------
- --------------------------------------------------------------------------------
Miscellaneous business services--4.9%
- --------------------------------------------------------------------------------
Global Imaging Systems* 2,300 31
Flashnet Communications* 1,100 45
Pervasive Software* 5,000 89
Softnet Systems* 2,700 99
Quanta Services* 1,450 37
---------
Total Miscellaneous business services 301
---------
- --------------------------------------------------------------------------------
Miscellaneous manufacturing--5.5%
- --------------------------------------------------------------------------------
Aeroflex* 5,650 81
Cutter & Buck* 1,500 48
Engineered Support System 1,695 29
Jakks Pacific* 3,050 56
LSI Industries 1,230 21
Monaco Coach* 2,110 49
Quixote 2,900 33
Uniroyal Technology* 2,500 20
---------
Total Miscellaneous manufacturing 337
---------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 29
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Micro Cap Growth Fund
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Petroleum and fuel products--2.0%
- --------------------------------------------------------------------------------
HS Resources* 7,000 $ 61
UTI Energy* 5,900 63
---------
Total Petroleum and fuel products 124
---------
- --------------------------------------------------------------------------------
Professional services--0.8%
- --------------------------------------------------------------------------------
BI* 5,400 51
---------
Total professional services 51
---------
- --------------------------------------------------------------------------------
Research and development--0.8%
- --------------------------------------------------------------------------------
Aurora Biosciences* 7,200 48
---------
Total research and development 48
---------
- --------------------------------------------------------------------------------
Retail--13.7%
- --------------------------------------------------------------------------------
Building Materials Holding* 5,950 60
Cheap Tickets* 2,300 77
Chico's Fas* 2,500 54
Children's Place* 2,200 59
Delia's* 2,500 79
E4L* 7,200 61
Garden Fresh Restaurant* 4,050 58
Noodle Kidoodle* 8,200 54
NPC International* 3,700 58
Roadhouse Grill * 5,600 34
Rush Enterprises* 3,800 43
Shop At Home* 6,300 79
Sports Authority* 9,500 69
Taco Cabana, Cl A* 5,500 49
---------
Total Retail 834
---------
- --------------------------------------------------------------------------------
Semiconductors/instruments--3.1%
- --------------------------------------------------------------------------------
ESS Technology* 5,300 27
Genesis Microchip* 1,400 33
Park Electrochemical 1,600 38
TranSwitch* 1,100 50
Zoran* 2,500 41
---------
Total Semiconductors/instruments 189
---------
- --------------------------------------------------------------------------------
Specialty construction--1.5%
- --------------------------------------------------------------------------------
Gaylord Container* 12,000 90
---------
Total Specialty construction 90
---------
30 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Value
Shares (000)
- --------------------------------------------------------------------------------
Telephones and telecommunication--3.8%
- --------------------------------------------------------------------------------
Audiovox, Cl A* 8,600 $ 57
Boston Communications Group* 4,950 48
Com21* 1,100 29
Metro One Telecommunications* 4,500 64
Microwave Power Devices* 4,500 36
---------
Total Telephones and telecommunication 234
---------
- --------------------------------------------------------------------------------
Transportation services--1.6%
- --------------------------------------------------------------------------------
Forward Air* 7,600 100
---------
Total Transportation services 100
---------
- --------------------------------------------------------------------------------
Water utilities--1.6%
- --------------------------------------------------------------------------------
Artesian Resources, Class A 2,200 55
E'town 1,000 40
---------
Total Water utilities 95
---------
- --------------------------------------------------------------------------------
Wholesale--6.2%
- --------------------------------------------------------------------------------
Advanced Marketing Systems 3,755 49
Craftwood International 5,050 76
D&K Healthcare Resources* 3,700 92
Golden State Vintners* 4,650 56
Miami Computer Supply* 3,200 64
Sodak Gaming* 4,500 40
---------
Total Wholesale 377
---------
- --------------------------------------------------------------------------------
Total Common stocks (cost $5,417) 6,045
- --------------------------------------------------------------------------------
30 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
Repurchase agreement--2.1%
- --------------------------------------------------------------------------------
Morgan Stanley, 4.50%, dated 03/31/99,
matures 04/01/99, repurchase price
$128,196 (collateralized by U.S.
Treasury Notes, par value $127,790,
5.625%, matures 10/31/99, market
value $131,401) $128 $128
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $128) 128
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--101.4%
(cost $5,545) 6,173
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities,
net: (1.4%) (88)
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited authorization
--no par value) based on 422,102
outstanding shares of beneficial interest 4,711
Accumulated net investment loss (15)
Accumulated net realized gain on investments 761
Net unrealized appreciation on investments 628
- --------------------------------------------------------------------------------
Total net assets--100.0% $6,085
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $14.42
- --------------------------------------------------------------------------------
*Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the financial statements.
Statement of net assets
Turner Short Duration Government Funds-
Three Year Portfolio
March 31, 1999
- --------------------------------------------------------------------------------
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
U.S. Treasury obligations--46.7%
- --------------------------------------------------------------------------------
U.S. Treasury Notes
5.500%, 05/31/2000 3,681 $ 3,703
U.S. Treasury Notes
5.750%, 10/31/2000 700 708
U.S. Treasury Notes
5.000%, 02/28/2001 1,865 1,864
U.S. Treasury Notes
6.250%, 06/30/2002 2,432 2,510
- --------------------------------------------------------------------------------
Total U.S. Treasury obligations
(Cost $8,802) 8,785
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Collateralized mortgage obligations--12.6%
- --------------------------------------------------------------------------------
Citicorp Mortgage Securities,
Ser 1994-10, Cl A4
6.250%, 06/25/2024 213 212
Countrywide Home Loans,
Ser 1997-2, Cl A11
7.500%, 04/25/2027 1,154 1,155
Prudential Securities Secured
Financing, Ser 1999-NRF1,
Cl A2, 6.480%, 01/15/2009 425 428
Structured Asset Securities,
Ser 1997-2, Cl 1A (A)
7.149%, 10/30/2007 572 575
- --------------------------------------------------------------------------------
Total Collateralized mortgage
obligations, (Cost $2,372) 2,370
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset-backed securities--5.8%
- --------------------------------------------------------------------------------
Advanta Credit Card Master Trust,
Ser 1993-4, Cl A (A)
5.250%, 12/31/2000 52 52
Contimortgage Home Equity
Loan Trust, Ser 1996-2, Cl A5
7.050%, 04/15/2011 596 596
Goldman Sachs Mortgage Securities,
Ser 1998-C1, Cl A1
6.060%, 10/18/2030 194 194
Olympic Automobile Receivables Trust,
Ser 1996-A, Cl A5
6.000%, 02/15/2002 250 251
- --------------------------------------------------------------------------------
Total Asset-backed securities (Cost $1,097) 1,093
- --------------------------------------------------------------------------------
TURNER FUNDS 1999 SEMIANNUAL REPORT | 31
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Short Duration Government Funds-
Three Year Portfolio
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
U.S. government agency
obligations--6.8%
- --------------------------------------------------------------------------------
FNMA, 5.125%, 02/13/2004 182 $ 179
FHLMC TBA (B), 6.000%, 03/30/2004 750 745
FNMA Medium Term Notes
6.710%, 03/13/2002 360 365
- --------------------------------------------------------------------------------
Total U.S. government agency
obligations (Cost $1,283) 1,289
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. government
mortgage-backed bonds--26.2%
- --------------------------------------------------------------------------------
FHLMC CMO/REMIC,
Ser 161, Cl F,
9.500%, 06/15/2006 1,043 1,104
FHLMC CMO/REMIC,
Ser 1316, Cl Z
8.000%, 06/15/2022 437 455
FHLMC CMO/REMIC,
Ser 1485, Cl E
6.000%, 12/15/2004 86 86
FHLMC CMO/REMIC,
Ser 1501, Cl F
6.100%, 11/15/2016 436 437
FHLMC Discount Notes,
Pool #G10288
6.000%, 09/01/2009 436 436
FNMA ARM (A), Pool #105435
6.535%, 12/01/2017 1065 5
FNMA, Pool #252209
6.000%, 01/01/2019 1,271 1,246
FNMA, Pool #6222
9.000%, 04/01/2016 325 347
GNMA ARM (A), Pool #28108
6.875%, 03/20/2016 241 246
GNMA ARM (A), Pool #8254
6.625%, 08/20/2017 97 99
GNMA ARM (A), Pool #8426
6.125%, 11/20/2018 215 219
GNMA, Pool #434128
6.500%, 12/15/2028 249 248
- --------------------------------------------------------------------------------
Total U.S. government mortgage-
backed bonds (Cost $4,920) 4,928
- --------------------------------------------------------------------------------
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
Repurchase agreement--4.6%
- --------------------------------------------------------------------------------
Paine Webber, 4.95%, dated 3/31/99,
matures 04/01/99, repurchase price
$ 868,000 (collateralized by FGLMC,
par value $930,000, 6.50%,
matures 05/15/02, market value
883,509), 4.950, 04/01/1999 $ 868 $ 868
- --------------------------------------------------------------------------------
Total Repurchase agreement
(cost $868) 868
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--102.7%
(cost $19,342) 19,333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities,
net: (2.7%) (512)
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares (unlimited
authorization--no par value)
based on 1,889,940 outstanding
shares of beneficial interest 18,860
Undistributed net investment income 10
Accumulated net realized loss on investments (40)
Net unrealized depreciation on investments (9)
- --------------------------------------------------------------------------------
Total net assets--100.0% $18,821
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share $9.96
- --------------------------------------------------------------------------------
(A) Floating Rate Security. The rate reflected on the Statement of Net Assets is
the rate in effect on March 31, 1999.
(B) When issued security
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
TBA - To be announced
The accompanying notes are an integral part of the financial statements.
32| TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Statement of net assets
Turner Short Duration Government Funds-
One Year Portfolio
March 31, 1999
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
Asset-backed securities--12.3%
- --------------------------------------------------------------------------------
Contimortgage Home Equity
Loan Trust, Ser 1996-2, Cl A5
7.050%, 04/15/2011 50 $ 49
Fleet Credit Card Master Trust,
Ser 1998-A, Cl A (A)
4.979%, 07/15/2003 40 40
Nationsbank Credit Card Master Trust,
Ser 1996-1, Cl A (A)
5.150%, 02/15/2006 55 55
- --------------------------------------------------------------------------------
Total Asset-backed securities
(cost $145) 144
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Treasury obligations--26.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes
5.625%, 11/30/1999 180 181
U.S. Treasury Notes
5.500%, 05/31/2000 20 20
U.S. Treasury Notes
5.750%, 10/31/2000 75 76
U.S. Treasury Notes
5.000%, 02/28/2001 26 26
- --------------------------------------------------------------------------------
Total U.S. Treasury obligations
(cost $303) 303
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. government agency obligations--31.5%
- --------------------------------------------------------------------------------
FFCB Discount Note
4.856%, 04/30/1999 9 9
FHLMC Discount Note
4.800%, 04/01/1999 55 55
FHLMC Discount Note
4.816%, 04/01/1999 80 80
FHLMC Discount Note
4.821%, 04/12/1999 46 46
FHLMC Discount Note
4.840%, 04/06/1999 50 50
FHLMC Discount Note
4.800%, 04/14/1999 110 110
FNMA Discount Note
4.845%, 04/12/1999 17 17
- --------------------------------------------------------------------------------
Total U.S. government agency
obligations (Cost $367) 367
- --------------------------------------------------------------------------------
Face amount Value
(000) (000)
- --------------------------------------------------------------------------------
U.S. government mortgage-backed bonds--28.1%
- --------------------------------------------------------------------------------
FHLMC CMO/REMIC, Ser 161, Cl F
9.500%, 06/15/2006 113 $ 120
FHLMC CMO/REMIC, Ser 1485, Cl E
6.000%, 12/15/2004 3 2
FHLMC CMO/REMIC, Ser 1501, Cl F
6.100%, 11/15/2016 14 14
GNMA ARM (A), Pool #8297
6.125%, 12/20/2017 74 76
GNMA ARM (A), Pool #8462
6.875%, 02/20/2019 44 45
GNMA ARM (A), Pool #8489
6.875%, 04/20/2019 68 70
- --------------------------------------------------------------------------------
Total U.S. government
mortgage-backed bonds (cost $325) 327
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total investments--97.9%
(cost $ 1,140) 1,141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets and liabilities, net: 2.1% $ 24
- --------------------------------------------------------------------------------
Net assets:
Portfolio shares of institutional class
shares (unlimited authorization--
no par value) based on 100,797
outstanding shares of beneficial interest 1,010
Portfolio shares of adviser shares class
(unlimited authorization--no par
value) based on 14,858 outstanding
shares of beneficial interest 150
Undistributed net investment income 1
Accumulated net realized gain on investments 3
Net unrealized appreciation on investments 1
- --------------------------------------------------------------------------------
Total net assets--100.0% $1,165
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share-
institutional class shares $10.07
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value, offering and redemption
price per share-adviser class shares $10.13
- --------------------------------------------------------------------------------
(A) Floating Rate Security. The rate reflected on the Statement of Net Assets is
the rate in effect on March 31, 1999.
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FFCB - Federal Farm Credit Bank FHLMC -
Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 SEMIANNUAL REPORT | 33
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of operations (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth Turner Midcap Turner Small Cap
Growth Equity Fund Equity Fund Growth Fund Growth Fund
-----------------------------------------------------------------------------
10/1/98 thru 10/1/98 thru 10/1/98 thru 10/1/98 thru
3/31/99 3/31/99 3/31/99 3/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend $ 17 $ 282 $ 61 $ 137
Interest 2 43 25 80
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 19 325 86 217
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 24 440 129 862
Investment advisory fee waiver (24) -- (2) (45)
Administrator fees 25 63 30 85
Administrator fee waiver -- -- -- --
Custodian fees 4 -- 5 5
Transfer agent fees 8 -- 8 47
Professional fees 3 40 8 64
Trustee fees -- 3 1 5
Registration fees 14 7 14 38
Pricing fees -- 1 1 1
Printing fees 2 20 5 30
Shareholder service fees -- -- -- --
Amortization of deferred organizational costs 2 2 3 2
Insurance and other fees 1 6 1 9
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 59 582 203 1,103
Less: reimbursements from adviser (28) -- -- --
Directed brokerage -- (19) (15) (26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 31 563 188 1,077
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (12) (238) (102) (860)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain from securities sold 1,293 22,416 5,460 12,835
Net unrealized appreciation (depreciation)
of investment securities 889 13,293 9,953 36,792
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2,182 35,709 15,413 49,627
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 2,170 $ 35,471 $ 15,311 $ 48,767
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Turner Short Duration
Government Funds-
Turner Micro Cap Three Year One Year
Growth Fund Portfolio Portfolio
------------------------------------------------------------------------
10/1/98 thru 10/1/98 thru 10/1/98 thru
3/31/99 3/31/99 3/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend $ 7 $ -- $ --
Interest 5 425 23
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 12 425 23
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 22 18 1
Investment advisory fee waiver (22) (18) (1)
Administrator fees 36 14 --
Administrator fee waiver -- -- --
Custodian fees 3 4 2
Transfer agent fees 10 21 19
Professional fees 14 15 6
Trustee fees 3 9 9
Registration fees 25 25 17
Pricing fees -- 1 1
Printing fees 9 4 2
Shareholder service fees -- -- --
Amortization of deferred organizational costs 1 -- --
Insurance and other fees -- 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 101 94 57
Less: reimbursements from adviser (74) (76) (57)
Directed brokerage -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 27 18 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (15) 407 23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain from securities sold 808 40 --
Net unrealized appreciation (depreciation)
of investment securities 685 (245) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1,493 (205) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 1,478 $ 202 $ 22
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0
TURNER FUNDS 1999 SEMIANNUAL REPORT | 35
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth Turner Midcap
Growth Equity Fund Equity Fund Growth Fund
--------------------------------------------------------------------------------------
year year year
10/1/98 thru ended 10/1/98 thru ended 10/1/98 thru ended
3/31/99 9/30/98 3/31/99 9/30/98 3/31/99 9/30/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment activities:
Net investment (loss) $ (12) $ (2) $ (238) $ (378) $ (102) $ (124)
Net realized gain (loss) from
securities sold 1,293 (170) 22,416 17,188 5,460 (1,546)
Net unrealized appreciation
(depreciation) of investments 889 169 13,293 (7,481) 9,953 524
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 2,170 (3) 35,471 9,329 15,311 (1,146)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- (1) -- -- -- --
Realized capital gains -- (72) (12,236) (26,503) -- (358)
Return of capital -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (73) (12,236) (26,503) -- (358)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Proceeds from shares issued 3,300 3,876 13,339 22,658 29,462 28,977
Proceeds from shares issued in
lieu of cash distributions -- 73 11,874 25,911 -- 320
Cost of shares redeemed (961) (246) (8,304) (33,128) (9,046) (8,356)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions 2,339 3,703 16,909 15,441 20,416 20,941
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 4,509 3,627 40,144 (1,733) 35,727 19,437
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 4,328 701 97,857 99,590 24,582 5,145
- ------------------------------------------------------------------------------------------------------------------------------------
End of year (3) $ 8,837 $ 4,328 $ 138,001 $ 97,857 $ 60,309 $ 24,582
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 199 282 924 1,638 1,579 1,939
Issued in lieu of cash distributions -- 6 890 2,320 -- 24
Redeemed (61) (18) (577) (2,339) (505) (553)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in
capital shares 138 270 1,237 1,619 1,074 1,410
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0
(2) The Turner Micro Cap Growth Fund commenced operations on March 1, 1998.
(3) Includes undistributed net investment income (loss) and/or distributions in
excess of net investment income (000) of $(12) and $0 for the Large Cap
Growth Equity Fund, $(238) and $0 for the Growth Equity Fund, $(105) and (3)
for the Midcap Growth Fund, $(861) and $(1) for the Small Cap Growth Fund
and $(15) and $0 for the Micro Cap Growth Fund, as of March 31, 1999, and
September 30, 1998, respectively.
36 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Turner Small Cap Turner Micro Cap
Growth Fund Growth Fund
------------------------------------------------------------------
year year
10/1/98 thru ended 10/1/98 thru ended
3/31/99 9/30/98 3/31/99 9/30/98 (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment (loss) $ (860) $ (1,609) $ (15) $ (11)
Net realized gain (loss) from
securities sold 12,835 (6,168) 808 (47)
Net unrealized appreciation
(depreciation) of investments 36,792 (22,875) 685 (57)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 48,767 (30,652) 1,478 (115)
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- -- -- --
Realized capital gains -- (1,521) -- --
Return of capital -- (1,148) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions -- (2,669) -- --
- -------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Proceeds from shares issued 35,313 96,936 1,893 3,087
Proceeds from shares issued in
lieu of cash distributions -- 2,289 -- --
Cost of shares redeemed (35,661) (71,832) (129) (129)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions (348) 27,393 1,764 2,958
- -------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 48,419 (5,928) 3,242 2,843
- -------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 147,534 153,462 2,843 --
- -------------------------------------------------------------------------------------------------------------------
End of year (3) $ 195,953 $ 147,534 $ 6,085 $ 2,843
- -------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 1,461 3,783 143 300
Issued in lieu of cash distributions -- 99 -- --
Redeemed (1,429) (2,840) (9) (12)
- -------------------------------------------------------------------------------------------------------------------
Net increase in
capital shares 32 1,042 134 288
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 SEMIANNUAL REPORT | 37
<PAGE>
- --------------------------------------------------------------------------------
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Short Duration Government Funds-
Three Year Portfolio
-----------------------------------------------------
10/1/98 thru 3/1/98 thru Year ended
3/31/99 9/30/98 2/28/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment activities:
Net investment income $ 407 $ 469 $ 967
Net realized gain from securities sold 40 74 54
Net unrealized appreciation (depreciation) of investments (245) 119 98
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 202 662 1,119
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (407) (461) (966)
Adviser class -- -- --
Realized capital gains
Institutional class (156) (10) --
Adviser class -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (563) (471) (966)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 8,359 666 3,854
Proceeds from shares issued in lieu of cash distributions 561 476 967
Cost of shares redeemed (1,753) (4,862) (7,239)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 7,167 (3,720) (2,418)
- ------------------------------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued -- -- --
Proceeds from shares issued in lieu of cash distributions -- -- --
Cost of shares redeemed -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from
adviser class transactions -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions 7,167 (3,720) (2,418)
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 6,806 (3,529) (2,265)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 12,015 15,544 17,809
- ------------------------------------------------------------------------------------------------------------------------------------
End of year (2) $ 18,821 $ 12,015 $ 15,544
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 836 66 383
Issued in lieu of cash distributions 56 47 96
Redeemed (174) (481) (722)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 718 (368) (243)
- ------------------------------------------------------------------------------------------------------------------------------------
Adviser class
Issued -- -- --
Issued in lieu of cash distributions -- -- --
Redeemed -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 718 (368) (243)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0
(2) Includes undistributed net investment income (000) of $10, $10 and $2 for
the Three Year Fund, $1, $2 and $0 for the One Year Fund, as of March 31,
1999, September 30, 1998 and February 28, 1998, respectively.
38 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Turner Short Duration Government Funds-
One Year Portfolio
-----------------------------------------------------
10/1/98 thru 3/1/98 thru Year ended
3/31/99 9/30/98 2/28/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment activities:
Net investment income $ 23 $ 37 $ 66
Net realized gain from securities sold -- 1 1
Net unrealized appreciation (depreciation) of investments (1) -- 1
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22 38 68
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (23) (35) (66)
Adviser class (1) -- --
Realized capital gains
Institutional class -- (1) --
Adviser class -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (24) (36) (66)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 704 5 827
Proceeds from shares issued in lieu of cash distributions 23 36 66
Cost of shares redeemed (701) (247) (564)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 26 (206) 329
- ------------------------------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued 196 -- --
Proceeds from shares issued in lieu of cash distributions 1 -- --
Cost of shares redeemed (47) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from
adviser class transactions 150 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
capital share transactions 176 (206) 329
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 174 (204) 331
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 991 1,195 864
- ------------------------------------------------------------------------------------------------------------------------------------
End of year (2) $ 1,165 $ 991 $ 1,195
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 70 -- 82
Issued in lieu of cash distributions 2 4 7
Redeemed (69) (25) (56)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 3 (21) 33
- ------------------------------------------------------------------------------------------------------------------------------------
Adviser class
Issued 20 -- --
Issued in lieu of cash distributions -- -- --
Redeemed (5) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 15 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 18 (21) 33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 SEMIANNUAL REPORT | 39
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Net Realized and
asset Net unrealized Distributions Distributions
value, investment gains from net from Net asset
beginning income (losses) on investment capital Return value end
of period (loss) investments income gains of capital of period
- -------------------------------------------------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** $ 13.22 (0.03) 5.83 -- -- -- $ 19.02
1998 $ 12.28 (0.01) 1.98 (0.01) (1.02) -- $ 13.22
1997 (1) $ 10.00 0.01 2.27 -- -- -- $ 12.28
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Turner Growth Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** $ 12.87 (0.03) 4.37 -- (1.60) -- $ 15.61
1998 $ 16.64 (0.05) 1.10 -- (4.82) -- $ 12.87
1997 $ 17.03 (0.03) 4.23 -- (4.59) -- $ 16.64
1996 (2) $ 14.97 0.02 2.91 (0.02) (0.85) -- $ 17.03
1995 $ 12.46 0.10 2.52 (0.11) -- -- $ 14.97
1994 $ 13.12 0.10 (0.66) (0.10) -- -- $ 12.46
1993 $ 10.40 0.09 2.72 (0.09) -- -- $ 13.12
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Turner Midcap Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** $ 13.87 (0.03) 7.35 -- -- -- $ 21.19
1998 $ 14.22 (0.07) 0.22 -- (0.50) -- $ 13.87
1997 (3) $ 10.00 (0.03) 4.36 -- (0.11) -- $ 14.22
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** $ 21.49 (0.12) 7.04 -- -- -- $ 28.41
1998 $ 26.35 (0.23) (4.19) -- (0.25) (0.19) $ 21.49
1997 $ 23.13 (0.07) 3.80 -- (0.51) -- $ 26.35
1996 (2) $ 16.08 (0.08) 8.17 -- (1.04) -- $ 23.13
1995 $ 10.90 (0.06) 5.24 -- -- -- $ 16.08
1994 (4) $ 10.00 (0.02) 0.92 -- -- -- $ 10.90
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** (5) $ 9.88 (0.04) 4.58 -- -- -- $ 14.42
1998 (6) $ 10.00 (0.04) (0.08) -- -- -- $ 9.88
</TABLE>
* Annualized
** For the six-month period ended March 31.
+ Returns are for the period indicated and have not been annualized.
(1) The Turner Large Cap Growth Equity Fund commenced operations on February 1,
1997.
(2) On April 19, 1996, the Board of Trustees of the Adviser Inner Circle Funds
voted to approve a tax-free reorganization of the Turner Funds. In
connection with the reorganization, the Funds changed their fiscal year end
from October 31 to September 30, effective September 30, 1996.
(3) The Turner Midcap Growth Fund commenced operations on October 1, 1996.
(4) The Turner Small Cap Growth Fund commenced operations on February 7, 1994.
(5) On November 4, 1998, the Board of Trustees of the Alpha Select Funds voted
to approve a tax-free reorganization of the Turner Micro Cap Growth Fund
(the "Turner Funds") under which all assets and liabilities of the Turner
Funds were transferred to the TIP Funds.
(6) The Turner Micro Cap Growth Fund commenced operations on March 1, 1998.
Amounts designated as "--" are either $0 or have been rounded to $0.
40 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of net
net expenses Ratio of Ratio of investment
to average net expenses expenses income (loss)
net assets to average Ratio of net to average to average
Net (including net assets investment net assets net assets
assets end directed (including income (loss) (excluding (excluding Portfolio
Total of period brokerage waivers and to average waivers and waivers and turnover
return+ (000) arrangements) reimbursements) net assets reimbursements) reimbursements) rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ------------------------------------------------------------------------------------------------------------------------------------
1999** 43.87% $ 8,837 1.00%* 1.00%* (0.39)%* 2.65%* (2.04)%* 169.52%
1998 17.26% $ 4,328 1.00% 1.00% (0.10)% 7.70% (7.80)% 234.93%
1997 (1) 22.80% $ 70 11.00%* 1.00%* (0.20)%* 26.45%* (25.25)% 346.47%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Turner Growth Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** 35.81% $138,001 0.96%* 0.99%* (0.44)%* 0.99%* (0.44)%* 154.37%
1998 10.71% $ 97,857 1.00% 1.04% (0.42)% 1.12% (0.50)% 249.58%
1997 32.61% $ 99,590 0.96% 1.02% (0.25)% 1.05% (0.28)% 178.21%
1996 (2) 20.61% $ 96,164 0.94%* 1.06%* 0.03%* 1.06%* 0.03%* 147.79%
1995 21.15% $115,819 0.94% 1.03% 0.69% 1.03% 0.69% 177.86%
1994 (4.28)% $112,959 0.95% 0.95% 0.86% 1.08% 0.73% 164.81%
1993 27.08% $ 53,327 1.00%* 1.00% 0.80% 1.52% 0.28% 88.35%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Turner Midcap Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** 52.78% $ 60,309 1.10%* 1.18%* (0.68)%* 1.19%* (0.69)%* 159.79%
1998 1.24% $ 24,582 1.23% 1.34% (0.79)% 1.73% (1.18)% 304.29%
1997 (3) 43.77% $ 5,145 1.25%* 1.25%* (0.62)%* 7.96%* (7.33)%* 348.29%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** 32.20% $195,953 1.25%* 1.28%* (1.03)%* 1.33%* (1.08)%* 106.71%
1998 16.90)% $147,534 1.25% 1.28% (0.99)% 1.41% (1.12)% 167.73%
1997 16.64% $153,462 1.24% 1.24% (0.84)% 1.33% (0.93)% 130.68%
1996 (2) 52.90% $ 67,425 1.25%* 1.25%* (0.88)%* 1.54%* (1.17)%* 149.00%
1995 47.52% $ 13,072 1.25% 1.25% (0.68)% 2.39% (1.82)% 183.49%
1994 (4) 12.35% $ 4,806 1.09%* 1.09%* (0.27)%* 4.32%* (3.50)%* 173.92%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** 45.95% 6,085 1.25%* 1.25%* (0.71)%* 5.69%* (5.15)%* 124.69%
1998 (6) (1.20)% $ 2,843 1.25%* 1.25%* (0.64)%* 8.18%* (7.57)%* 128.53%
</TABLE>
TURNER FUNDS 1999 SEMIANNUAL REPORT | 41
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Realized and
Net asset Net unrealized Distributions Distributions
value, investment gains from net from Net asset Net assets
beginning income (losses) on investment capital value end Total end of
of period (loss) investments income gains of period return+ period (000)
- ----------------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** (1) $ 10.25 0.28 (0.15) (0.28) (0.14) $ 9.96 1.33% $ 18,821
1998 (2) $ 10.10 0.35 0.15 (0.34) (0.01) $ 10.25 5.09% $ 12,015
1998 (3) $ 10.00 0.59 0.10 (0.59) -- $ 10.10 7.07% $ 15,544
1997 $ 10.04 0.58 (0.01) (0.59) (0.02) $ 10.00 5.45% $ 17,809
1996 $ 9.80 0.60 0.23 (0.59) -- $ 10.04 8.73% $ 11,027
1995 (4) $ 10.00 0.61 (0.22) (0.59) -- $ 9.80 4.08% $ 7,065
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** $ 10.09 0.28 (0.01) (0.29) -- $ 10.07 2.74% $ 1,015
1998 (2) $ 10.08 0.35 -- (0.33) (0.01) $ 10.09 3.50% $ 991
1998 (3) $ 10.06 0.60 0.02 (0.60) -- $ 10.08 6.34% $ 1,195
1997 $ 10.03 0.60 0.03 (0.60) -- $ 10.06 6.32% $ 864
1996 $ 9.99 0.64 0.05 (0.65) -- $ 10.03 7.09% $ 398
1995 (4) $ 10.00 0.53 (0.02) (0.52) -- $ 9.99 5.21% $ 145
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999** (6) $ 10.11 0.24 0.01 (0.23) -- $ 10.13 2.55% $ 150
1998 (5) $ 10.08 0.30 0.03 (0.30) -- $ 10.11 3.26% --
</TABLE>
* Annualized
**For the six-month period ended March 31.
+ Returns are for the period indicated and have not been annualized.
(1)On November 4, 1998, the Board of Trustees of the Alpha Select Funds voted
to approve a tax-free reorganization of the Turner Short Duration Government
Fund-Three Year Portfolio (the "Fund") under which all the assets and
liabilities of the Fund were transferred to the TIP Funds.
(2)On November 10, 1997 the Board of Trustees of TIP Institutional Funds
(formerly, The Solon Funds) approved a change in the Turner Short Duration
Government Funds One Year and Three Year Portfolios' year end from February
28 to September 30, effective March 1, 1998.
(3)On January 22, 1998, shareholders of each Fund approved a change in the
advisor from Solon Asset Management, L.P. to Turner Investment Partners, Inc.
(4)The Turner Short Duration Government Funds Three Year and One Year
Portfolios- Institutional Shares class commenced operations on March 1, 1994.
(5)The Turner Short Duration Government Funds One Year Portfolios-Adviser
Shares class commenced operations on February 27, 1998.
(6)Average based upon amounts outstanding at each month end.
(7)There was no debt outstanding at the end of any period presented.
Amounts designated as "--" are either $0 or have been rounded to $0.
42 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Ratio of net
Ratio of investment
expenses income (loss)
Ratio of net to average to average Average Average
Ratio of investment net assets net assets debt debt
net expenses income (loss) (excluding (excluding per share outstanding
to average to average waivers and waivers and Interest during during
net assets net assets reimbursements) reimbursements) expense the period(6) the period (6)(7)
- ---------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** (1) 0.24%* 5.56%* 1.53%* 4.27%* -- -- --
1998 (2) 0.24%* 5.84%* 1.49%* 4.59%* -- -- --
1998 (3) 0.24% 5.85% 1.21% 4.88% -- -- --
1997 0.24% 5.80% 1.21% 4.83% 0.02% $0.04 $ 56,238
1996 0.24% 6.18% 1.45% 4.97% 0.12% $0.28 $256,115
1995 (4) 0.15% 6.21% 1.18% 5.18% 0.04% $0.08 $ 75,604
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** 0.00%* 5.64%* 1.04%* 4.60%* -- -- --
1998 (2) 0.00%* 5.88%* 10.83%* (4.95)%* -- -- --
1998 (3) 0.00% 5.97% 8.83% (2.86)% -- -- --
1997 0.00% 5.91% 10.25% (4.34)% -- -- --
1996 0.00% 6.46% 16.47% (10.01)% -- -- --
1995 (4) 0.00% 5.74% 27.89% (22.15)% -- -- --
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999** (6) 0.25%* 5.56%* 1.29%* 4.52%* -- -- --
1998 (5) 0.25%* 5.63%* 11.08%* (5.20)%* -- -- --
</TABLE>
<TABLE>
<CAPTION>
Average
shares
outstanding Portfolio
during turnover
the period rate
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C>
1999** (1) -- 111.30%
1998 (2) -- 121.63%
1998 (3) -- 197.03%
1997 1,320,830 279.00%
1996 901,238 251.00%
1995 (4) 895,472 405.00%
<CAPTION>
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- --------------------------------------------------------------------------------
<S> <C> <C>
1999** -- 180.27%
1998 (2) -- 96.56%
1998 (3) -- 68.80%
1997 -- 81.82%
1996 -- --
1995 (4) -- --
<CAPTION>
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- --------------------------------------------------------------------------------
<S> <C> <C>
1999** (6) -- 180.27%
1998 (5) -- 96.56%
</TABLE>
TURNER FUNDS 1999 SEMIANNUAL REPORT | 43
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Notes to financial statements
March 31, 1999
1. Organization:
TIP Funds, a Massachusetts business trust, and Alpha Select Funds, a Delaware
Business Trust, (each a "Trust" and collectively the "Trusts"), are registered
under the Investment Company Act of 1940, as amended, as a diversified open-end
management investment companies. The financial statements included herein are
those of the Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large
Cap Growth) (the "Large Cap Growth Equity Fund"), the Turner Growth Equity Fund
(the "Growth Equity Fund"), the Turner Midcap Growth Fund (the "Midcap Growth
Fund"), the Turner Small Cap Growth Fund (the "Small Cap Growth Fund"), the
Turner Micro Cap Growth Fund (the "Micro Cap Growth Fund"), and the Turner Short
Duration Government Funds-Three Year Portfolio (the "Three Year Portfolio"),
which are funds offered by TIP Funds, and the Turner Short Duration Government
Funds-One Year Portfolio (the "One Year Portfolio"), which is a fund offered by
Alpha Select Funds (each a "fund" and collectively the "Funds"). The Turner
Short Duration Government Funds-Three Year and One Year Portfolios are
registered to offer two classes of shares, Institutional Class Shares and
Adviser Class Shares.
As of March 31, 1999, the Three Year Portfolio Adviser Class Shares had not
commenced operations. Additionally, the Turner Small Cap Growth Fund was closed
to new investors as of August 30, 1997. 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 Funds.
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. Market value
for debt obligations is determined on the basis of last reported sales
price, or if no sales are reported, as is the case with most securities
traded over the counter, the mean between representative bid and asked
quotations. Short-term securities with maturities of 60 days or less may be
carried at amortized cost, which approximates market value. Fixed income
securities for which market quotations are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to fixed income securities whose prices are more readily
obtainable and whose durations are comparable to the securities being
valued. Subject to the foregoing, other securities for which market
quotations are not readily available are valued at fair value as determined
in good faith by the Board of Trustees.
Federal income taxes--It is each 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.
Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the trade date. Such securities are included
in the portfolio and are subject to market fluctuations during this period.
On the date of the commitment to purchase or sell, the Funds designate
specific assets with a current value at least equal to the amount of the
commitment to be used for settling the commitment.
Net asset value per share--The net asset value per share of each 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 funds may be
delayed or limited.
44 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
Expenses--Expenses that are directly related to one of the funds 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 to shareholders--Distributions from net investment income are
declared and paid to Shareholders at least annually for the Large Cap
Growth Equity Fund, the Midcap Growth Fund, the Small Cap Growth Fund, and
the Micro Cap Growth Fund; quarterly for the Growth Equity Fund; and
declared daily and paid monthly for the Three Year and One Year Portfolios.
Any net realized capital gains on sales of securities for all Funds 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 principles. 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.
Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and
expenses during the reported period. Actual results could differ from those
estimates.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year presentation.
3. Organization costs and transactions with affiliates:
Organization costs have been capitalized by each Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by a Fund will be reduced by the unamortized organizational costs
in the same ratio as the number of shares outstanding at the time of redemption.
Certain officers of each Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trusts for serving
as officers and trustees of the Trusts.
4. Administration, shareholder servicing, and distribution agreements:
Each Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee.
For these administrative services, the Administrator is entitled to a fee from
the Fund, which is calculated daily and paid monthly, at an annul rate of .09%
of the Trust's average daily net assets up to $250 million, .07% on the next
$250 million, .06% on the next $250 million, .05% on the next $1.25 billion and
.04% of such assets in excess on $2 billion. Each Fund is subject to a minimum
annual fee of $65,000 for the first class of shares and $15,000 for each
additional class of shares, which may be reduced at the sole discretion of the
Administrator.
The Growth Equity Fund, the Midcap Growth Fund, and the Small Cap Growth Fund
had directed certain portfolio trades to brokers who paid a portion of its
expenses. For the period ended March 31, 1999, the Funds expenses were reduced
by $19,257, $14,615 and $25,607 respectively, under this arrangement.
DST Systems, Inc., (the "Transfer Agent"), serves as the transfer agent and
dividend disbursing agent for the Funds under separate transfer agency
agreements with each Trust.
Prior to January 1, 1998, administrative services were provided to the Trust by
Solon Asset Management, L.P. for an annual fee of .07% of the average daily net
assets of the Three Year and One Year Funds.
TIP Funds and Alpha Select Funds are parties to a Distribution Agreement with
the Distributor dated April 28, 1996 and January 1, 1998 respectively. The
Distributor receives no fees for its distribution services under this agreement.
The Turner Short Duration Governments Funds-One Year Portfolio has adopted a
shareholder service plan for its Adviser Class Shares that allows the Fund to
pay service fees for services provided to shareholders. For Adviser Class
Shares, shareholder service fees, as a percentage of average daily net assets,
may be up to .25%.
5. Investment advisory agreement:
TIP Funds and Alpha Select Funds are parties to Investment Advisory Agreements
with Turner Investment Partners, Inc. (the "Adviser") dated April 28,
TURNER FUNDS 1999 SEMIANNUAL REPORT | 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
1996 and January 1, 1998 respectively, under which the Adviser receives an
annual fee equal to .75% of the average daily net assets of the Large Cap Growth
Equity, Growth Equity, and Midcap Growth Equity Funds, 1.00% of the Small Cap
Growth and Micro Cap Growth Funds, and .25% of the Three Year and One Year
Funds. The Adviser has voluntarily agreed to waive all or a portion of its fees
and to reimburse expenses in order to limit their total operating expenses (as a
percentage of daily net assets on an annualized basis) to not more than 1.00% of
the Large Cap Growth Equity and Growth Equity Funds, 1.25% of the Small Cap
Growth, Midcap Growth Equity and Micro Cap Growth Funds, and .36% and .61% of
the Three Year and One Year Funds, Institutional shares and Adviser shares,
respectively. Fee waivers and expense reimbursements are voluntary and may be
terminated at any time.
On January 1, 1998, Turner Investment Partners, Inc., acquired substantially all
of the assets and liabilities of Solon Asset Management, L.P. (the Trust's prior
investment adviser).
On January 22, 1998, shareholders of both the Three year and One Year Funds
approved a change in the adviser from Solon Asset Management, L.P. to Turner
Investment Partners, Inc.
6. Investment transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended March 31, 1999, are as follows
(000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner Turner Short Duration
Large Cap Growth Midcap Small Cap Micro Cap Government Funds
Growth Equity Growth Growth Growth Three Year One Year
Equity Fund Fund Fund Fund Fund Portfolio Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases
Government -- -- -- -- -- 16,708 353
Other 12,865 185,290 71,154 184,455 7,180 684 --
Sales
Government -- -- -- -- -- 10,501 277
Other 10,683 181,305 56,007 184,697 5,350 2,047 136
</TABLE>
46 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
(Unaudited)
- --------------------------------------------------------------------------------
At March 31, 1999, the total cost of securities and net realized gains or losses
on securities sold for Federal income tax purposes was not materially different
from amounts reported for financial reporting purposes. The aggregate gross
unrealized appreciation and depreciation for securities held by the Funds at
March 31, 1999, are as follows (000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner Turner Short Duration
Large Cap Growth Midcap Small Cap Micro Cap Government Funds
Growth Equity Equity Growth Growth Growth Three Year One Year
Fund Fund Fund Fund Fund Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation 1,156 26,506 11,550 47,765 938 63 2
Aggregate gross
unrealized
depreciation (84) (1,048) (739) (6,787) (310) (72) (1)
- --------------------------------------------------------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) 1,072 25,458 10,811 40,978 628 (9) 1
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. Line of credit:
Pursuant to a credit agreement dated May 21, 1997, First Union National Bank
provides an uncommitted line of credit to the Turner Funds, Portfolios of the
TIP Funds, for short-term or emergency purposes, such as funding shareholder
redemptions. These loans are for the respective benefit of and repayable from
the respective assets of the Turner Funds. The aggregate principal amount of all
borrowings may not exceed 10% of the Turner Funds, net assets and the maximum
principal amount that the Bank will loan is $10,000,000. Borrowings under the
line of credit are charged interest based on the federal funds rate determined
at the date of borrowing and are secured by investment securities of the
borrowing portfolio. Each Turner Fund is individually, and not jointly, liable
for its particular advances under the line. There is no commitment fee on the
unused portion of the line of credit. There were no borrowings under the line of
credit during the period ended March 31, 1999.
8. Tax-free reorganizations
On November 4, 1998 the Board of Trustees of the Alpha Select Funds approved a
tax-free reorganization for the Turner Micro Cap Growth Fund and the Turner
Short Duration Government Fund-Three Year Portfolio (the "Portfolios") under
which all the assets and liabilities of the Portfolios would be transferred to
the TIP Funds, a Massachusetts business trust. A shareholder meeting was held on
January 25, 1999 and adjourned until January 29, 1999, at which time this
reorganization was approved by the Portfolios' shareholders.
Turner Micro Cap Growth Fund:
- ----------------------------------------------------------
(Voted January 29, 1999)
shares shares
voted outstanding
- ----------------------------------------------------------
For 185,646 99.86% 55.48%
Against 0 0.00 0.00
Abstain 266 0.14 0.08
Turner Short Duration Government Funds-
- ----------------------------------------------------------
Three Year Portfolio:
- ----------------------------------------------------------
(Voted January 29, 1999)
shares shares
voted outstanding
- ----------------------------------------------------------
For 949,833 100.00% 86.46%
Against 0 0.00 0.00
Abstain 0 0.00 0.00
9. Subsequent event
On March 29, 1999 the Board of Trustees of the Alpha Select Funds approved a
tax-free reorganization for the Turner Short Duration Government Funds-One Year
Portfolio (the "Portfolio") under which all of the assets and liabilities of the
Portfolio would be transferred to the TIP Funds, a Massachusetts business trust.
A shareholder meeting to approve this reorganization was scheduled for May 24,
1999.
TURNER FUNDS 1999 SEMIANNUAL REPORT | 47
<PAGE>
- -------------------------------------------------------------------------------
Turner Funds, Portfolios of the TIP Funds
and Alpha Select Funds
TIP Funds trustees
(Responsible for managing the business and affairs of the TIP Funds, which
include the following portfolios: the Turner Large Cap Growth Equity Fund, the
Turner Growth Equity Fund, the Turner Midcap Growth Fund, the Turner Small Cap
Growth Fund, the Turner Micro Cap Growth Fund, and the Turner Short Duration
Government Funds-Three Year Portfolio)
Richard A. Hocker
Chief Investment Officer and Senior Vice President
Penn Capital Management Co., Inc.
Michael E. Jones
Senior Vice President, Investment Adviser, and Portfolio Manager
Clover Capital Management, Inc.
Alfred C. Salvato
Treasurer
Thomas Jefferson University Health Care Pension Fund
Janet F. Sansone
Corporate Vice President, Human Resources
Frontier Corporation
Robert E. Turner
Chairman and Chief Investment Officer
Turner Investment Partners, Inc.
Dr. John T. Wholihan
Professor and Dean, College of Business
Loyola Marymount University
Alpha Select Funds trustees
(Responsible for managing the business and affairs of the Alpha Select Funds,
which include the following portfolios: the Turner Short Duration Government
Funds-One Year Portfolio)
Ronald Filante
Associate Professor of Finance
Pace University
Katherine Griswold
Director of Benefits Trusts
Southern New England Telephone Company
Alfred C. Salvato
Treasurer
Thomas Jefferson University Health Care Pension Fund
Robert E. Turner
Chairman and Chief Investment Officer
Turner Investment Partners, Inc.
Investment adviser
Turner Investment Partners, Inc.
Berwyn, Pennsylvania
Distributor
SEI Investments Distribution Co.
Oaks, Pennsylvania
Administrator
SEI Investments Mutual Fund Services
Oaks, Pennsylvania
Legal counsel
Morgan, Lewis & Bockius LLP
Philadelphia
Independent auditors
Ernst & Young LLP
Philadelphia
This report was prepared for shareholders of the Turner Funds, Portfolios of
both TIP Funds and Alpha Select Funds. It may be distributed to others only if
preceded or accompanied by a Turner Funds' Prospectus, which contains detailed
information. All Turner Funds are offered by prospectus only.
48 | TURNER FUNDS 1999 SEMIANNUAL REPORT
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[LOGO]
- ---------------------
Turner Funds
1235 Westlakes Drive
Berwyn, Pennsylvania 19312
Telephone: 1-800-224-6312
Fax: (610) 251-0731
Email: [email protected]
Web Site: www.turner-invest.com
<PAGE>
VANGUARD FENWAY FUNDS
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification.
The Registrant's organizational documents contain provisions indemnifying
Trustees and Officers against liability incurred in their official capacity.
Article VII, Section 2 of the Declaration of Trust provides that the Registrant
may indemnify and hold harmless each and every Trustee and Officer from and
against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to the performance of his or her duties as
a Trustee or Officer. However, this provision does not cover any liability to
which a Trustee or Officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article VI of the By-Laws
generally provides that the Registrant shall indemnify its Trustees and Officers
from any liability arising out of their past or present service in that
capacity. Among other things, this provision excludes any liability arising by
reason of willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the Trustee's or Officer's
office with the Registrant.
Item 16. Exhibits.
(1) Declaration of Trust of the Vanguard Fenway Funds is
herein incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 14 to Registrant's
Registration Statement on From N-1A filed on May 28,
1998.
(2) By-laws of the Vanguard Fenway Funds are herein
incorporated by reference to Exhibit 2 of
Post-Effective Amendment No. 14 to Registrant's
Registration Statement on From N-1A filed on
May 28, 1998.
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization and
Liquidation is filed herewith.
(5) Not applicable.
(6) Investment advisory agreement between Vanguard Fenway
Funds and Turner Investment Partners, Inc., dated
June 1, 2000, is filed herewith.
C-1
<PAGE>
(7) Not applicable.
(8) Amended and Restated Fund's Service Agreement is
herein incorporated by reference to Registrant's
Registration Statement on Form N-1A.
(9) Custodian Agreement is is herein incorporated by
reference to Registrant's Registration Statement on
Form N-1A.
(10) Not applicable.
(11) Opinion and Consent of Shearman and Sterling that
shares will be validly issued, fully paid and
non-assessable to be filed by later amendment.
(12) Form of Opinion and Consent of Stradley, Ronan,
Stevens & Young LLP of as to tax matters and
consequences is filed herewith.
(13) Not applicable.
(14) Consent of Ernst & Young LLP is filed herewith.
(15) Not applicable.
(16) Power of Attorney for Heidi Stam is herein
incorporated by reference to Post-Effective Amendment
No. 19 to the Registration Statement of Vanguard
Convertible Securities Fund (File No. 33-4424) filed
on Form N-1A on January
25, 1999.
(17)(a) Prospectus for TIP Fund's Turner Growth Equity Fund
dated January 31, 2000 is filed herewith.
(17)(b) Statement of Additional Information for TIP Funds
Turner Growth Equity Fund dated January 31, 2000 is
filed herewith.
(17)(c) Annual Report to Shareholders including the Audited
Financial Statements dated September 30, 1999 for the
TIP Funds are filed herewith.
(17)(d) Prospectus for Vanguard Fenway Fund's Vanguard Growth
Equity Fund is filed herewith.
(17)(e) Statement of Additional Information for Vanguard
Fenway Funds Vanguard Growth Equity Fund is filed
herewith.
Item 17. Undertakings.
Not applicable.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 this Registration Statement has
been signed on behalf of the Registrant in Philadelphia on the 1st of March,
2000.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacity on the dates
indicated.
VANGUARD FENWAY FUNDS
- ---------------------
Registrant
<TABLE>
<S> <C> <C>
By: /s/ John J. Brennan President, Chairman, Chief March 2, 2000
----------------------------- Executive Officer, and
(Heidi Stam)
John J. Brennan* Trustee
By: /s/ JoAnn Heffernan Heisen Trustee March 2, 2000
-----------------------------
(Heidi Stam)
JoAnn Heffernan Heisen*
By: /s/ Bruce L. MacLaury Trustee March 2, 2000
-----------------------------
(Heidi Stam)
Bruce L. MacLaury*
By: /s/ Alfred M. Rankin, Jr. Trustee March 2, 2000
-----------------------------
(Heidi Stam)
Alfred M. Rankin, Jr.*
By: /s/ John C. Sawhill Trustee March 2, 2000
-----------------------------
(Heidi Stam)
John C. Sawhill *
By: /s/ James O. Welch, Jr. Trustee March 2, 2000
-----------------------------
(Heidi Stam)
James O. Welch, Jr.*
By: /s/ J. Lawrence Wilson Trustee March 2, 2000
-----------------------------
(Heidi Stam)
J. Lawrence Wilson*
By: /s/ Thomas J. Higgins Treasurer and Principal March 2, 2000
----------------------------- Financial Officer and
(Heidi Stam) Accounting Officer
Thomas J. Higgins *
</TABLE>
* By Power of Attorney. See File Number 33-4424, filed on January 25, 1999.
Incorporated by Reference.
C-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Form of Agreement and Plan of Reorganization and Liquidation EX-99.B4
Investment advisory agreement between Vanguard Fenway Funds
and Turner Investment Partners, Inc., dated June 1, 2000 EX-99.B6
Opinion and Consent of Shearman and Sterling that shares
will be validly issued, fully paid and non-assessable EX-99.B11
Form of Opinion and Consent of as to tax matters and consequences EX-99.B12
Consent of Ernst & Young LLP is filed herewith EX-99.B14
Prospectus for TIP Fund's Turner Growth Equity Fund dated
January 31, 2000 EX-99.B17(a)
Statement of Additional Information for TIP Funds Turner Growth Equity
Fund dated January 31, 2000 EX-99.B17(b)
Annual Report to Shareholders including the Audited Financial Statements
dated September 30, 1999 for the TIP Funds EX-99.B17(c)
Prospectus for Vanguard Fenway Fund's Vanguard Growth Equity Fund EX-99.B17(d)
Statement of Additional Information for Vanguard Fenway Funds Vanguard
Growth Equity Fund EX-99.B17(e)
</TABLE>
C-4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this _____ day of ____, 2000 between Vanguard Fenway Funds, a business trust
formed under the laws of the State of Delaware with its principal place of
business at P.O. Box 2600, Valley Forge, PA 19482 (the "Vanguard Fund"), on
behalf of Vanguard Growth Equity Fund, a series of the Vanguard Fund (the
"Acquiring Fund"), and TIP Funds, a business trust formed under the laws of the
Commonwealth of Massachusetts with its principal place of business at 530 East
Swedesford Road, Wayne, PA 19087 ("TIP Funds"), on behalf of the Turner Growth
Equity Fund, a series of TIP Funds (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(F) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization of the Selling Fund (the "Reorganization") will consist of (i)
the transfer of all of the assets of the Selling Fund in exchange solely for
shares of the common stock (the "Shares") of the Acquiring Fund (the "Acquiring
Fund Shares"), (ii) the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; and (iii) the distribution, after the Closing
Date, as defined below, of Acquiring Fund Shares to the shareholders of the
Selling Fund in liquidation of the Selling Fund as provided in this Agreement,
all upon the terms and conditions set out below.
WHEREAS, the Vanguard Fund and TIP Funds are each registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act") and the Acquiring Fund is permitted to invest in securities held by
the Selling Fund;
WHEREAS, the Acquiring Fund and the Selling Fund are authorized to issue
shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined in the 1940 Act) of the Vanguard Fund
has determined with respect to the Acquiring Fund that the exchange of all of
the assets of the Selling Fund for Acquiring Fund Shares is in the best
interests of the Acquiring Fund and its shareholders; and
WHEREAS, the Board of Trustees, including a majority of the trustees who
are not "interested persons" (as defined under the 1940 Act) of TIP Funds has
determined with respect to the Selling Fund that the exchange of all the assets
of the Selling Fund for the Acquiring Fund Shares is in the best interests of
the Selling Fund and its shareholders;
1
<PAGE>
In consideration of the mutual promises contained in this Agreement, the
Vanguard Fund and TIP Funds agree as follows:
ARTICLE I
Transfer of Assets of the Selling Fund in Exchange for Acquiring Fund Shares and
Assumption of Selling Fund Liabilities and Liquidation of the Selling Fund.
1.1 Subject to the terms and conditions set out in this Agreement and on
the basis of the representations and warranties contained in this Agreement, TIP
Funds agrees to transfer the Selling Fund's assets in the manner set out in
paragraph 1.2 of this Agreement to the Acquiring Fund, and the Vanguard Fund
agrees in exchange for the assets: (a) to deliver to the Selling Fund the number
of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined
by dividing the value of the Selling Fund's net assets, computed in the manner
and as of the time and date set out in paragraph 2.1 of this Agreement, by the
net asset value of one Acquiring Fund Share, computed in the manner and as of
the time and date set out in paragraph 2.2 of this Agreement; and (b) to assume
certain identified liabilities of the Selling Fund, as set out in paragraph 1.3
of this Agreement. Each of these transactions will take place at the closing
provided for in paragraph 3.1 of this Agreement (the "Closing").
1.2(a) The assets of the Selling Fund to be acquired by the Acquiring Fund
will consist of all property including, without limitation, all cash,
securities, commodities and futures interests, and dividend or interest
receivables that are owned by the Selling Fund and any deferred or prepaid
expenses shown as an asset on the books of the Selling Fund on the closing date
described in paragraph 3.1 of this Agreement (the "Closing Date").
(b) TIP Funds, on behalf of the Selling Fund, has provided the Vanguard
Fund with TIP Funds' most recent financial statements, which contain a list of
all of the Selling Fund's assets as of the date of execution of this Agreement.
TIP Funds, on behalf of the Selling Fund, represents that as of the date of the
execution of this Agreement no changes have occurred in its financial position
as reflected in its financial statements other than those occurring in the
ordinary course of its business in connection with the purchase and sale of
securities and the payment of its normal operating expenses. TIP Funds, on
behalf of the Selling Fund, reserves the right to sell any of the Selling Fund's
assets but will not, without the prior approval of the Vanguard Fund, acquire
any additional assets for the Selling Fund other than instruments of the type in
which the Acquiring Fund is permitted to invest. TIP Funds, on behalf of the
Selling Fund, will, within a reasonable time prior to the Closing Date, furnish
the Vanguard Fund with a list of the assets, if any, on the Selling Fund's list
referred to in the first sentence of this paragraph that do not conform to the
Acquiring Fund's investment objectives, policies and restrictions. In the event
that the Selling Fund holds any assets that the Acquiring Fund may not hold, the
Selling Fund will use its best efforts to dispose of the assets prior to the
Closing Date.
2
<PAGE>
1.3 TIP Funds, on behalf of the Selling Fund, will seek to discharge all of
the Selling Fund's known liabilities and obligations prior to the Closing Date,
other than those liabilities and obligations that would otherwise be discharged
at a later date in the ordinary course of the Selling Fund's business. Except as
specifically provided in paragraph 1.3 of this Agreement, the Acquiring Fund
will assume the liabilities, expenses, costs, charges and reserves reflected on
a Statement of Assets and Liabilities of the Selling Fund prepared on behalf of
the Selling Fund, as of the Valuation Date (as defined in paragraph 2.1 of this
Agreement), in accordance with generally accepted accounting principles
consistently applied from the prior audited period (hereinafter the
"Liabilities"). The Acquiring Fund will assume only those Liabilities of the
Selling Fund reflected in the Statement of Assets and Liabilities and will not,
except as specifically provided in this paragraph 1.3, assume any other
contingent, unknown, or unaccrued liabilities, all of which will remain the
obligation of the Selling Fund.
1.4 As provided in paragraph 3.4 of this Agreement, as soon after the
Closing Date as is practicable (the "Liquidation Date"), the Selling Fund will
liquidate and distribute on a proportionate basis to the Selling Fund's
shareholders of record determined as of the close of business on the Closing
Date (the "Selling Fund Shareholders") the Acquiring Fund Shares it receives
pursuant to paragraph 1.1 of this Agreement. This liquidation and distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Selling Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the names of the Selling
Fund Shareholders representing the respective proportionate number of Acquiring
Fund Shares due those shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund will not issue certificates representing the Acquiring Fund's
Shares in connection with the exchange of Acquiring Fund Shares for shares of
the Selling Fund.
1.5 After the Reorganization, ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the Acquiring Fund's
current prospectus and statement of additional information.
1.6 As soon as practicable after distribution of the Acquiring Fund Shares
pursuant to paragraph 1.4 of this Agreement but in any event within 180 calendar
days after the Closing Date the Selling Fund will be terminated as a series of
TIP Funds ("Termination Date"). In addition, TIP Funds will as soon as
practicable after the Termination Date take all other actions in connection with
the termination of the Selling Fund as required by applicable law.
3
<PAGE>
1.7 Any reporting responsibility of the Selling Fund to any public
authority is and will remain the responsibility of the Selling Fund up to and
including the Closing Date and the Termination Date.
1.8 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of shares of the Selling Fund
("Selling Fund Shares") on the books of the Selling Fund as of that time will,
as a condition of the issuance and transfer, be paid by the person to whom the
Acquiring Fund Shares are to be issued and transferred.
ARTICLE II
Valuation.
2.1 The value of the Selling Fund's assets to be acquired under this
Agreement will be the value of the assets computed as of the close of regular
trading on the New York Stock Exchange, Inc. (the "NYSE") on the applicable
Closing Date (the time and date being referred to as the "Valuation Date" for
purposes of this Agreement), using the valuation procedures set out in the
Selling Fund's then current prospectus and/or statement of additional
information.
2.2 The net asset value of the Acquiring Fund Shares will be the net asset
value per share computed as of the Valuation Date, using the valuation
procedures set out in the Acquiring Fund's then current prospectus and/or
statement of additional information.
2.3 The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Selling Fund's net assets will be determined
by dividing the value of the net assets of the Selling Fund determined using the
same valuation procedures referred to in paragraph 2.1 of this Agreement by the
net asset value per share of the Acquiring Fund determined in accordance with
paragraph 2.2 of this Agreement.
2.4 All computations of value will be made in accordance with the regular
practices of the Vanguard Fund, subject to this Article II.
4
<PAGE>
ARTICLE III
Closing and Closing Date.
3.1 The Closing Date for the Reorganization will be June 5, 2000, or any
other date agreed to in writing by the Vanguard Fund and TIP Funds. All acts
taking place at the Closing will be deemed to take place simultaneously as of
the close of business on the Closing Date unless otherwise provided. The Closing
will be held as of 4:00 p.m., at the offices of the Vanguard Fund, 100 Vanguard
Blvd., Malvern, PA 19355, or at such other time and/or place agreed to by the
Vanguard Fund and TIP Funds.
3.2 The custodian for the Acquiring Fund (the "Custodian") will deliver at
the Closing a certificate of an authorized officer stating that: (a) the Selling
Fund's portfolio securities, cash and any other assets will have been delivered
in proper form to the Acquiring Fund prior to or on the Closing Date, and (b)
all necessary taxes, including all applicable federal and state stock transfer
stamps, if any, will have been paid, or provision for payment has been made, in
conjunction with the delivery of portfolio securities.
3.3 In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Fund or the Selling
Fund is closed to trading or trading on the market is restricted or (b) trading
or the reporting of trading on the NYSE or elsewhere is disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the applicable Closing Date will be postponed
until the first business day after the day when normal trading has fully resumed
and reporting has been restored.
3.4 TIP Funds, on behalf of the Selling Fund, will deliver at the Closing a
list of the names and addresses of the Selling Fund Shareholders and the number
of outstanding Shares owned by each such shareholder immediately prior to the
Closing or provide evidence that the information has been provided to the
Acquiring Fund's transfer agent. The Vanguard Fund, on behalf of the Acquiring
Fund, will issue and deliver a confirmation evidencing the Acquiring Fund Shares
to be credited to the Selling Fund's account on the Closing Date to the
Secretary of TIP Funds or provide evidence satisfactory to TIP Funds that the
Acquiring Fund Shares have been credited to the Selling Fund's account on the
books of the Acquiring Fund. At the Closing, each party to this Agreement will
deliver to the other party such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as the other party or its
counsel may reasonably request.
5
<PAGE>
ARTICLE IV
Representations and Warranties.
4.1 TIP Funds, on behalf of the Selling Fund, represents and warrants to
the Vanguard Fund as follows:
(a) The Selling Fund is an investment series of TIP Funds, a business
trust duly organized, validly existing, and in good standing under the laws
of the Commonwealth of Massachusetts;
(b) TIP Funds is a registered open-end management investment company
and its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the 1940 Act is in full force
and effect;
(c) TIP Funds is not, and the execution, delivery, and performance of
this Agreement (subject to approval of the Selling Fund Shareholders) will
not result, in a violation of any provision of its Declaration of Trust or
any material agreement, indenture, instrument, contract, lease or other
undertaking to which TIP Funds on behalf of itself or on behalf of the
Selling Fund is a party or by which its property is bound;
(d) TIP Funds will turn over all of the books and records relating to
the Selling Fund (including all books and records required to be maintained
under the 1940 Act and the Code and the rules and regulations under the
1940 Act and the Code) to the Vanguard Fund at the Closing;
(e) TIP Funds has no contracts or other commitments (other than this
Agreement) with respect to the Selling Fund that will be terminated with
liability to TIP Funds prior to the Closing Date;
(f) Except as previously disclosed in writing to and accepted by the
Vanguard Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending, or to TIP
Funds' knowledge, threatened against TIP Funds in connection with the
Selling Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect TIP Funds' financial
condition or the conduct of its business. TIP Funds knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body that materially and adversely affects its
business or the business of the Selling Fund or TIP Funds' ability to
consummate the transactions contemplated by this Agreement;
6
<PAGE>
(g) The statements of assets and liabilities of TIP Funds relating to
the Selling Fund for the period beginning with commencement of the Selling
Fund and ending on September 30, 1999 have been audited by Ernst & Young
LLP, certified public accountants, and are in accordance with generally
accepted accounting principles consistently applied, and those statements
(copies of which have been furnished to the Acquiring Fund) fairly reflect
the financial condition of the Selling Fund as of such dates, and no known
contingent liabilities of the Selling Fund exist as of such dates that are
not disclosed in those statements;
(h) Since September 30, 1999, no material adverse change has occurred
in the Selling Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year
from the date that such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Vanguard Fund. For the purposes of this
subparagraph (h), a decline in net asset value per share or the total
assets of the Selling Fund in the ordinary course of business does not
constitute a material adverse change;
(j) At the Closing Date, all federal and other tax returns and reports
with respect to the Selling Fund required by law to have been filed by the
Closing Date will have been filed, and all federal and other taxes will
have been paid so far as due, or provision will have been made for the
payment of those taxes and, to the best of TIP Funds' knowledge, no such
tax return is currently under audit and no assessment has been asserted
with respect to such a return;
(h) For each of its prior fiscal years of operation, TIP Funds has met
the requirements of Subchapter M of the Code for qualification and
treatment of the Selling Fund as a regulated investment company; and all of
the Selling Fund's issued and outstanding shares have been offered and sold
in compliance in all material respects with applicable federal and state
securities laws;
(k) At the date of this Agreement, all issued and outstanding shares
of the Selling Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. All of the issued
and outstanding shares of the Selling Fund will, at the time of Closing, be
held by the persons and the amounts set out in the records of TIP Funds'
transfer agent as provided in paragraph 3.4 of this Agreement. TIP Funds
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Selling Fund's Shares, nor is any
security convertible into any of the Selling Fund's shares currently
outstanding;
(l) At the applicable Closing Date, TIP Funds will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to
7
<PAGE>
paragraph 1.2 of this Agreement, and full right, power and authority to
sell, assign, transfer and deliver the assets under the terms and
conditions of this Agreement and, upon delivery and payment for the assets,
the Acquiring Fund will acquire good and marketable title to them, subject
to no restrictions on the full transfer of the assets, including such
restrictions as might arise under the Securities Act of 1933, as amended
(the "1933 Act"), other than as disclosed to the Vanguard Fund;
(m) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions on the part of TIP Funds' Board of
Trustees and, subject to the approval of the Selling Fund Shareholders,
this Agreement will constitute a valid and binding obligation of TIP Funds,
enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
equity principles;
(n) The information to be furnished by TIP Funds for use in no-action
letters, applications for exemptive orders, registration statements, proxy
materials and other documents that may be necessary in connection with the
transactions contemplated by this Agreement will be accurate and complete
in all material respects and will comply in all material respects with
federal securities and other laws and regulations under those laws
applicable to those transactions;
(o) The proxy statement of the Selling Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in paragraph 5.7 of
this Agreement (insofar as it relates to the Selling Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in the Proxy Statement or necessary to make the
statements in the Proxy Statement, in light of the circumstances under
which the statements were made, not materially misleading; and
(p) The current prospectus and statement of additional information
filed with the Commission as part of TIP Funds' registration statement on
Form N-1A relating to the Selling Fund conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations under those Acts and do not include any untrue statement of
a material fact or omit to state any material fact required to be stated in
that registration statement or necessary to make the statements in the
registration statement, in light of the circumstances under which they were
made, not misleading.
8
<PAGE>
4.2 The Vanguard Fund, on behalf of the Acquiring Fund, represents and
warrants to TIP Funds as follows:
(a) The Acquiring Fund is an investment series of a business trust,
duly organized, validly existing and in good standing under the laws of the
State of Delaware;
(b) The Vanguard Fund is a registered open-end management investment
company and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information
filed as part of the Vanguard Fund's registration statement on Form N-1A,
which will become effective prior to the Closing Date, insofar as they
relate to the Acquiring Fund (the "Vanguard Fund Registration Statement")
conform in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated in the Vanguard Fund
Registration Statement or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading;
(d) The Vanguard Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of its
Declaration of Trust or any material agreement, indenture, instrument,
contract, lease or other undertaking to which the Vanguard Fund on behalf
of itself or on behalf of the Acquiring Fund is a party or by which it is
bound;
(e) Except as previously disclosed in writing to and accepted by TIP
Funds, no litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to the
Vanguard Fund's knowledge, threatened against the Vanguard Fund in
connection with the Acquiring Fund or any of its properties or assets that,
if adversely determined, would materially and adversely affect the Vanguard
Fund's financial condition or the conduct of its business. The Vanguard
Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that materially
and adversely affects its business or the business of the Acquiring Fund or
the Vanguard Fund's ability to consummate the transactions contemplated in
this Agreement;
(f) Since the inception of the Acquiring Fund, no material adverse
change has occurred with respect to the Acquiring Fund's financial
condition, assets, liabilities or business other than changes occurring in
the ordinary course of business, or any incurrence by the Acquiring Fund of
indebtedness maturing more than one year from the date that such
indebtedness was incurred, except as otherwise disclosed to and accepted by
TIP Funds. For the purposes of this subparagraph (f), a decline in net
asset value per share or the total assets of the Acquiring Fund in the
ordinary course of business does not constitute a material adverse change;
9
<PAGE>
(g) At the Closing Date, all federal and other tax returns and reports
with respect to the Acquiring Fund required by law to have been filed by
the Closing Date will have been filed, and all federal and other taxes will
have been paid so far as due, or provision will have been made for the
payment of those taxes;
(h) The Vanguard Fund intends to meet the requirements of Subchapter M
of the Code for qualification and treatment of the Acquiring Fund as a
regulated investment company in the future;
(i) At the date of this Agreement, all issued and outstanding
Acquiring Fund Shares are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and non-assessable, with no
personal liability attaching to the ownership of those shares. The Vanguard
Fund does not have outstanding any options, warrants or other rights to
subscribe for or purchase any Acquiring Fund Shares, nor is any security
convertible into any Acquiring Fund Shares currently outstanding;
(j) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary actions, if any, of the Vanguard Fund's
Board of Trustees, and this Agreement will constitute a valid and binding
obligation of the Vanguard Fund enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(k) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, under the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership of those shares;
(l) The information to be furnished by the Vanguard Fund for use in
no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents that may be necessary in
connection with the transactions contemplated in this Agreement will be
accurate and complete in all material respects and will comply in all
material respects with federal securities and other laws and regulations
applicable to those transactions;
(m) The Proxy Statement to be included in the Registration Statement
referred to in paragraph 5.7 of this Agreement (insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated in the
Proxy Statement or necessary to make the statements in the Proxy Statement,
in light of the circumstances under which such statements were made, not
materially misleading; and
10
<PAGE>
(n) The Vanguard Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and the 1940 Act
as it may deem appropriate in order to continue the operations of the
Acquiring Fund after the Closing Date.
ARTICLE V
Covenants of the Acquiring Fund and the Selling Fund.
5.1 The Vanguard Fund will operate the business of the Acquiring Fund, and
TIP Funds will operate the business of the Selling Fund, in the ordinary course
between the date of this Agreement and the Closing Date. The Vanguard Fund and
TIP Funds agree for purposes of this Agreement that the declaration and payment
of customary dividends and distributions will be considered to have been paid in
the ordinary course of business.
5.2 TIP Funds, on behalf of the Selling Fund, will call a meeting of its
shareholders to consider and act upon this Agreement and to take all other
actions in coordination with the Vanguard Fund necessary to obtain approval of
the transactions contemplated by this Agreement.
5.3 TIP Funds, on behalf of the Selling Fund, covenants that the Acquiring
Fund Shares to be issued under this Agreement are not being acquired for the
purpose of making any distribution other than in accordance with the terms of
this Agreement.
5.4 TIP Funds, on behalf of the Selling Fund, will assist the Vanguard Fund
in obtaining all information that the Vanguard Fund reasonably requests
concerning the beneficial ownership of the Selling Fund's Shares.
5.5 Subject to the provisions of this Agreement, the Vanguard Fund and TIP
Funds each will take, or cause to be taken, all action, and do, or cause to be
done, all actions reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, including any
actions required to be taken after the Closing Date.
5.6 As promptly as practicable, but in any case within forty-five calendar
days after the Closing Date, TIP Funds will furnish the Vanguard Fund, in such
form as is reasonably satisfactory to the Vanguard Fund, a statement of the
earnings and profits of the Selling Fund for federal income tax purposes that
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code, and that will be certified by the Selling Fund's President and its
Treasurer.
5.7 TIP Funds, on behalf of the Selling Fund, will provide the Vanguard
Fund with information reasonably necessary for the preparation of a prospectus
(the "Prospectus") that will include the Proxy Statement referred to in
paragraphs 4.1(o) and 4.2(m)of this Agreement, all to be included in a
registration statement on Form N-14 of the Vanguard Fund (the "Registration
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Statement"), in compliance with the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act") and the 1940 Act in connection with the meeting of the
Selling Fund's shareholder to consider approval of this Agreement and the
transactions contemplated by this Agreement.
5.8 As promptly as practicable, but in any case within thirty days of the
Closing Date, TIP Funds, on behalf of the Selling Fund, will furnish the
Vanguard Fund with a statement containing information required for purposes of
complying with Rule 24f-2 under the 1940 Act. A notice pursuant to Rule 24f-2
will be filed by the Acquiring Fund offsetting redemptions by the Selling Fund
during the fiscal year ending on or after the applicable Closing Date against
sales of the Acquiring Fund Shares; and TIP Funds agrees that it will not net
redemptions during that period by the Selling Fund against sales of shares of
any other series of TIP Funds.
ARTICLE VI
Conditions Precedent to the Obligations of TIP Funds.
The obligations of TIP Funds to consummate the transactions provided for in
this Agreement will be subject, at its election, to the performance by the
Vanguard Fund of all obligations to be performed by it under this Agreement on
or before the Closing Date and, in addition to those obligations to the
following specific conditions:
6.1 All representations and warranties of the Vanguard Fund contained in
this Agreement will be true and correct in all material respects as of the date
of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 The Vanguard Fund will have delivered to TIP Funds a certificate
executed in its name by its Chief Executive Officer, President or Vice President
and its Secretary, Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to TIP Funds and dated as of the Closing Date, to the effect that
the representations and warranties of the Vanguard Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement and as to such other
matters as TIP Funds may reasonably request.
6.3 TIP Funds will have received on the Closing Date a favorable opinion
from Shearman & Sterling, counsel to the Vanguard Fund, dated as of the Closing
Date, in a form reasonably satisfactory to TIP Funds, covering the following
points:
(a) the Acquiring Fund is a separate series of the Vanguard Fund, a
business trust duly organized, validly existing and in good standing under the
laws of the State of Delaware and the Vanguard Fund has the corporate power to
own all of the Acquiring Fund's properties and assets and to carry on the
Acquiring Fund's business as presently conducted;
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(b) the Vanguard Fund is registered as an investment company under the
1940 Act, and, to such counsel's knowledge, the Fund's registration with the
Commission as an investment company under the 1940 Act is in force and effect
with respect to the Acquiring Fund;
(c) this Agreement has been duly authorized, executed and delivered by
the Vanguard Fund and, assuming that the Prospectus, Registration Statement and
Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations under those laws and, assuming due authorization,
execution and delivery of the Agreement by TIP Funds, is a valid and binding
obligation of the Vanguard Fund enforceable against the Vanguard Fund in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles;
(d) the Acquiring Fund Shares to be issued to the Selling Fund's
shareholders as provided by this Agreement are duly authorized and upon delivery
will be validly issued and outstanding and are fully paid and nonassessable with
no personal liability attaching to ownership of the Shares, and no shareholder
of the Acquiring Fund has any preemptive rights to subscription or purchase in
respect of the Shares;
(e) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Vanguard Fund's Declaration of Trust or in a material violation
of any provision of any agreement relating to the Acquiring Fund (known to such
counsel) to which the Vanguard Fund is a party or by which it or its properties
are bound or, to the knowledge of such counsel, result in the acceleration of
any obligation or the imposition of any penalty, under any agreement, judgment,
or decree to which the Vanguard Fund is a party or by which it or its properties
are bound;
(f) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or State of Delaware is required for the consummation by the Vanguard
Fund of the actions contemplated in this Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act;
(g) the descriptions in the Proxy Statement, insofar as they relate to
the Vanguard Fund or the Acquiring Fund, of statutes, legal and governmental
proceedings, investigations, orders, decrees or judgments of any court or
governmental body in the United States, and contracts and other documents, if
any, are accurate and fairly present the information required to be shown;
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(h) such counsel does not know of any legal, administrative or
governmental proceedings, investigation, order, decree or judgment of any court
or governmental body, insofar as they relate to the Vanguard Fund or the
Acquiring Fund or its assets or properties, pending, threatened or otherwise
existing on or before the effective date of the Registration Statement or the
Closing Date, which are required to be described in the Registration Statement
or to be filed as exhibits to the Registration Statement that are not described
and filed as required; and
(i) the Vanguard Fund Registration Statement is effective under the
1933 Act and the 1940 Act and no stop-order suspending its effectiveness or
order pursuant to section 8(e) of the 1940 Act has been issued.
Counsel also will state that they have participated in conferences with
officers and other representatives of the Vanguard Fund at which the contents of
the Proxy Statement, the Vanguard Fund Registration Statement and related
matters were discussed and, although they are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Proxy Statement and the Vanguard Fund Registration Statement
(except to the extent indicated in paragraph (g) of their above opinion), on the
basis of the foregoing information (relying as to materiality upon the opinions
of officers and other representatives of the Vanguard Fund), they do not believe
that the Proxy Statement and the Vanguard Fund Registration Statement as of
their respective dates, as of the date of the Selling Fund's shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated in the Proxy
Statement and the Vanguard Fund Registration Statement or necessary to make the
statements in the Proxy Statement and the Vanguard Fund Registration Statement
in the light of the circumstances under which they were made not misleading.
The opinion may state that counsel does not express any opinion or belief
as to the financial statements or other financial data, or as to the information
relating to TIP Funds or the Selling Fund, contained in the Proxy Statement,
Registration Statement or the Vanguard Fund Registration Statement, and that the
opinion is solely for the benefit of TIP Funds and its directors and officers.
Such counsel may rely as to matters governed by the laws of the State of
Delaware on an opinion of local counsel and/or certificates of officers or
directors of the Acquiring Fund. The opinion also will include such other
matters incident to the transaction contemplated by this Agreement, as TIP Funds
may reasonably request.
In this paragraph 6.3, references to the Proxy Statement include and relate
only to the text of such Proxy Statement and not, except as specifically stated
above, to any exhibits or attachments to the Proxy Statement or to any documents
incorporated by reference in the Proxy Statement.
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ARTICLE VII
Conditions Precedent to the Obligations of the Vanguard Fund.
The obligations of the Vanguard Fund to complete the transactions provided
for in this Agreement will be subject, at its election, to the performance by
TIP Funds of all the obligations to be performed by it under this Agreement on
or before the Closing Date and, in addition to those obligations, the following
conditions:
7.1 All representations and warranties of TIP Funds contained in this
Agreement will be true and correct in all material respects as of the date of
this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 TIP Funds will have delivered to the Vanguard Fund a statement of the
Selling Fund's assets and liabilities, together with a list of the Selling
Fund's portfolio securities showing the tax costs of those securities by lot and
the holding periods of the securities, as of the Closing Date, certified by the
Treasurer or Assistant Treasurer of TIP Funds;
7.3 TIP Funds will have delivered to the Vanguard Fund on the Closing Date
a certificate executed in its name, and on behalf of the Selling Fund, by its
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Vanguard Fund and dated as of the Closing
Date, to the effect that the representations and warranties of TIP Funds made in
this Agreement are true and correct at and as of the Closing Date, except as
they may be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Vanguard Fund shall reasonably request; and
7.4 The Vanguard Fund will have received on the Closing Date a favorable
opinion of Morgan, Lewis & Bockius LLP, counsel to TIP Funds, dated as of the
Closing Date, in a form reasonably satisfactory to the Vanguard Fund, covering
the following points:
(a) the Selling Fund is a separate investment series of TIP Funds, a
business trust that is duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and TIP Funds has the
corporate power to own all of the Selling Fund's properties and assets and to
carry on the Selling Fund's business as presently conducted;
(b) TIP Funds is registered as an investment company under the 1940
Act and, to such counsel's knowledge, TIP Funds' registration with the
Commission as an investment company under the 1940 Act is in force and effect
with respect to the Selling Fund;
(c) this Agreement has been duly authorized, executed and delivered by
TIP Funds and, assuming that the Prospectus, the Registration Statement and the
Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations under
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those laws and, assuming due authorization, execution and delivery of the
Agreement by the Vanguard Fund, is a valid and binding obligation of TIP Funds
enforceable against TIP Funds in accordance with its terms, subject to the
effect of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other laws relating to or affecting creditors, rights generally
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not, result
in a violation of TIP Funds' Declaration of Trust or a material violation of any
provision of any agreement (known to such counsel) to which TIP Funds is a party
or by which it or its properties are bound or, to the knowledge of such counsel,
result in the acceleration of any obligation or the imposition of any penalty,
under any agreement, judgment or decree to which TIP Funds is a party or by
which it or its properties are bound;
(e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or Commonwealth of Massachusetts is required for the consummation by TIP
Funds of the transactions contemplated in this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act;
(f) the descriptions in the Proxy Statement under the captions [add
relevant caption headings], insofar as they relate to TIP Funds, are accurate
and fairly present the information required to be shown; and
(g) counsel does not know of any legal, administrative or governmental
proceedings, investigation, order, decree or judgment of any court or
governmental body, only insofar as they relate to TIP Funds or its respective
assets or properties, pending, threatened or otherwise existing on or before the
effective date of the Registration Statement or the Closing Date, which are
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement that are not described and filed as
required or that materially and adversely affect the Selling Fund's business.
Counsel also will state that they have participated in conferences with
officers and other representatives of TIP Funds at which the contents of the
Proxy Statement and related matters were discussed and, although they are not
passing upon and do not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Proxy Statement (except to the
extent indicated in paragraph (f) of their above opinion), on the basis of the
foregoing information (relying as to materiality to a large extent upon the
opinions of officers and other representatives of TIP Funds), they do not
believe that the Proxy Statement as of its date, as of the date of the Selling
Fund's shareholder meeting, and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated in the Proxy Statement regarding the Selling Fund or necessary in the
light of the circumstances under
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which they were made, to make the statements in the Proxy Statement regarding
the Selling Fund not misleading.
The opinion may state that counsel does not express any opinion or belief
as to the financial statements or other financial data, or as to the information
relating to the Vanguard Fund or the Acquiring Fund, contained in the Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of the Vanguard Fund and its directors and officers. The opinion also
will include such other matters incident to the transaction contemplated by this
Agreement as the Fund may reasonably request.
In this paragraph 7.4, references to the Proxy Statement include and relate
only to the text of the Proxy Statement and not to any exhibits or attachments
to the Proxy Statement or to any documents incorporated by reference in the
Proxy Statement.
7.5 The Vanguard Fund will have received from Ernst & Young LLP a letter
addressed to the Vanguard Fund dated as of the effective date of the
Registration Statement in form and substance satisfactory to the Vanguard Fund,
to the effect that:
(a) they are independent public accountants with respect to TIP Funds
within the meaning of the 1933 Act and the applicable regulations under the 1933
Act;
(b) in their opinion, the financial statements and per share income
and capital changes of the Selling Fund included or incorporated by reference in
the Registration Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the rules and regulations under the 1933 Act;
(c) on the basis of limited procedures agreed upon by the Vanguard
Fund and TIP Funds and described in the letter (but not an audit in accordance
with generally accepted auditing standards) with respect to the unaudited pro
forma financial statements of the Selling Fund included in the Registration
Statement and the Proxy Statement, and inquiries of appropriate officials of TIP
Funds or the officers of TIP Funds responsible for financial and accounting
matters, nothing came to their attention that caused them to believe that (i)
the unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the rules and regulations under the 1933 Act, or (ii) the unaudited pro
forma financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements; and
(d) on the basis of limited procedures agreed upon by the Vanguard
Fund and TIP Funds and described in the letter (but not an examination in
accordance with generally accepted auditing standards), the information relating
to the Selling Fund appearing in the Registration Statement and the Proxy
Statement that is expressed in dollars or percentages of
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dollars (with the exception of performance comparisons) has been obtained from
the accounting records of the Selling Fund or from schedules prepared by
officers of TIP Funds having responsibility for financial and reporting matters
and the information is in agreement with these records, schedules or
computations made from those documents.
7.6 TIP Funds will have delivered to the Vanguard Fund, pursuant to
paragraph 4.1(f) of this Agreement, copies of financial statements of the
Selling Fund as of and for its most recently completed fiscal year.
7.7 The Vanguard Fund will have received from Ernst & Young LLP a letter
addressed to the Vanguard Fund and dated as of the applicable Closing Date
stating that as of a date no more than three business days prior to the
applicable Closing Date, Ernst & Young LLC performed limited procedures in
connection with TIP Funds' most recent unaudited financial statements relating
to the Selling Fund and that (a) nothing came to their attention in performing
the limited procedures or otherwise that led them to believe that any changes
had occurred in the assets, liabilities, net assets, net investment income, net
increase (decrease) in net assets from operations or net increase (decrease) in
net assets as compared with amounts as of the Selling Fund's most recent audited
fiscal year end or the corresponding period in the Selling Fund's most recent
audited fiscal year, other than changes occurring in the ordinary course of
business and (b) based on the limited procedures, no change has occurred in
their report on the most recent audited financial statements of TIP Funds
relating to the Selling Fund.
ARTICLE VIII
Further Conditions Precedent to Obligations of the Acquiring Fund and the
Selling Fund.
8.1 The Agreement and the transactions contemplated in the Agreement will
have been approved by the requisite vote of the holders of the outstanding
shares of the Selling Fund in accordance with the provisions of TIP Funds'
Declaration of Trust and applicable law and certified copies of the votes
evidencing the approval will have been delivered to the Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding will be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated by this Agreement. On the Closing
Date, the Commission will not have issued an unfavorable report under Section
25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the
consummation of the transactions contemplated by this Agreement under Section
25(c) of the 1940 Act, and no action, suit or other proceeding will be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated by this Agreement.
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8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state blue sky and securities authorities, including
no-action positions of and exemptive orders from federal and state authorities)
deemed necessary by the Vanguard Fund or TIP Funds to permit consummation, in
all material respects, of the transactions contemplated by this Agreement will
have been obtained, except if the failure to obtain any such consent, order or
permit would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Selling Fund, provided that either the
Vanguard Fund or TIP Funds may for itself waive any of the conditions in this
paragraph 8.3.
8.4 The Vanguard Fund Registration Statement and the Registration Statement
will each have become effective under the 1933 Act and no stop orders suspending
the effectiveness of the Vanguard Fund Registration Statement and the
Registration Statement will have been issued and, to the best knowledge of the
Vanguard Fund or TIP Funds, no investigation or proceeding for that purpose will
have been instituted or be pending, threatened or contemplated under the 1933
Act.
8.5 The parties will have received a favorable opinion of Stradley Ronon
Stevens & Young, LLP, addressed to, and in form and substance satisfactory to
TIP Funds substantially to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this Agreement and based
upon certificates with respect to matters of fact from the officers of TIP Funds
and the Vanguard Fund, that for federal income tax purposes:
(a) the transfer of all or substantially all of the Selling Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring
Fund of the Liabilities of the Selling Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(F) of the Code and the Acquiring Fund
and the Selling Fund are each a "party to a reorganization" within the meaning
of Section 368(b) of the Code; (b) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Selling Fund solely in
exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of
the Liabilities of the Selling Fund; however, no opinion will be expressed as to
whether any accrued market discount will be required to be recognized as
ordinary income; (c) no gain or loss will be recognized by the Selling Fund upon
the transfer of the Selling Fund's assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
Liabilities of the Selling Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to the Selling Fund's shareholders in
exchange for their shares of the Selling Fund; (d) no gain or loss will be
recognized by shareholders of the Selling Fund upon the exchange of their
Selling Fund Shares for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Liabilities of the Selling Fund; (e) the aggregate tax
basis for the Acquiring Fund Shares received by each of the Selling Fund
Shareholders pursuant to the Reorganization will be the same as the aggregate
tax basis of the Selling Fund Shares held by the shareholder immediately prior
to the Reorganization, and the holding period of the Acquiring Fund Shares to be
received
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by each Selling Fund shareholder will include the period during which the
Selling Fund Shares exchanged for the Acquiring Fund Shares were held by the
shareholder (provided that the Selling Fund Shares were held as capital assets
on the date of the Reorganization); and (f) the tax basis of the Selling Fund's
assets acquired by the Acquiring Fund will be the same as the tax basis of the
assets to the Selling Fund immediately prior to the Reorganization, and the
holding period of the assets of the Selling Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the Selling
Fund.
Notwithstanding anything in this Agreement to the contrary, neither the
Vanguard Fund nor TIP Funds may waive the conditions set out in this paragraph
8.5.
ARTICLE IX
Brokerage Fees and Expenses; Other Agreements.
9.1 The Vanguard Fund represents and warrants to TIP Funds, and TIP Funds
represents and warrants to the Vanguard Fund, that no brokers or finders or
other entities are entitled to receive any payments in connection with the
transactions provided for in this Agreement.
9.2 The Vanguard Fund or its affiliates agrees to bear certain of the
expenses incurred in connection with the transactions contemplated by this
Agreement, whether or not consummated (excluding extraordinary expenses such as
litigation expenses, damages and other expenses not normally associated with
transactions of the type contemplated by this Agreement). These expenses consist
of: (i) expenses incurred by Vanguard in connection with preparing this
Agreement and the Registration Statement; (ii) expenses incurred by Vanguard in
connection with preparing and filing the Vanguard Fund Registration Statement;
(iii) fees and expenses of preparing and filing such forms for notification
purposes, if required under applicable state securities laws with respect to the
Acquiring Fund Shares to be issued in connection with the Reorganization; and
(iv) postage, printing, accounting fees, and legal fees incurred in connection
with the transactions contemplated by this Agreement.
9.3 TIP Funds or its affiliates agrees to bear certain of the expenses
incurred in connection with the transactions contemplated by this Agreement.
These expenses consist of (i) expenses incurred by TIP Funds in connection with
preparing this Agreement and the Registration Statement; (ii) expenses
associated with preparing the Proxy Statement; and (iii) solicitation costs and
expenses incurred in connection with the shareholders meeting referred to in
paragraph 5.2 of this Agreement.
9.4 (a) TIP Funds or its affiliates ("Turner") will indemnify and hold
harmless the Vanguard Fund, the Acquiring Fund, The Vanguard Group, Inc., their
directors, officers, employees, and affiliates (each, a "Turner Indemnified
Party"), from and against any and all
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damages, costs and expenses (including reasonable attorney's fees and costs)
incurred by any of them as a result of any breach or failure of TIP Funds'
representations or warranties under this Agreement, or as a result of any
willful misconduct or negligence by TIP Funds in the performance (or failure to
perform) of TIP Funds' obligations under this Agreement.
(b) Turner's agreement to indemnify a Turner Indemnified Party
pursuant to paragraph 9.4(a) is expressly conditioned upon Turner's being
promptly notified of any action or claim brought against any Turner Indemnified
Party after that party receives notice of the action. The failure of a Turner
Indemnified Party to notify Turner will not relieve Turner from any liability
that Turner may have otherwise than on account of this indemnification
agreement.
(c) In case any action or claim is brought against any Turner
Indemnified Party and that party timely notifies Turner of the commencement of
the action or claim, Turner will be entitled to participate in and, to the
extent that it wishes to do so, to assume the defense of the action or claim
with counsel satisfactory to it. If Turner decides to assume the defense of the
action, Turner will not be liable to the Turner Indemnified Party for any legal
or other expenses subsequently incurred by the Turner Indemnified Party in
connection with the defense of the action or claim other than: (i) reasonable
costs of investigation or the furnishing of documents or witnesses and (ii) all
reasonable fees and expenses of separate counsel to the Turner Indemnified Party
if the Turner Indemnified Party has concluded reasonably that representation of
Turner and the Turner Indemnified Party would be inappropriate as a result of
actual or potential differing interests between them in the conduct of the
defense of such action.
9.5 (a) The Vanguard Fund or its affiliates ("Vanguard") will indemnify and
hold harmless TIP Funds, the Selling Fund, Turner Investment Partners, Inc.,
their directors, officers, employees and affiliates (each, a "Vanguard
Indemnified Party") from and against any and all damages (including reasonable
attorney's fees and costs) incurred by any of them as a result of any breach or
failure of the Vanguard Fund's representations or warranties under this
Agreement, or as a result of any willful misconduct or negligence by the
Vanguard Fund in the performance (or failure to perform) of the Vanguard Fund's
obligations under this Agreement.
(b) Vanguard's agreement to indemnify a Vanguard Indemnified Party
pursuant to this paragraph 9.5(b) is expressly conditioned upon Vanguard's being
promptly notified of any action or claim brought against any Vanguard
Indemnified Party after that party receives notice of the action. The failure of
a Vanguard Indemnified Party to notify Vanguard will not relieve Vanguard from
any liability that Vanguard may have otherwise than on account of this
indemnification agreement.
(c) In case any action or claim is brought against any Vanguard
Indemnified Party and that party timely notifies Vanguard of the commencement of
the action or claim, Vanguard will be entitled to participate in and, to the
extent that it wishes to do so, to assume the defense of the action or claim
with counsel satisfactory to it. If Vanguard decides to assume the
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defense of the action, Vanguard will not be liable to the Vanguard Indemnified
Party for any legal or other expenses subsequently incurred by the Vanguard
Indemnified Party in connection with the defense of the action or claim other
than: (i) reasonable costs of investigation or the furnishing of documents or
witnesses and (ii) all reasonable fees and expenses of separate counsel to the
Vanguard Indemnified Party if the Vanguard Indemnified Party has concluded
reasonably that representation of Vanguard and the Vanguard Indemnified Party
would be inappropriate as a result of actual or potential differing interest
between them in the conduct of the defense as a result of the action.
ARTICLE X
Entire Agreement; Survival of Warranties.
10.1 The Vanguard Fund and TIP Funds agree that neither of them has made
any representation, warranty or covenant not set forth in this Agreement and
that this Agreement represents the entire agreement among them.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered in accordance with its terms will survive
the consummation of the transactions contemplated under this Agreement.
ARTICLE XI
Termination.
11.1 This Agreement may be terminated at any time at or prior to the
Closing Date by: (i) mutual agreement of TIP Funds and the Vanguard Fund; (ii)
TIP Funds, in the event the Vanguard Fund has, or the Vanguard Fund in the event
TIP Funds has, materially breached any representation, warranty or agreement
contained in this Agreement to be performed at or prior to the Closing Date; or
(iii) TIP Funds, or the Vanguard Fund in the event a condition included in this
Agreement expressed to be precedent to the obligations of the terminating party
or parties has not been met and it reasonably appears that it will not or cannot
be met.
11.2 In the event of any such termination, the Vanguard Fund or TIP Funds,
or their respective directors or officers, will not be liable to the other party
or parties.
ARTICLE XII
Amendments.
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This Agreement may be amended, modified or supplemented in writing in such
manner as may be mutually agreed upon by the authorized officers of the Vanguard
Fund and TIP Funds; provided, however, that following the meeting of the Selling
Fund's shareholders called pursuant to paragraph 5.2 of this Agreement, no
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund Shares to be issued to the Selling Fund's
Shareholders under this Agreement to the detriment of the shareholders without
their further approval.
ARTICLE XIII
Notices.
13.1 Any notice, report, statement or demand required or permitted by any
provisions of this Agreement will be in writing and given by prepaid telegraph,
telecopy, or certified mail addressed to TIP Funds:
530 East Swedesford Road,
Wayne, PA 19087
Attention:
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Attention: Edward B. Baer, Esq.
or to the Vanguard Fund at:
P.O. Box 2600
Valley Forge, PA 19482
Attention: Suzanne F. Barton, Esq.
<PAGE>
with a copy to:
Shearman & Sterling
` 1801 Pennsylvania Ave., N.W.
Suite 900
Washington, D.C. 20004
Attention: Barry P. Barbash, Esq.
23
<PAGE>
ARTICLE XIV
Headings; Counterparts; Governing Law; Assignment; Limitation of Liability.
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement will be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
14.4 This Agreement will bind and inure to the benefit of the parties to
the Agreement and their respective successors and assigns, but no assignment or
transfer of the Agreement or of any rights or obligations under the Agreement
may be made by either party without the written consent of the other party.
Nothing expressed or implied in this Agreement is intended or may be construed
to confer upon or give any person, firm or corporation, other than the parties
to the Agreement and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
* * * * *
24
<PAGE>
Each of the parties to this Agreement has caused this Agreement to be
executed by its Chief Executive Officer, President or Vice President, and
attested to by its Secretary or Assistant Secretary.
By: [Vanguard Fund]
Name:[_____________________]
Title:[_____________________]
By:[TIP Funds]
Name:[____________________]
Title:[____________________]
25
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of this 1st day of June, 2000, between VANGUARD FENWAY
FUNDS, a Delaware business trust (the "Trust"), and TURNER INVESTMENT PARTNERS,
INC., a Pennsylvania corporation (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Trust currently offers two series of shares, one of which is
known as Vanguard Growth Equity Fund (the "Fund"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to render such
services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. Appointment of Adviser. The Trust hereby employs the Adviser as
investment adviser to the Fund, on the terms and conditions set forth herein.
The Adviser accepts such employment and agrees to render the services herein set
forth, for the compensation herein provided.
2. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets of the Fund, to continuously review,
supervise and administer an investment program for the Fund, to determine in its
discretion the securities to be purchased or sold and the portion of such assets
to be held uninvested, to provide the Fund with records concerning the
activities of the Adviser that the Fund is required to maintain, and to render
regular reports to the Trust's officers and Board of Trustees concerning the
discharge of the foregoing responsibilities. The Adviser will discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Trustees of the Fund, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus, any additional operating
policies or procedures that the Fund communicates to the Adviser in writing, and
applicable laws and regulations. The Adviser agrees to provide, at its own
expense, the office space, furnishings and equipment and the personnel required
by it to perform the services on the terms and for the compensation provided
herein.
3. Securities Transactions. The Adviser is authorized to select the brokers
or dealers that will execute purchases and sales of securities for the Fund, and
is directed to
<PAGE>
use its best efforts to obtain the best available price and most favorable
execution for such transactions, except as otherwise permitted by the Board of
Trustees of the Fund pursuant to written policies and procedures provided to the
Adviser. The Adviser may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and the other Funds in The Vanguard Group of Investment Companies. The
Adviser will promptly communicate to the Trust's officers and Board of Trustees
such information relating to portfolio transactions as they may reasonably
request.
4. Compensation of Adviser. For the services to be rendered by the Adviser
as provided in this Agreement, the Fund will pay to Advisor at the end of each
calendar quarter, a Basic Fee calculated by applying a quarterly rate, based on
the following annual percentage rates, to the average month-end net assets of
the Fund for the then ended quarter.
Average Month-End
Annual Rate Net Assets For the Quarter
----------- --------------------------
0.50% First $200 million
0.40% Next $300 million
0.30% Next $1.5 billion
0.20% Over $2 billion.
Subject to the transition rules described below, the Basic Fee, as provided
above, will be increased or decreased by the amount of a Performance Fee
Adjustment ("Adjustment"). The Adjustment will be calculated as a percentage of
the Basic Fee and will change proportionately with the investment performance of
the Fund relative to the investment performance of the Russell 1000 Growth Index
(the "Index") for the thirty-six (36) month period ending with the then ended
quarter. The Adjustment is computed as follows:
Cumulative 36-Month Performance
Versus the Index (a) Adjustment as a Percentage of Basic Fee (b)
- ------------------------------- -------------------------------------------
Trails by more than 9% - 75%
Trails by 0% to 9% Linear decrease from 0% to - 75%
Exceeds by 0% to 9% Linear increase from 0% to + 75%
Exceeds by more than 9% + 75%
(a) During the first thirty-six month (36) period, inception-to-date Fund
performance versus the Index for the same period will be utilized. Subject
to the transition rules provided below, the +/-9% hurdle rate illustrated
in the table above will be multiplied by a fraction, the numerator being
the months elapsed since inception and the denominator being thirty-six
(36).
2
<PAGE>
(b) For purposes of the Adjustment calculation, the Basic Fee is calculated by
applying the above rate schedule against the average month-end net assets
over the same time period for which the performance is measured. Linear
application of the adjustment provides for an infinite number of results
within the stated range. Example: Cumulative 36-month performance of Fund
versus the Index is +7.2%. Accordingly, a performance fee Adjustment of
+60% [(7.2% divided by 9.0%) times 75% maximum)] of the Basic Fee, as
calculated over the trailing 36-months, would be due and payable.
4.1 Transition Rule for Calculating Advisor's Compensation. The Adjustment
will not be fully operable until the Fund has been in operation for a full
36-months. Until that time, the following transition rules will apply (assuming
that the Fund begins operations on June 1, 2000):
June 1, 2000 through May 31, 2001. Advisor compensation will be the Basic
Fee. No Adjustment will apply during this period.
June 1, 2001 through May 31, 2003. Beginning June 1, 2001 the Adjustment
will take effect on a progressive basis with regards to the number of
months elapsed between June 1, 2000 and the quarter end for which the
Advisor fee is being computed. During this period, the Adjustment that has
been determined as provided above will be multiplied by a fraction. The
fraction's numerator will equal the number of months elapsed since June 1,
2000 and the denominator will be thirty-six (36).
On and after June 1, 2003. Commencing June 1, 2003, the Adjustment will be
fully operable.
4.2. Other Special Rules Relating to Adviser's Compensation. The following
special rules will also apply to the Adviser's compensation:
(a) Fund Performance. The investment performance of the Fund for any
period, expressed as a percentage of the Fund's net asset value per share
at the beginning of the period will be the sum of: (i) the change in the
Fund's net asset value per share during the period; (ii) the value of the
Fund's cash distributions per share having an ex-dividend date occurring
within the period; (iii) the per share amount of capital gains taxes paid
or accrued during such period by the Fund for undistributed realized
long-term capital gains.
(b) Index Performance. The investment record of the Index for any period,
expressed as a percentage of the Index at the beginning of such period,
will be the sum of: (i) the change in the level of the Index during the
period; (ii) the value, computed consistently with the Index, of cash
distributions having an ex-dividend date occurring within the period made
by companies whose securities comprise the Index.
3
<PAGE>
(c) Effect of Termination. In the event of termination of this Agreement,
the fees provided in this Agreement will be computed on the basis of the
period ending on the last business day on which this Agreement is in
effect, subject to a pro rata adjustment based on the number of days
elapsed in the current fiscal quarter as a percentage of the total number
of days in such quarter.
5. Reports. The Trust and the Adviser agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs as each may reasonably request, including information about
changes in partners of the Adviser.
6. Compliance. The Adviser agrees to comply with all policies, procedures
or reporting requirements that the Board of Trustees of the Trust reasonably
adopts and communicates to the Adviser in writing, including any such policies,
procedures or reporting requirements relating to soft dollar or directed
brokerage arrangements.
7. Status of Adviser. The services of the Adviser to the Fund are not to be
deemed exclusive, and the Adviser will be free to render similar services to
others so long as its services to the Fund are not impaired thereby. The Adviser
will be deemed to be an independent contractor and will, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund or the Trust.
8. Liability of Adviser. No provision of this Agreement will be deemed to
protect the Adviser against any liability to the Fund or its shareholders to
which it might otherwise be subject by reason of any willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its obligations under this Agreement.
9. Duration and Termination. This Agreement will become effective on June
1, 2000, and will continue in effect thereafter, only so long as such
continuance is approved at least annually by votes of the Trust's Board of
Trustees who are not parties to such Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. In addition, the question of continuance of the Agreement may be
presented to the shareholders of the Fund; in such event, such continuance will
be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to Adviser, (ii) this Agreement will automatically
terminate in the event of its assignment, and (iii) this Agreement may be
terminated by Adviser on ninety days' written notice to
4
<PAGE>
the Trust. Any notice under this Agreement will be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested persons," a
"vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act.
9. Severability. If any provision of this Agreement will be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement will not be affected thereby.
10. Proxy Policy. With regard to the solicitation of shareholder votes, the
Fund will vote the shares of all securities held by the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed this ___ day of _______, 2000.
ATTEST: VANGUARD FENWAY FUNDS
By ________________________ By _________________________________
Chairman, CEO and President
ATTEST: TURNER INVESTMENT PARTNERS, INC.
By _________________________ By ______________________________
Opinion of Shearman and Sterling as to the validity of shares will be filed by
later amendment.
________________, 2000
Board of Trustees TIP Funds___________________.
___________________________
___________________________
___________________________
Board of Trustees
Vanguard Fenway Funds
___________________________
___________________________
___________________________
Re: Agreement and Plan of Reorganization as of
_____________,2000 between Vanguard Fenway Funds, a
_________ Delaware business trust (the "Delaware
Trust"), on behalf of its series, Vanguard Growth
Equity fund (the "Vanguard Fund"), and
__________________TIP Funds, a Massachusetts business
trust (the "Massachusetts Trust"), on behalf of its
series, Turner Growth Equity Fund (the"Turner Fund").
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of the Turner Fund (the "Reorganization").
The Reorganization will involve (i) the transfer of all the assets of the Turner
Fund to the Vanguard Fund, and (ii) the assumption of the liabilities of the
Turner Fund by the Vanguard Fund. In exchange for the foregoing, shares of the
Vanguard Fund will be distributed to shareholders of the Turner Fund. ,
following which the Turner Fund will be dissolved. In rendering our opinion, we
have reviewed and relied upon (a) the Agreement and Plan of Reorganization, made
as of _______________, 2000, by and between the Massachusetts Trust and the
Delaware Trust (the
<PAGE>
"Agreement"), (b) the proxy materials provided to stockholders of the Turner
Fund in connection with the Special Meeting of Stockholders of the Turner Fund
held on ______________, 2000 and, (c) certain representations concerning the
Reorganization made to us by the Massachusetts Trust and the Delaware Trust in a
letter dated ______________, 2000 (the "Representation Letter"), (d) all other
documents, financial and other reports and corporate minutes which we deemed
relevant or appropriate, and (e) such statutes, regulations, rulings and
decisions as we deemed material to the rendition of this opinion. All terms used
herein, unless otherwise defined, are used as defined in the Agreement.
For purposes of this opinion, we have assumed that the Turner Fund on the
effective date of the Reorganization satisfies, and following the
Reorganization, the Vanguard Fund will continue to satisfy, the requirements of
subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury under
Section 1276(d) of the Code, certain transfers of market discount bonds will be
excepted from the requirement that accrued market discount be recognized on
disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried out in
accordance with the applicable laws of the Commonwealth of Massachusetts and the
State of Delaware, the Agreement and the Representation Letter, it is our
opinion that:
1. The Reorganization will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the Code and the Turner Fund and the Vanguard
Fund will each be a party to the reorganization within the meaning of Section
368(b) of the Code.
2. No gain or loss will be recognized by the Turner Fund upon the transfer
of all of its assets to, and assumption of the liabilities by, the Vanguard Fund
in exchange solely for shares of the Vanguard Fund pursuant to Section 361(a)
and Section 357(a) of the Code. We express no opinion as to whether any accrued
market discount will be required to be recognized as ordinary income pursuant to
Section 1276 of the Code.
3. No gain or loss will be recognized by the Vanguard Fund upon the receipt
by it of all of the assets of the Turner Fund in exchange solely for shares of
the Vanguard Fund pursuant to Section 1032(a) of the Code.
4. The basis of the assets of the Turner Fund received by the Vanguard Fund
will be the same as the basis of such assets to the Turner Fund immediately
prior to the exchange pursuant to Section 362(b) of the Code.
-2-
<PAGE>
5. The holding period of the assets of the Turner Fund received by the
corresponding Vanguard Fund will include the period during which such assets
were held by the Turner Fund pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of the Turner
Fund upon the exchange of their shares in the Turner Fund for shares in the
Vanguard Fund (including fractional shares to which they may be entitled),
pursuant to Section 354(a) of the Code.
7. The basis of the shares in the Vanguard Fund received by the
stockholders of the Turner Fund (including fractional shares to which they may
be entitled) will be the same as the basis of the shares of the Turner Fund
exchanged therefor pursuant to Section 358(a)(1) of the Code.
8. The holding period of the shares in the Vanguard Fund received by the
stockholders of the Turner Fund (including fractional shares to which they may
be entitled) will include the holding period of the shares of the Turner Fund
surrendered in exchange therefor, provided that the shares of the Turner Fund
were held as a capital asset on the effective date of the Reorganization,
pursuant to Section 1223(1) of the Code.
9. The Vanguard Fund will succeed to and take into account as of the date
of the proposed transfer the items of the Turner Fund described in Section
381(c) of the Code as provided in Section 1.381(b)-1(a)(2) of the Income Tax
Regulations.
Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service as
set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing judicial
decisions, all of which are subject to change either prospectively or
retroactively. We do not undertake to make any continuing analysis of the facts
or relevant law following the date of this letter.
Our opinion is conditioned upon the performance by the Corporation and the
Fund of their undertakings in the Representation Letters. This opinion is being
rendered to the Massachusetts Trust and the Vanguard Trust and may be relied
upon only by these parties and the stockholders of the Turner Fund and the
Vanguard Fund.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By:
, a Partner
-3-
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Accountants" in the Prospectus and "Financial Statements," "Financial
Highlights" and "Experts" in the Statement of Additional Information and to the
inclusion in this Registration Statement (Form N-14) (No. 33-xxxxx) of Vanguard
Fenway Funds, of our report dated November 8, 1999, included in the 1999 annual
report to shareholders of the Turner Funds.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 1, 2000
PROSPECTUS
JANUARY 31, 2000
[LOGO OMITTED]
TIP
TURNER
----------
FUNDS
Turner Large Cap Growth Equity Fund
----------------------------------------------------------------
Turner Growth Equity Fund
----------------------------------------------------------------
Turner Midcap Growth Fund
----------------------------------------------------------------
Turner Small Cap Growth Fund
----------------------------------------------------------------
Turner Micro Cap Growth Fund
----------------------------------------------------------------
Turner Top 20 Fund
----------------------------------------------------------------
Turner Technology Fund
----------------------------------------------------------------
Turner Short Duration Government Funds - One Year Portfolio
----------------------------------------------------------------
Turner Short Duration Government Funds - Three Year Portfolio
----------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
----------------------------------------------------------------
PORTFOLIOS OF THE TIP FUNDS [LOGO OMITTED]
INVESTMENT ADVISER:
Turner Investment Partners, Inc.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
PROSPECTUS
HOW TO READ
YOUR PROSPECTUS
TIP Funds is a mutual fund family that offers different classes of shares in
separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Class I and Class II Shares of the Turner Funds that you should know before
investing. Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Funds. For more detailed information about
the Funds, please see:
2 TURNER LARGE CAP GROWTH EQUITY FUND
4 TURNER GROWTH EQUITY FUND
6 TURNER MIDCAP GROWTH FUND
8 TURNER SMALL CAP GROWTH FUND
10 TURNER MICRO CAP GROWTH FUND
12 TURNER TOP 20 FUND
14 TURNER TECHNOLOGY FUND
16 TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
18 TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
20 TURNER CORE HIGH QUALITY FIXED INCOME FUND
22 INVESTMENTS AND PORTFOLIO MANAGEMENT
25 PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
28 DIVIDENDS, DISTRIBUTIONS AND TAXES
30 FINANCIAL HIGHLIGHTS
TO OBTAIN MORE INFORMATION ABOUT TIP FUNDS PLEASE REFER TO THE BACK COVER OF
THE PROSPECTUS
<PAGE>
PROSPECTUS 1
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
INFORMATION COMMON TO ALL FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that it believes will help each Fund
achieve its goal. Still, investing in the Funds involves risk and there is no
guarantee that a Fund will achieve its goal. The Adviser's judgments about the
markets, the economy, or companies may not anticipate actual market movements,
economic conditions or company performance, and these judgments may affect the
return on your investment. In fact, no matter how good a job the Adviser does,
you could lose money on your investment in the Funds, just as you could with
other investments. A Fund share is not a bank deposit and it is not insured or
guaranteed by the FDIC or any government agency.
The value of your investment in a Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund's share price of a change in the value of a single security
will depend on how widely the Fund diversifies its holdings.
INITIAL PUBLIC OFFERINGS
A number of the Funds, including the Midcap, Small Cap, Micro Cap, Top 20 and
Technology Funds, participate in initial public offerings (IPOs). During 1999,
there were a large number of IPOs, and many of these IPOs were very successful.
The Funds participated in a number of these successful IPOs, and as a result,
these IPOs had a significant impact on the Funds' performance, especially on
those Funds with lower asset levels. There is no guarantee that there will be as
many successful IPOs in the future, or that the Funds will continue to have
access to these successful IPOs. In addition, as Fund assets grow, the positive
impact of successful IPOs on Fund performance will decrease.
<PAGE>
2 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER LARGE CAP GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Very large capitalization U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium to high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify very large capitalization
U.S. companies with strong earnings growth
potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Large Cap Growth Equity Fund invests primarily (at least 65% of its
assets) in common stocks and other equity securities of U.S. companies with very
large market capitalizations (i.e., over $10 billion) that Turner Investment
Partners believes have strong earnings growth potential. The Fund may also
purchase securities of smaller companies that offer growth potential. The Fund
will invest in securities of companies that are diversified across economic
sectors. Portfolio exposure is generally limited to a maximum of 2% in any
single issue. However, the Fund may hold up to two times the Index weighting of
those securities that comprise between 1% and 5% of the Russell Top 200 Growth
Index, and up one and one-half times the Index weighting of those securities
that comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, large capitalization growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for two years.*
[BAR GRAPH OMITTED]
1998 45.22%
1999 55.71%
* The performance information shown above is based on a calendar year.
BEST QUARTER WORST QUARTER
41.30% -8.19%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 3
- --------------------------------------------------------------------------------
TURNER LARGE CAP GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell Top 200 Growth Index and the
S&P 500 Index.
- -----------------------------------------------------------
SINCE
INCEPTION
1 YEAR (2/1/97)
- -----------------------------------------------------------
Turner Large Cap Growth
Equity Fund 55.71% 44.24%
- -----------------------------------------------------------
Russell Top 200 Growth Index 29.68% 33.65%
- -----------------------------------------------------------
S&P 500 Index 21.05% 25.83%
- -----------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell Top 200 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 200
largest U.S. companies with higher growth rates and price-to-price book ratios.
The S&P 500 Index is a widely-recognized, market value-weighted index of 500
stocks designed to mimic the overall equity market's industry weightings.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 1.66%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.41%
Fee waivers and expense reimbursements 1.41%
----
NET TOTAL OPERATING EXPENSES 1.00%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.25% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Large Cap Growth
Equity Fund-Class I Shares $102 $373 $665 $1,505
- --------------------------------------------------------------------------------
<PAGE>
4 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium to high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify reasonably priced large-
and mid-cap U.S. companies with strong
earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Growth Equity Fund invests primarily (at least 65% of its assets) in
common stocks and other equity securities of U.S. companies with large and
medium capitalizations that Turner Investment Partners believes have strong
earnings growth potential and that are reasonably valued at the time of
purchase. The Fund will invest in securities of companies that are diversified
across economic sectors, and will attempt to maintain sector concentrations that
approximate those of its current benchmark, the Russell 1000 Growth Index.
Portfolio exposure is generally limited to a maximum of 2% in any single issue.
However, the Fund may hold up to two times the Index weighting of those
securities that comprise between 1% and 5% of the Russell 1000 Growth Index, and
up to one and one-half times the Index weighting of those securities that
comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, large and medium capitalization growth
stocks, may underperform compared to other market segments or to the equity
markets as a whole.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-sized companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for seven years.*
[BAR GRAPH OMITTED]
1993 15.38%
1994 (6.73)%
1995 29.96%
1996 19.23%
1997 31.36%
1998 38.07%
1999 53.60%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
39.67% -8.85%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 5
- --------------------------------------------------------------------------------
TURNER GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 1000 Growth Index and the S&P
500 Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (3/11/92)
- --------------------------------------------------------------------------------
Turner Growth Equity Fund 53.60% 33.98% 23.68%
- --------------------------------------------------------------------------------
Russell 1000 Growth Index 33.16% 34.21% 22.08%
- --------------------------------------------------------------------------------
S&P 500 Index 21.05% 28.56% 20.51%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 1000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 1000
largest U.S. companies with higher growth rates and price-to-book ratios. The
S&P 500 Index is a widely-recognized, market value-weighted index of 500 stocks
designed to mimic the overall equity market's industry weightings.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.25%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.00%*
* TOTAL OPERATING EXPENSES HAVE BEEN RESTATED TO REFLECT CURRENT EXPENSES. THE
FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE EXPENSES
IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00% FOR A PERIOD OF
ONE YEAR, OR FROM EXCEEDING 1.25% IN ANY SUBSEQUENT YEAR. IN ADDITION, THE FUND
HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN
FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Growth Equity Fund--
Class I Shares $102 $318 $552 $1,225
- --------------------------------------------------------------------------------
<PAGE>
6 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Mid-cap U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- High
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify medium capitalization U.S.
companies with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Midcap Growth Fund invests primarily (at least 65% of its assets) in
common stocks and other equity securities of U.S. companies with medium market
capitalizations (i.e., between $1 billion and $10 billion) that Turner
Investment Partners believes have strong earnings growth potential. The Fund
will invest in securities of companies that are diversified across economic
sectors, and will attempt to maintain sector concentrations that approximate
those of its current benchmark, the Russell Midcap Growth Index. Portfolio
exposure is generally limited to a maximum of 2% in any single issue. However,
the Fund may hold up to two times of the Index weighting of those securities
that comprise between 1% and 5% of the Russell Midcap Growth Index, and up to
one and one-half times the Index weighting of those securities that comprise
more than 5% of the benchmark index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, medium capitalization growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these mid-size companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for three years.*
[BAR GRAPH OMITTED]
1997 40.56%
1998 26.52%
1999 125.45%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
54.63% -16.65%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 7
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell Midcap Growth Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (10/1/96)
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund 125.45% 54.87%
- --------------------------------------------------------------------------------
Russell Midcap Growth Index 51.29% 28.29%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell Midcap Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of the 800
smallest U.S. companies out of the 1,000 largest companies with higher growth
rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.50%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.25%
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT -THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE
FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund--
Class I Shares $127 $397 $686 $1,511
- --------------------------------------------------------------------------------
<PAGE>
8 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Small cap U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- High
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify small cap U.S. companies
with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of small cap equity
investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Small Cap Growth Fund invests primarily (at least 65% of its assets)
in common stocks and other equity securities of U.S. companies with small market
capitalizations (i.e., under $2 billion) that Turner Investment Partners
believes have strong earnings growth potential. The Fund will invest in
securities of companies that are diversified across economic sectors, and will
attempt to maintain sector concentrations that approximate those of its current
benchmark, the Russell 2000 Growth Index. Portfolio exposure is generally
limited to a maximum of 2% in any single issue. However, the Fund may hold up to
two times the Index weighting of those securities that comprise between 1% and
5% of the Russell 2000 Growth Index, and up to one and one-half times the Index
weighting of those securities that comprise more than 5% of the Index.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, small cap U.S. growth stocks, may
underperform compared to other market segments or to the equity markets as a
whole.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over the counter or listed on an exchange and may
or may not pay dividends.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class I Shares
from year to year for five years.*
[BAR GRAPH OMITTED]
1995 68.16%
1996 28.85%
1997 14.75%
1998 8.53%
1999 85.04%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
BEST QUARTER WORST QUARTER
44.57% -24.30%
(12/31/99) (9/30/98)
<PAGE>
PROSPECTUS 9
- --------------------------------------------------------------------------------
TURNER SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (2/7/94)
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund 85.04% 37.94% 33.44%
Russell 2000 Growth Index 43.09% 18.99% 14.89%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What is an Index?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 2000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of the 2000
smallest U.S. companies out of the 3000 largest U.S. companies with higher
growth rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses 0.31%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.31%
Fee waivers and expense reimbursements 0.06%
----
NET TOTAL OPERATING EXPENSES 1.25%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. IN ADDITION,
THE FUND HAS AN ARRANGEMENT WITH CERTAIN BROKER-DEALERS WHO HAVE AGREED TO PAY
CERTAIN FUND EXPENSES IN RETURN FOR THE DIRECTION OF A PERCENTAGE OF THE FUND'S
BROKERAGE TRANSACTIONS. AS A RESULT OF THESE ARRANGEMENTS, IT IS ANTICIPATED
THAT THE FUND'S EXPENSES WILL BE REDUCED. FOR MORE INFORMATION ABOUT THESE FEES,
SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund--
Class I Shares $127 $409 $713 $1,578
- --------------------------------------------------------------------------------
<PAGE>
10 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Micro cap U.S. common stock
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify micro cap U.S. companies
with strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of micro cap equity
investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Micro Cap Growth Fund invests primarily (at least 65% of its assets)
in common stocks and other equity securities of U.S. companies with very small
market capitalizations (i.e., under $500 million) that Turner Investment
Partners believes have strong earnings growth potential. The Fund will invest in
securities of companies that are diversified across economic sectors. Portfolio
exposure is generally limited to a maximum 2% of the Fund's assets at the time
of purchase in any single issue.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, U.S. micro capitalization growth stocks,
may underperform compared to other market segments or to the equity markets as a
whole.
The micro capitalization companies the Fund invests in may be more vulnerable to
adverse business or economic events than larger, more established companies. In
particular, these very small companies may have limited product lines, markets
and financial resources, and may depend upon a relatively small management
group. Micro cap stocks also tend to be traded only in the over the counter
market, and may not be as liquid as larger capitalization stocks. As a result,
the prices of the micro cap stocks owned by the Fund will be very volatile, and
the price movements of the Fund's shares will reflect that volatility.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows the performance of the Fund's Class I Shares for one year.*
[BAR GRAPH OMITTED]
1999 144.39%
BEST QUARTER WORST QUARTER
60.84% 3.89%
(12/31/99) (3/31/99)
<PAGE>
PROSPECTUS 11
- --------------------------------------------------------------------------------
TURNER MICRO CAP GROWTH FUND
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 2000 Growth Index.
SINCE
INCEPTION
1 YEAR (3/1/98)
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 144.39% 94.15%
- --------------------------------------------------------------------------------
Russell 2000 Growth Index 43.09% 17.69%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
What is an Index?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Russell 2000 Growth Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 2000
smallest U.S. companies out of the 3000 largest U.S. companies with higher
growth rates and price-to-book ratios.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses 1.86%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.86%
----
Fee waivers and expense reimbursements 1.61%
----
NET TOTAL OPERATING EXPENSES 1.25%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.25% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.50% IN ANY SUBSEQUENT YEAR. FOR MORE
INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund--
Class I Shares $127 $450 $798 $1,788
- --------------------------------------------------------------------------------
<PAGE>
12 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Long-term capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- U.S. common stocks
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. companies with strong
earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Top 20 Fund invests substantially all (at least 80%) of its assets in
common stocks and other equity securities of companies, regardless of their
market capitalization, that Turner Investment Partners believes have strong
earnings growth potential. A number of portfolio managers manage the Fund by
selecting stocks in different sectors and capitalization ranges under the
supervision of Robert Turner. The Fund's portfolio will contain a total of 15-25
stocks representing Turner's favorite investment ideas. By investing in
different sectors and capitalization ranges, Turner seeks to reduce the Fund's
overall level of volatility. Ideally, when one sector or capitalization range is
out of favor, the other ranges will offer a counter-balancing influence.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. In addition, the Fund is subject to the
risk that its principal market segment, U.S. growth stocks, may underperform
compared to other market segments or to the equity markets as a whole.
The smaller capitalization and micro capitalization companies the Fund invests
in may be more vulnerable to adverse business or economic events than larger,
more established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend upon a
relatively small management group. Micro cap stocks also tend to be traded only
in the over the counter market, and may not be as liquid as larger
capitalization stocks. Small cap securities may be traded over the counter or
listed on an exchange and may or may not pay dividends. Therefore, small cap and
micro cap stocks may be very volatile, and the price movements of the Fund's
shares may reflect that volatility.
The Fund is non-diversified, which means that it may invest in the securities of
fewer issuers than a diversified Fund. As a result, the Fund may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Top 20 Fund commenced operations on July 1, 1999. Since the Fund does
not have a full calendar year of performance, performance results have not been
provided.
The Fund will compare its performance to that of the S&P 500 Index. The S&P 500
Index is a widely-recognized, market value-weighted (higher market value stocks
have more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
<PAGE>
PROSPECTUS 13
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.10%*
Distribution (12b-1) Fees None
Other Expenses 1.45%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 2.55%
Fee waivers and expense reimbursements 1.20%
----
NET TOTAL OPERATING EXPENSES 1.35%**
* THE ADVISORY FEE IS SUBJECT TO A PERFORMANCE ADJUSTMENT BASED ON THE FUND'S
PERFORMANCE RELATIVE TO THE PERFORMANCE OF THE S&P 500 INDEX.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP OTHER EXPENSES FROM EXCEEDING 0.25%. AS A RESULT,
THE ADVISER'S CONTRACTUAL AGREEMENT WILL KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.35% FOR A PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.85% IN ANY
SUBSEQUENT YEAR. IN ADDITION, THE FUND HAS AN ARRANGEMENT WITH CERTAIN
BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN FUND EXPENSES IN RETURN FOR THE
DIRECTION OF A PERCENTAGE OF THE FUND'S BROKERAGE TRANSACTIONS. AS A RESULT
OF THESE ARRANGEMENTS, IT IS ANTICIPATED THAT THE FUND'S EXPENSES WILL BE
REDUCED. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Top 20 Fund-
Class I Shares $137 $533 $954 $2,128
- --------------------------------------------------------------------------------
<PAGE>
14 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Long-term capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Common stocks of technology companies
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Very high
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify technology companies with
strong earnings growth potential
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking long-term growth of capital who can
withstand the share price volatility of technology-focused
equity investing
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Technology Fund invests substantially all (at least 80%) of its
assets in common stocks of companies that develop new technologies and that may
experience exceptional growth in sales and earnings driven by technology-related
products and services. Stock selection will not be based on company size, but
rather on an assessment of a company's fundamental prospects. The Fund's
holdings will be concentrated in the technology sector, and will range from
small companies developing new technologies to large, established firms with a
history of developing and marketing such technologies. These companies may
include companies that develop, produce or distribute products or services in
the computer, semiconductor, electronics, communications, health care and
biotechnology sectors.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization and micro capitalization companies the Fund invests
in may be more vulnerable to adverse business or economic events than larger,
more established companies. In particular, these small companies may have
limited product lines, markets and financial resources, and may depend upon a
relatively small management group. Micro cap stocks also tend to be traded only
in the over-the-counter market, and may not be as liquid as larger
capitalization stocks. Small cap securities may be traded over the counter or
listed on an exchange and may or may not pay dividends. Therefore, small cap and
micro cap stocks may be very volatile, and the price movements of the Fund's
shares may reflect that volatility.
In addition, the Fund is subject to the risk that its principal market segment,
technology stocks, may underperform compared to other market segments or to the
equity markets as a whole. The competitive pressures of advancing technology and
the number of companies and product offerings which continue to expand could
cause technology companies to become increasingly sensitive to short product
cycles and aggressive pricing. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Technology Fund commenced operations on July 1, 1999. Since the Fund
does not have a full calendar year of performance, performance results have not
been provided.
The Fund will compare its performance to that of the Pacific Stock Exchange
Technology 100 Index. The Pacific Stock Exchange Technology 100 Index is a
widely-recognized, price weighted index of the top 100 U.S. technology
companies.
<PAGE>
PROSPECTUS 15
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 1.10%*
Distribution (12b-1) Fees None
Other Expenses 2.79%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 3.89%
Fee waivers and expense reimbursements 2.54%
----
NET TOTAL OPERATING EXPENSES 1.35%**
* THE ADVISORY FEE IS SUBJECT TO A PERFORMANCE ADJUSTMENT BASED ON THE FUND'S
PERFORMANCE RELATIVE TO THE PERFORMANCE OF THE PACIFIC STOCK EXCHANGE
TECHNOLOGY 100 INDEX.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP OTHER EXPENSES FROM EXCEEDING 0.25%. AS A RESULT,
THE ADVISER'S CONTRACTUAL AGREEMENT WILL KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.35% FOR A PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.85% IN ANY
SUBSEQUENT YEAR. IN ADDITION, THE FUND HAS AN ARRANGEMENT WITH CERTAIN
BROKER-DEALERS WHO HAVE AGREED TO PAY CERTAIN FUND EXPENSES IN RETURN FOR THE
DIRECTION OF A PERCENTAGE OF THE FUND'S BROKERAGE TRANSACTIONS. AS A RESULT
OF THESE ARRANGEMENTS, IT IS ANTICIPATED THAT THE FUND'S EXPENSES WILL BE
REDUCED. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Technology Fund-
Class I Shares $137 $533 $954 $2,128
- --------------------------------------------------------------------------------
<PAGE>
16 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Total return consistent with the preservation of capital
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Fixed income securities issued or guaranteed by the
U.S. government
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Low
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. government securities
that are attractively priced
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking current income with a limited amount of
share price volatility
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Short Duration Government Funds - One Year Portfolio invests
primarily (at least 65% of its assets) in debt securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, including
mortgage-backed securities issued by agencies such as Fannie Mae or the
Government National Mortgage Association (GNMA). In selecting investments for
the Fund, Turner Investment Partners chooses U.S. government obligations that
are attractively priced relative to the market or to similar instruments. In
addition, Turner considers the "effective duration" of the Fund's entire
portfolio when selecting securities. Effective duration is a measure of a
security's price volatility or the risk associated with changes in interest
rates. Although Turner manages interest rate risk by maintaining an effective
duration that is comparable to or less than that of one-year U.S. Treasury
bills, the Fund may invest in securities with any maturity or duration.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's of
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The performance of Class I and Class II Shares will differ due to differences in
expenses. This bar chart shows changes in the per-formance of the Fund's Class I
Shares from year to year for five years.*
[BAR GRAPH OMITTED]
1995 7.61%
1996 6.41%
1997 6.30%
1998 5.84%
1999 5.41%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FIRST
FOUR YEARS OF PERFORMANCE SHOWN IS FOR THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO, THE FUND'S PREDECESSOR. THE FUND BECAME
PART OF THE TIP FUNDS IN 1999.
BEST QUARTER WORST QUARTER
2.04% 1.11%
(12/31/95) (6/30/99)
<PAGE>
PROSPECTUS 17
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for Class I and
Class II Shares for the periods ended December 31, 1999, to those of the Merrill
Lynch Three-Month Treasury Bill Index.
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-One Year Portfolio-
Class I Shares 5.41% 6.31% 6.04%*
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-One Year Portfolio-
Class II Shares 5.40% N/A 5.23%**
- --------------------------------------------------------------------------------
Merrill Lynch Three-Month
Treasury Bill Index 4.84% 5.35% 5.22%***
- --------------------------------------------------------------------------------
* THE INCEPTION DATE FOR CLASS I SHARES IS MARCH 1, 1994.
** THE INCEPTION DATE FOR CLASS II SHARES IS FEBRUARY 27, 1998.
***THE CALCULATION DATE FOR THE INDEX IS MARCH 1, 1994.
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Merrill Lynch Three-Month Treasury Bill Index is an unmanaged index
of Treasury securities that assumes reinvestment of all dividends.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES CLASS II SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 6.28% 6.53%
----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 6.53% 6.78%
Fee waivers and expense reimbursements 6.17% 6.17%
----- -----
NET TOTAL OPERATING EXPENSES 0.36%* 0.61%*
* THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE CLASS I AND CLASS II
SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD OF ONE YEAR,
OR FROM EXCEEDING 0.86% AND 1.11%, RESPECTIVELY, IN ANY SUBSEQUENT YEAR. FOR
MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND "DISTRIBUTION
OF FUND SHARES."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Turner Short Duration Government Funds-
One Year Portfolio-Class I Shares $37 $225 $432 $1,037
- --------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio-Class II Shares $62 $304 $568 $1,336
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
18 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Total return consistent with the preservation of capital
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Fixed income securities issued or guaranteed by the
U.S. government
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Low to medium
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify U.S. government securities
that are attractively priced
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors seeking current income with a limited amount of
share price volatility
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Short Duration Government Funds - Three Year Portfolio invests
primarily (at least 65% of its assets) in debt securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, including
mortgage-backed securities issued by agencies such as Fannie Mae or the
Government National Mortgage Association (GNMA). In selecting investments for
the Fund, Turner Investment Partners chooses U.S. government obligations that
are attractively priced relative to the market or to similar instruments. Turner
considers the "effective duration" of the Fund's entire portfolio when selecting
securities. Effective duration is a measure of a security's price volatility or
the risk associated with changes in interest rates. Although Turner manages
interest rate risk by maintaining an effective duration that is comparable to or
less than that of three-year U.S. Treasury notes, the Fund may invest in
securities with any maturity.
Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities.
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, short duration U.S. government securities, may underperform
compared to other market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The performance of Class I and Class II Shares will differ due to differences in
expenses. This bar chart shows changes in the performance of the Fund's Class I
Shares from year to year for five years.*
[BAR GRAPH OMITTED]
1995 11.18%
1996 5.26%
1997 6.92%
1998 6.93%
1999 2.75%
* THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FIRST
FOUR YEARS OF PERFORMANCE SHOWN IS FOR THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS - THREE YEAR PORTFOLIO, THE FUND'S PREDECESSOR. THE FUND
BECAME PART OF THE TIP FUNDS IN 1999.
BEST QUARTER WORST QUARTER
3.24% 0.40%
(3/31/95) (3/31/96)
<PAGE>
PROSPECTUS 19
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO
- --------------------------------------------------------------------------------
This table compares the Fund's average annual total returns for Class I Shares
for the periods ended December 31, 1999, to those of the Lehman Brothers 1-3
Year U.S. Government Bond Index.
- --------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-Three Year Portfolio-
Class I Shares 2.75% 6.57% 5.85%*
- --------------------------------------------------------------------------------
Turner Short Duration Government
Funds-Three Year Portfolio-
Class II Shares N/A N/A 6.29%**
- --------------------------------------------------------------------------------
Lehman Brothers 1-3 Year U.S.
Government Bond Index 2.96% 6.47% 5.79%***
- --------------------------------------------------------------------------------
* THE INCEPTION DATE FOR CLASS I SHARES IS MARCH 1, 1994.
** THE INCEPTION DATE FOR CLASS II SHARES IS APRIL 28, 1999.
***THE CALCULATION DATE FOR THE INDEX IS MARCH 1, 1994.
- --------------------------------------------------------------------------------
WHAT IS AN INDEX?
- --------------------------------------------------------------------------------
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly
in an index. An index does not have an investment adviser and does not pay any
commissions or expenses. If an index had expenses, its performance would be
lower. The Lehman Brothers 1-3 Year U.S. Government Bond Index is a widely
recognized index of U.S. government obligations with maturities of at least one
year.
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES CLASS II SHARES
Investment Advisory Fees 0.25% 0.25%
Distribution (12b-1) Fees None None
Other Expenses 0.70%* 0.95%*
------ ------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.95% 1.20%
Fee waivers and expense reimbursements 0.59% 0.59%
------ ------
NET TOTAL OPERATING EXPENSES 0.36%** 0.61%**
* OTHER EXPENSES HAVE BEEN RESTATED TO REFLECT CURRENT EXPENSES.
** THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES OF THE CLASS I AND CLASS
II SHARES FROM EXCEEDING 0.36% AND 0.61%, RESPECTIVELY, FOR A PERIOD OF ONE
YEAR, OR FROM EXCEEDING 0.86% AND 1.11%, RESPECTIVELY, IN ANY SUBSEQUENT
YEAR. FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER" AND
"DISTRIBUTION OF FUND SHARES."
- --------------------------------------------------------------------------------
Example
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Turner Short Duration Government Funds-
Three Year Portfolio-Class I Shares $37 $225 $432 $1,037
- --------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio-Class II Shares $62 $304 $568 $1,336
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
20 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
FUND SUMMARY
INVESTMENT GOAL -- Current income and capital appreciation
- --------------------------------------------------------------------------------
INVESTMENT FOCUS -- Investment grade U.S. corporate and government bonds
- --------------------------------------------------------------------------------
SHARE PRICE VOLATILITY -- Medium
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY -- Attempts to identify quality fixed income
securities with intermediate maturities
- --------------------------------------------------------------------------------
INVESTOR PROFILE -- Investors who are seeking current income and capital
appreciation and who are willing to accept principal risk
- --------------------------------------------------------------------------------
[GRAPHIC OF CHESS PIECE OMITTED] STRATEGY
The Turner Core High Quality Fixed Income Fund invests primarily (at least 65%
of its assets) in investment grade fixed income securities, including U.S.
government securities, corporate debt securities, mortgage-backed securities,
asset-backed securities, and short-term obligations. Turner Investment Partners
will allocate the Fund's assets among these market sectors based on its analysis
of historical data, yield trends and credit ratings. In selecting investments
for the Fund, Turner chooses securities with intermediate durations that are
attractively priced and that offer competitive yields. Typically, the Fund's
average duration will be between three and six years (although the Fund may hold
securities with longer or shorter durations).
[GRAPHIC OF SCALES OMITTED] RISKS
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is even
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk. In addition, the Fund is subject to the risk that its principal
market segment, U.S. fixed income securities, may underperform compared to other
market segments or to the fixed income markets as a whole.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
Mortgage-backed securities are fixed income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed securities may
not gain as much in market value because of the expectation of additional
mortgage prepayments that must be reinvested at lower interest rates. Prepayment
risk may make it difficult to calculate the average maturity of the Fund's
mortgage-backed securities and, therefore, to assess the volatility risk of the
Fund.
[GRAPHIC OF TARGET OMITTED] PERFORMANCE INFORMATION
The Turner Core High Quality Fixed Income Fund commenced operations on July 1,
1999. Since the Fund does not have a full calendar year of performance,
performance results have not been provided.
The Fund will compare its performance to that of the Lehman Aggregate Bond
Index. The Lehman Aggregate Bond Index is a widely-recognized, market value
weighted (higher market value stocks have made more influence than lower market
value stocks) index of U.S. government obligations, corporate debt securities,
and AAA-rated mortgage-backed securities. All securities in the index are rated
investment grade (BBB) or higher, with maturities of at least one year.
<PAGE>
PROSPECTUS 21
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
[GRAPHIC OF DOLLAR SYMBOL OMITTED] FUND FEES AND EXPENSES
This table describes the Fund's fees and expenses that you may pay if you buy
and hold shares of the Fund.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- --------------------------------------------------------------------------------
CLASS I SHARES
Investment Advisory Fees 0.50%
Distribution (12b-1) Fees None
Other Expenses 1.49%
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.99%
Fee waivers and expense reimbursements 1.54%
----
NET TOTAL OPERATING EXPENSES 0.45%*
*THE FUND'S ADVISER HAS CONTRACTUALLY AGREED TO WAIVE FEES AND TO REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.45% FOR A
PERIOD OF ONE YEAR, OR FROM EXCEEDING 1.00% IN ANY SUBSEQUENT YEAR. FOR MORE
INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISER."
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated. The Example also
assumes that each year your investment has a 5% return and Fund expenses remain
the same. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed
Income Fund-Class I Shares $46 $265 $504 $1,203
- --------------------------------------------------------------------------------
<PAGE>
22 PROSPECTUS
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INVESTMENTS AND PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
THE FUNDS' OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information (SAI). Of course, there is no guarantee that any Fund
will achieve its investment goal.
The investments and strategies described throughout this prospectus are those
that the Funds use under normal conditions. During unusual economic or market
conditions, or for temporary defensive or liquidity purposes, each Fund may
invest up to 100% of its assets in cash, repurchase agreements and short-term
obligations that would not ordinarily be consistent with the Funds' objectives.
A Fund will do so only if the Adviser believes that the risk of loss outweighs
the opportunity for gains.
INVESTMENT ADVISER
Turner Investment Partners, Inc., an SEC-registered adviser, serves as the
Adviser to each Fund. As the Funds' Adviser, Turner makes investment decisions
for the Funds and continuously reviews, supervises and administers the Funds'
investment programs. The Adviser also ensures compliance with the Funds'
investment policies and guidelines.
As of December 31, 1999, Turner had approximately $5.6 billion in assets under
management. For its services during the most recent fiscal year, Turner received
investment advisory fees (after waivers and reimbursements) of:
TURNER GROWTH EQUITY FUND 0.75%
TURNER MIDCAP GROWTH FUND 0.75%
TURNER SMALL CAP GROWTH FUND 0.96%
For its services during the most recent fiscal year, Turner received no advisory
fees, and waived/reimbursed expenses of:
TURNER LARGE CAP GROWTH EQUITY FUND 0.66%
TURNER MICRO CAP GROWTH FUND 0.96%
TURNER SHORT DURATION GOVERNMENT
FUNDS - ONE YEAR PORTFOLIO 6.28%
TURNER SHORT DURATION GOVERNMENT
FUNDS - THREE YEAR PORTFOLIO 0.81%
TURNER CORE HIGH QUALITY FIXED
INCOME FUND 1.04%
Turner is entitled to receive base investment advisory fees from the following
Funds as set forth below:
TURNER TOP 20 FUND 1.10%
TURNER TECHNOLOGY FUND 1.10%
However, these fees may be higher or lower depending on a Fund's performance
relative to a benchmark. If a Fund outperforms its benchmark by a set amount,
Turner will receive higher advisory fees. Conversely, if a Fund underperforms
its benchmark by the same amount, Turner will receive lower advisory fees. The
Funds' SAI contains detailed information about each Fund's benchmark, as well as
any possible performance-based adjustments to Turner's fees. These
performance-based adjustments will take effect after the Funds have been in
operation for more than one year.
For the period from July 1, 1999 through September 30, 1999, Turner received no
advisory fees, and waived/reimbursed expenses of:
TURNER TOP 20 FUND 0.10%
TURNER TECHNOLOGY FUND 1.44%
TURNER'S EQUITY INVESTMENT PHILOSOPHY
Turner believes earnings expectations drive stock prices. Turner invests in
companies with strong earnings dynamics, and sells those with deteriorating
earnings prospects. Turner believes forecasts for market timing and sector
rotation are unreliable, and introduce an unacceptable level of risk. As a
result, all portfolios are fully invested and attempt to maintain sector
weightings that are neutral to diversified against those of a benchmark index,
since Turner believes it is imprudent to be overly-invested in any individual
security. This allows Turner's stock selection process to be the primary
determinant of performance.
PORTFOLIO MANAGERS
The Large Cap Growth Equity Fund is managed by a committee comprised of Robert
Turner, John Hammerschmidt and Mark Turner. The Growth Equity Fund is managed by
a committee comprised of Robert Turner, John Hammerschmidt, Mark Turner and
Chris McHugh. The Midcap Growth and Top 20 Funds are managed by a committee
comprised of Chris McHugh, Bill McVail and Robert Turner. The Small Cap Growth
Fund is managed by a committee comprised of Bill McVail, Chris McHugh and Frank
Sustersic. The Micro Cap Growth Fund is managed by a committee comprised of
Frank Sustersic, Bill McVail and Chris Perry. The
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 23
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PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------
Technology Fund is managed by a committee comprised of Robert Turner, Chris
McHugh and Robb Parlanti. The Short Duration Government Funds - One Year
Portfolio, Short Duration Government Funds - Three Year Portfolio, and Core High
Quality Fixed Income Fund are managed by a committee comprised of James Midanek
and Robb Parlanti. The background of each committee member is set forth below.
Robert E. Turner is a member of the committees which manage the Large Cap Growth
Equity, Growth Equity, Midcap Growth, Top 20, and Technology Funds, as set forth
above. Mr. Turner, CFA, Chairman and Chief Investment Officer of the Adviser, is
lead manager of the Large Cap Growth Equity, Growth Equity, Top 20, and
Technology Funds and co-manager of the Midcap Growth Fund. Mr. Turner founded
Turner Investment Partners, Inc. in 1990. Prior to 1990, he was Senior
Investment Manager with Meridian Investment Company. He has 19 years of
investment experience.
John Hammerschmidt is a member of the committees which manage the Large Cap
Growth Equity and Growth Equity Funds, as set forth above. Mr. Hammerschmidt,
Senior Equity Portfolio Manager of the Adviser, is co-manager of the Large Cap
Growth Equity and Growth Equity Funds. Mr. Hammerschmidt joined the Adviser in
1992. Prior to 1992, he was Vice President in Government Securities Trading at
S.G. Warburg. He has 17 years of investment experience.
Mark Turner is a member of the committees which manage the Large Cap Equity
Growth and Growth Equity Funds, as set forth above. Mr. Turner, Chairman of the
Adviser, is co-manager of the Growth Equity Fund and Large Cap Growth Equity
Fund. Mr. Turner co-founded Turner Investment Partners, Inc. in 1990. Prior to
1990, he was Vice President and Senior Portfolio Manager with First Maryland
Asset Management. He has 18 years of investment experience.
Christopher K. McHugh is a member of the committees which manage the Midcap
Growth, Small Cap Growth, Top 20 and Technology Funds, as set forth above. Mr.
McHugh, Senior Equity Portfolio Manager of the Adviser, is the lead manager of
the Midcap Growth Fund and co-manager of the Growth Equity, Small Cap Growth,
Top 20 and Technology Funds. Mr. McHugh joined the Adviser in 1990. Prior to
1990, he was a Performance Specialist with Provident Capital Management. He has
14 years of investment experience.
Bill McVail is a member of the committees which manage the Small Cap Growth,
Midcap Growth, Micro Cap Growth and Top 20 Funds, as set forth above. Mr.
McVail, Senior Equity Portfolio Manager of the Adviser, is the lead manager of
the Small Cap Growth Fund and co-manager of the Midcap Growth, Micro Cap Growth
and Top 20 Funds. Mr. McVail joined the Adviser in 1998. Prior to 1998, he was
Portfolio Manager at PNC Equity Advisers. He has 13 years of investment
experience.
Frank L. Sustersic is a member of the committees which manage the Micro Cap and
Small Cap Growth Funds, as set forth above. Mr. Sustersic, Senior Equity
Portfolio Manager of the Adviser, serves as lead manager of the Micro Cap Growth
Fund and co-manager of the Small Cap Growth Fund. Mr. Sustersic joined Turner in
1994. Mr. Sustersic has 11 years of investment experience.
Chris Perry is a member of the committee which manages the Micro Cap Growth
Fund, as set forth above. Mr. Perry, Senior Security Analyst of the Adviser, is
co-manager of the Micro Cap Growth Fund. Mr. Perry joined the Adviser in 1998.
Prior to 1998, he was a Research Analyst with Pennsylvania Merchant Group. He
has 9 years of investment experience.
James L. Midanek is a member of the committee which manages the Short Duration
Government Funds - One Year Portfolio, Short Duration Government Funds - Three
Year Portfolio, and Core High Quality Fixed Income Fund. Mr. Midanek, Chief
Investment Officer for Fixed Income joined the Adviser in 1997. Prior to 1997,
he was Chief Investment Officer of Solon Asset Management, L.P., which he
founded in 1989, and Portfolio Manager of the Short Duration Government Funds.
From 1992 to 1994, Mr. Midanek was Chief Investment Officer to the Fixed Income
Group of Montgomery Asset Management, L.P., where he managed four institutional
fixed income funds. Mr. Midanek has 19 years of investment experience.
Robb J. Parlanti is a member of the committees which manage the Technology and
Fixed Income Funds, as set forth above. Mr. Parlanti, CFA, Senior Portfolio
Manager of the Adviser, is co-manager of the Technology and Fixed Income Funds.
Mr. Parlanti joined the Adviser in 1993. Prior to 1993, he was Assistant Vice
President and Portfolio Manager at PNC Bank. He has 13 years of investment
experience.
1-800-224-6312
<PAGE>
24 PROSPECTUS
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TURNER'S PAST PERFORMANCE
- --------------------------------------------------------------------------------
TURNER'S PAST PERFORMANCE
Since January 1, 1998, Turner has managed some assets in a "top 20" style. In
this style, Turner's best investment ideas are combined in a single portfolio
consisting of 15-25 stocks. There is no limit on the capitalization of any
stock, and these portfolios have typically been invested across a broad range of
sectors and capitalizations.
The following table presents historical performance information for a composite
consisting of the Top 20 Fund and two discretionary "top 20" accounts that are
managed by Turner in a way that is equivalent in all material respects as to
objectives, policies and strategies to how Turner is managing the Top 20 Fund.
This table also compares the performance to that of the Standard & Poor's 500
Index. The computed rates of return include the impact of capital appreciation
as well as the reinvestment of interest and dividends. This data does not
indicate how the Top 20 Fund may perform in the future:
FOURTH 12 MONTHS 1/1/98
CALENDAR ENDED (INCEPTION)
QUARTER 1999 12/31/99 TO 12/31/99
------------ --------- -----------
Composite Gross Performance 60.43% 235.07% 165.18%*
Composite Net Performance 60.25% 232.64% 162.60%*
S&P 500 Performance 14.88% 21.05% 24.75%
*Annualized
THE MODIFIED BANK ADMINISTRATION INSTITUTE (BAI) METHOD IS USED TO COMPUTE A
TIME WEIGHTED RATE OF RETURN IN ACCORDANCE WITH STANDARDS SET BY THE ASSOCIATION
OF INVESTMENT MANAGEMENT AND RESEARCH (AIMR). THE PERFORMANCE FIGURES FOR THE
ADVISER'S ACCOUNTS DESCRIBED ABOVE ARE NET OF ADVISORY FEES AND EXPENSES. THE
EFFECT OF DEDUCTING FUND OPERATING EXPENSES ON ANNUALIZED PERFORMANCE, INCLUDING
THE COMPOUNDING EFFECT OVER TIME, MAY BE SUBSTANTIAL, AND WILL REDUCE THE
PERFORMANCE OF THE FUND.
ALL INFORMATION PRESENTED RELIES ON DATA SUPPLIED BY THE ADVISER AND STATISTICAL
SERVICES, REPORTS OR OTHER SOURCES BELIEVED BY THE TRUST TO BE RELIABLE. IT HAS
NOT BEEN INDEPENDENTLY VERIFIED OR AUDITED BY THE FUNDS.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 25
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PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
IN ORDER TO OPEN A NEW ACCOUNT YOU MUST COMPLETE AND MAIL THE NEW ACCOUNT
APPLICATION THAT YOU RECEIVE WITH THIS PROSPECTUS.
- --------------------------------------------------------------------------------
All trades must be received by the Funds' Transfer Agent by 4:00 PM EST.
Your check must be made payable to the Turner Funds or wires must be sent to the
instructions listed below.
Each Fund's minimum initial investment is $2,500 with minimum subsequent
purchases of $50.
Once you are a shareholder of the Turner Funds you can do the following:
[BULLET] PURCHASE, SELL OR EXCHANGE FUND SHARES BY PHONE. Call 1-800-224-6312
between 9:00 AM and 4:00 PM EST Monday through Friday and press 3 to
place a trade.
[BULLET] PURCHASE, SELL OR EXCHANGE FUND SHARES BY MAIL. Shareholders can mail
trade requests to:
By regular mail
The Turner Funds
P.O. Box 219805
Kansas City, MO 64141-6805
By express or overnight mail
The Turner Funds
c/o DST Systems Inc
330 W. 9th Street
Kansas City, MO 64105
[BULLET] PURCHASE FUND SHARES BY WIRING FUNDS TO:
United Missouri Bank of Kansas NA
ABA #101000695
Account # 9870601168
Further Credit: name of fund, shareholder name
and Turner Funds account number
- --------------------------------------------------------------------------------
CLOSING THE FUNDS TO NEW INVESTORS AT CERTAIN ASSET LEVELS
There are limits to the amount an investment adviser can effectively invest in
certain asset classes. Too many advisers try to manage more and more money
regardless of their capacity to find attractive investments. Turner Investment
Partners will not do this. Turner will close a Fund to most new investors once
assets under management reach certain specified levels. For the Small Cap Growth
Fund, that level has been reached, and the Fund is currently closed to new
investors. Similarly, effective when the assets that Turner manages in its Micro
Cap Growth Equity Style, Midcap Growth Equity Style and the Growth Equity Style
(which includes the assets of each Fund) reach $385 million, $4.5 billion and
$9.3 billion, respectively, the Funds will be closed to new investors. Existing
shareholders of the Funds will be notified before any Fund is closed to new
investors.
Shareholders of the Funds as of the effective date for a Fund closing may
continue to make investments and may open additional accounts with the Funds,
provided the new accounts are registered in the same name or have the same
taxpayer identification or social security number assigned to them. In addition,
certain limited classes of new investors may also purchase shares of the Funds
after they are closed to new investors. See "Purchasing, Selling and Exchanging
Fund Shares."
1-800-224-6312
<PAGE>
26 PROSPECTUS
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PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
The Turner Funds are "no load" mutual funds, meaning you pay no sales charge
when purchasing shares of the Funds. The minimum initial investment is $2,500
and the minimum subsequent investment is $50. The Funds reserve the right to
waive the minimum initial investment.
This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.
PURCHASING TURNER FUND SHARES
CHOOSING CLASS I OR CLASS II SHARES
Class I and Class II Shares have different expenses and other characteristics.
Class I Shares are for individual investors and for certain institutional
investors investing for their own or their customers' account.
Class II Shares are for individual investors who purchase shares through
financial institutions or intermediaries. Only the Turner Short Duration
Government Funds - One Year Portfolio and Turner Short Duration Government Funds
- - Three Year Portfolio offer Class II Shares.
CLASS I SHARES CLASS II SHARES
[BULLET] NO SALES CHARGE [BULLET] NO SALES CHARGE
[BULLET] LOWER ANNUAL EXPENSES [BULLET] HIGHER ANNUAL EXPENSES
[BULLET] $2,500 MINIMUM INITIAL [BULLET] $2,500 MINIMUM
INVESTMENT INITIAL INVESTMENT
For some investors the minimum initial investment may be lower.
WHEN CAN YOU PURCHASE SHARES?
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day).
We may reject any purchase order if we determine that accepting the order would
not be in the best interests of the Funds or their shareholders.
TO OPEN AN ACCOUNT:
[BULLET] BY MAIL Please send your completed application, with a check payable to
the Turner Funds, to the address listed on this page. Your check must be in U.S.
dollars and drawn on a bank located in the United States. We do not accept third
party checks, credit card checks or cash.
[BULLET] BY WIRE Please call us at 1-800-224-6312 (option 3) to let us know that
you intend to make your initial investment by wire. You will be given an account
number and fax number to which you should send your completed New Account
Application. Once this is complete you will need to instruct your bank to wire
money to: United Missouri Bank of Kansas, N.A.; ABA #10-10-00695; for Account
Number 98-7060-116-8; Further Credit: [_________ Fund]. The shareholder's name
and account number must be specified in the wire.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase Class I
Shares automatically through regular deductions from your account. Please call
1-800-224-6312 for information regarding participating banks. With a $100
minimum initial investment, you may begin regularly scheduled investments -once
a month.
WHO IS ELIGIBLE TO INVEST IN A FUND ONCE IT IS CLOSED TO NEW INVESTORS?
If you are a shareholder of a Fund when it closes to new investors, you will be
able to make additional investments in the Fund and reinvest your dividends and
capital gains distributions. Once a Fund is closed, you may open a new account
only if:
[BULLET] 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;
[BULLET] 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 these people; or
[BULLET] you are a client of a financial adviser or planner who has client
assets invested in the TIP Funds as of the date of any proposed new
investment in the Fund.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 27
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PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
HOW FUND PRICES ARE CALCULATED
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Funds receive your purchase order. NAV for one
Fund share is the value of that share's portion of all of the net assets in the
Fund. The Funds' NAV is calculated once each Business Day at the
regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m.,
Eastern time). So, for you to receive the current Business Day's NAV, generally
we must receive your purchase order before 4:00 p.m., Eastern time.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or a Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
PURCHASING ADDITIONAL SHARES
[BULLET] BY MAIL Please send your check payable to Turner Funds along with a
signed letter stating the name of the Turner Fund and your account number.
[BULLET] BY PHONE Current shareholders are eligible to purchase shares by phone
if they have requested that privilege by checking the appropriate box on the New
Account Application. Shareholders who have requested telephone privileges can
call 1-800-224-6312 (option 3) and give the Fund and account number they would
like to make a subsequent purchase into. They must then instruct their bank to
wire the money by following the instructions listed on page 25.
ADDITIONAL INFORMATION
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for customers. If you invest
through an authorized institution, you will have to follow its procedures, which
may be different from the procedures for investing directly. Your institution
may charge a fee for its services, in addition to the fees charged by the Funds.
You will also generally have to address your correspondence or questions
regarding the Funds to your institution.
SELLING TURNER FUND SHARES
If you own shares directly, you may sell your shares on any Business Day by
contacting us directly by mail or telephone. You may also sell your shares by
contacting your financial institution by mail or telephone. The sale price of
each share will be the next NAV determined after we receive your request.
You may sell shares by following procedures established when you opened your
account or accounts. If you have questions, call 1-800-224-6312.
[BULLET] BY MAIL If you wish to redeem shares of the Turner Funds, you should
send us a letter with your name, Fund and account number and the amount of your
request. All letters must be signed by the owner(s) of the account. All proceeds
will be mailed or wired (depending on instructions given) to the address or
instructions given to us when the account was established. If you would like the
proceeds sent to either a different bank account or address, a signature
guarantee is required.
[BULLET] BY PHONE When filling out a New Account Application shareholders are
given the opportunity to establish telephone redemption privileges. If
shareholders elect to take advantage of this privilege they will be able to
redeem shares of the Turner Funds by calling 1-800-224-6312 (option 3) and
informing one of our representatives.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $2,500 in your account, you may use the Systematic
Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $50 from any Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. Please
call 1-800-224-6312 for information regarding banks that participate in the
Systematic Withdrawal Plan.
1-800-224-6312
<PAGE>
28 PROSPECTUS
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PURCHASING, SELLING AND EXCHANGING TURNER FUNDS
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect shareholders by
verifying the signature in certain circumstances including, (1) written requests
for redemptions in excess of $50,000; (2) all written requests to wire
redemption proceeds to a bank other than the bank previously designated on the
account application; and (3) redemption requests that provide that the
redemption proceeds should be sent to an address other than the address of
record or to a person other than the registered shareholder(s) for the account.
Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. A
notarized signature is not sufficient.
REDEMPTIONS IN KIND
The Funds generally pay sale (redemption) proceeds in cash. However, under
unusual conditions that make the payment of cash unwise (and for the protection
of the Fund's remaining shareholders) the Funds might pay all or part of your
redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). Although it is highly unlikely that your
shares would ever be redeemed in kind, you would probably have to pay brokerage
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
RECEIVING YOUR MONEY
Normally, the Funds will send your sale proceeds within three Business Days
after they receive your request, but it may take up to seven days. Your proceeds
can be wired to your bank account (subject to a $10 wire fee) or sent to you by
check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION
PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO
15 DAYS FROM YOUR DATE OF PURCHASE).
EXCHANGING TURNER FUND SHARES
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after we receive your exchange request.
You may exchange your shares on any Business Day by contacting the Funds
directly by mail or telephone. You may also exchange shares through your
financial institution by mail or telephone. IF YOU RECENTLY PURCHASED SHARES BY
CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.
OTHER POLICIES:
FOR CUSTOMERS OF FINANCIAL INSTITUTIONS
If you purchase, sell or exchange Fund shares through a financial institution
(rather than directly from us), you may have to transmit your purchase, sale and
exchange requests to your financial institution at an earlier time for your
transaction to become effective that day. This allows the financial institution
time to process your request and transmit it to us. For more information about
how to purchase, sell or exchange Fund shares through your financial
institution, you should contact your financial institution directly.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
PO BOX 219805, KANSAS CITY, MO 64141-6805
<PAGE>
PROSPECTUS 29
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DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
SUSPENSION OF YOUR RIGHT TO SELL SHARES
The Funds may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in the Funds' SAI.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum of $1,000, you may be
required to sell your shares. You will always be given at least 60 days' written
notice to give you time to add to your account and avoid selling your shares.
DISTRIBUTION OF FUND SHARES
SEI Investments Distribution Co. (SIDCo.) is the distributor of the Funds.
SIDCo. receives no compensation for distributing the Funds' shares.
The Turner Short Duration Government Funds-One Year Portfolio and Turner Short
Duration Government Funds-Three Year Portfolio have adopted a shareholder
service plan for their Class II Shares that allows the Funds to pay service fees
of up to 0.25% of average daily net assets for services provided to
shareholders.
DIVIDENDS AND DISTRIBUTIONS
The Turner Large Cap Growth Equity, Turner Midcap Growth, Turner Small Cap
Growth, Turner Micro Cap Growth, Turner Top 20 and Turner Technology Funds
distribute their income annually as a dividend to shareholders. The Turner
Growth Equity Fund distributes its income quarterly as a dividend to
shareholders. The Turner Short Duration Government Funds - One Year Portfolio,
Turner Short Duration Government Funds - Three Year Portfolio and Turner Core
High Quality Fixed Income Fund declare their investment income daily and
distribute it monthly as a dividend to shareholders.
The Funds make distributions of capital gains, if any, at least annually. If you
own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Funds in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after we receive
your written notice. To cancel your election, simply send the Funds written
notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Summarized below are some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. Distributions you receive from a Fund may be taxable whether or not you
reinvest them. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
More information about taxes is in the SAI.
1-800-224-6312
<PAGE>
30 PROSPECTUS
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TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables that follow present performance information about Class I and Class
II Shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years, or, if shorter, the period
of each Fund's operation. Some of this information reflects financial
information for a single Fund share. The total returns in the table represent
the rate that you would have earned (or lost) on an investment in a Fund,
assuming you reinvested all of your dividends and distributions. These Financial
Highlights have been audited by Ernst & Young LLP, independent auditors whose
report, along with each Fund's financial statements, appears in the annual
report that accompanies our SAI. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-800-224-6312.
<TABLE>
<CAPTION>
TURNER LARGE CAP GROWTH EQUITY FUND
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.22 $12.28 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.08) (0.01) 0.01
Net Gains or Losses on Securities (both realized and unrealized) 5.76 1.98 2.27
Total From Investment Operations 5.68 1.97 2.28
LESS DISTRIBUTIONS
Dividends (from net investment income) -- (0.01) --
Distributions (from capital gains) -- (1.02) --
Returns of Capital -- -- --
Total Distributions -- (1.03) --
Net Asset Value, End of Period $18.90 $13.22 $12.28
TOTAL RETURN+ 42.97% 17.26% 22.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $8,459 $4,328 $ 701
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.00% 1.00% 1.00%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.00% 1.00% 1.00%*
Ratio of Net Income (Loss) to Average Net Assets (0.47)% (0.10)% 0.20%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.41% 7.70% 26.45%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.88)% (6.80)% (25.25)%*
Portfolio Turnover Rate 370.71% 234.93% 346.47%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON FEBRUARY 1, 1997.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 31
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER GROWTH EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997 1996(1) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.87 $ 16.64 $ 17.03 $ 14.97 $ 12.46 $ 13.12
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.05) (0.05) (0.03) 0.02 0.10 0.10
Net Gains or Losses on Securities (both realized
and unrealized) 4.66 1.10 4.23 2.91 2.52 (0.66)
Total From Investment Operations 4.61 1.05 4.20 2.93 2.62 (0.56)
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- -- (0.02) (0.11) (0.10)
Distributions (from capital gains) (1.60) (4.82) (4.59) (0.85) -- --
Returns of Capital -- -- -- -- -- --
Total Distributions (1.60) (4.82) (4.59) (0.87) (0.11) (0.10)
Net Asset Value, End of Period $ 15.88 $ 12.87 $ 16.64 $ 17.03 $ 14.97 $ 12.46
TOTAL RETURN+ 38.16% 10.71% 32.61% 20.61% 21.15% (4.28)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $142,824 $97,857 $99,590 $96,164 $115,819 $112,959
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 0.92% 1.00% 0.96% 0.94%* 0.94% 0.95%
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 0.96% 1.04% 1.02% 1.06%* 1.03% 0.95%
Ratio of Net Income (Loss) to Average Net Assets (0.42)% (0.42)% (0.25)% 0.03%* 0.69% 0.86%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 0.96% 1.12% 1.05% 1.06%* 1.03% 1.08%
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (0.42)% (0.50)% (0.28)% 0.03%* 0.69% 0.73%
Portfolio Turnover Rate 328.26% 249.58% 178.21% 147.79% 177.86% 164.81%
</TABLE>
* ANNUALIZED.
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON APRIL 19, 1996, THE BOARD OF TRUSTEES OF THE ADVISORS' INNER CIRCLE FUND
VOTED TO APPROVE A TAX-FREE REORGANIZATION OF THE TURNER FUNDS. IN
CONNECTION WITH THE REORGANIZATION, THE FUNDS CHANGED THEIR FISCAL YEAR END
FROM OCTOBER 31 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER 30, 1996.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
32 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER MIDCAP GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.87 $14.22 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) (0.07) (0.03)
Net Gains or Losses on Securities (both realized and unrealized) 11.72 0.22 4.36
Total From Investment Operations 11.66 0.15 4.33
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- --
Distributions (from capital gains) -- (0.50) (0.11)
Returns of Capital -- -- --
Total Distributions -- (0.50) (0.11)
Net Asset Value, End of Period $25.53 $13.87 $14.22
TOTAL RETURN+ 84.07% 1.24% 43.77%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $148,830 $24,582 $5,145
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.03% 1.23% 1.25%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.08% 1.34% 1.25%*
Ratio of Net Income (Loss) to Average Net Assets (0.58)% (0.79)% (0.62)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.08% 1.73% 7.96%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (0.58)% (1.18)% (7.33)%*
Portfolio Turnover Rate 290.79% 304.29% 348.29%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON OCTOBER 1, 1996.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 33
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SMALL CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999 1998 1997 1996(1) 1995 1994(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $21.49 $26.35 $23.13 $16.08 $10.90 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.26) (0.23) (0.07) (0.08) (0.06) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) 12.97 (4.19) 3.80 8.17 5.24 0.92
Total From Investment Operations 12.71 (4.42) 3.73 8.09 5.18 0.90
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- -- -- -- --
Distributions (from capital gains) -- (0.25) (0.51) (1.04) -- --
Returns of Capital -- (0.19) -- -- -- --
Total Distributions -- (0.44) (0.51) (1.04) -- --
Net Asset Value, End of Period $34.20 $21.49 $26.35 $23.13 $16.08 $10.90
Total Return+ 59.14% (16.90)% 16.64% 52.90% 47.52% 12.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $254,077 $147,534 $153,462 $67,425 $13,072 $4,806
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.25% 1.25% 1.24% 1.25%* 1.25% 1.09%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.27% 1.28% 1.24% 1.25%* 1.25% 1.09%*
Ratio of Net Income (Loss) to Average Net Assets (1.00)% (0.99)% (0.84)% (0.88)%* (0.68)% (0.27)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.31% 1.41% 1.33% 1.54%* 2.39% 4.32%*
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.04)% (1.12)% (0.93)% (1.17)%* (1.82)% (3.50)%*
Portfolio Turnover Rate 223.61% 167.73% 130.68% 149.00% 183.49% 173.92%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON APRIL 19, 1996, THE BOARD OF TRUSTEES OF THE ADVISORS' INNER CIRCLE FUND
VOTED TO APPROVE A TAX-FREE REORGANIZATION OF THE TURNER FUNDS. IN
CONNECTION WITH THE REORGANIZATION, THE FUNDS CHANGED THEIR FISCAL YEAR END
FROM OCTOBER 31 TO SEPTEMBER 30, EFFECTIVE SEPTEMBER 30, 1996.
(2) COMMENCED OPERATIONS ON FEBRUARY 7, 1994.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
34 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER MICRO CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1) 1998(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.88 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.05) (0.04)
Net Gains or Losses on Securities (both realized and unrealized) 11.26 (0.08)
Total From Investment Operations 11.21 (0.12)
LESS DISTRIBUTIONS
Dividends (from net investment income) -- --
Distributions (from capital gains) -- --
Total Distributions -- --
Net Asset Value, End of Period $21.09 $9.88
TOTAL RETURN+ 113.46% (1.20)%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $12,963 $2,843
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 0.90% 1.25%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 0.90% 1.25%*
Ratio of Net Income (Loss) to Average Net Assets (0.47)% (0.64)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.86% 8.18%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (2.43)% (7.57)%*
Portfolio Turnover Rate 239.32% 128.53%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON JANUARY 25, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER MICRO CAP GROWTH
FUND (THE "FUNDS") APPROVED A TAX-FREE REORGANIZATION UNDER WHICH ALL ASSETS
AND LIABILITIES OF THE FUND WERE TRANSFERRED TO THE TIP TURNER MICRO CAP
GROWTH FUND.
(2) COMMENCED OPERATIONS ON MARCH 1, 1998.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 35
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER TOP 20 FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02)
Net Gains or Losses on Securities (both realized and unrealized) 4.01
Total From Investment Operations 3.99
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Total Distributions --
Net Asset Value, End of Period $ 13.99
TOTAL RETURN+ 39.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $16,112
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.35%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.35%*
Ratio of Net Income (Loss) to Average Net Assets (0.87)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 2.55%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (2.07)%*
Portfolio Turnover Rate 369.11%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
36 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER TECHNOLOGY FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02)
Net Gains or Losses on Securities (both realized and unrealized) 4.08
Total From Investment Operations 4.06
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Total Distributions --
Net Asset Value, End of Period $14.06
TOTAL RETURN+ 40.60%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $8,296
Ratio of Expenses to Average Net Assets
(including directed brokerage arrangements) 1.35%*
Ratio of Expenses to Average Net Assets
(including waivers and reimbursements) 1.35%*
Ratio of Net Income (Loss) to Average Net Assets (0.87)%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 3.89%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (3.41)%*
Portfolio Turnover Rate 317.32%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 37
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO-CLASS I SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(2) 1998(3) 1998(4) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.09 $10.08 $10.06 $10.03 $9.99 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.35 0.60 0.60 0.64 0.53
Net Gains or Losses on Securities
(both realized and unrealized) (0.02) -- 0.02 0.03 0.05 (0.02)
Total From Investment Operations 0.52 0.35 0.62 0.63 0.69 0.51
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.56) (0.33) (0.60) (0.60) (0.65) (0.52)
Distributions (from capital gains) -- (0.01) -- -- -- --
Total Distributions (0.56) (0.34) (0.60) (0.60) (0.65) (0.52)
Net Asset Value, End of Period $10.05 $10.09 $10.08 $10.06 $10.03 $9.99
TOTAL RETURN+ 5.34% 3.50% 6.34% 6.32% 7.09% 5.21%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $3,207 $ 991 $1,195 $ 864 $ 398 $ 145
Ratio of Expenses to Average Net Assets 0.00% 0.00%* 0.00% 0.00% 0.00% 0.00%
Ratio of Net Income to Average Net Assets 5.50% 5.88%* 5.97% 5.91% 6.46% 5.74%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 6.53% 10.83%* 8.83% 10.25% 16.47% 27.89%
Ratio of Net Investment Income (Loss) to Average
Net Assets (excluding waivers and reimbursements) (1.03)% (4.95)%* (2.86)% (4.34)% (10.01)% (22.15)%
Portfolio Turnover Rate 154.33% 96.56% 68.80% 81.82% -- --
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON MARCH 1, 1998.
(2) ON MAY 24, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO (THE "FUND") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR
PORTFOLIO.
(3) ON NOVEMBER 10, 1997 THE BOARD OF TRUSTEES OF TIP INSTITUTIONAL FUNDS
(FORMERLY, THE SOLON FUNDS) APPROVED A CHANGE IN THE TURNER SHORT DURATION
GOVERNMENT FUNDS THREE YEAR AND ONE YEAR PORTFOLIOS' YEAR END FROM FEBRUARY
28 TO SEPTEMBER 30, EFFECTIVE MARCH 1, 1998.
(4) ON JANUARY 22, 1998, SHAREHOLDERS OF BOTH THE THREE YEAR AND ONE YEAR FUNDS
APPROVED A CHANGE IN THE ADVISOR FROM SOLON ASSET MANAGEMENT, L.P. TO TURNER
INVESTMENT PARTNERS, INC.
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
38 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO-CLASS II SHARES
- -------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1) 1998(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $10.11 $10.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.30
Net Gains or Losses on Securities (both realized and unrealized) 0.02 0.03
Total From Investment Operations 0.49 0.33
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.50) (0.30)
Distributions (from capital gains) -- --
Total Distributions (0.50) (0.30)
Net Asset Value, End of Period $10.10 $10.11
TOTAL RETURN+ 5.00% 3.26%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $3,155 --
Ratio of Expenses to Average Net Assets 0.23% 0.25%*
Ratio of Net Income to Average Net Assets 5.13% 5.63%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 6.76% 11.08%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) (1.40)% (5.20)%*
Portfolio Turnover Rate 154.33% 96.56%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) ON MAY 24, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-ONE YEAR PORTFOLIO (THE "FUND") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR
PORTFOLIO.
(2) COMMENCED OPERATIONS ON FEBRUARY 27, 1998
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 39
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO-CLASS I SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(4) 1998(2) 1998(3) 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.25 $ 10.10 $ 10.00 $ 10.04 $ 9.80 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.35 0.59 0.58 0.60 0.61
Net Gains or Losses on Securities
(both realized and unrealized) (0.27) 0.15 0.10 (0.01) 0.23 (0.22)
Total From Investment Operations 0.28 0.50 0.69 0.57 0.83 0.39
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.55) (0.34) (0.59) (0.59) (0.59) (0.59)
Distributions (from capital gains) (0.14) (0.01) -- (0.02) -- --
Total Distributions (0.69) (0.35) (0.59) (0.61) (0.59) (0.59)
Net Asset Value, End of Period $ 9.84 $ 10.25 $ 10.10 $ 10.00 $ 10.04 $ 9.80
TOTAL RETURN+ 2.89% 5.09% 7.07% 5.45% 8.73% 4.08%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $38,687 $12,015 $15,544 $17,809 $ 11,027 $ 7,065
Ratio of Expenses to Average Net Assets 0.24% 0.24%* 0.24% 0.24% 0.24% 0.15%
Ratio of Net Income to Average Net Assets 6.21% 5.84%* 5.85% 5.80% 6.18% 6.21%
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.31% 1.49%* 1.21% 1.21% 1.45% 1.18%
Ratio of Net Investment Income (Loss) to
Average Net Assets (excluding waivers
and reimbursements) 5.14% 4.59%* 4.88% 4.83% 4.97% 5.18%
Interest expense -- -- -- 0.02% 0.12% 0.04%
Average debt per share during the period (5) -- -- -- $ 0.04 $0.28 $ 0.08
Average debt outstanding during the period (5) (6) -- -- -- $56,238 $256,115 $75,604
Portfolio Turnover Rate 257.98% 121.63% 279.00% 251.00% 197.03% 405.00%
</TABLE>
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON MARCH 1, 1998.
(2) ON NOVEMBER 10, 1997 THE BOARD OF TRUSTEES OF TIP INSTITUTIONAL FUNDS
(FORMERLY, THE SOLON FUNDS) APPROVED A CHANGE IN THE TURNER SHORT DURATION
GOVERNMENT FUNDS THREE YEAR AND ONE YEAR PORTFOLIOS' YEAR END FROM FEBRUARY
28 TO SEPTEMBER 30, EFFECTIVE MARCH 1, 1998.
(3) ON JANUARY 22, 1998, SHAREHOLDERS OF BOTH THE THREE YEAR AND ONE YEAR FUNDS
APPROVED A CHANGE IN THE ADVISOR FROM SOLON ASSET MANAGEMENT, L.P. TO TURNER
INVESTMENT PARTNERS, INC.
(4) ON JANUARY 25, 1999 SHAREHOLDERS OF THE ALPHA SELECT TURNER SHORT DURATION
GOVERNMENT FUNDS-THREE YEAR PORTFOLIO (THE "FUNDS") APPROVED A TAX-FREE
REORGANIZATION UNDER WHICH ALL ASSETS AND LIABILITIES OF THE FUND WERE
TRANSFERRED TO THE TIP TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR
PORTFOLIO.
(5) AVERAGE BASED UPON AMOUNTS OUTSTANDING AT EACH MONTH END.
(6) THERE WAS NO DEBT OUTSTANDING AT THE END OF ANY PERIOD PRESENTED.
AMOUNTS DESIGNATED AS "-" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
40 PROSPECTUS
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO-CLASS II SHARES
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.95
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.68
Net Gains or Losses on Securities (both realized and unrealized) (0.13)
Total From Investment Operations 0.55
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.70)
Distributions (from capital gains) --
Total Distributions (0.70)
Net Asset Value, End of Period $9.80
TOTAL RETURN+ 5.64%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $ 87
Ratio of Expenses to Average Net Assets 0.48%*
Ratio of Net Income to Average Net Assets 5.71%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 0.95%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) 5.24%*
Portfolio Turnover Rate 257.98%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON APRIL 28, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
PROSPECTUS 41
- --------------------------------------------------------------------------------
TURNER FUNDS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
TURNER CORE HIGH QUALITY FIXED INCOME FUND
- --------------------------------------------------------------------------------
FOR THE PERIODS ENDED SEPTEMBER 30: 1999(1)
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14
Net Gains or Losses on Securities (both realized and unrealized) (0.09)
Total From Investment Operations 0.05
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.14)
Distributions (from capital gains) --
Total Distributions (0.14)
Net Asset Value, End of Period $ 9.91
TOTAL RETURN+ 0.48%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $10,009
Ratio of Expenses to Average Net Assets 0.45%*
Ratio of Net Income to Average Net Assets 5.67%*
Ratio of Expenses to Average Net Assets
(excluding waivers and reimbursements) 1.99%*
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers and reimbursements) 4.13%*
Portfolio Turnover Rate 39.70%
* ANNUALIZED
+ RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) COMMENCED OPERATIONS ON JULY 1, 1999.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
TIP FUNDS
INVESTMENT ADVISER
Turner Investment Partners, Inc.
1235 Westlakes Drive
Suite 350
Berwyn, PA 19312
DISTRIBUTOR
SEI Investments Distribution Co.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated January 31, 2000, includes detailed information about the Funds.
The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports contain the Fund's holdings and contain information from the
Fund's managers about strategies, and recent market conditions and trends and
their impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
[BULLET] BY TELEPHONE: Call 1-800-224-6312
[BULLET] BY MAIL: Write to TIP Funds at
P.O. Box 219805
Kansas City, MO 64141-6805
[BULLET] BY INTERNET: http://www.turner-invest.com
[BULLET] FROM THE SEC: You can also obtain the SAI or the Annual and
Semi-Annual reports, as well as other information about
TIP Funds, from the EDGAR Database on the SEC's website
("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference
Room, call 1-202-942-8090). You may request documents by
mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-0102. You may
also obtain this information, upon payment of a
duplicating fee, by e-mailing the SEC at the following
address: [email protected].
The Fund's Investment Company Act registration number is 811-07527.
TUR-F-030-05
TIP FUNDS
TURNER LARGE CAP GROWTH EQUITY FUND
TURNER GROWTH EQUITY FUND
TURNER MIDCAP GROWTH FUND
TURNER SMALL CAP GROWTH FUND
TURNER MICRO CAP GROWTH FUND
TURNER FOCUSED LARGE CAP EQUITY FUND
TURNER TOP 20 FUND
TURNER TECHNOLOGY FUND
TURNER INTERNATIONAL GROWTH FUND
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO
TURNER SHORT DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO
TURNER CORE HIGH QUALITY FIXED INCOME FUND
TIP TARGET SELECT EQUITY FUND
INVESTMENT ADVISER:
TURNER INVESTMENT PARTNERS, INC.
This Statement of Additional Information is not a prospectus and relates only to
the Turner Large Cap Growth Equity Fund ("Large Cap Fund"), Turner Growth Equity
Fund ("Growth Equity Fund"), Turner Midcap Growth Fund ("Midcap Fund"), Turner
Small Cap Growth Fund ("Small Cap Fund"), Turner Micro Cap Growth Fund ("Micro
Cap Fund"), Turner Focused Large Cap Equity Fund ("Focused Fund"), Turner Top 20
Fund ("Top 20 Fund"), Turner Technology Fund ("Technology Fund"), Turner
International Growth Fund ("International Fund"), Turner Short Duration
Government Funds - One Year Fund ("One Year Portfolio"), Turner Short Duration
Government Funds-Three Year Portfolio ("Three Year Portfolio"), Turner Core High
Quality Fixed Income Fund ("Fixed Income Fund"), and the TIP Target Select
Equity Fund ("Target Select Fund") (each a "Fund" and, together, the "Funds").
It is intended to provide additional information regarding the activities and
operations of the TIP Funds (the "Trust") and should be read in conjunction with
the Funds' Prospectuses dated January 31, 2000. The Prospectuses may be obtained
without charge by calling 1-800-224-6312.
TABLE OF CONTENTS
THE TRUST ...................................................................S-2
INVESTMENT OBJECTIVES........................................................S-2
INVESTMENT POLICIES..........................................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS........................S-9
INVESTMENT LIMITATIONS......................................................S-23
THE ADVISER.................................................................S-25
THE ADMINISTRATOR...........................................................S-28
DISTRIBUTION AND SHAREHOLDER SERVICES.......................................S-30
TRUSTEES AND OFFICERS OF THE TRUST..........................................S-30
COMPUTATION OF YIELD AND TOTAL RETURN.......................................S-33
PURCHASE AND REDEMPTION OF SHARES...........................................S-35
DETERMINATION OF NET ASSET VALUE............................................S-36
TAXES.......................................................................S-36
PORTFOLIO TRANSACTIONS......................................................S-39
VOTING......................................................................S-42
DESCRIPTION OF SHARES.......................................................S-43
SHAREHOLDER LIABILITY.......................................................S-43
LIMITATION OF TRUSTEES' LIABILITY...........................................S-43
5% SHAREHOLDERS.............................................................S-43
CUSTODIAN...................................................................S-48
EXPERTS.....................................................................S-48
LEGAL COUNSEL...............................................................S-48
FINANCIAL STATEMENTS........................................................S-48
APPENDIX.....................................................................A-1
January 31, 2000
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the Turner Large Cap
Growth Equity Fund ("Large Cap Fund"), Turner Growth Equity Fund ("Growth Equity
Fund"), Turner Midcap Growth Fund ("Midcap Fund"), Turner Small Cap Growth Fund
("Small Cap Fund"), Turner Micro Cap Growth Fund ("Micro Cap Fund"), Turner
Focused Large Cap Equity Fund ("Focused Fund"), Turner Top 20 Fund ("Top 20
Fund"), Turner Technology Fund ("Technology Fund"), Turner International Growth
Fund ("International Growth Fund"), Turner Short Duration Government Funds-One
Year Portfolio ("One Year Portfolio"), Turner Short Duration Government
Funds-Three Year Portfolio ("Three Year Portfolio"), Turner Core High Quality
Fixed Income Fund, ("Fixed Income Fund"), and TIP Target Select Equity Fund
("Target Select Fund"), (each a "Fund" and, together the "Funds"). Each is a
separate series of TIP Funds (formerly, Turner Funds) (the "Trust"), an open-end
management investment company established as a Massachusetts business trust
under a Declaration of Trust dated January 26, 1996, and amended on February 21,
1997, which consists of both diversified and non-diversified Funds. The
Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest (the "shares") and separate classes of funds. Each portfolio
is a separate mutual fund and each share of each portfolio represents an equal
proportionate interest in that portfolio. Shareholders may purchase shares in
the One Year Portfolio or the Three Year Portfolio through two separate classes,
Class I and Class II, which provide for variations in distribution costs,
transfer agent fees, voting rights and dividends. All other Funds in the Trust
offer only Class I Shares. Except for differences between the Class I Shares and
the Class II Shares pertaining to distribution and shareholder servicing, voting
rights, dividends and transfer agent expenses, each share of each series
represents an equal proportionate interest in that series. Please see
"Description of Shares" for more information.
On January 29, 1999, the Micro Cap Fund and the Three Year Portfolio acquired
all of the assets and liabilities of the Alpha Select Turner Micro Cap Growth
Fund and the Alpha Select Turner Short Duration Government Funds-Three Year
Portfolio, respectively. On June 30, 1999, the One Year Portfolio acquired all
of the assets and liabilities of the Alpha Select Turner Short Duration
Government Funds - One Year Portfolio. Historical information presented for
those Funds relates to the Alpha Select Funds. The Trust also offers shares in
the Clover Max Cap Value Fund, Clover Equity Value Fund, Clover Small Cap Value
Fund, Clover Fixed Income Fund, Penn Capital Select Financial Services Fund,
Penn Capital Strategic High Yield Bond Fund, and Penn Capital Value Plus Fund.
Capitalized terms not defined herein are defined in the Prospectus offering
shares of the Funds.
INVESTMENT OBJECTIVES
TURNER LARGE CAP GROWTH EQUITY FUND -- The Large Cap Fund seeks capital
appreciation.
TURNER GROWTH EQUITY FUND -- The Growth Equity Fund seeks capital appreciation.
TURNER MIDCAP GROWTH FUND -- The Midcap Fund seeks capital appreciation.
TURNER SMALL CAP GROWTH FUND -- The Small Cap Fund seeks capital appreciation.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund seeks capital appreciation.
S-2
<PAGE>
TURNER FOCUSED LARGE CAP EQUITY FUND -- The Focused Fund seeks long-term capital
appreciation.
TURNER TOP 20 FUND -- The Top 20 Fund seeks long-term capital appreciation.
TURNER TECHNOLOGY FUND -- The Technology Fund seeks long-term capital
appreciation.
TURNER INTERNATIONAL GROWTH FUND -- The International Fund seeks long-term
capital appreciation.
TURNER SHORT DURATION GOVERNMENT FUNDS-ONE YEAR PORTFOLIO & TURNER SHORT
DURATION GOVERNMENT FUNDS-THREE YEAR PORTFOLIO -- The investment objective of
each Fund is to provide maximum total return consistent with preservation of
capital and prudent investment management. Under normal circumstances, the One
Year Portfolio seeks to maintain an average effective duration comparable to or
less than that of one-year U.S. Treasury bills. The Three Year Portfolio seeks
to maintain an average effective duration comparable to or less than that of
three-year U.S. Treasury notes. Effective duration is an indicator of a
security's price volatility or risk associated with changes in interest rates.
Because the Turner Investment Partners, Inc. (the "Adviser") seeks to manage
interest rate risk by limiting effective duration, each Fund may invest in
securities of any maturity.
TURNER CORE HIGH QUALITY FIXED INCOME FUND -- The Fixed Income Fund seeks total
return through current income and capital appreciation.
TIP TARGET SELECT EQUITY FUND -- The Target Select Fund seeks long term growth
of capital primarily from investment in U.S. equity securities.
There can be no assurance that any Fund will achieve its investment objective.
INVESTMENT POLICIES
TURNER LARGE CAP GROWTH EQUITY FUND--The 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. The Russell 200 Growth Index is the
Fund's current benchmark. 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 American
Depository Receipts "ADRs"). The Fund will only 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.
TURNER 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 the Adviser believes to have potential for
strong growth in earnings and to be reasonably valued at the time of purchase.
The Fund seeks to purchase securities that are well diversified across economic
sectors and to maintain sector concentrations that approximate the economic
sector weightings of the
S-3
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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 ADRs. The Fund will only
purchase securities that are traded on registered exchanges or the
over-the-counter market in the United States.
TURNER MIDCAP GROWTH FUND--The Midcap Fund invests primarily (and, under normal
conditions, at least 65% of its total assets) in a diversified portfolio of
common stocks of issuers that, at the time of purchase, have market
capitalizations between $1 billion and $8 billion that the Adviser believes to
have strong earnings growth potential. The 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 will only 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.
TURNER SMALL CAP GROWTH FUND--The Small Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $2
billion that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Fund will maintain a weighted average market
capitalization of less than $2 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 2000 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 ADRs. The Fund will only
purchase securities that are traded on registered exchanges or the
over-the-counter market in the United States.
TURNER MICRO CAP GROWTH FUND -- The Micro Cap Fund invests primarily (and, under
normal conditions, at least 65% of its total assets) in a diversified portfolio
of common stocks of issuers with market capitalizations of not more than $500
million that the Adviser believes to have strong earnings growth potential.
Under normal market conditions, the Fund will maintain a weighted average market
capitalization of less than $350 million. The Fund will not hold securities with
market capitalizations over $1 billion. The Fund seeks to purchase securities
that are well diversified across economic sectors. The Russell 2000 Growth Index
is the Fund's current benchmark. The Micro Cap Fund will typically invest in
companies whose market capitalizations, at the time of purchase, are $350
million or under. The Fund may invest in warrants and rights to purchase common
stocks, and may invest up to 10% of its total assets in micro cap stocks of
foreign issuers and in ADRs.
The Micro Cap Fund invests in some of the smallest, most dynamic publicly-traded
companies. These emerging growth companies are typically in the early stages of
a long-term development cycle. In many cases, these companies offer unique
products, services or technologies and often serve special or expanding market
niches. Because of their small size, and less frequent trading activity, the
companies represented in the Fund's portfolio may be overlooked or not closely
followed by investors. Accordingly, their prices may rise either as a result of
improved business fundamentals, particularly when earnings grow faster than
general expectations, or as more investors
S-4
<PAGE>
appreciate the full extent of a company's underlying business potential. Thus in
the opinion of the Fund's Adviser, they offer substantial appreciation potential
for meeting retirement and other long-term goals.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of micro capitalization stocks. To
manage risk and improve liquidity, Turner expects to invest in numerous small,
publicly traded companies, representing a broad cross-section of U.S.
industries.
TURNER FOCUSED LARGE CAP EQUITY FUND--The Focused Fund invests primarily (and,
under normal conditions, at least 80% of its total assets) in a portfolio of
common stocks of issuers that, at the time of purchase, have market
capitalizations in excess of $5 billion that the Adviser, believes to have
strong earnings growth potential. Any remaining assets may be invested in
securities issued by smaller capitalization companies, warrants and rights to
purchase common stocks, convertible and preferred stocks, and in ADRs. The Fund
will generally purchase securities that are traded on registered exchanges or
the over-the-counter market in the United States. The Fund may also purchase
shares of other investment companies and foreign securities. The Fund's overall
portfolio will contain a total of 15-30 stocks of Turner's best large
capitalization ideas.
TURNER TOP 20 FUND--The Top 20 Fund invests primarily (and, under normal
conditions, at least 80% of its total assets) in a portfolio of common stocks of
issuers with a variety of sectors and market capitalizations that the Adviser
believes to have strong earnings growth potential. Any remaining assets may be
invested in warrants and rights to purchase common stocks, convertible and
preferred stocks, and ADRs. The Fund will generally purchase securities that are
traded on registered exchanges or the over-the-counter market in the United
States. The Fund may also purchase shares of other investment companies and
foreign securities.
TURNER TECHNOLOGY FUND -- The Technology Fund invests primarily (and, under
normal conditions, at least 80% of its total assets) in a portfolio of common
stocks of technology companies. The Fund may invest in warrants and rights to
purchase common stocks, convertible and preferred stocks, stocks of foreign
issuers and ADRs.
The Fund invests in dynamic, publicly-traded technology companies. These
emerging growth companies are typically in the early stages of a long-term
development cycle. In many cases, these companies offer unique products,
services or technologies and often serve special or expanding market niches.
Because of their small size and less frequent trading activity, the small
technology companies represented in the Fund's portfolio may be overlooked or
not closely followed by investors. Accordingly, their prices may rise either as
a result of improved business fundamentals, particularly when earnings grow
faster than general expectations, or as more investors appreciate the full
extent of a company's underlying business potential. The Adviser will seek to
capture these price increases. Most of the technology companies that the Fund
will invest in will be located in the U.S.
The Fund's share price can move up and down significantly, even over short
periods of time, due to the volatile nature of many technology stocks. To manage
risk and improve liquidity, Turner expects to invest in numerous publicly traded
companies, representing a broad cross-section of U.S. and foreign technology
companies.
S-5
<PAGE>
TURNER INTERNATIONAL GROWTH FUND -- The International Fund seeks to provide
long-term capital appreciation by investing primarily in a diversified portfolio
of ADRs and equity securities of non-U.S. issuers.
Under normal circumstances, at least 80% of the International Fund's assets will
be invested in ADRs and equity securities of non-U.S. issuers located in at
least three countries other than the United States. Most of the securities that
the Fund will invest in will be located in Europe and other developed foreign
countries.
Certain securities of non-U.S. issuers purchased by the Fund will be listed on
recognized foreign exchanges, but securities generally will be purchased in
over-the-counter markets, on U.S.-registered exchanges, or in the form of
sponsored or unsponsored ADRs traded on registered exchanges or NASDAQ, or
sponsored or unsponsored European Depositary Receipts ("EDRs"), Continental
Depositary Receipts ("CDRs") or Global Depositary Receipts ("GDRs"). The Fund
expects its investments to emphasize large, intermediate and small
capitalization companies.
The Fund may also invest in warrants and rights to purchase common stocks,
convertible and preferred stocks, and securities of other investment companies.
Although permitted to do so, the Fund does not currently intend to invest in
securities issued by passive foreign investment companies or to engage in
securities lending.
TURNER SHORT DURATION GOVERNMENT FUNDS -- ONE YEAR PORTFOLIO & TURNER SHORT
DURATION GOVERNMENT FUNDS -- THREE YEAR PORTFOLIO (TOGETHER, THE "SHORT DURATION
FUNDS") -- Under normal market conditions, each Fund invests at least 65% of the
value of its total assets in obligations either issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities").
Certain of the obligations, including U.S. Treasury bills, notes and bonds and
mortgage-related securities of the Government National Mortgage Association
("GNMA"), are issued or guaranteed by the U.S. Government. Other securities
issued by U.S. Government agencies or instrumentalities are supported only by
the credit of the agency or instrumentality, such as those issued by the Federal
Home Loan Bank, while others, such as those issued by Fannie Mae and the Student
Loan Marketing Association, have an additional line of credit with the U.S.
Treasury.
The balance of each Fund's assets may be invested in cash and high grade debt
securities, shares of other investment companies, including privately issued
mortgage-related securities and general obligation bonds and notes of various
states and their political subdivisions, rated within the three highest grades
assigned by Standard and Poor's Corporation ("S&P") (AAA, AA or A), Moody's
Investor Services ("Moody's") (Aaa, Aa or A), or Fitch Investor Services, Inc.
("Fitch") (AAA, AA or A), or, if unrated by S&P, Moody's and/or Fitch, judged by
the Adviser to be of comparable quality. A further description of S&P's, Moody's
and Fitch's ratings is included in the Appendix to the Statement of Additional
Information.
The relative proportions of the Funds' net assets invested in the different
types of permissible investments will vary from time to time depending upon the
Adviser's assessment of the relative market value of the sectors in which the
Funds invest. In addition, the Funds may purchase securities that are trading at
a discount from par when the Adviser believes there is a potential for capital
appreciation.
S-6
<PAGE>
The Short Duration Funds may enter into forward commitments or purchase
securities on a when issued basis, and may invest in variable or floating rate
obligations.
TURNER CORE HIGH QUALITY FIXED INCOME FUND--The Fixed Income Fund invests as
fully as practicable (and, under normal conditions, at least 65% of its total
assets) in a portfolio of fixed income securities of varying levels of quality
and maturity, that, in the Adviser's opinion, are undervalued in the market. To
determine a security's fair market value, the Adviser will focus on the yield
and credit quality of particular securities based upon third-party evaluations
of quality as well as the Adviser's own research and analysis of the issuer. The
Adviser will attempt to diversify the Fund's holdings across the yield curve by
holding short, 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 4.5 years). Duration is a measure of the
expected life of a fixed income security on a cash flow basis.
For example, assuming a portfolio duration of eight years, an increase in
interest rates of 1%, a parallel shift in the yield curve, and no change in the
spread relationships among securities, the value of the portfolio would decline
8%. Using the same assumptions, if interest rates decrease 1%, the value of the
portfolio would increase 8%. The Adviser considers duration an accurate measure
of a security's expected life and sensitivity to interest rate changes. The
Adviser may increase or decrease this average weighted duration when, in the
Adviser's opinion, market conditions warrant.
The Fund will purchase the following types of securities if, at the time of
purchase, such securities either have been classified as investment grade by a
nationally recognized statistical rating organization ("NRSRO") or are
determined by the Adviser to be of comparable quality: (i) obligations issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities"); (ii) corporate bonds and
debentures of U.S. and foreign issuers rated in one of the four highest rating
categories; (iii) privately issued mortgage-backed securities rated in the
highest rating category; (iv) asset-backed securities rated in the two highest
rating categories; (v) receipts evidencing separately traded interest and
principal component parts of U.S. Government obligations ("Receipts"); (vi)
commercial paper rated in one of the two highest rating categories; (vii)
obligations of U.S. commercial banks and savings and loan institutions that have
net assets of at least $500 million as of the end of their most recent fiscal
year ("bank obligations"); (viii) obligations issued or guaranteed by the
government of Canada; (ix) obligations of supranational entities rated in one of
the four highest rating categories; (x) loan participations; (xi) repurchase
agreements involving any of the foregoing securities; and (xii) shares of other
investment companies. Investment grade bonds include securities rated BBB by S&P
or Baa by Moody's, 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.
TIP TARGET SELECT EQUITY FUND -- The Adviser and Sub-Advisers of the Target
Select Fund will each invest in a maximum of 20 equity securities and as few as
10 that they believe have the greatest return potential. Such a focused
security-selection process permits each manager to act on only the investment
ideas that they think are their strongest ones. The intent is to avoid diluting
performance
S-7
<PAGE>
by owning too many securities, so that the positive contributions of winning
investments will prove substantial.
The Fund is designed to provide an investment that combines the investment
expertise and best investment ideas of four outstanding money-management firms.
The Adviser and Sub-Advisers will manage a portion of the Fund's portfolio on a
day-to-day basis. Assets for investment will be allocated to each manager by the
Fund's Board of Trustees, based on the recommendation of the Adviser. The
expectation is that the allocations will result in a portfolio invested in a
variety of equity securities with differing capitalizations and valuations,
chosen by differing investment strategies.
The Fund intends to invest primarily (and, under normal circumstances, at least
65% of its total assets) in equity securities of companies that are
headquartered in the United States or do business both in the United States and
abroad. Those securities, however, will be traded principally in the United
States equity market. Selection of equity securities will not be restricted by
market capitalization, and the Fund's Adviser and Sub-Advisers will employ their
own proprietary investment processes in managing assets.
Any remaining assets of the Fund may be invested in securities of foreign
issuers, shares of other investment companies, ADRs and real estate investment
trusts ("REITs"). The Fund may also invest up to 15% of its net assets in
illiquid securities, invest up to 25% of its total assets in convertible
securities, including convertible securities rated below investment grade,
purchase unregistered securities that are eligible for re-sale pursuant to Rule
144A under the Securities Act, and purchase fixed income securities, including
securities rated below investment grade. In addition, the Fund may effect short
sales, purchase securities on a when-issued basis, and may enter into futures
and options transactions. Debt securities rated below investment grade, I.E.,
rated lower than BBB by S&P and/or Baa by Moody's or unrated securities of
comparable quality, are also known as "junk bonds." The maximum percentage of
the Fund's assets that may be invested in securities rated below investment
grade is 25%.
Under normal circumstances, the Adviser and each of the Sub-Advisers may invest
a portion of the assets under its management in the money market instruments
described below in order to maintain liquidity, or if securities meeting the
Fund's investment objective and policies are not otherwise reasonably available
for purchase, provided that such Instruments do not exceed 25% of the Fund's
total assets. For temporary defensive purposes during periods when the Adviser
determines that market conditions warrant, the Adviser and each Sub-Adviser may
invest up to 100% of the assets under their management in money market
instruments and in cash.
GENERAL INVESTMENT POLICIES
Each Fund may purchase securities on a when-issued basis and borrow money.
Each Fund may enter into futures and options transactions.
Each Fund may invest up to 15% (10% for the Short Duration Funds) of its net
assets in illiquid securities.
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Each Fund, except the Large Cap, Midcap and Short Duration Funds, may purchase
convertible securities.
Each Fund may enter into repurchase agreements.
Each Fund may purchase fixed income securities, including variable and floating
rate instruments and zero coupon securities.
Each Fund may purchase Rule 144A securities and other restricted securities.
Each Fund may purchase obligations of supranational entities.
Each Fund may, for temporary defensive purposes, invest up to 100% of its total
assets in money market instruments (including U.S. Government securities, bank
obligations, commercial paper rated in the highest rating category by an NRSRO,
repurchase agreements involving the foregoing securities), shares of money
market investment companies and cash.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
BORROWING
The Funds may borrow money equal to 5% of their total assets for temporary
purposes to meet redemptions or to pay dividends. Borrowing may exaggerate
changes in the net asset value of a Fund's shares and in the return on the
Fund's portfolio. Although the principal of any borrowing will be fixed, a
Fund's assets may change in value during the time the borrowing is outstanding.
The
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Funds may be required to liquidate portfolio securities at a time when it would
be disadvantageous to do so in order to make payments with respect to any
borrowing. The Funds may be required to segregate liquid assets in an amount
sufficient to meet their obligations in connection with such borrowings. In an
interest rate arbitrage transaction, a Fund borrows money at one interest rate
and lends the proceeds at another, higher interest rate. These transactions
involve a number of risks, including the risk that the borrower will fail or
otherwise become insolvent or that there will be a significant change in
prevailing interest rates.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
DERIVATIVES
Derivatives are securities that derive their value from other securities,
financial instruments or indices. The following are considered derivative
securities: options on futures, futures, options (E.G., puts and calls), swap
agreements, mortgage-backed securities (E.G., collateralized mortgage
obligations ("CMOs"), real estate mortgage investment conduits ("REMICs"),
interest-only ("IOs") and principal-only ("POs"), when issued securities and
forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (E.G., Receipts and separately
traded registered interested and principal securities ("STRIPs"), privately
issued stripped securities (E.G., TGRs, TRs, and CATs). See elsewhere in the
"Description of Permitted Investments" for discussions of these various
instruments.
EQUITY SECURITIES
Equity securities include common stocks, preferred stocks, warrants, rights to
acquire common or preferred stocks, and securities convertible into or
exchangeable for common stocks. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which an equity Fund invests will cause the net asset value
of the Fund to fluctuate. An investment in an equity Fund may be more suitable
for long-term investors who can bear the risk of short-term principal
fluctuations.
FIXED INCOME SECURITIES
The market value of fixed income investments will change in response to interest
rate changes and other factors. During periods of falling interest rates, the
values of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the prices of longer maturity securities are also subject to
greater market fluctuations
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as a result of changes in interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal also affect the value of these investments.
Changes in the value of these securities will not necessarily affect cash income
derived from these securities, but will affect the investing Fund's net asset
value.
Investment grade bonds include securities rated BBB by S&P or Baa by Moody's,
which may be regarded as having speculative characteristics as to repayment of
principal. If a security is downgraded, the Adviser will review the situation
and take appropriate action.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for BONA FIDE hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the Index is made; generally contracts are closed out prior to the
expiration date of the contracts.
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
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A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission ("CFTC"),
as long as, to the extent that such transactions are not for "bona fide hedging
purposes," the aggregate initial margin and premiums on such positions
(excluding the amount by which such options are in the money) do not exceed 5%
of a Fund's net assets. A Fund may buy and sell futures contracts and related
options to manage its exposure to changing interest rates and securities prices.
Some strategies reduce a Fund's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options on futures can be
volatile instruments and involve certain risks that could negatively impact a
Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash or
liquid securities, equal to the market value of the futures positions held, less
margin deposits, in a segregated account with its custodian. Collateral equal to
the current market value of the futures position will be marked to market on a
daily basis.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on the
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with durations or maturities over seven days
in length.
INVESTMENT COMPANY SHARES
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund. See also "Investment Limitations."
LEVERAGING
Leveraging a Fund creates an opportunity for increased net income, but, at the
same time, creates special risk considerations. For example, leveraging may
exaggerate changes in the net asset value of a Fund's shares and in the yield on
the Fund's portfolio. Although the principal of such borrowings will be fixed, a
Fund's assets may change in value during the time the borrowing is outstanding.
Leveraging creates interest expenses for a Fund which could exceed the income
from the assets retained. To the extent the income derived from securities
purchased with borrowed funds
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exceeds the interest that a Fund will have to pay, the Fund's net income will be
greater than if leveraging were not used. Conversely, if the income from the
assets retained with borrowed funds is not sufficient to cover the cost of
leveraging, the net income of the Fund will be less than if leveraging were not
used, and therefore the amount available for distribution to stockholders as
dividends will be reduced. Because the Securities and Exchange Commission (the
"SEC") staff believes both reverse repurchase agreements and dollar roll
transactions are collateralized borrowings, the SEC staff believes that they
create leverage, which is a speculative factor. The requirement that such
transactions be fully collateralized by assets segregated by the Fund's
Custodian does impose a practical limit on the leverage created by such
transactions. The Adviser will not use leverage if as a result the effective
duration of the portfolios of the Three Year Portfolio would not be comparable
or less than that of a three-year U.S. Treasury note, respectively.
LOWER-RATED SECURITIES
Lower-rated securities are lower-rated bonds commonly referred to as "junk
bonds" or high-yield securities. These securities are rated lower than Baa by
Moody's and/or lower than BBB by S&P. The Funds may invest in securities rated
in the lowest ratings categories established by Moody's or by S&P. These ratings
indicate that the obligations are speculative and may be in default. In
addition, the Funds may invest in unrated securities of comparable quality
subject to the restrictions stated in the Funds' Prospectus.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES
The descriptions below are intended to supplement the discussion in the
Prospectus.
GROWTH OF HIGH-YIELD, HIGH-RISK BOND MARKET
The widespread expansion of government, consumer and corporate debt within the
U.S. economy has made the corporate sector more vulnerable to economic downturns
or increased interest rates. Further, an economic downturn could severely
disrupt the market for lower rated bonds and adversely affect the value of
outstanding bonds and the ability of the issuers to repay principal and
interest. The market for lower-rated securities may be less active, causing
market price volatility and limited liquidity in the secondary market. This may
limit the Funds' ability to sell such securities at their market value. In
addition, the market for these securities may be adversely affected by
legislative and regulatory developments. Credit quality in the junk bond market
can change suddenly and unexpectedly, and even recently issued credit ratings
may not fully reflect the actual risks imposed by a particular security.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES
Lower rated bonds are somewhat sensitive to adverse economic changes and
corporate developments. During an economic down turn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a bond defaulted on its obligations to
pay interest or principal or entered into bankruptcy proceedings, the Funds may
incur losses or expenses in seeking recovery
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of amounts owed to it. In addition, periods of economic uncertainty and change
can be expected to result in increased volatility of market prices of high-yield
bonds and the Funds' net asset values.
PAYMENT EXPECTATIONS
High-yield, high-risk bonds may contain redemption or call provisions. If an
issuer exercised these provisions in a declining interest rate market, the Funds
would have to replace the securities with a lower yielding security, resulting
in a decreased return for investors. Conversely, a high-yield, high-risk bond's
value will decrease in a rising interest rate market, as will the value of the
Funds' assets. If the Funds experience significant unexpected net redemptions,
this may force them to sell high-yield, high-risk bonds without regard to their
investment merits, thereby decreasing the asset base upon which expenses can be
spread and possibly reducing the Funds' rates of return.
LIQUIDITY AND VALUATION
There may be little trading in the secondary market for particular bonds, which
may affect adversely the Funds' ability to value accurately or dispose of such
bonds. Adverse publicity and investor perception, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yield,
high-risk bonds, especially in a thin market.
TAXES
The Funds may purchase debt securities (such as zero-coupon, pay-in-kind or
other types of securities) that contain original issue discounts. Original issue
discount that accrues in a taxable year is treated as earned by each Fund and
therefore is subject to the distribution requirements of the tax code even
though the such Fund has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Funds in a
taxable year may not be represented by cash income, the Funds may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
MONEY MARKET INSTRUMENTS
Money market securities are high-quality, dollar-denominated, short-term debt
instruments. They consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. banks and U.S. branches
of foreign banks; (ii) U.S. Treasury obligations and obligations issued or
guaranteed by the agencies and instrumentalities of the U.S. Government;
(iii) high-quality commercial paper issued by U.S. and foreign corporations;
(iv) debt obligations with a maturity of one year or less issued by corporations
with outstanding high-quality commercial paper ratings; and (v) repurchase
agreements involving any of the foregoing obligations entered into with
highly-rated banks and broker-dealers.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional fifteen- and thirty-year
fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages,
and balloon mortgages. During periods of declining interest rates,
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prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. Prepayment of mortgages which underlie securities purchased at a
premium often results in capital losses, while prepayment of mortgages purchased
at a discount often results in capital gains. Because of these unpredictable
prepayment characteristics, it is often not possible to predict accurately the
average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the GNMA, Fannie Mae and the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae and FHLMC as GNMA certificates are, but Fannie
Mae and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, Fannie Mae and FHLMC each guarantee timely
distributions of interest to certificate holders. GNMA and Fannie Mae also each
guarantee timely distributions of scheduled principal.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. While they are generally structured
with one or more types of credit enhancement, private pass-through securities
typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
CMOS: CMOs are debt obligations of multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO is issued with a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date.
REMICS: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae or FHLMC represent beneficial ownership interests in a
REMIC trust consisting principally or mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates.
STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments, while the other class may receive all of the principal
payments. SMBs are extremely sensitive to changes in interest rates because of
the impact thereon of prepayment of principal on the underlying mortgage
securities. The market for SMBs is not as fully developed as other markets; SMBs
therefore may be illiquid.
NON-DIVERSIFICATION
The Target Select, Top 20 and Focused Funds are a non-diversified companies, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
which means that a relatively high percentage of assets of each Fund may be
invested in the obligations of a limited number of issuers. Although the Adviser
or the Sub-Advisers generally do not intend to invest more than 5% of a
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Fund's assets in any single issuer (with the exception of securities which are
issued or guaranteed by a national government), the value of the shares of each
Fund may be more susceptible to a single economic, political or regulatory
occurrence than the shares of a diversified investment company would be. The
Funds intend to satisfy the diversification requirements necessary to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), which requires that each Fund be diversified (I.E., not
invest more than 5% of its assets in the securities in any one issuer) as to 50%
of its assets.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
Obligations of supranational entities are obligations of entities established
through the joint participation of several governments, such as the Asian
Development Bank, the Inter-American Development Bank, International Bank of
Reconstruction and Development (World Bank), African Development Bank, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
OPTIONS
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, a Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If a Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of securities that the Fund may seek to purchase in the future.
A Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
portfolio and as a means of providing limited protection against decreases in
its market value. When a Fund sells an option, if the underlying securities do
not increase or decrease to a price level that would make the exercise of the
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.
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A Fund may purchase and write options on an exchange or over the counter. Over
the counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are generally illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
Custodian consisting of cash or liquid, high grade debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Each Short Duration Fund will not engage in transactions involving interest rate
futures contracts for speculation but only as a hedge against changes in the
market values of debt securities held or intended to be purchased by the Fund
and where the transactions are appropriate to reduce the Fund's interest rate
risks. There can be no assurance that hedging transactions will be successful. A
Fund also could be exposed to risks if it could not close out its futures or
options positions because of any illiquid secondary market.
Futures and options have effective durations which, in general, are closely
related to the effective duration of the securities which underlie them. Holding
purchased futures or call option positions (backed by segregated cash or other
liquid securities) will lengthen the duration of a Short Duration Fund's
portfolio.
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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.
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PORTFOLIO TURNOVER
An annual portfolio turnover rate in excess of 100% may result from the
Adviser's investment strategy. Portfolio turnover rates in excess of 100% may
result in higher transaction costs, including increased brokerage commissions,
and higher levels of taxable capital gain.
RECEIPTS
Receipts are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on a security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments.
REITS
The Funds may invest in REITs, which pool investors' funds for investment in
income producing commercial real estate or real estate related loans or
interests.
A REIT is not taxed on income distributed to its shareholders or unitholders if
it complies with regulatory requirements relating to its organization,
ownership, assets and income, and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
for each taxable year. Generally, REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents
and capital gains from appreciation realized through property sales. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs. A shareholder in a Fund
should realize that by investing in REITs indirectly through the Fund, he or she
will bear not only his or her proportionate share of the expenses of the Fund,
but also indirectly, similar expenses of underlying REITs.
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in the of their underlying
properties and by defaults by borrowers or tenants. Mortgage REITs may be
affected by the quality of the credit extended. Furthermore, REITs are dependent
on specialized management skills. Some REITs may have limited diversification
and may be subject to risks inherent in financing a limited number of
properties. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income under the Code or its failure to maintain exemption from registration
under the 1940 Act.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not
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more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the Trust's Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale, including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and is required to
return the underlying security to the seller's estate.
REVERSE DOLLAR ROLL TRANSACTIONS
Each Short Duration Fund may enter into reverse dollar roll transactions, which
involve a purchase by a Fund of an eligible security from a financial
institution concurrently with an agreement by the Fund to resell a similar
security to the institution at a later date at an agreed-upon price. Reverse
dollar roll transactions are fully collateralized in a manner similar to loans
of the Fund's portfolio securities.
REVERSE REPURCHASE AGREEMENT AND DOLLAR ROLL TRANSACTIONS
A reverse repurchase agreement involves a sale by a Fund of securities that it
holds to a bank, broker-dealer or other financial institution concurrently with
an agreement by the Fund to repurchase the same securities at an agreed-upon
price and date. A dollar roll transaction involves a sale by a Fund of an
eligible security to a financial institution concurrently with an agreement by
the Fund to repurchase a similar eligible security from the institution at a
later date at an agreed-upon price. Each Fund will fully collateralize its
reverse repurchase agreements and dollar roll transactions in an amount at least
equal to the Fund's obligations under the reverse repurchase agreement or dollar
roll transaction by cash or other liquid securities that the Fund's custodian
segregates from other Fund assets.
RIGHTS
Rights give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the 1933 Act. Rule 144A securities are traded in the
institutional market pursuant to this registration
S-20
<PAGE>
exemption, and, as a result, may not be as liquid as exchange-traded securities
since they may only be resold to certain qualified institutional investors. Due
to the relatively limited size of this institutional market, these securities
may affect the Fund's liquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing such securities.
Nevertheless, Rule 144A securities may be treated as liquid securities pursuant
to guidelines adopted by the Trust's Board of Trustees.
SECURITIES LENDING
In order to generate additional income, a Fund may lend its securities pursuant
to agreements requiring that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. Government or its agencies equal to
at least 100% of the market value of the loaned securities. A Fund continues to
receive interest on the loaned securities while simultaneously earning interest
on the investment of cash collateral. Collateral is marked to market daily.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially or
become insolvent.
SECURITIES OF FOREIGN ISSUERS
The Funds may invest in securities of foreign issuers with a strong U.S. trading
presence and in sponsored and unsponsored ADRs. Investments in the securities of
foreign issuers may subject the Funds to investment risks that differ in some
respects from those related to investments in securities of U.S. issuers. Such
risks include future adverse political and economic developments, possible
imposition of withholding taxes on income, possible seizure, nationalization or
expropriation of foreign deposits, possible establishment of exchange controls
or taxation at the source or greater fluctuation in value due to changes in
exchange rates. Foreign issuers of securities often engage in business practices
different from those of domestic issuers of similar securities, and there may be
less information publicly available about foreign issuers. In addition, foreign
issuers are, generally speaking, subject to less government supervision and
regulation than are those in the United States. Investments in securities of
foreign issuers are frequently denominated in foreign currencies and the value
of a Fund's assets measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and the Funds may incur costs in connection with conversions between various
currencies. Moreover, investments in emerging market nations may be considered
speculative, and there may be a greater potential for nationalization,
expropriation or adverse diplomatic developments (including war) or other events
which could adversely effect the economies of such countries or investments in
such countries.
SHORT SALES
A short sale is "against the box" if at all times during which the short
position is open, a Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities that are sold short.
S-21
<PAGE>
U.S. GOVERNMENT AGENCY OBLIGATIONS
Certain Federal agencies, such as the GNMA, have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (E.G., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (E.G., Fannie Mae
securities).
U.S. GOVERNMENT SECURITIES
U.S. Government Securities are bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS
U.S. Treasury Obligations are bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interested and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES").
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
S-22
<PAGE>
YEAR 2000
The Trust and its service providers do not appear to have been adversely
affected by computer problems related to the transition to the year 2000.
However, there remains a risk that such problems could arise or be discovered in
the future. Year 2000 related problems also may negatively affect issuers whose
securities the Trust purchases, which could have an impact on the value of your
investment.
ZERO COUPON SECURITIES
Zero coupon obligations are debt securities that do not bear any interest, but
instead are issued at a deep discount from par. The value of a zero coupon
obligation increases over time to reflect the interest accredit. Such
obligations will not result in the payment of interest until maturity, and will
have greater price volatility than similar securities that are issued at par and
pay interest periodically.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
No Fund may:
1. (i) Purchase securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities) if,
as a result, more than 5% of the total assets of the Fund would be invested
in the securities of such issuer; or (ii) acquire more than 10% of the
outstanding voting securities of any one issuer. This restriction applies
to 75% of each Fund's total assets and does not apply to the Top 20,
Focused and Target Select Funds.
2. Purchase any securities which would cause 25% or more of the total assets
of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. This
limitation does not apply to the Technology Fund.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or require
the Fund to segregate assets are not considered to be borrowings. Asset
coverage of at least 300% is required for all borrowings, except where the
Fund has borrowed money for temporary purposes in amounts not exceeding 5%
of its total assets. Each Fund will not purchase securities while its
borrowings exceed 5% of its total assets.
S-23
<PAGE>
4. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that each Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including REITs),
commodities, or commodities contracts; and (ii) commodities contracts
relating to financial instruments, such as financial futures contracts and
options on such contracts.
6. Issue senior securities as defined in the 1940 Act except as permitted by
rule, regulation or order of the SEC.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages (except with respect to the limitation on borrowing)
will apply at the time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs immediately after or as a result
of a purchase of such security.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of
security transactions; (ii) provide initial and variation margin payments
in connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
S-24
<PAGE>
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
Turner Investment Partners, Inc., 1235 Westlakes Drive, Suite 350, Berwyn,
Pennsylvania 19312, is a professional investment management firm founded in
March, 1990. Robert E. Turner is the Chairman and controlling shareholder of the
Adviser. As of December 31, 1999, the Adviser had discretionary management
authority with respect to approximately $5.61 billion of assets. The Adviser has
provided investment advisory services to investment companies since 1992.
The Adviser serves as the investment adviser for each Fund under an investment
advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the
Adviser makes the investment decisions for the assets of each Fund and
continuously reviews, supervises and administers each Fund's investment program,
subject to the supervision of, and policies established by, the Trustees of the
Trust. The Adviser makes recommendations to the Trustees with respect to the
appropriate allocation of assets to each of the Target Select Fund's
Sub-Advisers, and directly manages assets of the Fund not allocated to the
Sub-Advisers.
The Advisory Agreement provides that the Adviser shall not be protected against
any liability to the Trust or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the ratio of
expenses of any Fund (including amounts payable to the Adviser but excluding
interest, taxes, brokerage, litigation, and other extraordinary expenses)
exceeds limitations established by any state in which the shares of the Fund are
registered, the Adviser will bear the amount of such excess. The Adviser will
not be required to bear expenses of any Fund to an extent which would result in
the Fund's inability to qualify as a regulated investment company under
provisions of the Code.
The continuance of the Advisory Agreement as to any Fund after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of that Fund, and (ii) by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any party thereto, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Trustees of the Trust or, with respect to any Fund,
by a majority of the outstanding shares of that Fund, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Trust.
S-25
<PAGE>
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid
(had reimbursed) the following advisory fees:
<TABLE>
<CAPTION>
Advisory Fees Paid Advisory Fees Waived
-------------------------------------------- -------------------------------------------
1997 1998 1999 1997 1998 1999
-------------- -------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Fund $ 0 ($79,930) $ (49,999) $ 2,281 $ 15,530 $56,778
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Growth Equity Fund $694,046 $ 664,499 $ 987,424 $24,250 $ 76,793 $ 0
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Midcap Fund $ 0 $ 92,465 $ 521,612 $13,244 $ 42,799 $ 2,444
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Small Cap Fund $762,604 $1,458,689 $1,940,749 $73,594 $226,626 $66,830
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Micro Cap Fund * $ (97,006) $ (63,745) * $ 16,354 $67,820
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Focused Fund * * * * * *
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Top 20 Fund * * $ 7,100 * * $18,763
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Technology Fund * * $ (6,578) * * $12,267
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
International Fund * * * * * *
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
One Year Portfolio Fiscal Year Fiscal ($116,124) Fiscal Year Fiscal $ 4,624
Ended 2/28/98 Period Ended Ended Period
($94,700) 9/30/98 2/28/98 Ended
($67,178) $2,792 9/30/98
$1,596
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Three Year Portfolio Fiscal Year Fiscal ($165,234) Fiscal Year Fiscal $50,673
Ended 2/28/98 Period Ended Ended Period
($117,540) 9/30/98 2/28/98 Ended
($80,828) $41,761 9/30/98
$20,056
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Fixed Income Fund * * ($15,843) * * $12,322
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
Target Select Fund * ($47,875) ($104,563) * $6,656 $13,999
- --------------------------- -------------- -------------- -------------- ------------- ------------- ---------------
</TABLE>
* Not in operation during the period.
As described in the prospectus, the Focused Large Cap, Top 20, Technology and
International Growth Funds are subject to base investment advisory fees that may
be adjusted if a Fund out- or under-performs a stated benchmark. Set forth below
is information about the advisory fee arrangements of these Funds:
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
FUND BENCHMARK REQUIRED EXCESS BASE ADVISORY FEE HIGHEST POSSIBLE LOWEST POSSIBLE
PERFORMANCE ADVISORY FEE ADVISORY FEE
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Focused S&P 500 Index +/- 2.5% 1.00% 1.30% .70%
Fund
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Top 20 Fund S&P 500 Index +/- 2.5% 1.10% 1.50% .70%
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
Technology Fund PSE Technology +/- 2.0% 1.10% 1.50% .70%
Index
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
International MSCI EAFE Index +/- 2.0% 1.00% 1.30% .70%
Fund
- --------------------- ------------------ ------------------ ------------------ ------------------ ------------------
</TABLE>
The performance adjustment works as follows: If the Top 20 Fund outperforms the
S&P 500 Index by more than 2.5%, Turner's advisory fees will increase from 1.10%
to 1.50%. If, however, the Fund underperforms its benchmark by 2.5%, Turner's
advisory fees would go down to 0.70%. These performance-based fees will only be
charged once a Fund has been in operation for at least one year, and will comply
with all applicable SEC rules.
THE SUB-ADVISERS
The Target Select Fund currently has three Sub-Advisers -- Clover Capital
Management, Inc., Penn Capital Management Company, Inc., and Chartwell
Investment Partners (each a "Sub-Adviser" and collectively, the "Sub-Advisers").
Each Sub-Adviser will manage a portion of the Fund's assets, which allocation is
determined by the Trustees upon the recommendation of the Adviser. Each
Sub-Adviser makes the investment decisions for the assets of the Fund allocated
to it, and continuously reviews, supervises and administers a separate
investment program, subject to the supervision of, and policies established by,
the Trustees of the Trust. For its services, each of the Sub-Advisers is
entitled to receive a fee from Turner Investment Partners, which is calculated
daily and paid monthly, at an annual rate of 0.80% of the average daily net
assets of the Fund allocated to it. Currently, the Adviser and each Sub-Adviser
has been allocated assets in the range of 15-30% of the Fund's total assets.
CLOVER CAPITAL MANAGEMENT, INC. ("Clover Capital"), 11 Tobey Village Office
Park, Pittsford, New York 14354, is a professional investment management firm
founded in 1984 by Michael Edward Jones, CFA, and Geoffrey Harold Rosenberger,
CFA, who are Managing Directors of Clover Capital and who control all of Clover
Capital's outstanding voting stock. Michael Jones, Managing Director of Clover
Capital, is the portfolio manager of the portion of the Fund's assets managed by
Clover Capital. As of December 31, 1999, Clover Capital had discretionary
management authority with respect to approximately $1.4 billion of assets. In
addition to sub-advising the Fund and the Clover Funds, separate investment
portfolios of the Trust, Clover provides advisory services to pension plans,
religious and educational endowments, corporations, 401(k) plans, profit sharing
plans, individual investors and trusts and estates. For the fiscal year ended
September 30, 1999, Clover received investment sub-advisory fees of 0.00%.
PENN CAPITAL MANAGEMENT COMPANY, INC. ("Penn Capital"), 52 Haddonfield-Berlin
Road, Suite 1000, Cherry Hill, New Jersey 08034, is a professional investment
management firm founded in 1987 and registered as an investment adviser under
the Investment Advisers Act. Richard A. Hocker is a founding partner and Chief
Investment Officer of Penn Capital and portfolio manager of the portion of the
assets of the Fund managed by Penn Capital, an investment management firm that
manages the investment portfolios of institutions and high net worth
individuals. As of December 31, 1999, Penn Capital had assets under management
of approximately $450 million. Penn Capital
S-27
<PAGE>
employs a staff of 17 and manages monies in a variety of investment styles
through either separate account management or one of its private investment
funds. In addition, Penn Capital serves as investment adviser to the Penn
Capital Funds, three separate portfolios of the Trust. For the fiscal year ended
September 30, 1999, Penn Capital received investment subadvisory fees of 0.00%.
CHARTWELL INVESTMENT PARTNERS ("Chartwell"), 1235 Westlakes Drive, Suite 330,
Berwyn, Pennsylvania 19312, is a professional investment management firm founded
in 1997 and registered as an investment adviser under the Investment Advisers
Act. Chartwell was founded by a team of experienced investment professionals who
had been employees of Delaware Management Company of Philadelphia, Pennsylvania.
The portion of the assets of the Fund managed by Chartwell will be managed by a
team of investment professionals with extensive investment experience. The
portion of the assets of the Fund managed by Chartwell will be managed by a team
of investment professionals with extensive investment experience. Chartwell
currently manages approximately $3.7 billion in assets for institutional
clients. For the fiscal year ended September 30, 1999, Chartwell received
investment sub-advisory fees of 0.00%.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of three (3) years
after the effective date of the agreement and shall continue in effect for
successive periods of one (1) year unless terminated by either party on not less
than 90 days' prior written notice to the other party.
The continuance of the Administration Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of a
majority of the outstanding voting securities of the Fund, and (ii) by the vote
of a majority of the Trustees of the Trust who are not parties to the
Administration Agreement or an "interested person" (as that term is defined in
the 1940 Act) of any party thereto, cast in person at a meting called for the
purpose of voting on such approval. The Administration Agreement is terminable
at any time as to any Fund without penalty by the Trustees of the Trust, by a
vote of a majority of the outstanding shares of the Fund or by the Manager on
not less than 30 days' nor more than 60 days' written notice.
The Administrator, a Massachusetts business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select Funds,
Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
S-28
<PAGE>
Street Funds, Boston 1784 Funds(R), CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The Nevis Fund,
Inc., Oak Associates Funds, The Parkstone Advantage Fund, The PBHG Funds, Inc.,
PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust,
SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, and UAM Funds, Inc. II.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds paid the
following administrative fees (net of waivers):
<TABLE>
<CAPTION>
---------------------------------------------------------
Administrative Fees Paid
---------------------------------------------------------
1997 1998 1999
- -------------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Large Cap Fund $ 3,057 $ 31,129 $ 65,307
- -------------------------------- ------------------ ------------------- ------------------
Growth Equity Fund $110,759 $114,049 $117,203
- -------------------------------- ------------------ ------------------- ------------------
Midcap Fund $ 9,404 $ 46,823 $ 70,403
- -------------------------------- ------------------ ------------------- ------------------
Small Cap Fund $ 98,104 $181,597 $175,795
- -------------------------------- ------------------ ------------------- ------------------
Micro Cap Fund * $ 42,470 $ 68,309
- -------------------------------- ------------------ ------------------- ------------------
Focused Fund * * *
- -------------------------------- ------------------ ------------------- ------------------
Top 20 Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
Technology Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
International Fund * * *
- -------------------------------- ------------------ ------------------- ------------------
One Year Portfolio Fiscal Year Fiscal Period $ 16,902
Ended 2/28/98 Ended 9/30/98
$802 $510
- -------------------------------- ------------------ ------------------- ------------------
Three Year Portfolio Fiscal Year Fiscal Period $ 46,462
Ended 2/28/98 Ended 9/30/98
$11,964 $6,418
- -------------------------------- ------------------ ------------------- ------------------
Fixed Income Fund * * $ 6,411
- -------------------------------- ------------------ ------------------- ------------------
Target Select Fund * $ 0 $ 85,433
- -------------------------------- ------------------ ------------------- ------------------
</TABLE>
* Not in operation during the period.
DISTRIBUTION AND SHAREHOLDER SERVICES
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Funds. The Distributor
receives no compensation for distribution of shares of the Funds.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the
S-29
<PAGE>
Distributor, by a majority vote of the Trustees who are not interested persons
and have no financial interest in the Distribution Agreement or by a majority
vote of the outstanding securities of the Trust upon not more than 60 days'
written notice by either party or upon assignment by the Distributor.
The Short Duration Funds have adopted a shareholder service plan for Shares (the
"Class II Service Plan") under which firms, including the Distributor, that
provide shareholder and administrative services may receive compensation
therefore. Under the Class II Service Plan, the Distributor may provide those
services itself, or may enter into arrangements under which third parties
provide such services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any difference between the
fee it receives and the amount it pays such third parties. In addition, the
Funds may enter into such arrangements directly. Under the Class II Service
Plan, the Distributor is entitled to receive a fee at an annual rate of up to
0.25% of each Fund's average daily net assets attributable to Class II Shares
that are subject to the arrangement in return for provision of a broad range of
shareholder and administrative services, including: maintaining client accounts;
arranging for bank wires; responding to client inquiries concerning services
provided for investments; changing dividend options; account designations and
addresses; providing sub-accounting; providing information on share positions to
clients; forwarding shareholder communications to clients; processing purchase,
exchange and redemption orders; and processing dividend payments.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. The Trustees and executive officers of the Trust and
their principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
Trust pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select
Funds, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds(R), CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Huntington Funds, The Nevis Fund, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The Parkstone Group of Funds, The PBHG
Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
International Trust, SEI Institutional Investments Trust, SEI Institutional
Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds
and STI Classic Variable Trust, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and distributed by SEI Investments Distribution Co.
S-30
<PAGE>
ROBERT E. TURNER (DOB 11/26/56) - Trustee* - Chairman and Chief Investment
Officer of Turner Investment Partners, Inc. ("Turner"), since 1990.
RICHARD A. HOCKER (DOB 07/21/46) - Trustee* - CEO and Chairman of the Board of
Covenant Bank, 1988-1997. Director of Bedminister Bioconversion Corporation,
since 1988. Chief Investment Officer and Senior Vice President of Penn Capital
Management Co., Inc., since 1987.
MICHAEL E. JONES (DOB 12/24/54) - Trustee* - Senior Vice President, Investment
Adviser and Portfolio Manager with Clover Capital Management Inc., since 1984.
Principal of CCM Securities Inc.
ALFRED C. SALVATO (DOB 01/09/58) - Trustee** - Treasurer, Thomas Jefferson
University Health Care Pension Fund, since 1995, and Assistant Treasurer,
1988-1995.
JANET F. SANSONE (DOB 08/11/45) - Trustee** - Corporate Vice President of Human
Resources of Frontier Corporation (telecommunications company), retired.
JOHN T. WHOLIHAN (DOB 12/12/37) - Trustee** - Professor, Loyola Marymount
University, since 1984.
STEPHEN J. KNEELEY (DOB 02/09/63) - President and Chief Executive Officer -
Chief Operating Officer of Turner, since 1990.
JANET RADER ROTE (DOB 08/24/60) - Vice President and Assistant Secretary -
Director of Compliance of Turner, since 1992.
EDWARD T. SEARLE (DOB 04/03/54) - Vice President and Assistant Secretary -
Employed by SEI Investments since August 1999. Vice President and Assistant
Secretary of the Administrator and Distributor since December 1999. Associate at
Drinker Biddle & Reath LLP, 1998-1999. Associate at Ballard, Andrews &
Ingersoll, LLP, 1995-1998.
TODD B. CIPPERMAN (DOB 02/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the administrator and distributor
since 1995. Associate, Dewey Ballantine, 1994-1995. Associate, Winston and
Strawn, 1991-1994.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President, Assistant Secretary - Senior
Vice President, General Counsel and Assistant Secretary of SEI, Senior Vice
President, General Counsel and Secretary of the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor 1992-1994.
ROBERT DELLACROCE (DOB 12/17/63) - Controller and Chief Accounting Officer -
Director, Funds Administration and Accounting of SEI since 1994. Senior Audit
Manager, Arthur Andersen LLP, 1986-1994.
LYDIA A. GAVALIS (DOB 06/05/64) - Vice President and Assistant Secretary - vice
President and Assistant Secretary of the Manager and the Distributor since 1998.
Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange, 1989-1998.
S-31
<PAGE>
KATHY HEILIG (DOB 12/21/58) - Vice President and Assistant Secretary - Treasurer
of SEI Investments Company since 1997; Assistant Controller of SEI Investment
since 1995; Vice President of SEI Investments Company since 1991.
JAMES W. JENNINGS (DOB 01/15/37) - Secretary - Partner, Morgan, Lewis & Bockius
LLP, counsel to the Trust, Turner, the Administrator and Distributor.
JOHN H. GRADY, JR. (DOB 06/01/61) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103, Partner, Morgan, Lewis & Bockius LLP, Counsel
to the Trust, Turner, the Administrator and the Distributor.
EDWARD B. BAER (DOB 09/27/68) - Assistant Secretary - 1701 Market Street,
Philadelphia, Pennsylvania 19103, Associate, Morgan, Lewis & Bockius LLP,
Counsel to the Trust, Turner, the Administrator and the Distributor, since 1995.
-------------------------------
The following table exhibits Trustee compensation for the fiscal year ended
September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Aggregate Pension or Estimated Total Compensation From
Compensation From Retirement Annual Registrant and Fund
Name of Person, Registrant for the Benefits Accrued Benefits Complex Paid to Trustees
Position Fiscal Year Ended as Part of Fund Upon for the Fiscal Year
September 30, 1999 Expenses Retirement Ended September 30, 1999
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
<S> <C> <C> <C> <C>
Robert Turner* $0 N/A N/A $0 for service on two
Boards
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Richard A. Hocker* $0 N/A N/A $0 for service on one
Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Michael E. Jones* $0 N/A N/A $0 for service on one
Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Alfred C. Salvato** $8,000 N/A N/A $14,000 for service on
two Boards
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
Janet F. Sansone** $9,775 N/A N/A $9,775 for service on
one Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
John T. Wholihan** $10,538 N/A N/A $10,538 for service on
one Board
- -------------------------------- ---------------------- ------------------ -------------- --------------------------
</TABLE>
* Messrs. Robert Turner, Richard Hocker and Michael Jones are Trustees who may
be deemed to be "interested persons" of the Trust as the term is defined in the
1940 Act. The Trust pays fees only to the Trustees who are not interested
persons of the Trust. Compensation of Officers and interested persons of the
Trust is paid by the adviser or the manager.
** Member of the Audit Committee.
The Trustees and Officers of the Trust own less than 1% of the outstanding
shares of the Trust.
S-32
<PAGE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise yield and total return of the Funds.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1] where a = dividends and interest earned during
the period; b ' expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
Based on the foregoing, the 30-day yield for the Funds for the 30-day period
ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
----------------------------------- ----------------------- -----------------------
Fund Class 30-Day Yield
----------------------------------- ----------------------- -----------------------
<S> <C> <C>
Large Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Growth Equity Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Midcap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Small Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Micro Cap Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Focused Fund Class I *
----------------------------------- ----------------------- -----------------------
Top 20 Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
Technology Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
International Fund Class I *
----------------------------------- ----------------------- -----------------------
One Year Portfolio Class I 5.30%
----------------------------------- ----------------------- -----------------------
One Year Portfolio Class II 5.04%
----------------------------------- ----------------------- -----------------------
Three Year Portfolio Class I 5.85%
----------------------------------- ----------------------- -----------------------
Three Year Portfolio Class II 5.62%
----------------------------------- ----------------------- -----------------------
Fixed Income Fund Class I 5.96%
----------------------------------- ----------------------- -----------------------
Target Select Fund Class I 0.00%
----------------------------------- ----------------------- -----------------------
</TABLE>
*Not in operation during the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
S-33
<PAGE>
following formula: P (1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
Based on the foregoing, the average annual total return for the Funds from
inception through September 30, 1999, and for the one and five year periods
ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
- -------------------------- ------------- ------------------------------------------------------
Average Annual Total Return
------------------------------------------------------
Class One Year Five Year Since Inception
- -------------------------- ------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Large Cap Fund Class I 42.97% * 31.15%
- -------------------------- ------------- ---------------- ------------------ ------------------
Growth Equity Fund Class I 38.16% 24.63% 19.17%
- -------------------------- ------------- ---------------- ------------------ ------------------
Midcap Fund Class I 84.07% * 38.93%
- -------------------------- ------------- ---------------- ------------------ ------------------
Small Cap Fund Class I 59.14% 29.26% 26.63%
- -------------------------- ------------- ---------------- ------------------ ------------------
Micro Cap Fund Class I 113.46% * 59.94%
- -------------------------- ------------- ---------------- ------------------ ------------------
Focused Fund Class I * * *
- -------------------------- ------------- ---------------- ------------------ ------------------
Top 20 Fund Class I * * 39.90%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Technology Fund Class I * * 40.60%**
- -------------------------- ------------- ---------------- ------------------ ------------------
International Fund Class I * * *
- -------------------------- ------------- ---------------- ------------------ ------------------
One Year Portfolio Class I 5.34% 6.33% 6.08%
- -------------------------- ------------- ---------------- ------------------ ------------------
One Year Portfolio Class II 5.00% * 5.22%
- -------------------------- ------------- ---------------- ------------------ ------------------
Three Year Portfolio Class I 2.89% 6.56% 6.02%
- -------------------------- ------------- ---------------- ------------------ ------------------
Three Year Portfolio Class II * * 5.64%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Fixed Income Fund Class I * * 0.48%**
- -------------------------- ------------- ---------------- ------------------ ------------------
Target Select Fund Class I 80.04% * 42.77%
- -------------------------- ------------- ---------------- ------------------ ------------------
</TABLE>
*Not in operation during the period.
**These returns have not been annualized.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the DST, 330 West 9th Street,
Kansas City, Missouri 64105, (the "Transfer Agent") on days when the New York
Stock Exchange is open for business. Currently, the weekdays on which the Fund
is closed for business are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Shares of each Fund are offered on a
continuous basis.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-
S-34
<PAGE>
kind of securities held by a Fund in lieu of cash. Shareholders may incur
brokerage charges on the sale of any such securities so received in payment of
redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued by the Administrator. The Administrator
may use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as on trade quotations obtained from third parties. However, the pricing service
may use a matrix system to determine valuations of fixed income securities. This
system considers such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. The procedures used by the pricing service and its valuation are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
If there is no readily ascertainable market value for a security, the
Administrator will make a good faith determination as to the "fair value" of the
security.
Some Funds may hold portfolio securities that are listed on foreign exchanges.
These securities may trade on weekends or other days when the Funds do not
calculate NAV. As a result, the value of these investments may change on days
when you cannot purchase or sell Fund shares.
Securities with remaining maturities of 60 days or less will be valued by the
amortized cost method, which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization of maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by this method, is higher or lower than the
price the Trust would receive if it sold the instrument.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
S-35
<PAGE>
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax considerations
generally affecting the Funds and their shareholders that are not discussed in
the Funds' Prospectus. No attempt is made to present a detailed explanation of
the federal, state or local tax treatment of the Funds or their shareholders and
the discussion here and in the Funds' Prospectus is not intended as a substitute
for careful tax planning.
The discussion of federal income tax consequences is based on the Code and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, or certain other income (including
gains from options, futures or forward contracts); (ii) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer, or of two or more issuers which are
engaged in the same, similar or related trades or business if the Fund owns at
least 20% of the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that the Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Funds will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income (the excess of short- and
long-term capital gains over short-and long-term capital losses) for the
one-year period ending on October 31 of that year, plus certain other amounts.
Each Fund intends to make sufficient distributions to avoid liability for the
federal excise tax. A Fund may in certain circumstances be required to liquidate
Fund investments in order to make sufficient distributions to avoid federal
excise tax liability at a time when the investment advisor
S-36
<PAGE>
might not otherwise have chosen to do so, and liquidation of investments in such
circumstances may affect the ability of a Fund to satisfy the requirements for
qualification as a RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of a
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than one year, and otherwise will be treated as
short-term capital gain or loss. However, if shares on which a shareholder has
received a net capital gain distribution are subsequently sold, exchanged or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the net
capital gain distribution. Long-term capital gains are currently taxed at a
maximum rate of 20% and short-term capital gains are currently taxed at ordinary
income tax rates.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
that Fund that such shareholder is not subject to backup withholding.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, and such
distributions may generally be eligible for the corporate dividends-received
deduction.
Funds may, in certain circumstances involving tax-free reorganizations, accept
securities that are appropriate investments as payment for Fund shares (an
"In-Kind Purchase"). An In-Kind Purchase may result in adverse tax consequences
under certain circumstances to either the investors transferring securities for
shares (an "In-Kind Investors") or to investors who acquire shares of the Fund
after a transfer ("new shareholders"). As a result of an In-Kind Purchase, the
Funds may acquire securities that have appreciated in value or depreciated in
value from the date they were acquired. If appreciated securities were to be
sold after an In-Kind Purchase, the amount of the gain would be taxable to new
shareholders as well as to In-Kind Investors. The effect of this for new
shareholders would be to tax them on a distribution that represents a return of
the purchase price of their shares rather than an increase in the value of their
investment. The effect on In-Kind Investors would be to reduce their potential
liability for tax on capital gains by spreading it over a larger asset base. The
opposite may occur if the Funds acquire securities having an unrealized capital
loss. In that case, In-Kind Investors will be unable to utilize the loss to
offset gains, but, because an In-Kind Purchase will not result in any gains, the
inability of In-Kind Investors to utilize unrealized losses will have no
immediate tax effect. For new shareholders, to the extent that unrealized losses
are realized by the Funds, new shareholders may benefit by any reduction in net
tax liability attributable to the losses. The Adviser cannot predict whether
securities acquired in any In-Kind Purchase will have unrealized gains or losses
on the date of the In-Kind Purchase. Consistent with its duties as investment
adviser, the Adviser will, however, take tax consequences to investors into
account when making decisions to sell portfolio assets, including the impact of
realized capital gains on shareholders of the Funds.
S-37
<PAGE>
The Funds may use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.
STATE TAXES
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Funds. The Adviser will seek to obtain the most favorable
net results by taking into account various factors, including price, commission,
if any, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. The Adviser seeks to select brokers or
dealers that offer a Fund best price and execution or other services which are
of benefit to the Fund.
The Adviser may, consistent with the interests of the Funds, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Fund or other accounts managed by the Adviser will be benefitted
by supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Fund.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940
S-38
<PAGE>
Act, the Securities Exchange Act of 1934 and rules promulgated by the SEC. Under
these provisions, the Distributor is permitted to receive and retain
compensation for effecting portfolio transactions for a Fund on an exchange if a
written contract is in effect between the Trust and the Distributor expressly
permitting the Distributor to receive and retain such compensation. These rules
further require that commissions paid to the Distributor by a Fund for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
Because no Fund markets its shares through intermediary brokers or dealers, it
is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares which may be made through such firms. However, the
Adviser may place portfolio orders with qualified broker-dealers who recommend a
Fund's shares to clients, and may, when a number of brokers and dealers can
provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.
For the fiscal years ended September 30, 1997, 1998, and 1999 the Funds'
portfolio turnover rates were as follows:
<TABLE>
<CAPTION>
- --------------------------------- ----------------------------------------------------------------------------------
Portfolio Turnover Rate
----------------------------------------------------------------------------------
1997 1998 1999
- --------------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Large Cap Fund 346.47% 234.93% 370.71%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Growth Equity Fund 178.21% 249.58% 328.26%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Midcap Fund 348.29% 304.29% 290.79%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Small Cap Fund 130.68% 167.73% 223.61%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Micro Cap Fund * 128.53% 239.32%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Focused Fund * * *
- --------------------------------- --------------------------- -------------------------- ---------------------------
Top 20 Fund * * 369.11%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Technology Fund * * 317.32%
- --------------------------------- --------------------------- -------------------------- ---------------------------
International Fund * * *
- --------------------------------- --------------------------- -------------------------- ---------------------------
One Year Portfolio - For the Fiscal Year For the Fiscal Period 154.33%
Class I Shares Ended 2/28/98 Ended 9/30/98
68.80% 96.56%
- --------------------------------- --------------------------- -------------------------- ---------------------------
One Year Portfolio - * * 154.33%
Class II Shares
- --------------------------------- --------------------------- -------------------------- ---------------------------
S-39
<PAGE>
<CAPTION>
- --------------------------------- --------------------------- -------------------------- ---------------------------
Three Year Portfolio - For the Fiscal Year For the Fiscal Period 257.98%
Class I Shares Ended 2/28/98 Ended 9/30/98
197.03% 121.63%
- --------------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Three Year Portfolio - * * 257.98%
Class II Shares
- --------------------------------- --------------------------- -------------------------- ---------------------------
Fixed Income Fund * * 39.70%
- --------------------------------- --------------------------- -------------------------- ---------------------------
Target Select Fund * 803.02% 1,279.40%
- --------------------------------- --------------------------- -------------------------- ---------------------------
</TABLE>
* Not in operation during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The brokerage commissions paid for each Fund for the fiscal years ended
September 30, 1997, 1998, and 1999 were as follows:
<TABLE>
<CAPTION>
- ------------------------------- -----------------------------------------------------------
Total Dollar Amount of Brokerage Commissions Paid
-----------------------------------------------------------
1997 1998 1999
- ------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Large Cap Fund $ 2,586 $ 10,622 $43,087
- ------------------------------- ------------------- ------------------- -------------------
Growth Equity Fund $335,291 $464,404 $671,953
- ------------------------------- ------------------- ------------------- -------------------
Midcap Fund $ 17,029 $123,834 $352,280
- ------------------------------- ------------------- ------------------- -------------------
Small Cap Fund $235,029 $465,825 $546,802
- ------------------------------- ------------------- ------------------- -------------------
Micro Cap Fund * $ 6,974 $ 36,683
- ------------------------------- ------------------- ------------------- -------------------
Focused Fund * * *
- ------------------------------- ------------------- ------------------- -------------------
Top 20 Fund * * $ 57,574
- ------------------------------- ------------------- ------------------- -------------------
Technology Fund * * $ 13,527
- ------------------------------- ------------------- ------------------- -------------------
International Fund * * *
- ------------------------------- ------------------- ------------------- -------------------
One Year Portfolio N/A N/A $ 69
- ------------------------------- ------------------- ------------------- -------------------
Three Year Portfolio N/A N/A $ 141
- ------------------------------- ------------------- ------------------- -------------------
Fixed Income Fund * * $ 64
- ------------------------------- ------------------- ------------------- -------------------
Target Select Fund * $ 13,856 $ 28,450
- ------------------------------- ------------------- ------------------- -------------------
</TABLE>
*Not in operation during the period.
S-40
<PAGE>
The total amount of securities of each Broker/Dealer held by each Fund for the
fiscal year ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
- --------------------------------- ------------------------- --------------------------- ---------------------------
TOTAL AMOUNT OF
SECURITIES HELD BY EACH
FUND NAME OF BROKER/DEALER FUND TYPE OF SECURITY
- --------------------------------- ------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Large Cap Fund Morgan Stanley $ 76,151.24 Repurchase Agreement
- --------------------------------- ------------------------- --------------------------- ---------------------------
Growth Fund Morgan Stanley $ 2,713,821.44 Repurchase Agreement
Goldman Sachs $ 703,940.00 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Midcap Fund J.P. Morgan $ 4,451,363.63 Repurchase Agreement
Lehman Brothers $ 1,509,127.50 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Small Cap Fund J. P. Morgan $ 12,767,113.96 Repurchase Agreement
Hambrecht and Quist $ 3,220.576.88 Common Stock
Legg Mason Inc. $ 1,263,163.13 Common Stock
Raymond James Fin. Corp. $ 1,026,980.63 Common Stock
- --------------------------------- ------------------------- --------------------------- ---------------------------
Micro Cap Fund Morgan Stanley $ 413,708.25 Repurchase Agreement
- --------------------------------- ------------------------- --------------------------- ---------------------------
</TABLE>
VOTING
Each share held entitles the shareholder of record to one vote for each dollar
invested. In other words, each shareholder of record is entitled to one vote for
each dollar of net asset value of the shares held on the record date for the
meeting. Shares issued by each Fund have no preemptive, conversion, or
subscription rights. Each whole share shall be entitled to one vote and each
fractional share shall be entitled to a proportionate fractional vote. Each
Fund, as a separate series of the Trust, votes separately on matters affecting
only that Fund. Voting rights are not cumulative. Shareholders of each Class of
each Fund will vote separately on matters pertaining solely to that Fund or that
Class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders, but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Where the Trust's Prospectuses or Statements of Additional Information state
that an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (1) 67% or more of the
affected Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the affected Fund's outstanding shares, whichever is less.
S-41
<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a PRO RATA share in the net assets of the
portfolio, after taking into account additional distribution and shareholder
servicing expenses attributable to the Class II Shares. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Trustees of the
Trust may create additional series of shares or separate classes of funds. All
consideration received by the Trust for shares of any portfolio or separate
class and all assets in which such consideration is invested would belong to
that portfolio or separate class and would be subject to the liabilities related
thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust, and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
As of January 3, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
S-42
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS NUMBER OF OF FUND'S
FUND OF BENEFICIAL OWNER SHARES SHARES
<S> <C> <C> <C>
Turner Large Cap Growth Equity Charles Schwab & Co. Inc. 326,965.2330 23.50%
Fund Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Connecticut General Life Insurance Co. 897,202.2430 64.49%
Attn: Carmen Rivera - H19B
280 Trumbull Street
Hartford, CT 06103-3509
Turner Growth Equity Fund Saxon & Co. TTEE 650,412.9000 5.53%
FBO C/F
Duane Morris & Heckscher LLP
A/C# 20-35-002-1029077
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
Retirement Plan for Employees of 906,465.6020 7.71%
Bridgeport Hospital
C/O People's Bank Trust Dept.
850 Main Street 13th Fl
Bridgeport, CT 06604-4917
Charles Schwab & Co. Inc. 2,057,015.3710 17.50%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
First Union National Bank 4,379,385.6290 37.26%
FBO Sheet Metal Workers Local #19
Annuity Self Directed Fund
A/C# 1546002697
CMG NC-1157
1525 W. WT Harris Blvd.
Charlotte, NC 28262-8522
Turner Midcap Growth Fund Charles Schwab & Co. Inc. 3,837,971.6920 41.82%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Copeland Associates 696,786.5820 7.59%
Smith Barney Corporate Trust Co.
2 Tower Center Blvd., Box 1063
East Brunswick, NJ 08816-3155
Turner Small Cap Growth Fund Charles Schwab & Co. Inc. 5,208,084.2850 56.95%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
S-43
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Turner Micro Cap Growth Charles Schwab & Co. Inc. 562,123.9250 29.24%
Institutional Class Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Donaldson Lufkin Jenrette 123,944.9990 6.45%
SECS Corp.
Pershing Division
P. O. Box 2052
Jersey City, NJ 07399
National Investors Services Corp. 410,344.6040 21.35%
FBBO Our Customers
55 Water Street, Floor 12
New York, NY 10041-3299
Turner Top 20 Fund Charles Schwab & Co Inc. 1,305,403.5240 40.36%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl. 3
Denver, CO, 80209
National Investors Services Corp 198,893.0500 6.15%
FBBO Our Customers
55 Water Street, Fl. 12
New York, NY 10041-1299
Turner Technology Fund Charles Schwab and Co. Inc 794,322.0860 52.04%
Attn: Mutual Funds/ Team S
4500 Cherry Creek Dr. S., Fl. 3
Denver, CO 80209
National Investors Services Corp 210,006.4770 13.76%
FBBO Our Customers
55 Water St. Fl 32
New York, NY, 10041-3299
Turner Short Duration Charles Schwab & Co. Inc. 432,182.9190 91.84%
Government Funds - One Year Attn: Mutual Funds/Team S
Portfolio Class I 4500 Cherry Creek Dr. S Fl. 3
Denver, CO 80209
Turner Short Duration NFSC FBBO # 179-397470 43,944.8840 6.69%
Government Funds-One Year Utah Festival Opera Company
Portfolio-Class II 59 S 100 W
Logan, UT, 84321-4515
NFSC FBBO # 379-070386 54,422.7980 8.28%
BSA Utah National Parks Council
250 W 500 N
Provo, UT, 84501-2819
S-44
<PAGE>
<CAPTION>
<S> <C> <C> <C>
NFSC FBBO #379-536272 89,197.2250 13.58%
UTA/ATO
Malecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0820
NFSC Cort Brambled Brent HA 110,215.6880 16.77%
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0830
NFSC FBBO #379-503940 79,558.2560 12.11%
C. Bramble D B Hales Jay E JE
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
P.O. Box 30810
Salt Lake City, UT, 84130-0830
Turner Short Duration Turner Investment Partners 844,278.8210 21.18%
Government Funds-Three Year FBO Teamsters Local #837
Portfolio-Class I Attn: Bob Gunning
12275 Townsend Rd.
Philadelphia, PA, 19154-1204
First Union National Bank Trust 1,976,308.6850 49.57%
FBO Sheet Metal Workers #19
A/C #1546002688
CHGJ64 NC1151
1525 West WT Harris Blvd.
Charlotte, NC, 28262
Bryn Mawr 861,246.7990 21.60%
Attn: Jerry Berenson
101 N. Merion Ave
Bryn Mawr, PA, 19010-2899
Charles Schwab & Co. 236,351.4490 5.93%
101 Montgomery St
San Francisco, CA, 94104-4122
Turner Short Duration NFSC FBBO #379-503916 35,264.1030 14.42%
Government Funds-Three Year Curt Brambled Brent MA
Portfolio-Class II C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
NFSC FBBO #379-503940 24,782.2720 10.13%
C. Bramble, D.B. Hales, Jay E. JE
C. Bramble/D. Hales/J. Jensen TTS
U/A 12/15/1993
PO Box 30810
Salt Lake City, UT, 84130-0810
S-45
<PAGE>
<CAPTION>
<S> <C> <C> <C>
NFSC FBBO #379-527793 115,823.4120 47.35%
B.H. Bastian Foundation
Bruce Bastian/Brent Erkelens
U/A 02/19/1999
51 W. Center St. #755
Orem, UT, 84057-4605
NFSC FBBO #379-536172 44,855.9670 18.34%
UYA/ATU
N. Halecker S. Booths
PO Box 30810
Salt Lake City, UT, 84130-0810
Turner Core High Quality Fixed Oxford Foundation Inc. 259,563.6740 25.30%
Income Fund 2 S. Decatur St.
Strasburg, PA, 17579-1403
Banc of America Securities LLC 765,207.4200 74.60%
Attn: Mutual Funds-4th Floor
808-96071-16
600 Montgomery St
San Francisco, CA, 94131-2702
TIP Target Select Equity Fund Charles Schwab & Co. Inc. 23,811.6980 16.27%
Attn: Mutual Funds/Team S
4500 Cherry Creek Dr. S Fl 3
Denver, CO 80209
Carolyn Turner TR 45,257.0300 30.92%
U/A Robert E. Turner Jr., Trust
9 Horseshoe Lane
Paoli, PA 19301-1909
Robert & Carolyn Turner Foundation 23,954.2260 16.36%
9 Horseshoe Lane
Paoli, PA 19301-1909
</TABLE>
S-46
<PAGE>
CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as the custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information and the Financial Highlights included in the prospectuses
have been audited by Ernst & Young LLP, 2001 Market Street, Philadelphia,
Pennsylvania 19103, independent auditors, as indicated by their report, with
respect thereto, and are included herein in reliance on their report given on
their authority as experts in accounting and auditing.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania
19103, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended September 30, 1999,
including notes thereto and the report of Ernst & Young LLP thereon, are herein
incorporated by reference. A copy of the 1999 Annual Report must accompany the
delivery of this Statement of Additional Information.
S-47
<PAGE>
APPENDIX
The following descriptions are summaries of published ratings.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA by S&P also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from AAA issues only in
small degree. Debt rated A by S&P has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
Bonds rated BBB by S&P are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa by Moody's are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large, or an exceptionally stable,
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all standards. Together with bonds
rated Aaa, they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities."
Bonds rated A by Moody's possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Debt rated
Baa by Moody's is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Fitch uses plus and minus signs with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category. Bonds rated AAA by Fitch are considered to be
investment grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events. Bonds rated AA by
Fitch are considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA.
A-1
<PAGE>
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated A by Fitch are considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB by Fitch are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Bonds rated AAA by Duff are judged by Duff to be of the highest credit quality,
with negligible risk factors being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA by Duff are judged by Duff to be of high credit
quality with strong protection factors and risk that is modest but that may vary
slightly from time to time because of economic conditions. Bonds rated A by Duff
are judged by Duff to have average but adequate protection factors. However,
risk factors are more variable and greater in periods of economic stress. Bonds
rated BBB by Duff are judged by Duff as having below average protection factors
but still considered sufficient for prudent investment, with considerable
variability in risk during economic cycles.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Obligations for which there is a low expectation on investment
risk are rated A by IBCA. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk. Obligations for which there is
currently a low expectation of investment risk are rated BBB by IBCA. Capacity
for timely repayment of principal and interest is adequate, although adverse
changes in business, economic or financial conditions are more likely to lead to
increased investment risk than for obligations in higher categories.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1, 1 +, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1, the highest rating category, reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2, the second highest rating category,
reflect a satisfactory degree of safety regarding timely payment but not as high
as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
A-2
<PAGE>
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
[TURNER LOGO OMITTED]
Annual Report
September 30, 1999
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Turner Growth Equity Fund
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- --------------------------------------------------------------------------------
Turner Top 20 Fund
- --------------------------------------------------------------------------------
Turner Technology Fund
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds
- Three Year Portfolio
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds
- One Year Portfolio
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
- --------------------------------------------------------------------------------
Portfolios of The TIP Funds [LOGO OMITTED]
<PAGE>
Contents
1 Letter to shareholders
3 Total returns of Turner Funds
5 Investment review:
Turner Large Cap Growth Equity Fund
7 Investment review:
Turner Growth Equity Fund
9 Investment review:
Turner Midcap Growth Fund
11 Investment review:
Turner Small Cap Growth Fund
13 Investment review:
Turner Micro Cap Growth Fund
15 Investment review:
Turner Top 20 Fund
17 Investment review:
Turner Technology Fund
19 Investment review:
Turner Short Duration Government
Funds-Three Year Portfolio
21 Investment review:
Turner Short Duration Government
Funds-One Year Portfolio
23 Investment review:
Turner Core High Quality Fixed
Income Fund
25 Financial statements
64 Report of Independent Auditors
Turner Funds
The Turner Funds, Portfolios of the TIP Funds, offer a series of ten no-load
mutual funds to individual and institutional investors. The minimum initial
investment in a Turner Fund for regular accounts is $2,500 and $2,000 for
individual retirement accounts. The minimum amount for subsequent investments is
$50.
Turner Investment Partners, Inc., based in Berwyn, Pennsylvania, serves as the
investment adviser to the Turner Funds. The firm, founded in 1990, invests more
than $3 billion in equity, fixed-income, and balanced portfolios on behalf of
individuals and institutions.
Shareholder services
Turner Funds shareholders receive annual and semiannual reports and monthly
account statements. Shareholders who have questions about their accounts may
call a toll-free telephone number, 1-800-224-6312. Or they may write to Turner
Funds, Box 419805, Kansas City, Missouri 64141.
<PAGE>
Letter to shareholders
- --------------------------------------------------------------------------------
To our shareholders
What a difference a year makes. At this time last year, we were assuring
investors that despite all signs to the contrary, the global financial markets
were not headed toward a catastrophic meltdown.
This year, we are happy to report that our confidence was well founded, and that
the world's financial picture is in fact brighter than ever. And, we are pleased
to inform our investors of truly outstanding results across our entire family of
equity and fixed income funds.
For the year ended September 30, 1999, the Turner funds delivered performance
that stood out even in the crowded environment of today's mutual fund industry.
This included a breathtaking 113.46% total return for our Micro Cap Growth Fund.
Our other funds performed as follows:
[BULLET] Turner Large Cap Growth Equity Fund: 42.97%
[BULLET] Turner Growth Equity Fund: 38.16%
[BULLET] Turner Midcap Growth Fund: 84.07%
[BULLET] Turner Small Cap Growth Fund: 59.14%
[BULLET] Turner Top 20 Fund: 39.90%*
[BULLET] Turner Technology Fund: 40.60%*
[BULLET] Turner Short Duration -
Three Year Fund (Institutional Class): 2.89%
[BULLET] Turner Short Duration -
One Year Fun (Institutional Class): 5.34%
[BULLET] Turner Core High Quality
Fixed Income Fund: 0.48%*
*Inception Date: 7/1/99
These results took place against a backdrop of strong overall market
performance. After a rocky start, the domestic equity markets rallied strongly,
eventually leading the S&P 500 Index to a total return of 27.80% for the fiscal
year. This is an exceptional result by any historical standard. And it makes it
all the more remarkable that all of our equity funds significantly outperformed
their indices.
Affirmation of our investment approach.
Performance like this was bound to attract the attention of the financial media.
And in 1999, the Turner Funds and their portfolio managers became favorite
subjects of major newspaper, magazine, and broadcast reports.
These included prominent appearances in Fortune, Forbes, Barron's, Investment
News, and Mutual Funds magazine. In addition, several of our individual funds
received high ratings from Morningstar, Inc.
And while this increased level of attention is of course gratifying, we are more
pleased that 1999 continued to affirm the value of the Turner Funds investment
approach. This approach is based on the philosophy that earnings expectations
drive stock prices.
Our investment philosophy and process lead us to create portfolios that are
fully invested at all times and maintain sector weightings that are neutral or
well diversified relative to their benchmark indices. This helps us avoid risks
associated with sector rotation and market timing, and allows us to focus our
efforts exclusively on stock selection.
Investing lessons of the past decade.
During our first ten years as an independent investment firm, we have learned a
great deal about what it takes to achieve above-average results in the
challenging world of investing. And we recently condensed this knowledge into
six fundamental lessons that we believe can benefit any investor. They are:
1. Understand fully and completely what makes stocks go up and down.
Earnings growth is the essence of stock investing: Stocks of companies with good
earnings ultimately go up, and the stocks of companies with poor earnings
ultimately go down. That's why we above all seek to invest in companies with
earnings that are growing at a rate meeting or exceeding Wall Street's
expectations.
2. Don't take on risks you can't control. Our stock funds are fully
invested and sector neutral because the entire history of the market tells us
that market timing and sector rotation present a risk of selling at the bottom
and buying at the top. The best way to avoid that risk and consistently
outperform a benchmark is to look like that benchmark.
3. Be the best stock pickers possible. A multifaceted investment process is
vital in selecting good stocks because many factors contribute to stocks'
performance. Our own process involves a combination of many quantitative,
fundamental, and technical analyses.
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
4. Don't get too big. Generating superior investment performance becomes
increasingly difficult once a portfolio's assets grow beyond a certain point. To
maximize our own returns, we have established asset limits for our institutional
stock portfolios and mutual funds.
5. Align the firm's goals with the client's. Investment managers have a
pronounced tendency to equate success with gaining assets rather than with
putting the client first. Instead, we focus on how to do one's best for the
client. For instance, we compensate the members of our investment team based on
how they perform. If they don't provide our clients with above-average returns,
they don't receive above-average bonuses.
6. Be willing to adjust to changes in the market. For example, the
quantitative modeling process that I developed back in 1985 worked very well, by
all accounts. Through back-testing, however, we found it was working better in
growth sectors such as technology, than in value sectors such as energy. So we
adjusted the model's value factors to give greater weight in the value sectors.
The result: improved returns in the value sectors. The investment environment is
continually changing, and you must adapt. Study the market, and alter your
activities to reflect what you've learned.
An age of infinite opportunities.
As we enter the new millennium, we look back with pride over what we have
accomplished thus far. And we are looking forward with excitement over the
nearly infinite opportunities that are available to investors during this golden
age of capitalism. While our task as money managers is more complex than ever,
it is also more rewarding because of the potential gains that global economic
growth and productivity-enhancing technology have put within our reach.
We therefore feel privileged to serve as your eyes and ears on the market, and
thank you for entrusting us to identify the very best of what the markets have
to offer - now and in the future.
/s/ signature omitted
- ---------------------
Robert E. Turner
Chairman and Chief Investment Officer
Turner Investment Partners, Inc.
[PHOTO OMITTED]
Bob Turner
2 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Performance
- -------------------------------------------------------------------------------
Total returns of Turner Funds*
Through September 30, 1999
<TABLE>
<CAPTION>
Since Three Year One Three Five
inception Months To Date Year Year Year
(annualized) (annualized) (annualized)+
Equity
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Turner Large Cap Growth Equity Fund (1.77)% 10.20% 42.97% n/a n/a 31.15%
Lipper Large-Cap Growth Funds Average 3.64 8.75 37.86 n/a n/a 23.71
Russell Top 200 Growth Index (3.40) 5.89 34.26 n/a n/a 27.29
S&P 500 Index (6.24) 5.36 27.80 n/a n/a 22.06
- -----------------------------------------------------------------------------------------------------------------------
Turner Growth Equity Fund (1.00) 9.97 38.16 26.58% 24.63% 19.17
Lipper Large-Cap Growth Funds Average 3.64 8.75 37.86 25.04 24.02 17.93
Russell 1000 Growth Index (3.66) 6.40 34.85 26.87 26.79 19.30
S&P 500 Index (6.24) 5.36 27.80 25.09 25.03 19.05
- -----------------------------------------------------------------------------------------------------------------------
Turner Midcap Growth Fund 3.95 45.80 84.07 n/a n/a 38.93
Lipper Mid-Cap Growth Funds Average 0.53 17.83 50.88 n/a n/a 13.41
Russell Midcap Growth Index (5.01) 8.47 37.19 n/a n/a 17.25
- -----------------------------------------------------------------------------------------------------------------------
Turner Small Cap Growth Fund 3.42 27.99 59.14 15.54 29.26 26.63
Lipper Small-Cap Growth Funds Average 0.85 13.57 43.76 9.58 15.03 12.68
Russell 2000 Growth Index (4.92) 7.27 32.63 7.14
12.16 9.85
- -----------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 20.17 51.95 113.46 n/a n/a 59.94
Lipper Small-Cap Core Funds Average (3.77) 4.66 24.96 n/a n/a (4.46)
Russell 2000 Growth Index (4.92) 7.27 32.63 n/a n/a 0.71
- -----------------------------------------------------------------------------------------------------------------------
Turner Top 20 Fund 39.90 n/a n/a n/a n/a 39.90**
Lipper Multi-Cap Core Funds Average (6.34) n/a n/a n/a n/a (6.34)
S&P 500 Index (6.24) n/a n/a n/a n/a (6.24)
- -----------------------------------------------------------------------------------------------------------------------
Turner Technology Fund 40.60 n/a n/a n/a n/a 40.60**
Lipper Science & Technology Funds Average 7.02 n/a n/a n/a n/a 7.02
Pacific Exchange Technology 100 Index 4.62 n/a n/a n/a n/a 4.62
- -----------------------------------------------------------------------------------------------------------------------
Fixed income
=======================================================================================================================
Turner Short Duration Government Funds-
Three Year Portfolio (Institutional Class) 1.10% 2.19% 2.89% 6.00% 6.56% 6.02%
Lipper Short-Intermediate U.S. Government
Funds Average 0.81 0.41 0.69 5.3 5.94 5.05
Lehman Brothers 1-3 Year U.S. Government
Bond Index 1.24 2.41 3.18 5.98 6.36 5.76
- -----------------------------------------------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio (Institutional Class) 1.40 4.10 5.34 5.92 6.33 6.08
Lipper Ultra-Short Obligation Funds Average 1.14 3.28 4.28 5.35 5.57 5.31
Merrill Lynch Three-Month
U.S. Treasury Bill Index 1.27 3.54 4.70 5.15 5.36 5.23
- -----------------------------------------------------------------------------------------------------------------------
Turner Core High Quality
Fixed Income Fund 0.48 n/a n/a n/a n/a 0.48**
Lipper General Bond Funds Average (0.22) n/a n/a n/a n/a (0.22)
Lehman Brothers Aggregate Bond Index 0.68 n/a n/a n/a n/a 0.68
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Past performance is no guarantee of future results.
** Returns are cumulative.
Source: Lipper Analytical Services.
+ The inception dates for each Turner Fund are as follows: Turner Large Cap
Growth Equity Fund, February 1, 1997; Turner Growth Equity Fund, March 11,
1992; Turner Midcap Growth Fund, October 1, 1996; Turner Small Cap Growth
Fund, February 7, 1994; Turner Micro Cap Growth Fund, March 1, 1998; Turner
Top 20 Fund, July 1, 1999; Turner Technology Fund, July 1, 1999; Turner
Short Duration Government Funds-Three Year Portfolio (Institutional Class
Shares), March 1, 1994; Turner Short Duration Government Funds-One Year
Portfolio (Institutional Class Shares), March 1, 1994; and Turner Core High
Quality Fixed Income Fund, July 1, 1999.
SEI Investments Distribution Co., Oaks, PA acts as distributor of the
Turner Funds. The performance data quoted represents past performance and
the principal value and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. This information must be preceded or accompanied by a
prospectus for the Turner Funds. Investors should read the prospectus
carefully before investing.
TURNER FUNDS 1999 ANNUAL REPORT | 3
<PAGE>
Performance
- --------------------------------------------------------------------------------
Lipper Inc. performance rankings of mutual funds
Periods ending September 30, 1999
<TABLE>
<CAPTION>
One Two Five Seven
year years years years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large-Cap Growth Funds
Turner Large Cap Growth Equity Fund
Ranking vs. competitors 72/331 26/257 -- --
Percentile ranking 21 10 -- --
- -----------------------------------------------------------------------------------------------------------------
Large-Cap Growth Funds
Turner Growth Equity Fund
Ranking vs. competitors 118/331 70/257 44/130 30/70
Percentile ranking 35 27 33 42
- -----------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Funds
Turner Midcap Growth Fund
Ranking vs. competitors 26/228 7/197 -- --
Percentile ranking 11 3
- -----------------------------------------------------------------------------------------------------------------
Small-Cap Growth Funds
Turner Small Cap Growth Fund
Ranking vs. competitors 52/247 32/201 2/82 --
Percentile ranking 21 16 2 --
- -----------------------------------------------------------------------------------------------------------------
Small-Cap Core Funds
Turner Micro Cap Growth Fund
Ranking vs. competitors 6/175 -- -- --
Percentile ranking 3
- -----------------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government Funds
Turner Short Duration Government Funds -
Three Year Portfolio (Institutional Class)
Ranking vs. competitors 8/91 2/86 9/58 --
Percentile ranking 9 2 15 --
- -----------------------------------------------------------------------------------------------------------------
Ultra-Short Obligation Funds
Turner Short Duration Government Funds -
One Year Portfolio (Institutional Class)
Ranking vs. competitors 1/29 2/27 2/18 --
Percentile ranking 1 7 11 --
- -----------------------------------------------------------------------------------------------------------------
Source: Lipper Inc.
</TABLE>
4 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund 42.97%
Lipper Large-Cap Growth Funds Average 37.86
S&P 500 Index 27.80
Russell Top 200 Growth Index 34.26
================================================================================
The Turner Large Cap Growth Equity Fund continued to outperform its benchmarks
by a substantial margin during the 12-month period ended September 30, 1999. The
fund achieved a total return of 42.97%, compared with 34.26% for the Russell Top
200 Growth Index and 27.80% for the S&P 500 Index.
This superior performance was attributable to strong stock selection and
decisive timing within key portfolio sectors. And it was accomplished while
remaining sector-diversified relative to the Russell Top 200 Growth Index
The year was marked by a return to favor of mid-cap and small-cap issues, which
had long been overshadowed by their larger counterparts. This trend continued
through the end of the fiscal year, but was not enough to dampen the performance
of high-quality, large-cap growth issues.
The portfolio's strongest performers for the year included perennial growth
leader Microsoft, which continued to advance despite antitrust concerns and
fundamental changes in its business model. Cisco Systems also continued to
perform strongly thanks to its unique position as the predominant mover of
Internet traffic. And even staid old IBM produced fireworks as a result of its
success in embracing Internet commerce. In the healthcare sector, Johnson &
Johnson and Bristol-Myers Squibb benefited from robust earnings growth and
promising product pipelines.
Looking ahead, we are optimistic that large cap stocks will remain market
leaders. Companies in this sector have the strong cash flows needed to fund
aggressive research and development programs. In addition, recent efforts to
streamline operations and decision-making have given large companies the agility
to adapt quickly to the rapid changes brought on by the e-commerce revolution.
As always, however, we will look beyond the obvious to locate those stocks that
appear to offer the strongest potential for above-average growth.
Growth of a $10,000 Investment in the Turner Large Cap Growth Fund:
February 1, 1997-September 30, 1999 *
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
42.97% 31.15%
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Russell S&P
Large Cap Top 200 500
--------- ------- ------
1/31/97 10,000 10,000 10,000
Sep. 97 12,279 12,013 12,199
Sep. 98 14,399 14,165 13,304
Sep. 99 20,586 19,018 17,003
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Large Cap Growth
Equity Fund is February 1, 1997.
TURNER FUNDS 1999 ANNUAL REPORT | 5
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Large Cap Growth Equity Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations exceeding $10 billion at the time of purchase that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell Top 200 Growth
Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o CUSIP #900297508
o Top 10 holdings
(1) Microsoft, (2) Cisco Systems, (3) Johnson & Johnson, (4) Intel, (5)
Bristol-Myers Squibb, (6) Lucent Technologies, (7) America Online, (8)
Procter & Gamble, (9) Wal-Mart Stores, (10) IBM
o % in 10 largest holdings 43.8%
o Number of holdings 44
o Price/earnings ratio 42.2
o Weighted average market capitalization $124.7 billion
o % of holdings with positive earnings surprises 68.0%
o % of holdings with negative earnings surprises 12.3%
o Net assets $8.5 million
[FUND PROFILE GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Top 200 Growth Index
[BAR GRAPH OMITTED]
44.3% Technology
19.3% Health care
15.9% Consumer discretionary/services
10.7% Consumer staples
4.2% Financial services
2.6% Producer durables
2.6 Utilities/communication
1.0% Materials/processing
Portfolio managers
[PHOTO OMITTED]
John F. Hammerschmidt has served as the lead product manager of the Large Cap
Growth Equity Fund since its inception in 1997. John joined Turner in 1992.
Previously he was vice president of government securities trading with S. G.
Warburg. He holds a bachelor's degree from Lehigh University and an MBA degree
from Duke University.
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Large Cap Growth Equity Fund.
A Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Large Cap Growth Equity Fund. Mark joined Turner when it was founded in
1990. He previously served as vice president and senior portfolio manager with
First Maryland Asset Management. He earned a bachelor's degree from Bradley
University and an MBA degree from the University of Illinois.
6 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Growth Equity Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Growth Equity Fund 38.16%
Lipper Large-Cap Growth Funds Average 37.86
S&P 500 Index 27.80
Russell 1000 Growth Index 34.85
- --------------------------------------------------------------------------------
In a year marked by exceptional market volatility, the Turner Growth Equity Fund
handily outperformed its benchmarks, delivering a total return of 38.16%. By
comparison, the Russell 1000 Growth Index returned 34.85%, while the S&P 500
Index yielded 27.80%.
The fund's outperformance is attributable to careful stock selection which
focused on companies with outstanding management, world-class products and
services, and long-term records of superior performance.
The top ten holdings of the fund at year-end were without exception household
names, including Microsoft, Cisco Systems, Intel, Johnson & Johnson,
Bristol-Myers Squibb, Lucent Technologies, Procter & Gamble, Wal-Mart Stores,
Home Depot, and Schering Plough. Among their many other attributes, all ten are
ranked among "America's Most Admired Companies" in their respective categories
by Fortune magazine.
Looking ahead, we believe that the growth sector will continue to dominate the
markets well into the future. In fact, we are convinced that a sea-change in the
markets has placed growth stocks in a position of uncontested dominance over
their value-oriented counterparts.
Of course, this does not mean that this sector is forever immune to volatility.
But through our identification of best-of-class companies, we anticipate that
the Growth Equity Fund will continue to live up to its name.
Growth of a $10,000 Investment in the Turner Growth Equity Fund:
March 31, 1992-September, 30, 1999 *
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Growth S&P 500 Russell 1000
Equity Fund Composite Index Growth Index
------------- --------------- ------------
3/31/92 10,000 10,000 10,000
Sep. 92 10,055 10,511 10,326
Sep. 93 12,734 11,871 10,942
Sep. 94 12,352 12,309 11,583
Sep. 95 14,900 15,965 15,311
Sep. 96 18,314 19,209 18,588
Sep. 97 24,286 26,976 25,335
Sep. 98 26,887 29,420 28,147
Sep. 99 37,147 37,598 37,957
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
38.16% 26.58% 24.63% 19.17%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Growth Equity Fund is
March 11, 1992. Returns are calculated from the first full month following the
fund's inception date.
TURNER FUNDS 1999 ANNUAL REPORT | 7
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Growth Equity Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Growth Equity Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks that, in Turner's opinion, have
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell 1000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o Ticker symbol TRGEX
o CUSIP #900297102
o Top 10 holdings (1) Microsoft, (2) Cisco Systems, (3) Intel, (4) Johnson &
Johnson, (5) Bristol-Myers Squibb, (6) Lucent Technologies, (7) Procter &
Gamble, (8) Wal-Mart Stores, (9) Home Depot, (10) Schering-Plough
o % in 10 largest holdings 36.9%
o Number of holdings 97
o Price/earnings ratio 39.9
o Weighted average market capitalization $105.6 billion
o % of holdings with positive earnings surprises 73.6%
o % of holdings with negative earnings surprises 9.7%
o Net assets $142.8 million
[GROWTH EQUITY GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 1000 Growth Index
36.3% Technology
16.7% Health care
15.3% Consumer discretionary/services
9.0% Consumer staples
5.1% Financial services
4.5% Utilities/communication
3.5% Producer durables
1.2% Materials/processing
0.9% Energy
0.4% Autos/transportation
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, has served as the lead product manager of the Growth Equity
Fund since its inception in 1992. A Chartered Financial Analyst, Bob previously
was senior investment manager with Meridian Investment Company. He earned
bachelor's and MBA degrees at Bradley University.
[PHOTO OMITTED]
John F. Hammerschmidt serves as a comanager of the Growth Equity Fund. John
joined Turner in 1992. Previously he was vice president of government securities
trading with S. G. Warburg. He holds a bachelor's degree from Lehigh University
and an MBA degree from Duke University.
[PHOTO OMITTED]
Mark D. Turner, president of Turner Investment Partners, serves as a comanager
of the Growth Equity Fund. Mark joined Turner when it was founded in 1990. He
previously served as vice president and senior portfolio manager with First
Maryland Asset Management. He earned a bachelor's degree from Bradley University
and an MBA degree from the University of Illinois.
8 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Midcap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund 84.07%
Lipper Mid-Cap Growth Funds Average 50.88
Russell Midcap Growth Index 37.19
- --------------------------------------------------------------------------------
During the 12 months ended September 30, 1999, the Turner Midcap Growth Fund
added to its outstanding record by soaring 84.07%. In doing so, the fund more
than doubled the performance of the Russell Midcap Growth Index, which returned
37.19%.
Among the strongest performing sectors of the portfolio were technology,
healthcare and producer durables. Broadcasting/media, specialty retailing,
biotechnology, semiconductor and networking stocks were especially profitable.
Only our consumer-stables positions lagged.
What is particularly notable about the fund's superior performance is that it
was achieved while maintaining an average price earnings ratio (P/E Ratio) just
over 33 relative to the Russell Midcap P/E Ratio of 34. In light of the
favorable earnings prospects of our holdings, we think Midcap Growth can perform
relatively well in favorable or unfavorable economic conditions.
The companies in the Midcap Growth Fund are well-known, well-capitalized
organizations with dominant market positions and reputations for innovation.
They include "dot-com" address provider Network Solutions; electronics retailers
Best Buy and Circuit City; payroll processing leader Paychex; Internet
advertising giant DoubleClick; advertising conglomerate Interpublic Group;
adhesive products maker Avery Denison; printer manufacturer Lexmark
International; food distributor Sysco, and fiber optics leader JDS Uniphase.
Looking ahead, we believe that the Midcap Growth Fund has strong prospects for
the future, thanks to its continued emphasis on finding leaders in a dynamic
market place. And while it is unrealistic to expect consecutive years of
performance of this caliber, we believe the fund is well positioned for a wide
range of market environments.
Growth of a $10,000 Investment in the Turner Midcap Growth Fund:
October 31, 1996-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Midcap Growth Russell Midcap Growth Index
-------------------- ---------------------------
10/31/96 10,000 10,000
Sep. 97 14,248 13,117
Sep. 98 14,425 11,887
Sep. 99 26,552 16,309
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
84.07% 38.93%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Midcap Growth Fund is
October 1, 1996.
TURNER FUNDS 1999 ANNUAL REPORT | 9
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Midcap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Midcap Growth Fund seeks capital appreciation. It invests primarily
in a diversified portfolio of common stocks with market capitalizations between
$1 billion and $8 billion at the time of purchase that Turner believes offer
strong earnings growth potential. The fund's economic-sector weightings
approximate the sector weightings of the Russell Midcap Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
o Ticker symbol TMGFX
o CUSIP #900297409
o Top 10 holdings (1) Network Solutions, (2) Best Buy, (3) Paychex, (4)
DoubleClick, (5) Interpublic Group, (6) Bausch & Lomb, (7) Circuit City, (8)
Lexmark International, (9) SPX, (10) JDS Uniphase
o % in 10 largest holdings 13.9%
o Number of holdings 113
o Price/earnings ratio 33.8
o Weighted average market capitalization $5.2 billion
o % of holdings with positive earnings surprises 71.1%
o % of holdings with negative earnings surprises 5.9%
o Net assets $148.8 million
[MIDCAP FUND GRAPH OMITTED]
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell Midcap Growth Index
[BAR GRAPH OMITTED]
27.4% Technology
24.4% Consumer discretionary/services
11.1% Health care
9.1% Financial services
6.5% Producer durables
5.4% Utilities/communication
3.4% Materials/processing
3.0% Consumer staples
2.6% Energy
1.9% Autos/transportation
Portfolio managers
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
[PHOTO OMITTED]
William C. McVail serves as a comanager of the Midcap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
10 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Small Cap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund 59.14%
Lipper Small-Cap Growth Funds Average 43.76
Russell 2000 Growth Index 32.63
- --------------------------------------------------------------------------------
Small-cap growth stocks performed extremely well during the year ended September
30, 1999. But the Turner Small Cap Growth Fund performed even better. For the
period, the fund returned a whopping 59.14% -- nearly doubling the performance
of the Russell 2000 Growth Index, which returned 32.63%.
This performance is even more notable in light of the fact that some key
sectors, including financial services and producer durables, spent a good
portion of the year out of the market's favor. However, any underperformance was
more than made up by the fund's outstanding holdings in such areas as consumer
discretionary/ services and technology.
Top performers in the portfolio included cable equipment maker ANTEC; specialty
software creator Mercury Interactive; investment banker Hambrecht & Quist;
videoconferencing leader Polycom; pharmaceutical innovator Jones Pharma;
security software producer Symantec; French software developer Business Objects;
communications equipment maker Powerwave Technologies; help desk software
developer Peregrine Systems; and home products retailer Linens 'N Things.
Overall, more than 63% of the portfolio's holdings reported positive earnings
surprises, while just over five percent reported negative earnings surprises.
Looking ahead, we continue to favor selected consumer, telecommunications, and
bandwidth-technology stocks that have contributed so much to our recent results.
And we continue to find outstanding values in the small-cap sector, which is so
rich with innovative, energetic young companies.
Growth of a $10,000 Investment in the Turner Small Cap Growth Fund:
February 28, 1994-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Small Frank Russell
Cap Growth 2000 Growth Index
------------ -----------------
2/28/94 10,000 10,000
Sep. 94 10,303 9,618
Sep. 95 15,812 12,328
Sep. 96 24,103 13,881
Sep. 97 28,114 17,123
Sep. 98 23,362 12,872
Sep. 99 37,179 17,072
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one Past three Past five Since
year years years inception
59.14% 15.54% 29.26% 26.63%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Small Cap Growth Fund
is February 7, 1994. Returns are calculated from the first full month following
the fund's inception date.
TURNER FUNDS 1999 ANNUAL REPORT | 11
<PAGE>
Investment review
- --------------------------------------------------------------------------------
Turner Small Cap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Small Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks with market
capitalizations at the time of purchase not exceeding $2 billion that Turner
believes offer strong earnings growth potential. The fund's economic-sector
weightings approximate the sector weightings of the Russell 2000 Growth Index.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[SMALL CAP GRAPH OMITTED]
o Ticker symbol TSCEX
o CUSIP #900297300
o Top 10 holdings ((1) ANTEC, (2) Mercury Interactive, (3) Hambrecht & Quist,
(4) Polycom, (5) Jones Pharma, (6) Symantec, (7) Business Objects, (8)
Powerwave Technologies, (9) Peregrine Systems, (10) Linens 'N Things
o % in 10 largest holdings 12.9%
o Number of holdings 146
o Price/earnings ratio 28.1
o Weighted average market capitalization $1.3 billion
o % of holdings with positive earnings surprises 73.6%
o % of holdings with negative earnings surprises 3.5%
o Net assets $254.1 million
- --------------------------------------------------------------------------------
Sector weightings:
neutral to Russell 2000 Growth Index
23.9% Consumer discretionary/services
22.8% Technology
13.3% Health care
10.9% Financial services
10.0% Producer durables
6.2% Materials/processing
5.6% Utilities/communication
1.7% Energy
1.6% Autos/transportation
1.3% Consumer staples
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
William C. McVail serves as the lead product manager of the Small Cap Growth
Fund. Before joining Turner in 1998, Bill was a portfolio manager at PNC Equity
Advisors. A Chartered Financial Analyst, Bill received a bachelor's degree from
Vassar College.
[PHOTO OMITTED]
Frank L. Sustersic serves as a comanager of the Small Cap Growth Fund. A
Chartered Financial Analyst, Frank joined Turner in 1994. Previously he was an
investment officer and fund manager with First Fidelity Bank Corporation. He
holds a bachelor's degree from the University of Pennsylvania.
[PHOTO OMITTED]
Christopher K. McHugh serves as a comanager of the Small Cap Growth Fund. Chris
joined Turner when it was founded in 1990 and previously held a position as
performance specialist at Provident Capital Management. He earned a bachelor's
degree at the Philadelphia College of Textiles and Science and an MBA degree at
St. Joseph's University.
12 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Micro Cap Growth Fund
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund 113.46%
Lipper Small-Cap Core Funds Average 24.96
Russell 2000 Growth Index 32.63
- --------------------------------------------------------------------------------
Those who believe that triple-digit annual returns are the sole province of
certain Internet stocks are likely to think that the performance figures of the
Turner Micro Cap Growth Fund are a misprint. But they are not. For the 12 months
ended September 30, 1999, the fund delivered an astonishing return of 113.46%.
In doing so, the fund more than tripled the performance of its key benchmark,
the Russell 2000 Growth Index, which recorded an annual return of 32.63%.
We are pleased to report that this performance has not come at the expense of
diversification. Throughout the year, the fund was represented in all ten market
sectors -- unlike other micro-cap funds which invest primarily in technology
stocks while maintaining only token weightings in other sectors.
The fund was aided by a general strength in growth stocks; particularly those in
the technology sector. However, the real story was stock selection. Our
fundamental analysis and proprietary quantitative model led us to companies that
were clearly poised for above-average growth. And over the course of the year,
more than 46% of our holdings came through with positive earnings surprises,
while only three percent delivered negative surprises.
Our top ten holdings were among the best-performing stocks in the portfolio. Our
largest holding, CD-ROM producer Zomax, rose more than 1,000% during the year.
Other superior performers included cell phone manufacturer Audiovox; electronics
retailer Rex Stores; video game creator THQ, Inc.; specialty circuits
manufacturer Zoran; cardiac products leader Zoll Medical; broadcast equipment
maker California Amplifier; and remote control producer Universal Electronics.
Looking ahead, one cannot expect performance of this level to repeat itself --
especially as the fund grows in size. However, we believe that micro-cap stocks
remain a fertile area for exceptional rates of growth. And we believe that our
strategy of seeking the most promising stocks in each industry sector will
continue to provide an effective method for outperforming the overall market.
Growth of a $10,000 Investment in the Turner Micro Cap Growth Fund:
March 1, 1998-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Micro Cap Russell 2000
Growth Fund Growth Index
---------------- ------------
2/98 10,000 10,000
9/98 9,882 7,625
9/99 21,093 10,113
Annualized total returns
Periods ending September 30, 1999
- --------------------------------------------------------------------------------
Past one year Since inception
113.46% 59.94%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Micro Cap Growth Fund
is March 1, 1998.
TURNER FUNDS 1999 ANNUAL REPORT | 13
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Micro Cap Growth Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Micro Cap Growth Fund seeks capital appreciation. It invests
primarily in a diversified portfolio of common stocks that, in Turner's opinion,
have strong earnings growth potential and market capitalizations not exceeding
$500 million at the time of purchase. The fund's economic-sector weightings stay
within a range that's not more than 50% above or below the sector weightings of
the Russell 2000 Growth Index.
The Fund participates in the Initial Public Offering ("IPO") market, and a
significant portion of the fund's returns are attributable to its investment in
IPOs, which have a magnified impact due to the fund's relatively small asset
base. There is no guarantee that as the fund's assets grow, it will continue to
experience substantially similar performance by investing in IPOs.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[MICRO CAP GRAPH OMITTED]
o Ticker symbol TMCGX
o CUSIP #872524301
o Top 10 holdings (1) Zomax, (2) Audiovox, (3) Rex Stores, (4) THQ, (5) Zoran,
(6) Eclipse Surgical Technologies, (7) Zoll Medical, (8) California Amplifier,
(9) Homeseekers.com, (10) Universal Electronics
o % in 10 largest holdings 16.1%
o Number of holdings 126
o Price/earnings ratio 34.4
o Weighted average market capitalization $300 million
o % of holdings with positive earnings surprises 56.9%
o % of holdings with negative earnings surprises 3.4%
o Net assets $13.0 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
31.1% Technology
27.4% Consumer discretionary/services
12.2% Health care
5.2% Financial services
5.0% Materials/processing
4.1% Energy
3.9% Producer durables
3.5% Utilities/communication
2.6% Autos/transportation
0.9% Consumer staples
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Frank L. Sustersic has served as the lead product manager of the Micro Cap
Growth Fund since its inception in 1998. A Chartered Financial Analyst, Frank
joined Turner in 1994. Previously he was an investment officer and fund manager
with First Fidelity Bank Corporation. He holds a bachelor's degree from the
University of Pennsylvania.
[PHOTO OMITTED]
William C. McVail serves as the comanager of the Micro Cap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
[PHOTO OMITTED]
Christopher J. Perry serves as the comanager of the Micro Cap Growth Fund. Chris
joined Turner in 1998 after serving as a research analyst at the Pennsylvania
Merchant Group. A Chartered Financial Analyst, he earned a bachelor's degree at
Villanova University and an MBA degree at Drexel University.
14 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Top 20 Fund
Total return
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Top 20 Fund 39.90%
Lipper Multi-Cap Core Funds Average 24.96
S&P 500 Index (6.24)
- --------------------------------------------------------------------------------
The Turner Top 20 Fund, which invests in the 15-25 stocks on which we are the
most bullish, recorded a bullish initial performance in the third quarter. Top
20 climbed 39.90% to beat the S&P 500 Index's 6.24% loss by 46.14 percentage.
Our holdings were culled from the approximately 250 stocks in all capitalization
ranges that we own in our other stock funds -- the stocks that we think are the
best of the best. In essence, we regard the fund as a distillation of our
ability to pick good stocks. As the market fluctuated in the quarter, we moved
in and out of our holdings adroitly. For instance, we reaped gains in technology
stocks, then sold a portion of them to buy health-care stocks and benefit from
their subsequent rally. Our holdings remain broadly diversified by sector and
security, with investments in seven sectors and typical weightings in individual
stocks of about 5%; we think such an approach should produce smoother returns
over time.
Growth of a $10,000 Investment in the Turner Top 20 Fund:
July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner S&P
------ -----
6/98 10,000 10,000
9/99 13,990 9,375
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
39.90%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Top 20 Fund is
July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 15
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Top 20 Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Top 20 Fund seeks capital appreciation. It invests in common stock
and other equity securities of companies, regardless of their market
capitalization, that Turner believes have strong earnings potential. The
portfolio will contain a total of 15-25 stocks representing Turner's favorite
investment ideas.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[TOP 20 GRAPH OMITTED]
o Ticker symbol TTOPX
o CUSIP #87252R862
o Top 10 holdings (1) NetZero, (2) Yahoo!, (3) America Online, (4) JDS Uniphase,
(5) InterNAP Network Services, (6) Scientific-Atlanta, (7) Johnson & Johnson,
(8) Micron Technology, (9) Abercrombie & Fitch, (10) Bausch & Lomb
o % in 10 largest holdings 53.8%
o Number of holdings 21
o Price/earnings ratio 39.8
o Weighted average market capitalization $57.3 billion
o % of holdings with positive earnings surprises 68.8%
o % of holdings with negative earnings surprises 19.1%
o Net assets $16.1 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
35.9% Technology
28.1% Consumer discretionary/services
9.9% Health care
9.8% Producer durables
8.5% Energy
4.6% Financial services
4.3% Consumer staples
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
[PHOTO OMITTED]
William C. McVail serves as a comanager of the Midcap Growth Fund. Before
joining Turner in 1998, Bill was a portfolio manager at PNC Equity Advisors. A
Chartered Financial Analyst, Bill received a bachelor's degree from Vassar
College.
16 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Technology Fund
Total return
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Technology Fund 40.60%
Lipper Science & Technology Funds Average 24.96
Pacific Exchange Technology 100 Index 4.62
- --------------------------------------------------------------------------------
Performance was generally bleak for the 10 sectors of the stock market in the
third quarter, but the technology sector was a notable exception. The Pacific
Exchange Technology 100 Index, for one, advanced 4.62%. The Turner Technology
Fund began operation in the quarter and made the most of this favorable
environment: it soared 40.60% to outdistance the PSE Tech Index by 35.98
percentage points.
During the summer, technology stocks bottomed after a tough second quarter and
came roaring back. Seeing an enormous buying opportunity, we scooped up selected
Internet, software, and semiconductor shares, then rode their ascent. For
instance, software stocks were so beaten down that they were selling at
price/earnings multiples below their growth rates, which is highly unusual.
Going forward, we especially like the fundamentals of enterprise-resource-
planning software firms, which should benefit from future capital spending on
technology.
Growth of a $10,000 Investment in the Turner Technology Fund:
July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Pacific
------ -------
6/99 10,000 10,000
9/99 14,060 10,467
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
40.60%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Technology Fund is
July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 17
<PAGE>
Investment Review
- --------------------------------------------------------------------------------
Turner Technology Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Technology Fund seeks capital appreciation. It invests in common
stock of companies that develop new technologies and that may experience
exceptional growth in sales and earnings driven technology related products and
services. Stock selection will not be based on company size, but rather on an
assessment of a company's fundamental prospects.
The Fund participates in the Initial Public Offering ("IPO") market, and a
significant portion of the fund's returns are attributable to its investment in
IPOs, which have a magnified impact due to the fund's relatively small asset
base. There is no guarantee that as the fund's assets grow, it will continue to
experience substantially similar performance by investing in IPOs.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[TECH GRAPH OMITTED]
o Ticker symbol TTECX
o CUSIP #87252R870
o Top 10 holdings (1) InterNAP Network Services, (2) Amazon.com, (3) NetZero,
(4) Microsoft, (5) Priceline.com, (6) Network Solutions, (7) Ciena, (8)
Intuit, (9) America Online, (10) JDS Uniphase
o % in 10 largest holdings 39.9%
o Number of holdings 39
o Price/earnings ratio 42.9
o Weighted average market capitalization $45.1 billion
o % of holdings with positive earnings surprises 68.5%
o % of holdings with negative earnings surprises 15.3%
o Net assets $8.3 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
56.9% Technology
24.4% Consumer discretionary/services
8.7% Producer durables
2.9% Utilities/communication
2.6% Health care
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
Robert E. Turner, founder, chairman, and chief investment officer of Turner
Investment Partners, serves as a comanager of the Midcap Growth Fund. A
Chartered Financial Analyst, Bob previously was senior investment manager with
Meridian Investment Company. He earned bachelor's and MBA degrees at Bradley
University.
[PHOTO OMITTED]
Christopher K. McHugh has served as the lead product manager of the Midcap
Growth Fund since its inception in 1996. Chris joined Turner when it was founded
in 1990 and previously held a position as performance specialist at Provident
Capital Management. He earned a bachelor's degree at the Philadelphia College of
Textiles and Science and an MBA degree at St. Joseph's University.
18 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Short Duration Government Funds-
Three Year Portfolio
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio (Institutional Class) 2.89%
Lipper Short/Intermediate U.S. Government
Funds Average 0.69
Lehman Brothers 1-3 Year
U.S. Government Bond Index 3.18
- --------------------------------------------------------------------------------
In a challenging year for all fixed income investors, the Turner Short Duration
- -- Three Year Fund Institutional Class delivered strong results, with a total
return of 2.89%. By comparison, the Lehman Brothers 1-3 Year U.S.
Government Bond Index returned only a slightly higher 3.18%.
During the fiscal year, fixed income securities were hit by two rate hikes by
the Federal Reserve Board, each pushing short rates up by 0.25%. The Fed's goal
in each case was to tap the brakes on the economy and preempt inflation.
Throughout the period, we held the fund's average weighted maturity to a
relatively conservative 2.2 years. This positioned us to take advantage of
higher yields as they became available. We also maintained our level of quality,
focusing primarily on U.S. Treasury notes and government agency securities.
The new year offers considerable challenge as the economy continues to grow at a
healthy pace and inflation fears rise. In the face of this the Turner Short
Duration Government Fund-Three Year Portfolio will continue to invest in high
quality instruments and to manage interest rate risk carefully. We will seek to
benefit from an eventual fall in rates, which we expect, without exposing our
investors to undue risk.
Growth of a $10,000 Investment in the Turner Short Duration Government Funds-
Three Year Portfolio, Institutional Class:
March 31, 1994-September 30, 1999 *
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Short Duration Lehman 1-3 yr
--------------------- -------------
1/31/94 10,000 10,000
Sep 94 10,089 10,049
Sep 95 10,976 10,871
Sep 96 11,637 11,488
Sep 97 12,463 12,279
Sep 98 13,469 13,253
Sep 99 13,858 13,676
Annualized total returns
Periods ending September 30, 1999
Past one Past three Past five Since
year years years inception
Institutional Class Shares
2.89% 6.00% 6.56% 6.02%
Advisor Class Shares
-- -- -- 5.64%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-Three Year Portfolio (Institutional Class) is March 1, 1994.
TURNER FUNDS 1999 ANNUAL REPORT | 19
<PAGE>
Investment Review
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
Three Year Portfolio
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-Three Year Portfolio seeks to produce
maximum total return consistent with preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a three-year Treasury bill.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[THREE YEAR GRAPH]
o Ticker symbol TSDGX, Institutional Class Shares
o CUSIP #872524202, Institutional Class Shares
o Top 10 holdings (1) U.S. Treasury Notes, 5.75%, 10/31/00, (2) U.S. Treasury
Notes, 5.00%, 02/28/01, (3) U.S. Treasury Notes, 7.00%, 07/15/06, (4) Federal
Home Loan Mortgage Corporation, 9.50%, 06/15/06, (5) Spiegel Credit Card,
7.50%, 1995-A, (6) Federal Home Loan Mortgage Corporation Gold, 7.50%,
10/14/29, (7) U.S. Treasury Notes, 6.375%, 08/15/02, (8) Structured Assets SEC
Corporation Variable %, 10/30/07, (9) Fleet Credit Card, 1998-A, (10) Ford
Motor Credit, 5.75%, 02/23/04
o % in 10 largest holdings 57.4%
o Number of holdings 44
o Average effective duration 1.7 years
o Average maturity 2.3 years
o Average yield to maturity 6.13%
o Average credit quality Agency
o Convexity (0.21)
o Net assets $38.8 million
- --------------------------------------------------------------------------------
Sector weightings:
47.6% Mortgage-backed securities
30.1% Treasury securities
11.6% Asset-backed securities
7.4% Corporates
3.3% Other
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-One Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
20 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Short Duration Government Funds-
One Year Portfolio
Total return
Year ending September 30, 1999
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio (Institutional Class) 5.34%
Lipper Ultra-Short Obligation Funds Average 4.28
Merrill Lynch 3 Month
U.S. Treasury Bill Index 4.70
- --------------------------------------------------------------------------------
For the 12 months ended September 30, 1999, the Turner Short Duration - One Year
Fund Institutional Class delivered a strong total return of 5.34%. By contrast,
the Merrill Lynch 3 Month U.S. Treasury Bill Index reported a total return of
4.70%.
The fund benefited from the Federal Reserve Board's two rate hikes late in the
fiscal year, each of which boosted short-term yields by 0.25%. Because of these
actions, short-term instruments actually outperformed intermediate-term
securities for the year.
The fund also took advantage of the incremental yield opportunities available at
the longer end of its maturity spectrum. And, it boosted returns still further
by holding a sizeable proportion of government-backed collateralized mortgage
obligation (CMO) securities, which offer higher income levels than Treasury
issues of comparable maturities.
Looking ahead, we believe the potential for additional rate increases remains
fairly strong for the early part of calendar year 2000. Once the Federal Reserve
Board is satisfied that any Y2K-related concerns have been put to rest, the
strength of the economy and tightness in the labor markets could make a
compelling case for additional action. Whether or not this occurs, we believe
the fund is well positioned to continue delivering yields well in excess of the
rate of inflation.
Growth of a $10,000 Investment in the Turner Short Duration Government Funds-
One Year Portfolio, Institutional Class
March 1, 1998-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Short Duration Merrill Lynch 3-month
--------------------- ---------------------
3/3/94 10,000 10,000
Sep.94 10,231 10,235
Sep 95 10,935 10,837
Sep 96 11,704 11,431
Sep 97 12,428 12,047
Sep 98 13,201 12,693
Sep 99 13,906 13,289
Annualized total returns
Periods ending September 30, 1999
Past one Past three Past five Since
year years years inception
Institutional Class Shares
5.34% 5.92% 6.33% 6.08%
Advisor Class Shares
5.00% -- -- 5.22%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Short Duration
Government Funds-One Year Portfolio (Institutional Class) is March 1, 1994.
TURNER FUNDS 1999 ANNUAL REPORT | 21
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Short Duration Government Funds-
One Year Portfolio
- --------------------------------------------------------------------------------
Fund objective
The Turner Short Duration Government Funds-One Year Portfolio seeks to produce
maximum total return consistent with the preservation of capital and investment
prudence. It invests primarily in high-grade securities issued or guaranteed by
the U.S. government or its agencies. The fund seeks to limit fluctuations in
principal and reduce interest-rate risk by maintaining an average effective
duration no greater than that of a one-year Treasury note.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[ONE YEAR GRAPH OMITTED]
o CUSIP #872524103, Institutional Class Shares
o Top 10 holdings (1) Federal National Mortgage Association, 5.84375%, 06/25/00,
(2) Federal Home Loan Mortgage Corporation, 5.85%, 11/15/05, (3) U.S. Treasury
Notes, 5.75%, 10/31/00, (4) Federal Home Loan Mortgage Corporation, 6.50%,
09/15/06, (5) Morgan Stanley, 6.85%, 02/15/20, (6) Federal National Mortgage
Association, 5.84375%, 06/25/08, (7) Government National Mortgage Association,
6.375%, (8) Federal Home Loan Mortgage Corporation, 6.00%, 11/15/05, (9)
Federal Home Loan Mortgage Corporation, 5.70%, 07/15/05, (10) Federal Home
Loan Mortgage Corporation, 7.00%, 10/15/18
o % in 10 largest holdings 69.6%
o Number of holdings 33
o Average effective duration 0.4 years
o Average maturity 0.5 years
o Average yield to maturity 5.73%
o Average credit quality Agency
o Convexity (0.18)
o Net assets $6.4 million
- --------------------------------------------------------------------------------
Sector weightings:
47.6% Mortgage-backed securities
30.1% Treasury securities
11.6% Asset-backed securities
7.4% Corporates
3.3% Other
[BAR GRAPH OMITTED]
- --------------------------------------------------------------------------------
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-Three Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
22 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Turner Core High Quality
Fixed Income Fund
Total return
Period ending September 30, 1999*
- --------------------------------------------------------------------------------
Turner Core High Quality
Fixed Income Fund 0.48%
Lipper General Bond Funds Average 4.28
Lehman Brothers Aggregate
Bond Index 0.68
- --------------------------------------------------------------------------------
Interest rates rose at most maturities in the third quarter, but not enough to
prevent the Turner Core High Quality Fixed Income Fund from recording a positive
return, 0.48%. That return was below the 0.68% performance of the bond market,
as represented by the Lehman Brothers Aggregate Bond Index. Our results were
enhanced by the portfolio's high average credit quality (better-quality
securities outperformed), significant positions in Treasury, mortgage-backed,
and asset-backed securities (those three sectors outperformed), and a
conservative average duration (longer durations underperformed). Conversely, our
results would have been better if we had owned more bonds with above-average
yields, especially more mortgage pass-throughs, which have done well lately. We
are keeping our average duration in neutral territory to capture more yield than
we would with a more conservative positioning.
Growth of a $10,000 Investment in the Turner Core High Quality Fixed Income
Fund: July 1, 1999-September 30, 1999*
In the printed version of the document, a line graph
appears which depicts the following plot points:
Turner Lehman
------ ------
6/98 10,000 10,000
9/99 10,047 10,068
Cumulative total returns
Period ending September 30, 1999
- --------------------------------------------------------------------------------
Since inception
0.48%
* These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than their original cost. The inception date of the Turner Core High Quality
Fixed Income Fund is July 1, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 23
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Turner Core High Quality Fixed Income Fund
- --------------------------------------------------------------------------------
Fund objective
The Turner Core High Quality Fixed Income Fund seeks current income and capital
appreciation, an objective that emphasizes total return rather than just yield
alone. It invests in investment-grade fixed-income securities, including U.S.
government, corporate, mortgaged-backed and asset-backed securities.
- --------------------------------------------------------------------------------
Fund profile
September 30, 1999
[CORE HIGH GRAPH OMITTED]
o Ticker symbol THQFX
o CUSIP #87252R847
o Top 10 holdings (1) U.S. Treasury Notes, 7.00%, 07/15/06, (2) U.S. Treasury
Notes, 8.125%, 05/15/21, (3) Spiegel Credit Card, 7.50%, 1995-A, (4) FNCI,
6.00%, 02/01/13, (5) Federal National Mortgage Association, 6.00%, 12/25/22,
(6) Federal Home Loan Mortgage Corporation, 6.00%, 6/01/29, (7) Federal Home
Loan Mortgage Corporation Gold Pool, 7.50%, 10/01/28, (8) FNCL, 6.00%,
04/01/28, (9) Federal Home Loan Mortgage Corporation, 9.50%, 06/15/06, (10)
Olympic Auto, 6.15%, 1995-D
o % in 10 largest holdings 85.8%
o Number of holdings 26
o Average effective duration 5.0 years
o Average maturity 8.5 years
o Average yield to maturity 6.49%
o Average credit quality Agency
o Convexity 0.09
o Net assets $10.0 million
- --------------------------------------------------------------------------------
Sector weightings:
resemble Russell 2000 Growth Index
44.1% Mortgage-backed securities
38.1% Treasury securities
13.7% Corporates
2.2% Asset-backed securities
1.9% Other
[BAR GRAPH OMITTED]
Portfolio managers
[PHOTO OMITTED]
James I. Midanek, fixed-income chief investment officer, has served as manager
of the Short Duration Funds-Three Year Portfolio since inception. Jim joined
Turner in 1998, upon our acquisition of Solon Asset Management, which he
cofounded. Previously he was chief investment officer, fixed income with
Montgomery Asset Management. He holds a bachelor's degree from Queens College.
[PHOTO OMITTED]
Kathy Dull, senior portfolio manager/security analyst, joined the firm in 1997.
She earned a bachelor's degree at Miami University, Oxford, Ohio. Previously
Kathy was an assistant to the fixed-income portfolio manager at Montgomery Asset
Management.
[PHOTO OMITTED]
Robb J. Parlanti, senior portfolio manager/security analyst, joined Turner in
1993. A Chartered Financial Analyst, he received a bachelor's degree at Wake
Forest University. Robb formerly was an assistant vice president/portfolio
manager at PNC Bank.
24 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--100.3%
- ----------------------------------------------------------
Beauty products--4.7%
- ----------------------------------------------------------
Colgate-Palmolive 2,530 $ 116
Procter & Gamble 3,015 283
-----
Total Beauty products 399
-----
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--2.8%
- ----------------------------------------------------------
AT&T Corp-Liberty Media, Cl A* 3,740 139
Clear Channel Communications* 1,220 97
-----
Total Broadcasting, newspapers &
advertising 236
-----
- ----------------------------------------------------------
Communications equipment--7.7%
- ----------------------------------------------------------
Juniper Networks* 910 166
Lucent Technologies 5,490 356
Nokia 1,460 131
-----
Total Communications equipment 653
-----
- ----------------------------------------------------------
Computers & services--12.7%
- ----------------------------------------------------------
Cisco Systems* 7,094 486
EMC* 2,380 170
IBM 2,170 263
Sun Microsystems* 1,660 154
-----
Total Computers & services 1,073
-----
- ----------------------------------------------------------
Drugs--11.4%
- ----------------------------------------------------------
American Home Products 3,990 166
Bristol-Myers Squibb 5,500 371
Genentech* 1,405 206
Schering Plough 5,030 219
-----
Total Drugs 962
-----
- ----------------------------------------------------------
Electronics--3.4%
- ----------------------------------------------------------
Micron Technology 1,610 107
Solectron* 2,500 180
-----
Total Electronics 287
-----
Value
Shares (000)
- ----------------------------------------------------------
Financial services--2.1%
- ----------------------------------------------------------
American Express 610 $ 82
Automatic Data Processing 2,080 93
-----
Total Financial services 175
-----
- ----------------------------------------------------------
Food, beverage & tobacco--2.5%
- ----------------------------------------------------------
Anheuser Busch 1,120 78
Seagram 2,880 131
-----
Total Food, beverage & tobacco 209
-----
- ----------------------------------------------------------
Insurance--2.1%
- ----------------------------------------------------------
American International Group 2,097 182
-----
Total Insurance 182
-----
- ----------------------------------------------------------
Internet services--6.4%
- ----------------------------------------------------------
Amazon.com* 1,310 105
America Online* 2,885 300
Yahoo* 790 142
-----
Total Internet services 547
-----
- ----------------------------------------------------------
Medical products & services--7.9%
- ----------------------------------------------------------
Amgen* 2,190 178
Johnson & Johnson 4,375 402
Medtronic 2,400 85
-----
Total Medical products & services 665
-----
- ----------------------------------------------------------
Miscellaneous manufacturing--1.0%
- ----------------------------------------------------------
Tyco International 810 84
-----
Total Miscellaneous manufacturing 84
-----
- ----------------------------------------------------------
Multimedia--0.9%
- ----------------------------------------------------------
CBS 1,705 79
-----
Total Multimedia 79
-----
TURNER FUNDS 1999 ANNUAL REPORT | 25
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of net assets
Turner Large Cap Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Retail--9.1%
- ----------------------------------------------------------
CVS 3,430 $ 140
Home Depot 3,043 209
Kroger* 2,950 65
Safeway* 2,300 88
Wal-Mart Stores 5,635 268
-----
Total Retail 770
-----
- ----------------------------------------------------------
Semiconductors/instruments--9.9%
- ----------------------------------------------------------
Intel 5,010 372
Jds Uniphase* 1,920 219
Texas Instruments 2,970 244
-----
Total Semiconductors/instruments 835
-----
- ----------------------------------------------------------
Software & programming--13.1%
- ----------------------------------------------------------
BMC Software* 2,490 178
Computer Associates 2,220 136
Microsoft* 6,800 616
Oracle* 3,890 177
-----
Total Software & programming 1,107
-----
- ----------------------------------------------------------
Telephones & telecommunications--2.6%
- ----------------------------------------------------------
Qwest Communications
International* 4,530 134
Sprint (PCS Group)* 1,150 86
-----
Total Telephones &
telecommunications 220
-----
- ----------------------------------------------------------
Total common stocks
(Cost $7,993) 8,483
==========================================================
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--0.9%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$76,151 (collateralized by U.S. Treasury
Note, par value $73,410, 7.25%,
08/15/04: market value $77,918) $76 $ 76
- ----------------------------------------------------------
Total repurchase agreement
(Cost $76) 76
==========================================================
Total investments--101.2%
(Cost $8,069) 8,559
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--(1.2%) (100)
==========================================================
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio Shares (unlimited authorization
-- no par value) based on 447,615
outstanding shares of beneficial interest 6,352
Accumulated net realized
gain on investments 1,617
Net unrealized appreciation
on investments 490
- ----------------------------------------------------------
Total net assets--100.0% $8,459
==========================================================
Net asset value, offering and
redemption price per share $18.90
==========================================================
*Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the financial statements.
26 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Schedule of investments
Turner Growth Equity Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--98.8%
- ----------------------------------------------------------
Aircraft--0.5%
- ----------------------------------------------------------
Allied Signal 12,440 $ 746
-------
Total Aircraft 746
-------
- ----------------------------------------------------------
Beauty products--4.5%
- ----------------------------------------------------------
Colgate-Palmolive 36,650 1,677
Procter & Gamble 50,900 4,772
-------
Total Beauty products 6,449
-------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--2.4%
- ----------------------------------------------------------
AT&T Corp-- Liberty Media, Cl A* 30,785 1,143
Clear Channel Communications* 13,695 1,094
Omnicom Group 14,245 1,128
-------
Total Broadcasting, newspapers
& advertising 3,365
-------
- ----------------------------------------------------------
Communications--0.8%
- ----------------------------------------------------------
Vodafone Airtouch PLC, ADR 4,950 1,177
-------
Total Communications 1,177
-------
- ----------------------------------------------------------
Communications equipment--7.0%
- ----------------------------------------------------------
Ciena* 38,880 1,419
Comcast, Special, Cl A 29,970 1,195
Juniper Networks* 3,650 665
Lucent Technologies 76,360 4,954
Nokia 11,970 1,075
Scientific-Atlanta 14,480 718
-------
Total Communications equipment 10,026
-------
- ----------------------------------------------------------
Computers & services--10.8%
- ----------------------------------------------------------
Brocade Communications Systems* 3,050 641
Cisco Systems* 92,895 6,369
EMC* 25,155 1,797
Foundry Networks* 4,530 571
IBM 23,265 2,824
Lexmark International Group, Cl A* 8,620 694
Network Appliance* 10,110 724
Sun Microsystems* 19,340 1,799
-------
Total Computers & services 15,419
-------
Value
Shares (000)
- ----------------------------------------------------------
Drugs--8.0%
- ----------------------------------------------------------
American Home Products 25,240 $ 1,047
Biogen* 13,150 1,036
Bristol-Myers Squibb 79,335 5,355
Genentech* 7,190 1,052
Schering Plough 67,890 2,962
-------
Total Drugs 11,452
-------
- ----------------------------------------------------------
Electronics--3.8%
- ----------------------------------------------------------
Atmel* 19,550 661
LSI Logic* 12,955 667
Maxim Integrated Products* 10,430 658
Microchip Technology* 13,700 704
Micron Technology 14,100 939
Motorola 8,105 713
Solectron* 15,390 1,105
-------
Total Electronics 5,447
-------
- ----------------------------------------------------------
Entertainment--1.0%
- ----------------------------------------------------------
Time Warner 23,735 1,442
-------
Total Entertainment 1,442
-------
- ----------------------------------------------------------
Financial services--3.4%
- ----------------------------------------------------------
American Express 10,525 1,417
Citigroup 24,892 1,095
Concord EFS* 30,405 627
Goldman Sachs Group 11,540 704
Paychex 30,650 1,046
-------
Total Financial services 4,889
-------
- ----------------------------------------------------------
Food, beverage & tobacco--2.9%
- ----------------------------------------------------------
Anheuser Busch 20,060 1,405
Pepsi Bottling Group 26,870 458
Sara Lee 32,120 753
Seagram 32,480 1,478
-------
Total Food, beverage & tobacco 4,094
-------
- ----------------------------------------------------------
Gas/natural gas--0.5%
- ----------------------------------------------------------
Enron 17,200 710
-------
Total Gas/natural gas 710
-------
TURNER FUNDS 1999 ANNUAL REPORT | 27
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of Investments
Turner Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Glass products--0.5%
- ----------------------------------------------------------
Corning 11,010 $ 755
-------
Total Glass products 755
-------
- ----------------------------------------------------------
Healthcare--0.8%
- ----------------------------------------------------------
PE Biosystems 15,730 1,136
-------
Total Healthcare 1,136
-------
- ----------------------------------------------------------
Insurance--1.2%
- ----------------------------------------------------------
Aflac 16,890 707
American International Group 12,081 1,050
-------
Total Insurance 1,757
-------
- ----------------------------------------------------------
Internet services--5.5%
- ----------------------------------------------------------
Amazon.com* 10,740 859
America Online* 22,885 2,380
Internet Capital Group* 6,810 598
Netzero* 40,690 1,058
Priceline.com* 11,680 753
RealNetworks* 7,070 739
Yahoo* 7,750 1,391
-------
Total Internet services 7,778
-------
- ----------------------------------------------------------
Machinery--1.2%
- ----------------------------------------------------------
Applied Materials* 13,375 1,039
Eaton 7,310 631
-------
Total Machinery 1,670
-------
- ----------------------------------------------------------
Medical products & services--8.9%
- ----------------------------------------------------------
Amgen* 25,780 2,101
Bausch & Lomb 23,140 1,526
Columbia/HCA Healthcare 50,290 1,066
Johnson & Johnson 62,810 5,771
Medimmune* 7,470 744
Medtronic 42,320 1,502
-------
Total Medical products & services 12,710
-------
- ----------------------------------------------------------
Miscellaneous business services--0.7%
- ----------------------------------------------------------
Automatic Data Processing 23,360 1,042
-------
Total Miscellaneous business services 1,042
-------
- ----------------------------------------------------------
Miscellaneous manufacturing--0.8%
- ----------------------------------------------------------
Tyco International 11,010 1,137
-------
Total Miscellaneous manufacturing 1,137
-------
Value
Shares (000)
- ----------------------------------------------------------
Multimedia--1.0%
- ----------------------------------------------------------
CBS 30,490 $ 1,410
-------
Total Multimedia 1,410
-------
- ----------------------------------------------------------
Petroleum & fuel products--0.4%
- ----------------------------------------------------------
Burlington Resources 16,860 620
-------
Total Petroleum & fuel products 620
-------
- ----------------------------------------------------------
Printing & publishing--1.1%
- ----------------------------------------------------------
Tribune 30,080 1,496
-------
Total Printing & publishing 1,496
-------
- ----------------------------------------------------------
Restaurants--0.8%
- ----------------------------------------------------------
McDonald's 25,020 1,076
-------
Total Restaurants 1,076
-------
- ----------------------------------------------------------
Retail--6.8%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 18,230 621
CVS 18,260 745
Home Depot 43,430 2,980
Kroger* 44,985 992
Safeway* 16,250 619
Wal-Mart Stores 79,290 3,771
-------
Total Retail 9,728
-------
- ----------------------------------------------------------
Semiconductors/instruments--7.6%
- ----------------------------------------------------------
Intel 85,540 6,357
Jds Uniphase* 12,310 1,401
KLA-Tencor* 10,280 668
Lam Research* 11,790 719
Texas Instruments 20,160 1,658
-------
Total Semiconductors/instruments 10,803
-------
- ----------------------------------------------------------
Software & programming--11.7%
- ----------------------------------------------------------
BMC Software* 15,650 1,120
Checkpoint Software* 8,110 685
Computer Associates 19,020 1,165
Electronic Arts* 9,580 693
Inktomi* 5,720 687
Intuit* 11,510 1,009
Microsoft* 97,450 8,825
Oracle* 25,100 1,142
Siebel Systems* 10,670 711
Veritas Software* 8,920 677
-------
Total Software & programming 16,714
-------
28 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of Investments
Turner Growth Equity Fund
Value
Shares (000)
- ----------------------------------------------------------
Steel & steel works--0.5%
- ----------------------------------------------------------
Alcoa 12,050 $ 748
-------
Total Steel & steel works 748
-------
- ----------------------------------------------------------
Telephones & telecommunications--3.2%
- ----------------------------------------------------------
McLeodusa, Cl A* 18,190 774
Nextel Communications, Cl A* 16,630 1,128
Nextlink Communications* 15,190 788
Qwest Communications
International* 24,700 730
Sprint (PCS Group)* 14,740 1,099
-------
Total Telephones & telecommunications 4,519
-------
- ----------------------------------------------------------
Wholesale--0.5%
- ----------------------------------------------------------
Sysco 20,880 732
-------
Total Wholesale 732
-------
- ----------------------------------------------------------
Total common stocks
(Cost $128,224) 141,047
==========================================================
Face Amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--1.9%
- ----------------------------------------------------------
Morgan Stanley, 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$2,713,821 (collateralized by
GNMA, par value $3,784,310,
7.50%, matures 10/15/28:
market value $2,768,098) $2,714 $ 2,714
- ----------------------------------------------------------
Total repurchase agreement
(Cost $2,714) 2,714
==========================================================
- ----------------------------------------------------------
Total investments--100.7%
(Cost $130,938) 143,761
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--(0.7%) (937)
==========================================================
- ----------------------------------------------------------
Total net assets--100.0% $142,824
==========================================================
* Non-income producing security.
ADR - American Depository Receipts
Cl - Class
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 29
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of investments
Turner Midcap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--96.9%
- ----------------------------------------------------------
Automotive--0.6%
- ----------------------------------------------------------
Lear* 25,070 $ 882
-------
Total Automotive 882
-------
- ----------------------------------------------------------
Banks--2.1%
- ----------------------------------------------------------
National Commerce Bancorporation 54,790 1,204
Northern Trust 14,000 1,169
TCF Financial 24,480 699
-------
Total Banks 3,072
-------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--5.5%
- ----------------------------------------------------------
Hispanic Broadcasting* 9,020 687
Interpublic Group 48,700 2,003
Outdoor Systems* 53,931 1,928
TMP Worldwide* 27,530 1,676
Young & Rubicam* 41,480 1,825
-------
Total Broadcasting, newspapers
& advertising 8,119
-------
- ----------------------------------------------------------
Chemicals--1.7%
- ----------------------------------------------------------
Avery Dennison 28,340 1,495
W.R. Grace* 60,980 979
-------
Total Chemicals 2,474
-------
- ----------------------------------------------------------
Communications equipment--3.2%
- ----------------------------------------------------------
Antec* 14,880 790
Ciena* 44,810 1,636
Juniper Networks* 6,190 1,127
Scientific-Atlanta 24,810 1,230
-------
Total Communications equipment 4,783
-------
- ----------------------------------------------------------
Computers & services--7.3%
- ----------------------------------------------------------
Affiliated Computer Services, Cl A* 28,580 1,161
Brocade Communications Systems* 5,590 1,174
Comverse Technology* 12,890 1,216
Fiserv* 45,915 1,492
Foundry Networks* 9,280 1,169
Lexmark International Group, Cl A* 24,250 1,952
Network Appliance* 17,060 1,222
Safeguard Scientifics* 21,030 1,430
-------
Total Computers & services 10,816
-------
Value
Shares (000)
- ----------------------------------------------------------
Drugs--1.9%
- ----------------------------------------------------------
Biogen* 20,630 $ 1,626
Forest Laboratories* 27,630 1,164
-------
Total Drugs 2,790
-------
- ----------------------------------------------------------
Consumer staples--0.7%
- ----------------------------------------------------------
Dial 42,740 1,090
-------
Total Consumer staples 1,090
-------
- ----------------------------------------------------------
Electrical services--0.7%
- ----------------------------------------------------------
Calpine* 12,390 1,054
-------
Total Electrical services 1,054
-------
- ----------------------------------------------------------
Electronics--5.1%
- ----------------------------------------------------------
Atmel* 27,130 917
Gemstar International* 23,350 1,824
LSI Logic* 19,980 1,029
Maxim Integrated Products* 20,490 1,293
Micron Technology 20,500 1,365
Sawtek* 33,440 1,170
-------
Total Electronics 7,598
-------
- ----------------------------------------------------------
Financial services--3.4%
- ----------------------------------------------------------
Capital One Financial 18,360 716
Concord EFS* 65,820 1,358
Lehman Brothers Holdings 25,880 1,509
SLM Holding 33,990 1,462
-------
Total Financial services 5,045
-------
- ----------------------------------------------------------
Food, beverage & tobacco--3.1%
- ----------------------------------------------------------
Dean Foods 28,040 1,221
Paychex 59,640 2,035
Pepsi Bottling Group 81,030 1,383
-------
Total Food, beverage & tobacco 4,639
-------
- ----------------------------------------------------------
Household furniture & fixtures--0.8%
- ----------------------------------------------------------
Ethan Allen Interiors 40,095 1,276
-------
Total Household furniture & fixtures 1,276
-------
- ----------------------------------------------------------
Internet services--12.8%
- ----------------------------------------------------------
Ariba * 6,250 903
CMGI* 13,100 1,343
30 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Midcap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
C-Net* 18,270 $ 1,023
Doubleclick* 17,080 2,035
Exodus Communications* 15,140 1,091
Infospace.com* 30,450 1,252
Internap Network Services* 28,110 1,255
Internet Capital Group* 16,330 1,435
Looksmart* 25,980 619
Network Solutions, Cl A* 23,340 2,144
Netzero* 40,080 1,042
Phone.com* 5,560 842
Priceline.com* 21,350 1,377
RealNetworks* 10,240 1,071
Ticketmaster Online-CitySearch* 64,740 1,566
-------
Total Internet services 18,998
-------
- ----------------------------------------------------------
Machinery--2.0%
- ----------------------------------------------------------
Lennox International* 70,590 1,094
SPX 21,420 1,944
-------
Total Machinery 3,038
-------
- ----------------------------------------------------------
Medical products & services--8.7%
- ----------------------------------------------------------
Allergan 13,340 1,467
Bausch & Lomb 29,940 1,974
C.R. Bard 28,060 1,321
Express Scripts, Cl A* 13,770 1,078
Medimmune* 17,810 1,775
MiniMed* 13,440 1,320
St. Jude Medical 23,380 736
Stryker 27,140 1,388
Visx* 23,950 1,894
-------
Total Medical products & services 12,953
-------
- ----------------------------------------------------------
Paper & paper products--1.0%
- ----------------------------------------------------------
Smurfit-Stone Container* 71,470 1,546
-------
Total Paper & paper products 1,546
-------
- ----------------------------------------------------------
Petroleum services--1.9%
- ----------------------------------------------------------
Cooper Cameron* 29,530 1,115
Devon Energy 19,060 790
Eog Resources 43,760 930
-------
Total Petroleum services 2,835
-------
Value
Shares (000)
- ----------------------------------------------------------
Retail--10.8%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 52,280 $ 1,781
American Eagle Outfitters* 28,140 1,363
AnnTaylor Stores* 25,630 1,048
Bed Bath & Beyond* 38,990 1,362
Best Buy* 33,320 2,068
Brinker International* 58,820 1,595
Circuit City Stores 46,290 1,953
Drugstore.com* 22,660 821
Linens N Things* 20,090 678
Outback Steakhouse* 26,655 679
Tiffany & Company 26,850 1,609
TJX 39,500 1,108
-------
Total Retail 16,065
-------
- ----------------------------------------------------------
Semiconductors/instruments--9.1%
- ----------------------------------------------------------
Applied Micro Circuits* 12,660 722
Broadcom, Cl A* 9,980 1,088
E-Tek Dynamics* 23,750 1,288
GlobeSpan* 10,840 684
Jds Uniphase* 17,070 1,943
KLA-Tencor* 21,460 1,395
Lam Research* 18,980 1,158
Lattice Semiconductor* 24,720 734
PE Biosystems 16,400 1,185
QLogic* 12,700 887
RF Micro Devices* 29,620 1,355
SDL* 13,870 1,058
-------
Total Semiconductors/instruments 13,497
-------
- ----------------------------------------------------------
Software & programming--7.8%
- ----------------------------------------------------------
Electronic Arts* 16,460 1,191
Electronics for Imaging* 18,120 931
Inktomi* 11,160 1,340
Intuit* 12,220 1,071
J.D. Edwards & Company* 51,370 1,064
Mercury Interactive* 21,330 1,377
Portal Software* 31,850 1,234
Siebel Systems* 17,740 1,182
Verisign* 10,740 1,144
Veritas Software* 14,650 1,112
-------
Total Software & programming 11,646
-------
TURNER FUNDS 1999 ANNUAL REPORT | 31
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Schedule of investments
Turner Midcap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Technology--0.4%
- ----------------------------------------------------------
Redback Networks* 6,360 $ 687
-------
Total Technology 687
-------
- ----------------------------------------------------------
Telephones & telecommunications--6.3%
- ----------------------------------------------------------
Allegiance Telecommunications* 28,480 1,499
McLeodusa, Cl A* 39,140 1,666
Nextel Communications, Cl A* 17,610 1,194
Nextlink Communications* 25,300 1,312
NTL* 11,690 1,123
Pinnacle Holdings* 41,540 1,085
RNC* 35,590 1,459
-------
Total Telephones & telecommunications 9,338
-------
- ----------------------------------------------------------
Total common stocks
(Cost $132,982) 144,241
==========================================================
- ----------------------------------------------------------
Rights--0.0%
- ----------------------------------------------------------
Internet Capital Group Rights 1,032 --
US Interactive Rights 516 --
- ----------------------------------------------------------
Total rights
(Cost $0) --
==========================================================
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--3.0%
- ----------------------------------------------------------
Morgan Stanley, 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$4,451,363 (collateralized by
GNMA, par value $6,207,240,
7.50%, 10/15/28:
market value $4,640,391) $4,451 $ 4,451
- ----------------------------------------------------------
Total repurchase agreement
(Cost $4,451) 4,451
==========================================================
- ----------------------------------------------------------
Total investments--99.9%
(Cost $137,433) 148,692
==========================================================
- ----------------------------------------------------------
Other assets and liabilities, net--0.1% 138
==========================================================
- ----------------------------------------------------------
Total net assets--100.0% $148,830
==========================================================
* Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the financial statements.
32 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--97.2%
- ----------------------------------------------------------
Air Transportation--0.8%
- ----------------------------------------------------------
Atlas Air* 48,860 $ 1,069
SkyWest 46,870 1,028
--------
Total Air transportation 2,097
--------
- ----------------------------------------------------------
Automotive--0.9%
- ----------------------------------------------------------
Avis Rent A Car* 61,430 1,282
Tower Automotive* 46,000 911
--------
Total Automotive 2,193
--------
- ----------------------------------------------------------
Banks--1.9%
- ----------------------------------------------------------
Community First Bankshares 80,170 1,353
Silicon Valley Bancshares* 46,970 1,133
Webster Financial 53,500 1,364
Westamerica Bancorporation 35,510 1,074
--------
Total Banks 4,924
--------
- ----------------------------------------------------------
Broadcasting, newspapers & advertising--7.1%
- ----------------------------------------------------------
Acme Communications* 29,260 907
Entercom Communications* 32,590 1,173
Flycast Communications* 50,780 2,311
Insight Communications* 40,610 1,162
Lamar Advertising* 43,840 2,170
Modem Media Poppe Tyson* 46,290 1,713
Radio One* 27,960 1,160
Salem Communications, Cl A* 46,480 1,185
TMP Worldwide* 44,370 2,701
True North Communications 55,790 2,029
Wink Communications* 36,920 1,613
--------
Total Broadcasting, newspapers &
advertising 18,124
--------
- ----------------------------------------------------------
Chemicals--1.6%
- ----------------------------------------------------------
OM Group 48,210 1,850
W.R. Grace* 134,080 2,154
--------
Total Chemicals 4,004
--------
Value
Shares (000)
- ----------------------------------------------------------
Commericial services--2.5%
- ----------------------------------------------------------
Abacus Direct* 11,090 $ 1,352
ACNielsen* 50,340 1,142
Profit Recovery Group International* 43,290 1,932
Quanta Services* 65,930 1,933
--------
Total Commericial services 6,359
--------
- ----------------------------------------------------------
Communications equipment--4.0%
- ----------------------------------------------------------
Antec* 79,230 4,209
Polycom* 66,180 3,154
Powerwave Technologies* 59,730 2,880
--------
Total Communications equipment 10,243
--------
- ----------------------------------------------------------
Computers & services--1.6%
- ----------------------------------------------------------
Digex* 48,440 1,147
Digital Insight* 18,610 279
Jack Henry & Associates 40,490 1,496
Packeteer* 31,380 1,069
--------
Total Computers & services 3,991
--------
- ----------------------------------------------------------
Containers & packaging--0.9%
- ----------------------------------------------------------
Ball 26,420 1,164
Gaylord Container* 156,830 1,117
--------
Total Containers & packaging 2,281
--------
- ----------------------------------------------------------
Drugs--5.7%
- ----------------------------------------------------------
Alkermes* 31,000 893
Alpharma, Cl A 72,530 2,561
Biovail International* 32,780 1,664
Gilead Sciences* 15,770 1,012
IDEC Pharmaceuticals* 19,040 1,790
Jones Pharmaceuticals 94,155 3,104
King Pharmaceuticals* 50,840 1,779
QLT PhotoTherapeutics* 21,440 1,639
--------
Total Drugs 14,442
--------
- ----------------------------------------------------------
Electrical services--0.7%
- ----------------------------------------------------------
Calpine* 21,210 1,804
--------
Total Electrical services 1,804
--------
TURNER FUNDS 1999 ANNUAL REPORT | 33
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Electronics--3.4%
- ----------------------------------------------------------
DII Group* 70,040 $ 2,465
DSP Group* 53,190 2,121
Optical Coating Laboratories 21,890 2,015
Sawtek* 57,000 1,995
--------
Total Electronics 8,596
--------
- ----------------------------------------------------------
Entertainment--0.3%
- ----------------------------------------------------------
Argosy Gaming* 56,300 746
--------
Total Entertainment 746
--------
- ----------------------------------------------------------
Financial services--3.8%
- ----------------------------------------------------------
Hambrecht & Quist* 65,810 3,221
Legg Mason 32,970 1,263
Metris 60,780 1,789
NCO Group* 44,220 2,078
Private Business* 74,040 352
Raymond James Financial 51,510 1,027
--------
Total Financial services 9,730
--------
- ----------------------------------------------------------
Food, beverage & tobacco--1.3%
- ----------------------------------------------------------
Aurora Foods * 63,980 1,024
Beringer Wine Estates Holdings* 29,320 1,204
Smithfield Foods* 36,550 978
--------
Total Food, beverage & tobacco 3,206
--------
- ----------------------------------------------------------
Healthcare--0.7%
- ----------------------------------------------------------
Chemdex* 61,510 1,895
--------
Total Healthcare 1,895
--------
- ----------------------------------------------------------
Household furniture & fixtures--0.5%
- ----------------------------------------------------------
Ethan Allen Interiors 42,790 1,361
--------
Total Household furniture & fixtures 1,361
--------
- ----------------------------------------------------------
Insurance--2.1%
- ----------------------------------------------------------
Annuity & Life Re Holdings 40,200 1,000
E.W. Blanch Holdings 15,000 977
Financial Security Assurance
Holdings 29,640 1,532
Radian Group 42,310 1,817
--------
Total Insurance 5,326
--------
Value
Shares (000)
- ----------------------------------------------------------
Internet services--3.7%
- ----------------------------------------------------------
Go2Net* 19,360 $ 1,254
ITXC* 40,390 1,285
Keynote Systems* 17,070 427
Looksmart* 46,270 1,102
Multex.com* 62,140 792
Network Solutions, Cl A* 20,930 1,923
Phone.com* 9,170 1,389
VerticalNet* 33,300 1,232
--------
Total Internet services 9,404
--------
- ----------------------------------------------------------
Machinery--3.3%
- ----------------------------------------------------------
Advanced Energy Industries* 65,740 2,030
Asyst Technologies* 60,150 1,985
Brooks Automation* 23,420 411
Lennox International* 65,260 1,012
PRI Automation* 47,740 1,725
SPX 12,560 1,140
--------
Total Machinery 8,303
--------
- ----------------------------------------------------------
Measuring devices--1.0%
- ----------------------------------------------------------
Mettler-Toledo International* 84,800 2,512
--------
Total Measuring devices 2,512
--------
- ----------------------------------------------------------
Medical products & services--7.4%
- ----------------------------------------------------------
Advanced Paradigm* 31,230 1,710
Conmed* 59,840 1,466
Dendrite International* 48,930 2,312
Eclipse Surgical Technologies* 94,200 1,554
Express Scripts, Cl A* 26,930 2,107
Hooper Holmes 90,090 2,309
MiniMed* 19,690 1,935
Patterson Dental* 53,900 2,671
Summit Technology* 72,320 1,324
Techne* 44,530 1,397
--------
Total Medical products & services 18,785
--------
- ----------------------------------------------------------
Miscellaneous manufacturing--1.5%
- ----------------------------------------------------------
Dexter 47,400 1,769
Kemet* 64,340 2,057
--------
Total Miscellaneous manufacturing 3,826
--------
34 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
Statement of net assets
Turner Small Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Petroleum & fuel products--1.0%
- ----------------------------------------------------------
Global Industries* 99,890 $ 812
Ocean Energy* 174,752 1,780
--------
Total Petroleum & fuel products 2,592
--------
- ----------------------------------------------------------
Retail--13.0%
- ----------------------------------------------------------
American Eagle Outfitters* 54,100 2,620
AnnTaylor Stores* 63,130 2,580
Buca* 68,360 889
Children's Place* 87,520 2,330
Cost Plus* 31,900 1,547
Drugstore.com* 26,820 972
Foodmaker* 78,620 1,961
Insight Enterprises* 50,100 1,628
Linens N Things* 83,360 2,813
Pacific Sunwear of California* 78,210 2,192
Papa John's International* 49,180 2,029
Rex Stores* 43,820 1,358
Stamps.com* 30,980 1,077
Sunglass Hut International* 141,870 1,499
Tuesday Morning* 96,380 2,434
United Rentals* 74,180 1,613
Yankee Candle* 55,230 1,067
Zale* 64,290 2,463
--------
Total Retail 33,072
--------
- ----------------------------------------------------------
Semiconductors/instruments--8.9%
- ----------------------------------------------------------
Alpha Industries* 35,420 1,998
Applied Micro Circuits* 31,590 1,801
Cymer* 56,960 1,976
GlobeSpan* 19,320 1,220
Harmonic* 14,200 1,858
Lam Research* 37,300 2,275
Lattice Semiconductor* 76,400 2,268
MIPS Technologies* 67,060 2,133
SDL* 36,370 2,776
TranSwitch* 33,380 1,903
Varian Semiconductor Equipment
Associates* 64,480 1,358
Zoran* 43,740 1,186
--------
Total Semiconductors/instruments 22,752
--------
Value
Shares (000)
- ----------------------------------------------------------
Software & programming--10.4%
- ----------------------------------------------------------
Agile Software* 28,320 $ 1,812
Business Objects ADR* 49,520 2,922
Clarify* 29,000 1,459
E.piphany* 27,500 1,341
Kana Communications* 34,430 1,717
Mercury Interactive* 55,980 3,614
MicroStrategy* 33,390 1,872
Peregrine Systems* 69,110 2,816
Quest Software* 29,180 1,357
Symantec* 84,600 3,043
Verity* 35,920 2,472
Vignette* 21,540 1,949
--------
Total Software & programming 26,374
--------
- ----------------------------------------------------------
Specialty construction--0.5%
- ----------------------------------------------------------
U.S. Aggregates* 82,920 1,156
--------
Total Specialty construction 1,156
--------
- ----------------------------------------------------------
Telephones & telecommunications--5.8%
- ----------------------------------------------------------
AirGate PCS* 49,020 1,219
Caprock Communications* 15,290 356
CommScope * 52,630 1,710
Dycom Industries* 47,180 1,990
Focal Communications* 68,360 1,752
Intermedia Communications* 59,080 1,285
ITC Deltacom* 76,660 2,108
Pinnacle Holdings* 99,200 2,592
Price Communications* 64,627 1,620
--------
Total Telephones & telecommunications 14,632
--------
- ----------------------------------------------------------
Wholesale--0.9%
- ----------------------------------------------------------
Amerisource Health, Cl A* 37,300 884
WESCO International* 95,940 1,355
--------
Total Wholesale 2,239
--------
- ----------------------------------------------------------
Total common stocks
(Cost $211,888) 246,969
- ----------------------------------------------------------
TURNER FUNDS 1999 ANNUAL REPORT | 35
<PAGE>
Statement of net assets
Turner Small Cap Growth Fund
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--5.0%
- ----------------------------------------------------------
JP Morgan 5.35%, dated 09/30/99,
matures 10/01/99, repurchase price
$12,767,114 (collateralized by GNMA,
par value $17,803,206, 7.50%,
matures 10/15/28: market
value $13,022,457) $12,767 $ 12,767
- ----------------------------------------------------------
Total repurchase agreement
(Cost $12,767) 12,767
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--102.2%
(Cost $224,655) 259,736
- ----------------------------------------------------------
Other assets and liabilities, net--(2.2%) (5,659)
- ----------------------------------------------------------
Value
(000)
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio Shares (unlimited authorization--
no par value) based on 7,429,338
outstanding shares of beneficial interest $167,680
Accumulated net realized gain on investments 51,316
Net unrealized appreciation on investments 35,081
- ----------------------------------------------------------
Total net assets--100.0% $254,077
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share $34.20
- ----------------------------------------------------------
*Non-income producing security.
ADR - American Depository Receipt
Cl - Class
The accompanying notes are an integral part of the
financial statements.
36 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--96.0%
- ----------------------------------------------------------
Agricultural biotechnology--1.3%
- ----------------------------------------------------------
Strategic Diagnostics* 18,500 $ 168
--------
Total Agricultural biotechnology 168
--------
- ----------------------------------------------------------
Athletic footwear--1.2%
- ----------------------------------------------------------
Saucony Inc* 9,900 156
--------
Total Athletic footwear 156
--------
- ----------------------------------------------------------
Automotive--1.2%
- ----------------------------------------------------------
Monaco Coach* 3,165 77
Oshkosh Truck 2,775 74
--------
Total Automotive 151
--------
- ----------------------------------------------------------
Banks--1.0%
- ----------------------------------------------------------
PFF Bancorp* 4,700 97
Trico Bancshares 2,000 37
--------
Total Banks 134
--------
- ----------------------------------------------------------
Building & construction supplies--1.8%
- ----------------------------------------------------------
Dayton Superior* 2,000 34
Mobile Mini* 6,600 144
NVR* 980 49
--------
Total Building & construction supplies 227
--------
- ----------------------------------------------------------
Communications equipment--1.9%
- ----------------------------------------------------------
California Amplifier* 12,500 181
Catapult Communications* 4,100 64
--------
Total Communications equipment 245
--------
- ----------------------------------------------------------
Computers & services--8.5%
- ----------------------------------------------------------
Cybex Computer Products* 1,350 45
Digital Insight* 1,400 21
Homeseekers.com* 14,000 175
In Focus Systems* 7,200 121
Mercury Computer Systems* 3,000 102
Mti Technology* 6,000 138
Netscout Systems* 2,200 47
Radisys* 1,700 67
Rare Medium Group* 15,000 158
Zomax* 9,000 233
--------
Total Computers & services 1,107
--------
Value
Shares (000)
- ----------------------------------------------------------
Consumer products--0.7%
- ----------------------------------------------------------
Steven Madden* 7,400 $ 96
--------
Total Consumer products 96
--------
- ----------------------------------------------------------
Containers & packaging--0.7%
- ----------------------------------------------------------
Gaylord Container* 12,000 85
--------
Total Containers & packaging 85
--------
- ----------------------------------------------------------
Electronics--1.9%
- ----------------------------------------------------------
Anaren Microwave* 2,450 69
Universal Electronics* 7,500 173
--------
Total Electronics 242
--------
- ----------------------------------------------------------
Entertainment--5.9%
- ----------------------------------------------------------
Alliance Gaming* 9,600 76
Argosy Gaming* 10,000 132
Boyd Gaming* 20,700 124
Isle of Capris Casinos* 9,500 95
THQ* 5,000 216
WMS Industries* 10,700 124
---------
Total Entertainment 767
---------
- ----------------------------------------------------------
Environmental services--0.9%
- ----------------------------------------------------------
Stericycle* 7,600 112
--------
Total Environmental services 112
--------
- ----------------------------------------------------------
Financial services--2.8%
- ----------------------------------------------------------
Ace Cash Express* 4,000 58
Creditrust* 5,150 116
Financial Federal* 3,900 74
Onyx Acceptance* 9,500 72
Rock Financial 2,700 49
--------
Total Financial services 369
--------
- ----------------------------------------------------------
Food, beverage & tobacco--0.4%
- ----------------------------------------------------------
Agribrands International* 1,100 55
--------
Total Food, beverage & tobacco 55
--------
- ----------------------------------------------------------
Gas/natural gas--0.6%
- ----------------------------------------------------------
Cascade Natural Gas 2,100 38
RGC Resources 1,700 34
--------
Total Gas/natural gas 72
--------
TURNER FUNDS 1999 ANNUAL REPORT | 37
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Household furniture & fixtures--0.3%
- ----------------------------------------------------------
Stanley Furniture* 2,060 $ 44
--------
Total Household furniture & fixtures 44
--------
- ----------------------------------------------------------
Household products--1.2%
- ----------------------------------------------------------
Salton* 5,300 160
--------
Total Household products 160
--------
- ----------------------------------------------------------
Insurance--1.3%
- ----------------------------------------------------------
Farm Family Holdings* 970 38
Guarantee Life 3,200 98
Penn Treaty American* 1,450 30
--------
Total Insurance 166
--------
- ----------------------------------------------------------
Leasing & renting--0.7%
- ----------------------------------------------------------
Dollar Thrifty Automotive* 4,700 97
--------
Total Leasing & renting 97
--------
- ----------------------------------------------------------
Machinery--1.8%
- ----------------------------------------------------------
Moog, Cl A* 2,100 61
Photon Dynamics* 8,000 168
--------
Total Machinery 229
--------
- ----------------------------------------------------------
Medical products & services--8.9%
- ----------------------------------------------------------
Advanced Paradigm* 1,700 93
Collagenex Pharmaceuticals* 4,200 74
Eclipse Surgical Technologies* 12,000 198
Endocare* 7,300 46
Exactech* 6,600 89
Hooper Holmes 2,000 51
Molecular Devices* 2,850 78
PolyMedica* 7,000 163
Staar Surgical* 8,000 95
Syncor International* 2,200 83
Zoll Medical* 6,000 182
--------
Total Medical products & services 1,152
--------
- ----------------------------------------------------------
Metal--0.8%
- ----------------------------------------------------------
Century Aluminum 9,100 98
--------
Total Metal 98
--------
- ----------------------------------------------------------
Miscellaneous business services--1.0%
- ----------------------------------------------------------
Peapod* 13,000 131
--------
Total Miscellaneous business services 131
--------
Value
Shares (000)
- ----------------------------------------------------------
Miscellaneous manufacturing--2.9%
- ----------------------------------------------------------
Aeroflex* 5,650 $ 69
Jakks Pacific* 3,050 114
LSI Industries 2,400 55
Shuffle Master* 7,200 59
Uniroyal Technology* 7,500 73
--------
Total Miscellaneous manufacturing 370
--------
- ----------------------------------------------------------
Petroleum & fuel products--4.1%
- ----------------------------------------------------------
Basin Exploration* 3,400 82
Comstock Resources* 14,100 58
Edge Petroleum* 16,000 102
Frontier Oil* 9,500 65
HS Resources* 7,000 115
Key Energy Group* 23,000 114
--------
Total Petroleum & fuel products 536
--------
- ----------------------------------------------------------
Pharmaceutical--1.8%
- ----------------------------------------------------------
Corixa* 6,500 87
United Therapeutics* 5,000 144
--------
Total Pharmaceutical 231
--------
- ----------------------------------------------------------
Photography--0.6%
- ----------------------------------------------------------
Pinnacle Systems* 1,800 76
--------
Total Photography 76
--------
- ----------------------------------------------------------
Professional services--0.5%
- ----------------------------------------------------------
ICT Group* 9,000 65
--------
Total Professional services 65
--------
- ----------------------------------------------------------
Retail--11.6%
- ----------------------------------------------------------
Chico's Fas* 5,000 136
Factory 2u Stores* 4,200 125
Garden Fresh Restaurant* 4,050 62
Genesco* 8,000 100
Hot Topic* 4,500 123
Intertan* 7,000 137
Rare Hospitality International* 3,500 76
Rex Stores* 7,050 219
Seaway Food Town 2,400 67
Shop At Home* 12,000 108
Taco Cabana, Cl A* 5,500 53
Ugly Duckling* 10,000 71
Ultimate Electronics* 8,400 131
Wilsons Leather Experts* 6,300 101
--------
Total Retail 1,509
--------
38 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Micro Cap Growth Fund
Value
Shares (000)
- ----------------------------------------------------------
Semiconductors/instruments--10.8%
- ----------------------------------------------------------
Advanced Digital Information* 5,000 $ 139
Cohu 5,400 114
Elantec Semiconductor* 5,500 97
ESS Technology* 5,300 70
Ibis Technology* 2,800 97
Keithley Instruments 6,300 89
Measurement Specialties* 4,400 81
Parlex* 6,400 98
Pericom Semiconductor* 6,500 97
Silicon Storage Technology* 7,600 107
Three-Five Systems* 3,600 80
Triquint Semiconductor* 2,250 129
Zoran* 7,300 198
--------
Total Semiconductors/instruments 1,396
--------
- ----------------------------------------------------------
Software & programming--6.5%
- ----------------------------------------------------------
Ardent Software* 2,100 57
Avt* 2,230 68
Bluestone Software* 6,000 139
Broadbase Software * 5,000 80
JDA Software Group* 5,500 64
Mission Critical Software* 2,000 89
Pervasive Software* 2,900 100
Sapiens International* 6,100 68
Unify* 4,100 92
Verity* 1,300 89
--------
Total Software & programming 846
--------
- ----------------------------------------------------------
Steel & steel works--1.5%
- ----------------------------------------------------------
Maverick Tube* 5,700 95
NS Group* 9,000 97
--------
Total Steel & steel works 192
--------
- ----------------------------------------------------------
Telephones & telecommunications--5.2%
- ----------------------------------------------------------
Audiovox, Cl A* 13,000 228
Lightbridge* 6,100 120
Metro One Telecommunications* 6,700 129
Orckit Communications* 2,400 85
Periophonics* 3,700 116
--------
Total Telephones & telecommunications 678
--------
Shares/face Value
amount (000) (000)
- ----------------------------------------------------------
Transportation services--1.4%
- ----------------------------------------------------------
Arkansas Best* 7,300 $ 90
Forward Air* 4,000 95
--------
Total Transportation services 185
--------
- ----------------------------------------------------------
Water utilities--1.1%
- ----------------------------------------------------------
Artesian Resources, Cl A 2,800 70
E'town 1,350 67
--------
Total Water utilities 137
--------
- ----------------------------------------------------------
Wholesale--1.2%
- ----------------------------------------------------------
Advanced Marketing Systems 3,755 74
D&K Healthcare Resources* 3,700 86
--------
Total Wholesale 160
--------
- ----------------------------------------------------------
Total common stocks
(Cost $9,849) 12,444
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--3.2%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$413,708, (collateralized by U.S.
Treasury Notes, par value $398,882,
7.25%, matures 08/15/04: market
value $423,306) $414 414
- ----------------------------------------------------------
Total repurchase agreement
(Cost $414) 414
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--99.2%
(Cost $10,263) 12,858
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--0.8% 105
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $12,963
- ----------------------------------------------------------
*Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 39
<PAGE>
Schedule of investments
Turner Top 20 Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--97.5%
- ----------------------------------------------------------
Communications equipment--12.8%
- ----------------------------------------------------------
Ciena* 16,000 $ 584
Nokia 7,400 665
Scientific-Atlanta 16,320 809
--------
Total Communications equipment 2,058
--------
- ----------------------------------------------------------
Computers & services--4.0%
- ----------------------------------------------------------
Cisco Systems* 9,500 651
--------
Total Computers & services 651
--------
- ----------------------------------------------------------
Electronics--8.2%
- ----------------------------------------------------------
Atmel* 16,000 541
Micron Technology 11,800 785
--------
Total Electronics 1,326
--------
- ----------------------------------------------------------
Financial services--4.4%
- ----------------------------------------------------------
Automatic Data Processing 16,000 714
--------
Total Financial services 714
--------
- ----------------------------------------------------------
Food, beverage & tobacco--4.1%
- ----------------------------------------------------------
Anheuser Busch 9,500 666
--------
Total Food, beverage & tobacco 666
--------
- ----------------------------------------------------------
Gas/natural gas--4.1%
- ----------------------------------------------------------
Enron 16,000 660
--------
Total Gas/natural gas 660
--------
- ----------------------------------------------------------
Internet services--27.4%
- ----------------------------------------------------------
America Online* 8,200 853
Internap Network services* 18,630 831
Netzero* 41,000 1,066
Priceline.com* 11,000 709
Yahoo* 5,280 948
--------
Total Internet services 4,407
--------
- ----------------------------------------------------------
Medical products & services--9.6%
- ----------------------------------------------------------
Bausch & Lomb 11,200 738
Johnson & Johnson 8,725 802
--------
Total Medical products & services 1,540
--------
Shares/face Value
amount (000) (000)
- ----------------------------------------------------------
Oil field services--4.1%
- ----------------------------------------------------------
Baker Hughes 23,000 $ 667
--------
Total Oil field services 667
--------
- ----------------------------------------------------------
Retail--4.9%
- ----------------------------------------------------------
Abercrombie & Fitch, Cl A* 23,000 783
--------
Total Retail 783
--------
- ----------------------------------------------------------
Semiconductors/instruments--9.5%
- ----------------------------------------------------------
Jds Uniphase* 7,350 837
Lam Research* 11,275 688
--------
Total Semiconductors/instruments 1,525
--------
- ----------------------------------------------------------
Software & programming--4.4%
- ----------------------------------------------------------
Microsoft* 7,830 709
--------
Total Software & programming 709
--------
- ----------------------------------------------------------
Total common stock (Cost $14,900) 15,706
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--1.0%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$164,964 (collateralized by U.S.
Treasury Notes, par value $159,027,
7.25%, matures 08/15/04: market
value $168,791) $165 165
- ----------------------------------------------------------
- ----------------------------------------------------------
Total repurchase agreement
(Cost $165) 165
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--98.5%
(Cost $15,065) 15,871
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--1.5% 241
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $16,112
- ----------------------------------------------------------
* Non-income producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
40 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Technology Fund
September 30, 1999
Value
Shares (000)
- ----------------------------------------------------------
Common stocks--89.8%
- ----------------------------------------------------------
Communications equipment--8.5%
- ----------------------------------------------------------
Ciena* 6,760 $ 247
Juniper Networks* 1,000 182
Lucent Technologies 1,920 125
Scientific-Atlanta 3,100 154
--------
Total Communications equipment 708
--------
- ----------------------------------------------------------
Computers & services--4.8%
- ----------------------------------------------------------
Cisco Systems* 2,860 196
EMC* 2,850 204
--------
Total Computers & services 400
--------
- ----------------------------------------------------------
Drugs--1.2%
- ----------------------------------------------------------
Biogen* 1,300 102
--------
Total Drugs 102
--------
- ----------------------------------------------------------
Electronics--10.9%
- ----------------------------------------------------------
Atmel* 5,325 180
Gemstar International* 2,860 223
LSI Logic* 2,500 129
Micron Technology 3,350 223
Sawtek* 4,170 146
--------
Total Electronics 901
--------
- ----------------------------------------------------------
Internet services--32.7%
- ----------------------------------------------------------
Amazon.com* 4,790 383
America Online* 2,245 233
CMGI* 1,500 154
Infospace.com* 3,800 156
Internap Network services* 9,410 420
Network Solutions, Cl A* 3,070 282
Netzero* 12,630 328
Priceline.com* 4,670 301
RealNetworks* 1,070 112
Ticketmaster Online-CitySearch* 5,805 140
Yahoo* 1,140 205
--------
Total Internet services 2,714
--------
- ----------------------------------------------------------
Machinery--1.9%
- ----------------------------------------------------------
Applied Materials* 2,040 158
--------
Total Machinery 158
--------
Value
Shares (000)
- ----------------------------------------------------------
Medical products & services--1.3%
- ----------------------------------------------------------
Amgen* 1,265 $ 103
--------
Total Medical products & services 103
--------
- ----------------------------------------------------------
Semiconductors/instruments--12.5%
- ----------------------------------------------------------
Broadcom, Cl A* 1,650 180
GlobeSpan* 3,560 225
Jds Uniphase* 2,000 228
KLA-Tencor* 2,280 148
RF Micro Devices* 3,080 141
Texas Instruments 1,400 115
--------
Total Semiconductors/instruments 1,037
--------
- ----------------------------------------------------------
Software & programming--13.3%
- ----------------------------------------------------------
Computer Associates 2,230 137
Electronics for Imaging* 2,230 115
Intuit* 2,670 234
Microsoft* 3,465 314
Oracle* 3,000 136
Verisign* 1,550 165
--------
Total Software & programming 1,101
--------
- ----------------------------------------------------------
Telephones & telecommunications--2.7%
- ----------------------------------------------------------
McLeodusa, Cl A* 2,970 126
Nextel Communications, Cl A* 1,470 100
--------
Total Telephones & telecommunications 226
--------
- ----------------------------------------------------------
Total common stocks
(Cost $7,138) 7,450
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--89.8%
(Cost $7,138) 7,450
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--10.2% 846
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $8,296
- ----------------------------------------------------------
* Non-income producing producing security.
Cl - Class
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 41
<PAGE>
Schedule of investments
Turner Short Duration Government Funds-
Three Year Portfolio
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--11.5%
- ----------------------------------------------------------
Fleet Credit Card Master Trust,
Ser 1998-A, Cl A (A)
5.630%, 07/15/2003 $1,400 $1,398
Hyundai Auto Receivables Trust,
Ser 1998-A, Cl A2
6.050%, 07/15/2004 890 889
Olympic Automobile Receivables
Trust, Ser 1996-A, Cl A5
6.000%, 02/15/2002 250 250
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 1,900 1,915
- ----------------------------------------------------------
Total asset-backed securities
(Cost $4,455) 4,452
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--9.0%
- ----------------------------------------------------------
Citicorp Mortgage Securities,
Ser 1994-10, Cl A4
6.250%, 06/25/2024 15 15
Countrywide Home Loans,
Ser 1997-2, Cl A11
7.500%, 04/25/2027 2 2
Goldman Sachs Mortgage Securities,
Ser 1998-C1, Cl A1
6.060%, 10/18/2030 979 946
Residential Funding Mortgage
Securization, Ser 1993-S23, Cl A7
6.500%, 06/25/2008 310 309
Securitized Asset Sales,
Ser 1993-7, Cl TA2
6.250%, 12/25/2023 650 648
Structured Asset Securities,
Ser 1997-2, Cl 1A (A)
7.124%, 10/30/2007 1,559 1,566
- ----------------------------------------------------------
Total collateralized mortgage
obligations (Cost $3,487) 3,486
- ----------------------------------------------------------
- ----------------------------------------------------------
Corporate obligations--4.9%
- ----------------------------------------------------------
Ford Motor Credit
5.750%, 02/23/2004 1,450 1,391
Phillips Petroleum
9.000%, 06/01/2001 500 519
- ----------------------------------------------------------
Face amount Value
(000) (000)
- ----------------------------------------------------------
Total corporate obligations
(Cost $1,906) $1,910
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government agency obligations--0.9%
- ----------------------------------------------------------
FNMA MTN
6.710%, 03/13/2002 $360 361
- ----------------------------------------------------------
Total U.S. government agency obligations
(Cost $362) 361
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government mortgage-
backed bonds--39.7%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1093, Cl F
7.500%, 06/15/2006 408 414
FHLMC CMO/REMIC,
Ser 1361, Cl D
6.000%, 11/15/2005 285 285
FHLMC CMO/REMIC,
Ser 1411, Cl G
6.500%, 07/15/2018 330 331
FHLMC CMO/REMIC,
Ser 1430, Cl G
7.000%, 10/15/2018 491 491
FHLMC CMO/REMIC,
Ser 1457, Cl PH
7.000%, 06/15/2006 834 839
FHLMC CMO/REMIC,
Ser 1465, Cl E
6.500%, 09/15/2006 546 547
FHLMC CMO/REMIC,
Ser 1497, Cl D
6.400%, 02/15/2019 330 330
FHLMC CMO/REMIC,
Ser 1501, Cl F
6.100%, 11/15/2016 275 274
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 2,041 2,114
FHLMC CMO/REMIC,
Ser 1862, Cl FD (A)
6.188%, 12/15/2022 388 389
FHLMC CMO/REMIC,
Ser 1900, Cl FA (A)
5.988%, 03/15/2009 634 636
42 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Schedule of investments
Turner Short Duration Government Funds-
Three Year Portfolio
Face amount Value
(000) (000)
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 2043, Cl CD
6.000%, 09/15/2016 $ 570 $ 565
FHLMC TBA (B)
7.500%, 11/01/2029 1,815 1,823
FHLMC, Pool #G10288
6.000%, 09/01/2009 398 390
FHLMC, Pool #G10446
6.500%, 02/01/2011 824 816
FNMA CMO/REMIC,
Ser 1993-88, Cl F (A)
5.906%, 06/25/2000 850 852
FNMA, Pool #252209
6.000%, 01/01/2019 1,236 1,171
FNMA, Pool #6222
9.000%, 04/01/2016 286 301
FNMA, Pool #8245
8.000%, 12/01/2008 582 596
GNMA ARM (A), Pool #8108
6.375%, 03/20/2016 891 904
GNMA ARM (A), Pool #8254
6.625%, 08/20/2017 85 86
GNMA ARM (A), Pool #8266
6.625%, 09/20/2017 206 210
GNMA ARM (A), Pool #8426
6.125%, 11/20/2018 192 195
GNMA, Pool #351122
6.500%, 07/15/2008 596 592
GNMA, Pool #357343
6.500%, 10/15/2008 245 244
- ----------------------------------------------------------
Total U.S. government
mortgage-backed bonds
(Cost $15,407) 15,395
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--29.9%
- ----------------------------------------------------------
U.S. Treasury Notes
5.750%, 10/31/2000 4,495 4,506
5.000%, 02/28/2001 2,642 2,621
8.000%, 05/15/2001 300 311
6.375%, 08/15/2002 1,600 1,626
7.000%, 07/15/2006 2,309 2,424
6.000%, 08/15/2004 94 95
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $11,598) 11,583
- ----------------------------------------------------------
Face amount Value
(000) (000)
- ----------------------------------------------------------
Repurchase agreement--7.1%
- ----------------------------------------------------------
J.P. Morgan, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$2,758,665 (collateralized by
GNMA, par value $3,846,642,
7.50%, matures 10/15/28: market
value $2,813,838) $2,759 $ 2,759
- ----------------------------------------------------------
Total repurchase agreement
(Cost $2,759) 2,759
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--103.0%
(Cost $39,974) 39,946
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--(3.0%) (1,172)
- ----------------------------------------------------------
- ----------------------------------------------------------
Total net assets--100.0% $38,774
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share-
institutional class shares $9.84
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and redemption
price per share-adviser class shares $9.80
- ----------------------------------------------------------
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of Net Assets
is the rate in effect on September 30, 1999.
(B) When issued security
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
MTN - Medium Term Notes
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
TBA - To be announced
The accompanying notes are an integral part of the financial
statements.
TURNER FUNDS 1999 ANNUAL REPORT | 43
<PAGE>
Statement of net assets
Turner Short Duration Government Funds-
One Year Portfolio
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--1.9%
- ----------------------------------------------------------
Fleet Credit Card Master Trust,
Ser 1998-A, Cl A (A)
5.630%, 07/15/2003 $ 40 $ 40
Hyundai Auto Receivables Trust,
Ser 1998-A, Cl A2
6.050%, 07/15/2004 50 50
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 30 30
- ----------------------------------------------------------
Total asset-backed securities
(Cost $120) 120
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--5.1%
- ----------------------------------------------------------
Morgan Stanley Capital I,
Ser 1997-C1, Cl A1A
6.850%, 02/15/2020 322 323
- ----------------------------------------------------------
Total collateralized mortgage
obligations (Cost $322) 323
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government agency obligations--20.4%
- ----------------------------------------------------------
FHLMC Discount Note
5.330%, 10/13/1999 800 798
FNMA Discount Note
5.293%, 10/06/1999 500 500
- ----------------------------------------------------------
Total U.S. government agency
obligations (Cost $1,299) 1,298
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government
mortgage-backed bonds--63.5%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1301, Cl E
7.000%, 03/15/2005 64 64
FHLMC CMO/REMIC,
Ser 1361, Cl D
6.000%, 11/15/2005 219 218
FHLMC CMO/REMIC,
Ser 1430, Cl G
7.000%, 10/15/2018 186 186
FHLMC CMO/REMIC,
Ser 1457, Cl PH
7.000%, 06/15/2006 133 134
Face amount Value
(000) (000)
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1465, Cl E
6.500%, 09/15/2006 $ 442 $ 443
FHLMC CMO/REMIC,
Ser 1501, Cl F
6.100%, 11/15/2016 9 9
FHLMC CMO/REMIC,
Ser 1506, Cl EA
5.700%, 07/15/2005 200 199
FHLMC CMO/REMIC,
Ser 1549, Cl D
5.850%, 11/15/2005 603 602
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 90 93
FHLMC CMO/REMIC,
Ser 1862, Cl FD (A)
6.188%, 12/15/2022 71 71
FHLMC CMO/REMIC,
Ser 1900, Cl FA (A)
5.988%, 03/15/2009 70 70
FNMA CMO/REMIC,
Ser 1992-70, Cl H
7.000%, 04/25/2006 95 95
FNMA CMO/REMIC,
Ser 1993-76, Cl F (A)
5.906%, 06/25/2008 280 281
FNMA CMO/REMIC,
Ser 1993-88, Cl F (A)
5.906%, 06/25/2000 607 608
FNMA CMO/REMIC,
Ser 1996-35, Cl C
7.000%, 05/25/2020 95 95
GNMA ARM (A), Pool #8108
6.375%, 03/20/2016 217 221
GNMA ARM (A), Pool #8111
6.375%, 03/20/2016 47 48
GNMA ARM (A), Pool #8287
6.125%, 11/20/2017 158 158
GNMA ARM (A), Pool #8297
6.125%, 12/20/2017 67 68
GNMA ARM (A), Pool #8333
6.375%, 03/20/2018 101 102
44 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of investments
Turner Short Duration Government Funds-
One Year Portfolio
Face amount Value
(000) (000)
- ----------------------------------------------------------
GNMA ARM (A), Pool #8392
6.625%,08/20/2018 $ 96 $ 98
GNMA ARM (A), Pool #8405
6.625%, 09/20/2018 77 78
GNMA ARM (A), Pool #8462
6.375%, 02/20/2019 37 38
GNMA ARM (A), Pool #8489
6.375%, 04/20/2019 62 62
- ----------------------------------------------------------
Total U.S. government
mortgage-backed bonds (Cost $4,042) 4,041
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--12.7%
- ----------------------------------------------------------
U.S. Treasury Notes
5.625%, 11/30/1999 180 180
5.750%, 10/31/2000 600 602
5.000%, 02/28/2001 26 26
- ----------------------------------------------------------
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $806) 808
- ----------------------------------------------------------
- ----------------------------------------------------------
Total investments--103.6%
(Cost $6,589) 6,590
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--(3.6%) (228)
- ----------------------------------------------------------
Value
(000)
- ----------------------------------------------------------
Net assets:
- ----------------------------------------------------------
Portfolio shares of institutional class
shares (unlimited authorization--
no par value) based on 319,084
outstanding shares of beneficial interest $3,202
Portfolio shares of adviser class shares
(unlimited authorization--no par
value) based on 312,453 outstanding
shares of beneficial interest 3,156
Accumulated net realized gain on investments 3
Net unrealized appreciation on investments 1
- ----------------------------------------------------------
Total net assets--100.0% $6,362
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share-
institutional class shares $10.05
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and redemption
price per share-adviser class shares $10.10
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of Net Assets
is the rate in effect on September 30, 1999.
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 45
<PAGE>
Statement of net assets
Turner Core High Quality Fixed Income Fund
September 30, 1999
Face amount Value
(000) (000)
- ----------------------------------------------------------
Asset-backed securities--13.6%
- ----------------------------------------------------------
Olympic Automobile Receivables
Trust, Ser 1995-D, Cl A5
6.150%, 07/15/2001 $ 349 $ 349
Spiegel Master Trust,
Ser 1995-A, Cl A
7.500%, 09/15/2004 1,000 1,008
- ----------------------------------------------------------
Total Asset-backed securities
(Cost $1,357) 1,357
- ----------------------------------------------------------
- ----------------------------------------------------------
Collateralized mortgage obligations--0.7%
- ----------------------------------------------------------
Drexel Burnham Lambert CMO/REMIC
Trust, Ser S, Cl 2
9.000%, 08/01/2018 25 25
Goldman Sachs Mortgage Securities II,
Ser 1998-C1, Cl A1
6.060%, 10/18/2030 42 41
- ----------------------------------------------------------
Total Collateralized mortgage
obligations (Cost $67) 66
- ----------------------------------------------------------
- ----------------------------------------------------------
Corporate obligations--1.7%
- ----------------------------------------------------------
Ford Motor Credit
5.750%, 02/23/2004 60 58
Heinz H.J.
6.750%, 10/15/1999 100 100
Phillips Petroleum
9.000%, 06/01/2001 15 16
- ----------------------------------------------------------
Total Corporate obligations (Cost $173) 174
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. government
mortgage-backed bonds--43.3%
- ----------------------------------------------------------
FHLMC CMO/REMIC,
Ser 1538, Cl J
6.500%, 06/15/2008 160 157
FHLMC CMO/REMIC,
Ser 161, Cl F
9.500%, 06/15/2006 380 393
FHLMC, Pool #C16814
7.500%, 10/01/2028 466 469
FHLMC, Pool #C27092
6.000%, 06/01/2029 600 561
FNMA, Pool #251617
6.000%, 03/01/2013 830 801
Face amount Value
(000) (000)
- ----------------------------------------------------------
FNMA, Pool #398280
6.000%, 03/01/2013 $ 114 $ 109
FNMA, Pool #416657
6.000%, 04/01/2028 472 440
FNMA, Pool #421677
6.000%, 03/01/2028 93 86
FNMA, Pool #481600
6.000%, 02/01/2029 35 33
FNMA, Ser 1993-198, Cl K
6.000%, 12/25/2022 834 784
FNMA, Ser 1998-63, Cl PG
6.000%, 03/25/2027 100 92
GNMA ARM (A), Pool #8103
6.375%, 02/20/2016 57 57
GNMA TBA (B)
7.500%, 10/01/2029 50 50
GNMA, Pool #484384
7.500%, 09/15/2028 113 113
GNMA, Pool #491479
6.500%, 06/15/2029 199 191
- ----------------------------------------------------------
Total U.S. government mortgage-
backed bonds (Cost $4,437) 4,336
- ----------------------------------------------------------
- ----------------------------------------------------------
U.S. Treasury obligations--37.7%
- ----------------------------------------------------------
U.S. Treasury Bonds
7.875%, 02/15/2021 200 233
8.125%, 05/15/2021 1,070 1,277
7.000%, 07/15/2006 2,143 2,250
6.000%, 08/15/2004 17 17
- ----------------------------------------------------------
Total U.S. Treasury obligations
(Cost $3,918) 3,777
- ----------------------------------------------------------
- ----------------------------------------------------------
Repurchase agreement--1.3%
- ----------------------------------------------------------
Morgan Stanley, 5.00%, dated 09/30/99,
matures 10/01/99, repurchase price
$125,797, (collateralized by U.S.
Treasury Notes, par value $121,269,
7.250%, matures 08/15/04: market
value $128,715) 126 126
- ----------------------------------------------------------
Total repurchase agreement
(Cost $126) 126
- ----------------------------------------------------------
46 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
Statement of Net Assets
Turner Core High Quality Fixed Income Fund
Value
(000)
- ----------------------------------------------------------
Total investments--98.3%
(Cost $10,078) $ 9,836
- ----------------------------------------------------------
- ----------------------------------------------------------
Other assets and liabilities, net--1.7% 173
- ----------------------------------------------------------
- -----------------------------------------------------------
Net assets:
- -----------------------------------------------------------
Portfolio Shares (unlimited authorization--
no par value) based on 1,009,986
outstanding shares of beneficial interest 10,357
Accumulated net realized loss on investments (106)
Net unrealized depreciation on investments (242)
- ----------------------------------------------------------
Total net assets--100.0% $10,009
- ----------------------------------------------------------
- ----------------------------------------------------------
Net asset value, offering and
redemption price per share $9.91
- ----------------------------------------------------------
- ----------------------------------------------------------
(A) Floating rate security. The rate reflected on the Statement of
Net Assets
is the rate in effect on September 30, 1999.
(B) When issued security
ARM - Adjustable Rate Mortgage
Cl - Class
CMO - Collateralized Mortgage Obligation
FHLMC - Federal Home Loan Mortgage Obligation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REMIC - Real Estate Mortgage Investment Conduit
Ser - Series
TBA - To be announced
The accompanying notes are an integral part of the
financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 47
<PAGE>
Statement of assets and liabilities (000)
<TABLE>
<CAPTION>
Turner Growth Turner Midcap
Equity Fund Growth Fund
- ----------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
- ----------------------------------------------------------------------------------------------------
Investment securities at cost $ 130,938 $ 137,433
- ----------------------------------------------------------------------------------------------------
Investment securities at value 143,761 148,692
Cash 1 --
Dividend and interest receivable 46 22
Receivable for investment securities sold 9,934 8,896
Capital shares sold 161 467
Other receivable -- --
Other assets 18 19
- ----------------------------------------------------------------------------------------------------
Total assets 153,921 158,096
- ----------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 1,757 5,303
Capital shares redeemed 9,162 3,957
Accrued expenses 178 6
- ----------------------------------------------------------------------------------------------------
Total liabilities 11,097 9,266
- ----------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 92,958 118,551
Portfolio capital of adviser class shares -- --
Accumulated net investment loss -- (6)
Accumulated net realized gain (loss) on investments 37,043 19,026
Net unrealized appreciation (depreciation) on investments 12,823 11,259
- ----------------------------------------------------------------------------------------------------
Total net assets $ 142,824 $ 148,830
- ----------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 8,991,335 5,830,229
Adviser class shares -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 15.88 $ 25.53
- ----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ --
- ----------------------------------------------------------------------------------------------------
48 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<CAPTION>
Turner Micro Cap Turner
Growth Fund Top 20 Fund
- -------------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
- -------------------------------------------------------------------------------------------------------
Investment securities at cost $ 10,263 $ 15,065
- -------------------------------------------------------------------------------------------------------
Investment securities at value 12,858 15,871
Cash -- --
Dividend and interest receivable -- --
Receivable for investment securities sold 738 3,227
Capital shares sold 41 627
Other receivable -- --
Other assets 17 1
- -------------------------------------------------------------------------------------------------------
Total assets 13,654 19,726
- -------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 641 3,580
Capital shares redeemed -- 13
Accrued expenses 50 21
- -------------------------------------------------------------------------------------------------------
Total liabilities 691 3,614
- -------------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 8,153 12,765
Portfolio capital of adviser class shares -- --
Accumulated net investment loss -- --
Accumulated net realized gain (loss) on investments 2,215 2,541
Net unrealized appreciation (depreciation) on investments 2,595 806
- -------------------------------------------------------------------------------------------------------
Total net assets $ 12,963 $ 16,112
- -------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 614,741 1,152,022
Adviser class shares -- --
- -------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 21.09 $ 13.99
- -------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ --
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Turner Government Funds-
Technology Fund Three Year Portfolio
- -----------------------------------------------------------------------------------------------------------------
9/30/99 9/30/99
- -----------------------------------------------------------------------------------------------------------------
Assets:
- -----------------------------------------------------------------------------------------------------------------
Investment securities at cost $ 7,138 $ 39,974
- -----------------------------------------------------------------------------------------------------------------
Investment securities at value 7,450 39,946
Cash 141 --
Dividend and interest receivable 1 322
Receivable for investment securities sold 1,550 1,679
Capital shares sold 516 200
Other receivable -- 66
Other assets -- 4
- -----------------------------------------------------------------------------------------------------------------
Total assets 9,658 42,217
- -----------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investment securities purchased 1,338 3,176
Capital shares redeemed 14 85
Accrued expenses 10 182
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,362 3,443
- -----------------------------------------------------------------------------------------------------------------
Net assets:
Portfolio capital of institutional class shares 6,716 38,966
Portfolio capital of adviser class shares -- 87
Accumulated net investment loss -- (34)
Accumulated net realized gain (loss) on investments 1,268 (217)
Net unrealized appreciation (depreciation) on investments 312 (28)
- -----------------------------------------------------------------------------------------------------------------
Total net assets $ 8,296 $ 38,774
- -----------------------------------------------------------------------------------------------------------------
Outstanding shares of beneficial interest:
Institutional class shares 589,991 3,933,129
Adviser class shares -- 8,909
- -----------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-institutional class shares $ 14.06 $ 9.84
- -----------------------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share-adviser class shares $ -- $ 9.80
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 49
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of operations (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth Turner Midcap Turner Small Cap
Growth Equity Fund Equity Fund Growth Fund Growth Fund
- -----------------------------------------------------------------------------------------------------------------------
year ended year ended year ended year ended
9/30/99 9/30/99 9/30/99 9/30/99
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividend $ 36 $ 605 $ 210 $291
Interest 4 101 137 259
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 40 706 347 550
- -----------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 57 987 524 2,008
Investment advisory fee waiver (57) -- (2) (67)
Administrator fees 65 117 70 176
Administrator fee waiver -- -- -- --
Custodian fees 5 15 14 20
Transfer agent fees 21 96 46 271
Professional fees 15 58 40 70
Trustee fees 2 3 5 5
Registration fees 13 (10) 33 (1)
Pricing fees -- 1 1 2
Printing fees 1 47 13 58
Shareholder service fees -- -- -- --
Amortization of
deferred organizational
costs 4 5 5 4
Insurance and other fees -- 28 2 14
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 126 1,347 751 2,560
Less: Reimbursements from adviser (50) -- -- --
Directed brokerage -- (132) (28) (50)
- -----------------------------------------------------------------------------------------------------------------------
Net expenses 76 1,215 723 2,510
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (36) (509) (376) (1,960)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
from securities sold 1,821 37,857 20,948 61,638
Net unrealized appreciation
(depreciation) of
investment securities 307 658 10,401 30,895
- -----------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments 2,128 38,515 31,349 92,533
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resultin
from operations $2,092 $38,006 $30,973 $90,573
- -----------------------------------------------------------------------------------------------------------------------
50 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<CAPTION>
Turner Micro Cap Turner Turner Technology
Growth Fund Top 20 Fund Fund
- --------------------------------------------------------------------------------------------------
year ended 7/1/99 thru 7/1/99 thru
9/30/99 9/30/99(+) 9/30/99(+)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend $ 16 $ 2 $ 1
Interest 13 9 4
- --------------------------------------------------------------------------------------------------
Total investment income 29 11 5
- --------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 66 26 12
Investment advisory fee waiver (66) (19) (12)
Administrator fees 68 16 16
Administrator fee waiver -- (10) (10)
Custodian fees 4 2 2
Transfer agent fees 20 7 7
Professional fees 8 3 2
Trustee fees 3 -- --
Registration fees 11 6 4
Pricing fees 1 -- --
Printing fees 5 1 --
Shareholder service fees -- -- --
Amortization of deferred
organizational costs 3 -- --
Insurance and other fees -- -- 1
- --------------------------------------------------------------------------------------------------
Total expenses 123 32 22
Less: Reimbursements from adviser (64) -- (7)
Directed brokerage -- -- --
- --------------------------------------------------------------------------------------------------
Net expenses 59 32 15
- --------------------------------------------------------------------------------------------------
Net investment income (loss) (30) (21) (10)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) from
securities sold 2,292 2,562 1,278
Net unrealized appreciation
(depreciation) of
investment securities 2,652 806 312
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 4,944 3,368 1,590
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $4,914 $3,347 $1,580
- --------------------------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds-
------------------------- Turner Core
Three Year One Year High Quality
Portfolio Portfolio Fixed Income Fund
- --------------------------------------------------------------------------------------------
year ended year ended 7/1/99 thru
9/30/99 9/30/99 9/30/99(+)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend $ -- $ -- $ --
Interest 1,304 101 151
- --------------------------------------------------------------------------------------------
Total investment income 1,304 101 151
- --------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 51 5 12
Investment advisory fee waiver (51) (5) (12)
Administrator fees 46 17 16
Administrator fee waiver -- -- (10)
Custodian fees 6 9 2
Transfer agent fees 35 31 7
Professional fees 54 21 3
Trustee fees 2 2 --
Registration fees 38 19 7
Pricing fees 4 1 --
Printing fees 27 16 1
Shareholder service fees -- 1 --
Amortization of deferred
organizational costs -- -- --
Insurance and other fees 2 -- 1
- --------------------------------------------------------------------------------------------
Total expenses 214 117 27
Less: Reimbursements from adviser (165) (116) (16)
Directed brokerage -- -- --
- --------------------------------------------------------------------------------------------
Net expenses 49 1 11
- --------------------------------------------------------------------------------------------
Net investment income (loss) 1,255 100 140
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from
securities sold (177) -- (106)
Net unrealized appreciation
(depreciation) of
investment securities (264) (1) 18
- --------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (441) (1) (88)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 814 $ 99 $ 52
- --------------------------------------------------------------------------------------------
</TABLE>
(+) Commenced operations on July 1, 1999.
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 51
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Large Cap Turner Growth
Growth Equity Fund Equity Fund
- ----------------------------------------------------------------------------------------------------------------------------
year year year year
ended ended ended ended
9/30/99 9/30/98 9/30/99 9/30/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (36) $ (2) $ (509) $ (378)
Net realized gain (loss) from
securities sold 1,821 (170) 37,857 17,188
Net unrealized appreciation
(depreciation) of investments 307 169 658 (7,481)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 2,092 (3) 38,006 9,329
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- (1) -- --
Realized capital gains -- (72)
(12,236) (26,503)
Return of capital -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (73) (12,236) (26,503)
- ----------------------------------------------------------------------------------------------------------------------------
Capital share transactions:(1)
Proceeds from shares issued 4,366 3,876 34,770 22,658
Proceeds from shares issued in
lieu of cash distributions -- 73 11,874 25,911
Increase from In-Kind Transfer -- -- 4,270 --
Cost of shares redeemed (2,327) (246) (31,717) (33,128)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 2,039 3,703 19,197 15,441
- ----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,131 3,627 44,967 (1,733)
- ----------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 4,328 701 97,857 99,590
- ----------------------------------------------------------------------------------------------------------------------------
End of year (4) $8,459 $4,328 $142,824 $97,857
- ----------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 255 282 2,274 1,638
Issued in lieu of cash distributions -- 6 890 2,320
Issued in connection with In-Kind Transfer -- -- 273 --
Redeemed (134) (18) (2,051) (2,339)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 121 270 1,386 1,619
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Commenced operations on March 1, 1998.
(3) Commenced operations on July 1, 1999.
(4) Includes undistributed net investment income (loss) and/or distributions in
excess of net investment income (000) of $(6) and $(3) for the Midcap Growth
Fund, and $(0) and $(1) for the Small Cap Growth Fund as of September 30,
1999, and September 30, 1998, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0
The accompanying notes are an integral part of the financial statements.
52 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Turner Midcap Turner Small Cap
Growth Fund GrowthFund
- -------------------------------------------------------------------------------------------------------------------------------
year year year year
ended ended ended ended
9/30/99 9/30/98 9/30/99 9/30/98
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (376) $ (124) $(1,960) $ (1,609)
Net realized gain (loss) from
securities sold 20,948 (1,546) 61,638 (6,168)
Net unrealized appreciation
(depreciation) of investments 10,401 524 30,895 (22,875)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 30,973 (1,146) 90,573 (30,652)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- -- -- --
Realized capital gains -- (358) -- (1,521)
Return of capital -- -- -- (1,148)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (358) -- (2,669)
Capital share transactions:(1)
Proceeds from shares issued 127,616 28,977 87,818 96,936
Proceeds from shares issued in
lieu of cash distributions -- 320 -- 2,289
Increase from In-Kind Transfer -- -- -- --
Cost of shares redeemed (34,341) (8,356) (71,848) (71,832)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 93,275 20,941 15,970 27,393
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 124,248 19,437 106,543 (5,928)
Net assets:
Beginning of year 24,582 5,145 147,534 153,462
- -------------------------------------------------------------------------------------------------------------------------------
End of year (4) $148,830 $24,582 $254,077 $147,534
- -------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 5,625 1,939 3,160 3,783
Issued in lieu of cash distributions -- 24 -- 99
Issued in connection with In-Kind Transfer -- -- -- --
Redeemed (1,567) (553) (2,596) (2,840)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 4,058 1,410 564 1,042
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Turner Micro Cap Turner Turner
Growth Fund Top 20 Fund Technology Fund
- ---------------------------------------------------------------------------------------------------------------------------------
year 3/1/98 7/1/99 7/1/99
ended thru thru thru
9/30/99 9/30/98 (2) 9/30/99(3) 9/30/99 (3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment loss $ (30) $ (11) $ (21) $ (10)
Net realized gain (loss) from
securities sold 2,292 (47) 2,562 1,278
Net unrealized appreciation
(depreciation) of investments 2,652 (57) 806 312
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 4,914 (115) 3,347 1,580
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income -- -- -- --
Realized capital gains -- -- -- --
Return of capital -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- --
Capital share transactions:(1)
Proceeds from shares issued 6,101 3,087 13,557 7,914
Proceeds from shares issued in
lieu of cash distributions -- -- -- --
Increase from In-Kind Transfer -- -- -- --
Cost of shares redeemed (895) (129) (792) (1,198)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
from capital share transactions 5,206 2,958 12,765 6,716
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 10,120 2,843 16,112 8,296
Net assets:
Beginning of year 2,843 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (4) $12,963 $2,843 $16,112 $8,296
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Issued 380 300 1,223 696
Issued in lieu of cash distributions -- -- -- --
Issued in connection with In-Kind Transfer -- -- -- --
Redeemed (53) (12) (71) (106)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in capital shares 327 288 1,152 590
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 ANNUAL REPORT | 53
<PAGE>
Statement of changes in net assets (000)
<TABLE>
<CAPTION>
Turner Short Duration Government Funds-
Three Year Portfolio
- --------------------------------------------------------------------------------------------------------------
year ended 3/1/98 thru year ended
9/30/99 9/30/98 2/28/98
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment activities:
Net investment income $ 1,255 $ 469 $ 967
Net realized gain (loss) from securities sold (177) 74 54
Net unrealized appreciation (depreciation) of investments (264) 119 98
- --------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 814 662 1,119
- --------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (1,258) (461) (966)
Adviser class (1) -- --
Realized capital gains
Institutional class (156) (10) --
Adviser class -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (1,415) (471) (966)
- --------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 10,962 666 3,854
Proceeds from shares issued in lieu of cash distributions 1,276 476 967
Increase from In-Kind transfers 18,947 -- --
Cost of shares redeemed (3,912) (4,862) (7,239)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 27,273 (3,720) (2,418)
- --------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued 192 -- --
Proceeds from shares issued in lieu of cash distributions 1 -- --
Cost of shares redeemed (106) -- --
- --------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 87 -- --
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions 27,360 (3,720) (2,418)
- --------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 26,759 (3,529) (2,265)
- --------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 12,015 15,544 17,809
- --------------------------------------------------------------------------------------------------------------
End of year (3) $38,774 $12,015 $15,544
- --------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 1,100 66 383
Issued in lieu of cash distributions 128 47 96
Issued in connection with In-Kind Transfers 1,926 -- --
Redeemed (393) (481) (722)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 2,761 (368) (243)
- --------------------------------------------------------------------------------------------------------------
Adviser class
Issued 20 -- --
Issued in lieu of cash distributions -- -- --
Redeemed (11) -- --
- --------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 9 -- --
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 2,770 (368) (243)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Commenced operations on July 1, 1999.
(3) Includes undistributed net investment income (000) of $(34), $10 and $2 for
the Three Year Fund, $0, $2 and $0 for the One Year Fund, as of September
30, 1999, September 30, 1998 and February 28, 1998, respectively.
Amounts designated as "--" are either $0 or have been rounded to $0 The
accompanying notes are an integral part of the financial statements.
54 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Turner Short Duration Turner Core
Government Funds- High Quality
One Year Portfolio Fixed Income Fund
- ----------------------------------------------------------------------------------------------------------------------------------
year ended 3/1/98 thru year ended 7/1/99 thru
9/30/99 9/30/98 2/28/98 9/30/99 (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment activities:
Net investment income $ 100 $ 37 $ 66 $ 140
Net realized gain (loss) from securities sold -- 1 1 (106)
Net unrealized appreciation (depreciation) of investments (1) -- 1 18
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 99 38 68 52
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income
Institutional class (77) (35) (66) (140)
Adviser class (25) -- -- --
Realized capital gains
Institutional class -- (1) -- --
Adviser class -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (102) (36) (66) (140)
- ----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions: (1)
Institutional class
Proceeds from shares issued 3,414 5 827 18
Proceeds from shares issued in lieu of cash distributions 76 36 66 139
Increase from In-Kind transfers -- -- -- 10,120
Cost of shares redeemed (1,272) (247) (564) (180)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
institutional class transactions 2,218 (206) 329 10,097
- ----------------------------------------------------------------------------------------------------------------------------------
Adviser class
Proceeds from shares issued 3,642 -- -- --
Proceeds from shares issued in lieu of cash distributions 23 -- -- --
Cost of shares redeemed (509) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 3,156 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from capital
share transactions 5,374 (206) 329 10,097
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 5,371 (204) 331 10,009
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 991 1,195 864 --
- ----------------------------------------------------------------------------------------------------------------------------------
End of year (3) $6,362 $ 991 $1,195 $10,009
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Shares issued and redeemed:
Institutional class
Issued 340 -- 82 2
Issued in lieu of cash distributions 8 4 7 14
Issued in connection with In-Kind Transfers -- -- -- 1,012
Redeemed (127) (56) (18) (18)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from institutional class transactions 221 (21) 33 1,010
- ----------------------------------------------------------------------------------------------------------------------------------
Adviser class
Issued 360 -- -- --
Issued in lieu of cash distributions 2 -- -- --
Redeemed 50 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from adviser class transactions 312 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in capital shares 533 (21) 33 1,010
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TURNER FUNDS 1999 ANNUAL REPORT | 55
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
Net Realized and
asset Net unrealized Distributions Distributions
value, investment gains from net from Return Net asset
beginning income (losses) on investment capital OF value end
of period (loss) investments income gains capital of period
- -------------------------------------------------------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $13.22 (0.08) 5.76 -- -- -- $18.90
1998 $12.28 (0.01) 1.98 (0.01) (1.02) -- $13.22
1997 (1) $10.00 0.01 2.27 -- -- -- $12.28
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 $12.87 (0.05) 4.66 -- (1.60) -- $15.88
1998 $16.64 (0.05) 1.10 -- (4.82) -- $12.87
1997 $17.03 (0.03) 4.23 -- (4.59) -- $16.64
1996 (2) $14.97 0.02 2.91 (0.02) (0.85) -- $17.03
1995 $12.46 0.10 2.52 (0.11) -- -- $14.97
1994 $13.12 0.10 (0.66) (0.10) -- -- $12.46
- -------------------------
Turner Midcap Growth Fund
- -------------------------
1999 $13.87 (0.06) 11.72 -- -- -- $25.53
1998 $14.22 (0.07) 0.22 -- (0.50) -- $13.87
1997 (3) $10.00 (0.03) 4.36 -- (0.11) -- $14.22
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 $21.49 (0.26) 12.97 -- -- -- $34.20
1998 $26.35 (0.23) (4.19) -- (0.25) (0.19) $21.49
1997 $23.13 (0.07) 3.80 -- (0.51) -- $26.35
1996 (2) $16.08 (0.08) 8.17 -- (1.04) -- $23.13
1995 $10.90 (0.06) 5.24 -- -- -- $16.08
1994 (4) $10.00 (0.02) 0.92 -- -- -- $10.90
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) $ 9.88 (0.05) 11.26 -- -- -- $21.09
1998 (6) $10.00 (0.04) (0.08) -- -- -- $ 9.88
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) $10.00 (0.02) 4.01 -- -- -- $13.99
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) $10.00 (0.02) 4.08 -- -- -- $14.06
</TABLE>
* Annualized
+ Returns are for the period indicated and have not been annualized.
(1) Commenced operations on February 1, 1997.
(2) On April 19, 1996, the Board of Trustees of the Adviser Inner Circle Funds
voted to approve a tax-free reorganization of the Turner Funds. In
connection with the reorganization, the Funds changed their fiscal year end
from October 31 to September 30, effective September 30, 1996.
(3) Commenced operations on October 1, 1996.
(4) Commenced operations on February 7, 1994.
56 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Ratio of Ratio of
net expenses net expenses expenses
to average net to average Ratio of net to average
Net assets (including net assets investment net assets
assets end directed (including income (loss) (excluding
Total of period brokerage waivers and to average waivers and
return+ (000) arrangements) reimbursements) net assets reimbursements)
- ----------------------------------------------------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 42.97% $ 8,459 1.00% 1.00% (0.47)% 2.41%
1998 17.26% $ 4,328 1.00% 1.00% (0.10)% 7.70%
1997 (1) 22.80% $ 701 1.00%* 1.00%* 0.20%* 26.45%*
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 38.16% $142,824 0.92% 0.96% (0.42)% 0.96%
1998 10.71% $ 97,857 1.00% 1.04% (0.42)% 1.12%
1997 32.61% $ 99,590 0.96% 1.02% (0.25)% 1.05%
1996 (2) 20.61% $ 96,164 0.94%* 1.06%* 0.03%* 1.06%*
1995 21.15% $115,819 0.94% 1.03% 0.69% 1.03%
1994 (4.28)% $112,959 0.95% 0.95% 0.86% 1.08%
- -------------------------
Turner Midcap Equity Fund
- -------------------------
1999 84.07% $148,830 1.03% 1.08% (0.58)% 1.08%
1998 1.24% $ 24,582 1.23% 1.34% (0.79)% 1.73%
1997 (3) 43.77% $ 5,145 1.25%* 1.25%* (0.62)%* 7.96%*
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 59.14% $254,077 1.25% 1.27% (1.00)% 1.31%
1998 (16.90)% $147,534 1.25% 1.28% (0.99)% 1.41%
1997 16.64% $153,462 1.24% 1.24% (0.84)% 1.33%
1996 (2) 52.90% $ 67,425 1.25%* 1.25%* (0.88)%* 1.54%*
1995 47.52% $ 13,072 1.25% 1.25% (0.68)% 2.39%
1994 (4) 12.35% $ 4,806 1.09%* 1.09%* (0.27)%* 4.32%*
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) 113.46% $ 12,963 0.90% 0.90% (0.47)% 2.86%
1998 (6) (1.20)% $ 2,843 1.25%* 1.25%* (0.64)%* 8.18%*
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) 39.90% $ 16,112 1.35%* 1.35%* (0.87)%* 2.55%*
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) 40.60% $ 8,296 1.35%* 1.35%* (0.87)%* 3.89%*
<CAPTION>
- ---------------------------------------------------------------------------------
Ratio of net
investment
income (loss)
to average
net assets
(excluding Portfolio
waivers and turnover
reimbursements) rate
- ---------------------------------------------------------------------------------
Turner Large Cap Growth Equity Fund (formerly Turner Ultra Large Cap Growth Fund)
- ---------------------------------------------------------------------------------
<S> <C> <C>
1999 (1.88)% 370.71%
1998 (6.80)% 234.93%
1997 (1) (25.25)% 346.47%
- -------------------------
Turner Growth Equity Fund
- -------------------------
1999 (0.42)% 328.26%
1998 (0.50)% 249.58%
1997 (0.28)% 178.21%
1996 (2) 0.03%* 147.79%
1995 0.69% 177.86%
1994 0.73% 164.81%
- -------------------------
Turner Midcap Equity Fund
- -------------------------
1999 (0.58)% 290.79%
1998 (1.18)% 304.29%
1997 (3) (7.33)%* 348.29%
- ----------------------------
Turner Small Cap Growth Fund
- ----------------------------
1999 (1.04)% 223.61%
1998 (1.12)% 167.73%
1997 (0.93)% 130.68%
1996 (2) (1.17)%* 149.00%
1995 (1.82)% 183.49%
1994 (4) (3.50)%* 173.92%
- ----------------------------
Turner Micro Cap Growth Fund
- ----------------------------
1999 (5) (2.43)% 239.32%
1998 (6) (7.57)%* 128.53%
- ------------------
Turner Top 20 Fund
- ------------------
1999 (7) (2.07)%* 369.11%
- ----------------------
Turner Technology Fund
- ----------------------
1999 (7) (3.41)%* 317.32%
</TABLE>
(5) On January 25, 1999 shareholders of the Alpha Select Turner Micro Cap
Growth Fund (the "Funds") approved a tax-free reorganization under which
all assets and liabilities of the Fund were transferred to the TIP Turner
Micro Cap Growth Fund.
(6) Commenced operations on March 1, 1998.
(7) Commenced operations on July 1, 1999.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 57
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Realized and
Net asset unrealized Distributions Distributions
value, Net gains from net from Net asset Net assets
beginning investment (losses) on investment capital value end Total end of
of period income investments income gains of period return+ period (000)
- ------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (1) $10.25 0.55 (0.27) (0.55) (0.14) $ 9.84 2.89% $38,687
1998 (2) $10.10 0.35 0.15 (0.34) (0.01) $10.25 5.09% $12,015
1998 (3) $10.00 0.59 0.10 (0.59) -- $10.10 7.07% $15,544
1997 $10.04 0.58 (0.01) (0.59) (0.02) $10.00 5.45% $17,809
1996 $ 9.80 0.60 0.23 (0.59) -- $10.04 8.73% $11,027
1995 (4) $10.00 0.61 (0.22) (0.59) -- $ 9.80 4.08% $ 7,065
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) $ 9.95 0.68 (0.13) (0.70) -- $ 9.80 5.64% $ 87
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) $10.09 0.54 (0.02) (0.56) -- $10.05 5.34% $ 3,207
1998 (2) $10.08 0.35 -- (0.33) (0.01) $10.09 3.50% 991
1998 (3) $10.06 0.60 0.02 (0.60) -- $10.08 6.34% 1,195
1997 $10.03 0.60 0.03 (0.60) -- $10.06 6.32% 864
1996 $ 9.99 0.64 0.05 (0.65) -- $10.03 7.09% 398
1995 (4) $10.00 0.53 (0.02) (0.52) -- $ 9.99 5.21% 145
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) $10.11 0.47 0.02 (0.50) -- $10.10 5.00% $ 3,155
1998 (7) $10.08 0.30 0.03 (0.30) -- $10.11 3.26% --
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) $10.00 0.14 (0.09) (0.14) -- $ 9.91 0.48% $10,009
</TABLE>
* Annualized
+ Returns are for the period indicated and have not been annualized.
(1) On January 25, 1999 shareholders of the Alpha Select Turner Short Duration
Government Funds-Three Year Portfolio (the "Fund") approved a tax-free
reorganization under which all assets and liabilities of the Fund were
transferred to the TIP Turner Short Duration Government Funds-Three Year
Portfolio.
(2) On November 10, 1997 the Board of Trustees of TIP Institutional Funds
(formerly, The Solon Funds) approved a change in the Turner Short Duration
Government Funds Three Year and One Year Portfolios' year end from February
28 to September 30, effective March 1, 1998.
(3) On January 22, 1998, shareholders of both the Three Year and One Year Funds
approved a change in the advisor from Solon Asset Management, L.P. to
Turner Investment Partners, Inc.
(4) Commenced operations on March 1, 1994.
(5) Commenced operations on April 28, 1999.
58 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net
Ratio of investment
expenses income (loss)
Ratio of net to average to average Average Average
Ratio of investment net assets net assets debt debt
net expenses income (excluding (excluding per share outstanding
to average to average waivers and waivers and Interest during during
net assets net assets reimbursements) reimbursements) expense the period (9) the period (9)(10)
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 (1) 0.24% 6.21% 1.31% 5.14% -- -- --
1998 (2) 0.24%* 5.84%* 1.49%* 4.59%* -- -- --
1998 (3) 0.24% 5.85% 1.21% 4.88% -- -- --
1997 0.24% 5.80% 1.21% 4.83% 0.02% $0.04 $ 56,238
1996 0.24% 6.18% 1.45% 4.97% 0.12% $0.28 $256,115
1995 (4) 0.15% 6.21% 1.18% 5.18% 0.04% $0.08 $ 75,604
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) 0.48%* 5.71%* 0.95%* 5.24%* -- -- --
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) 0.00% 5.50% 6.53% (1.03)% -- -- --
1998 (2) 0.00%* 5.88%* 10.83%* (4.95)%* -- -- --
1998 (3) 0.00% 5.97% 8.83% (2.86)% -- -- --
1997 0.00% 5.91% 10.25% (4.34)% -- -- --
1996 0.00% 6.46% 16.47% (10.01)% -- -- --
1995 (4) 0.00% 5.74% 27.89% (22.15)% -- -- --
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) 0.23% 5.13% 6.76% (1.40)% -- --
1998 (7) 0.25%* 5.63%* 11.08%* (5.20)%* -- -- --
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) 0.45%* 5.67%* 1.99%* 4.13%* -- -- --
<CAPTION>
- --------------------------------------------------------------------------------
Average
shares
outstanding Portfolio
during turnover
the period rate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Institutional
- --------------------------------------------------------------------------
1999 (1) -- 257.98%
1998 (2) -- 121.63%
1998 (3) -- 197.03%
1997 1,320,830 279.00%
1996 901,238 251.00%
1995 (4) 895,472 405.00%
- --------------------------------------------------------------------
Turner Short Duration Government Funds-Three Year Portfolio--Adviser
- --------------------------------------------------------------------
1999 (5) -- 257.98%
- ------------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Institutional
- ------------------------------------------------------------------------
1999 (6) -- 154.33%
1998 (2) -- 96.56%
1998 (3) -- 68.80%
1997 -- 81.82%
1996 -- --
1995 (4) -- --
- ------------------------------------------------------------------
Turner Short Duration Government Funds-One Year Portfolio--Adviser
- ------------------------------------------------------------------
1999 (6) -- 154.33%
1998 (7) -- 96.56%
- ------------------------------------------
Turner Core High Quality Fixed Income Fund
- ------------------------------------------
1999 (8) -- 39.70%
</TABLE>
(6) On May 24, 1999 shareholders of the Alpha Select Turner Short Duration
Government Funds-One Year Portfolio (the "Fund") approved a tax-free
reorganization under which all assets and liabilities of the Fund were
transferred to the TIP Turner Short Duration Government Funds-One Year
Portfolio.
(7) Commenced operations on February 27, 1998.
(8) Commenced operations on July 1, 1999.
(9) Average based upon amounts outstanding at each month end.
(10) There was no debt outstanding at the end of any period presented.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
TURNER FUNDS 1999 ANNUAL REPORT | 59
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Notes to financial statements
September 30, 1999
1. Organization:
TIP Funds (the "Trust"), a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company with 19 portfolios. The financial statements included herein
are those of the Turner Large Cap Growth Equity Fund (formerly Turner Ultra
Large Cap Growth Fund) (the "Large Cap Growth Equity Fund"), the Turner Growth
Equity Fund (the "Growth Equity Fund"), the Turner Midcap Growth Fund (the
"Midcap Growth Fund"), the Turner Small Cap Growth Fund (the "Small Cap Growth
Fund"), the Turner Micro Cap Growth Fund (the "Micro Cap Growth Fund"), the
Turner Top 20 Fund (the "Top 20 Fund"), the Turner Technology Fund (the
"Technology Fund"), the Turner Short Duration Government Funds-Three Year
Portfolio (the "Three Year Portfolio"), the Turner Short Duration Government
Funds-One Year Portfolio (the "One Year Portfolio"), and the Turner Core High
Quality Fixed Income Fund (the "Core High Quality Fixed Income Fund") (each a
"fund" and collectively the "Funds"). The Turner Short Duration Government
Funds-Three Year and One Year Portfolios are registered to offer two classes of
shares, Institutional Class Shares and Adviser Class Shares. The financial
statements of the remaining portfolios are presented separately. The assets of
each fund are segregated, and a shareholder's interest is limited to the fund in
which shares are held. The Funds' prospectus provides a description of each
fund's investment objectives, policies, and strategies.
As of September 30, 1999, the Turner International Growth Fund and the Turner
Focused Large Cap Equity Fund had not yet commenced operations.
The Turner Small Cap Growth Fund was closed to new investors as of August 30,
1997.
2. Significant accounting policies:
The following is a summary of the significant accounting policies followed by
the Funds.
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. Market value
for debt obligations is determined on the basis of last reported sales price,
or if no sales are reported, as is the case with most securities traded over
the counter, the mean between representative bid and asked quotations.
Short-term securities with maturities of 60 days or less may be carried at
amortized cost, which approximates market value. Fixed income securities for
which market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed
income securities whose prices are more readily obtainable and whose
durations are comparable to the securities being valued. Subject to the
foregoing, other securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board
of Trustees.
Federal income taxes--It is each 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.
Securities purchased on a when-issued or delayed delivery basis may be
settled a month or more after the trade date. Such securities are included in
the portfolio and are subject to market fluctuations during this period. On
the date of the commitment to purchase or sell, the Funds designate specific
assets with a current value at least equal to the amount of the commitment to
be used for settling the commitment.
Net asset value per share--The net asset value per share of each 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
60 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
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 funds may be delayed or limited.
Expenses--Expenses that are directly related to one of the funds 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 to shareholders--Distributions from net investment income are
declared and paid to Shareholders at least annually for the Large Cap Growth
Equity Fund, the Midcap Growth Fund, the Small Cap Growth Fund, the Micro Cap
Growth Fund, the Top 20 Fund, and the Technology Fund; quarterly for the
Growth Equity Fund; and declared daily and paid monthly for the Three Year
Portfolio, One Year Portfolio and the Core High Quality Fixed Income Fund.
Any net realized capital gains on sales of securities for all Funds are
distributed to Shareholders at least annually.
Dividends from net investment income and distributions from net realized
capital gains are determined in accordance with U.S. Federal income tax
regulations. Certain book/tax differences are either temporary or permanent
in nature. To the extent these differences are permanent, they are charged or
credited to paid-in-capital or accumulated net realized gain, as appropriate,
in the period that the differences arise.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and expenses
during the reported period. Actual results could differ from those estimates.
3. Organization costs and transactions with affiliates:
Organization costs have been capitalized by each Fund and are being amortized
over a period of sixty months. In the event any of the initial shares of a Fund
are redeemed by any holder thereof during the period that such Fund is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof by a Fund will be reduced by the unamortized organizational costs
in the same ratio as the number of shares outstanding at the time of redemption.
Certain officers of the Trust are also officers of SEI Investments Mutual Funds
Services (the "Administrator") and/or SEI Investments Distribution Co. (the
"Distributor"). Such officers are paid no fees by the Trust for serving as
officers and trustees of the Trust.
4. Administration, shareholder servicing, and distribution agreements:
The Trust and the Administrator are parties to an agreement under which the
Administrator provides management and administrative services for an annual fee.
For these administrative services, the Administrator is entitled to a fee from
the Trust, which is calculated daily and paid monthly, at an annual rate of .09%
of the Trust's average daily net assets up to $250 million, .07% on the next
$250 million, .06% on the next $250 million, .05% on the next $1.25 billion and
.04% of such assets in excess on $2 billion. Each Fund is subject to a minimum
annual fee of $65,000 for the first class of shares and $15,000 for each
additional class of shares, which may be reduced at the sole discretion of the
Administrator.
The Growth Equity Fund, the Midcap Growth Fund, and the Small Cap Growth Fund
have directed certain portfolio trades to brokers who paid a portion of its
expenses. For the period ended September 30, 1999, the Funds expenses were
reduced by $131,755, $27,561 and $50,019 respectively, under this arrangement.
DST Systems, Inc., (the "Transfer Agent"), serves as the transfer agent and
dividend disbursing agent for the Funds under a transfer agency agreement with
the Trust.
Prior to January 1, 1998, administrative services were provided to the Three
Year and One Year Funds by Solon Asset Management, L.P. for an annual fee of
.07% of the average daily net assets of each Fund.
The Trust and the Distributor are parties to a Distribution Agreement dated
April 28, 1996. The Distributor receives no fees for its distribution services
under this agreement.
The Three Year and One Year Portfolios have adopted a shareholder service plan
and agreement for their Adviser Class Shares. Under the shareholder service plan
and agreement both funds pay the Distributor a shareholder servicing fee at an
annual rate of 0.25% of the average daily net assets of the Adviser Class Shares
of each fund.
TURNER FUNDS 1999 ANNUAL REPORT | 61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. Investment advisory agreement:
The Trust and Turner Investment Partners, Inc. the "Adviser" are parties to an
Investment Advisory Agreement dated April 28, 1996 under which the Adviser
receives an annual fee equal to .75% of the average daily net assets of the
Large Cap Growth Equity, Growth Equity, and Midcap Growth Equity Funds, 1.00% of
the Small Cap Growth and Micro Cap Growth Funds, 1.10 of the Top 20 and
Technology Funds, .25% of the Three Year and One Year Funds and .50% of the Core
High Quality Fixed Income Fund. The Adviser has voluntarily agreed to waive all
or a portion of its fees and to reimburse expenses in order to limit their total
operating expenses (as a percentage of daily net assets on an annualized basis)
to not more than 1.00% of the Large Cap Growth Equity and Growth Equity Funds,
1.25% of the Small Cap Growth, Midcap Growth Equity and Micro Cap Growth Funds,
1.35% of the Top 20 and Technology Funds, .36% and .61% of the Three Year and
One Year Funds, Institutional shares and Adviser shares, respectively, and .45%
of the Core High Quality Fixed Income Fund. Fee waivers and expense
reimbursements are voluntary and may be terminated at any time. On January 1,
1998, Turner Investment Partners, Inc., acquired substantially all of the assets
and liabilities of Solon Asset Management, L.P. (the Three Year Portfolio and
One Year Portfolio prior investment adviser).
6. Investment transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended September 30, 1999, are as follows
(000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner
Large Cap Growth Midcap Small Cap Micro Cap Turner
Growth Equity Growth Growth Growth Top 20
Equity Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases
Government -- -- -- -- -- --
Other 29,486 427,617 286,698 452,858 20,391 58,450
Sales
Government -- -- -- -- -- --
Other 27,386 422,503 199,990 442,558 15,633 46,112
- --------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds Turner Core
Turner ---------------------- High Quality
Technology Three Year One Year Fixed Income
Fund Portfolio Portfolio Fund
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases
Government -- 56,149 1,354 5,661
Other 23,591 3,201 372 142
Sales
Government -- 31,026 688 3,465
Other 17,731 6,090 191 938
- --------------------------------------------------------------------------
</TABLE>
At September 30, 1999, the total cost of securities for Federal income tax
purposes was $8,150,595 for the Large Cap Growth Equity Fund, $15,277,927 for
the Top 20 Fund, and $7,237,620 for the Technology Fund. The cost of securities
and net realized gains or losses on securities sold for the remaining Funds was
not materially different from amounts reported for financial reporting purposes.
The aggregate gross unrealized appreciation and depreciation for securities held
by the Funds at September 30, 1999, are as follows (000):
<TABLE>
<CAPTION>
Turner Turner Turner Turner Turner
Large Cap Growth Midcap Small Cap Micro Cap Turner
Growth Equity Growth Growth Growth Top 20
Equity Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation 762 17,202 18,406 48,240 2,976 1,153
Aggregate gross
unrealized
depreciation (354) (4,379) (7,147) (13,159) (381) (560)
- --------------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) 408 12,823 11,259 35,081 2,595 593
- --------------------------------------------------------------------------------
<CAPTION>
Turner Short Duration
Government Funds Turner Core
Turner ----------------------- High Quality
Technology Three Year One Year Fixed Income
Fund Portfolio Portfolio Fund
- ----------------------------------------------------------------------------
Aggregate gross
unrealized
appreciation 596 91 5 8
Aggregate gross
unrealized
depreciation (384) (119) (4) (250)
- ----------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) 212 (28) 1 (242)
- ----------------------------------------------------------------------------
</TABLE>
62 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
7. In Kind Transfers of Securities
During the period ended September 30, 1999, the Growth Equity Fund issued
273,210 shares of beneficial interest in exchange for portfolio assets from
certain accounts managed by Turner Investment Partners, Inc., at their then
current value of $4,270,277.
During the period ended September 30, 1999, the Three Year Portfolio issued
1,925,533 shares of beneficial interest in exchange for portfolio assets from
certain accounts managed by Turner Investment Partners, Inc., at their then
current value of $18,947,249.
During the period ended September 30, 1999, the Core HighQuality Fixed Income
Fund issued 1,012,284 shares of beneficial interest in exchange for portfolio
assets from certain accounts managed by Turner Investment Partners, Inc., at
their then current value of $10,120,317 which includes $260,485 of net
unrealized loss.
8. Line of credit:
Pursuant to a credit agreement dated May 21, 1997, First Union National Bank
provides an uncommitted line of credit to the Large Cap Growth Equity Fund, the
Growth Equity Fund, the Midcap Growth Fund and the Small Cap Growth Fund,
Portfolios of the TIP Funds, for short-term or emergency purposes, such as
funding shareholder redemptions. These loans are for the respective benefit of
and repayable from the respective assets of each Fund. The aggregate principal
amount of all borrowings may not exceed 10% of each Fund, net assets and the
maximum principal amount that the Bank will loan is $10,000,000. Borrowings
under the line of credit are charged interest based on the federal funds rate
determined at the date of borrowing and are secured by investment securities of
the borrowing portfolio. Each Fund is individually, and not jointly, liable for
its particular advances under the line. There is no commitment fee on the unused
portion of the line of credit. There were no borrowings under the line of credit
during the period ended September 30, 1999.
TURNER FUNDS 1999 ANNUAL REPORT | 63
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the TIP Funds:
We have audited the accompanying statements of net assets of the Turner Large
Cap Growth Fund, the Turner Small Cap Growth Fund, the Turner Short Duration
Government Funds -- One Year Portfolio, and the Turner Core High Quality Fixed
Income Fund and the statement of assets and liabilities of the Turner Growth
Equity Fund, the Turner Mid Cap Growth Fund, the Turner Micro Cap Growth Fund,
the Turner Top 20 Fund, the Turner Technology Fund and the Turner Short Duration
Government Funds -- Three Year Portfolio, including the schedules of portfolio
investments, as of September 30, 1999, and the related statements of operations
for the year then ended, the statements of changes in net assets for the periods
presented therein and the financial highlights for the periods ended September
30, 1996 through September 30, 1999 presented therein. We have also audited the
financial highlights for the periods ended February 28, 1995 and February 28,
1996 for the Turner Short Duration Government Funds -- Three Year Portfolio and
the Turner Short Duration Government Funds -- One Year Portfolio. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the periods ended October 31, 1994 and October 31, 1995 for the
Turner Growth Equity Fund and the Turner Small Cap Growth Fund were audited by
other auditors whose report dated December 5, 1995 expressed an unqualified
opinion on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
TIP Funds at September 30, 1999, the results of their operations for the year
then ended, the changes in their net assets for each of the periods presented
therein, and financial highlights for the periods ended September 30, 1996
through September 30, 1999 presented therein, and for the periods ended February
28, 1995 and February 28, 1996 presented therein for the Turner Short Duration
Government Funds -- Three Year Portfolio and the Turner Short Duration
Government Funds -- One Year Portfolio in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
-----------------------------------
Philadelphia, Pennsylvania
November 8, 1999
64 | TURNER FUNDS 1999 ANNUAL REPORT
<PAGE>
EVENT SUBSEQUENT TO AUDITOR'S REPORT (unaudited)
On February 25, 2000, the Board of Trustees of the TIP Funds approved a Plan to
reorganize the Turner Growth Equity Fund into a similar fund that is being
created by the Vanguard Group called the Vanguard Growth Equity Fund, subject to
shareholder and regulatory approval.
<PAGE>
- --------------------------------------------------------------------------------
Notice to Shareholders
of
Turner Funds
(Unaudited)
For shareholders that do not have a September 30, 1999 tax year end, this notice
is for informational purposes only. For shareholders with a September 30, 1999,
please consult your tax advisor as to the pertinence of this notice. For the
fiscal year ended September 30, 1999, each portfolio is designating the
following items with regard to distributions paid during the year.
<TABLE>
<CAPTION>
Long Term
(20% Rate) Ordinary
Capital Gain Income Tax Exempt Total Qualifying
Fund Distributions Distributions Interest Distributions Dividends (1)
---- ------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Turner Large Cap Growth Equity Fund ......... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Growth Equity Fund ................... 66.75% 33.25% 0.00% 100.00% 4.38%
Turner Midcap Growth Fund ................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Small Cap Growth Fund ................ 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Micro Cap Growth Fund ................ 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Top 20 Fund .......................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Technology Fund ...................... 0.00% 0.00% 0.00% 0.00% 0.00%
Turner Short Duration Government
Funds-Three Year Portfolio ............. 3.43% 96.57% 0.00% 100.00% 0.00%
Turner Short Duration Government
Funds-One Year Portfolio ............... 0.00% 100.00% 0.00% 100.00% 0.00%
Turner Core High Quality Fixed Income ....... 0.00% 100.00% 0.00% 100.00% 0.00%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction and is reflected as a percentage of "Ordinary
Income Distributions".
TURNER FUNDS 1999 ANNUAL REPORT | 65
<PAGE>
- --------------------------------------------------------------------------------
NOTES
<PAGE>
- --------------------------------------------------------------------------------
NOTES
<PAGE>
[LOGO OMITTED]
TURNER
--------
FUNDS
--------------------------------
Turner Funds
1235 Westlake Drive
Berwyn, Pennsylvania 19312
Telephone: 1-800=224-6312
Email: [email protected]
Web Site: www.turner-invest.com
Exhibit 99.17(d)
Subject to Completion
Preliminary Prospectus
Dated March 2, 2000
Vanguard
Growth Equity Fund
Prospectus
_____, 2000
This prospectus contains financial data for the Fund through the fiscal year
ended September 30, 1999.
Information contained in this prospectus is subject to completion or amendment.
A registration statement for Vanguard Growth Equity Fund has been filed with the
Securities and Exchange Commission but has not yet become effective.This new
Fund is being formed through the proposed reorganization of an existing fund,
known as Turner Growth Equity Fund. Shareholders of Turner Growth Equity Fund
may or may not approve the reorganization proposal. If the proposal is not
approved by shareholders, the registration statement previously filed for
Vanguard Growth Equity Fund will be withdrawn.
Shares of Vanguard Growth Equity Fund may not be sold, nor may offers to buy be
accepted, prior to the time the registration statement becomes effective. This
communication shall not constitute an offer to buy, nor shall there be any sale
of these securities in any states in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
A MEMBER OF
THE VANGUARD GROUP[R]
<PAGE>
Vanguard Growth Equity Fund
Prospectus
__________ , 2000
A Growth Stock Mutual Fund
CONTENTS
o Fund Profile
o Additional Information
o A Word About Risk
o Who Should Invest
o Primary Investment Strategies
o The Fund and Vanguard
o Investment Advisers
o Dividends, Capital Gains, and Taxes
o Share Price
o Financial Highlights
o Investing with Vanguard
o Services and Account Features
o Types of Accounts
o Buying Shares
o Redeeming Shares
o Transferring Registration
o Fund and Account Updates
Glossary (inside back cover)
- --------------------------------------------------------------------------------
Why Reading This Prospectus Is Important
This prospectus explains the objective, risks, and strategies of Vanguard
Growth Equity Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
1
Fund Profile
The following profile summarizes key features of Vanguard Growth Equity Fund.
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
INVESTMENT STRATEGIES
The Fund invests primarily in common stocks and other equity securities of U.S.
companies with medium and large-capitalizations that are believed to have strong
earnings growth potential and to be reasonably valued at the time of purchase.
The Fund will invest in securities of companies that are diversified across
economic sectors, and will attempt to maintain sector weightings that
approximate those of the Russell 1000 Growth Index.
PRIMARY RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
[bullet] Investment style risk, which is the chance that returns from medium and
large-capitalization growth stocks will trail returns from other asset
classes or the overall stock market.
[bullet] Manager risk, which is the chance that poor security selection will
cause the Fund to underperform other funds with similar investment
objectives.
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years, and since inception, compare with those of a
broad-based securities market index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.*
- --------------------------------------------------------------------------------
Annual Total Returns
- --------------------------------------------------------------------------------
[BAR GRAPH OMITTED]
1993 15.38%
1994 -6.73%
1995 29.96%
1996 19.23%
1997 31.36%
1998 38.07%
1999 53.60%
- --------------------------------------------------------------------------------
The Fund's year-to-date return as of the most recent calendar quarter ended
March 31, 2000, was _____%.
- --------------------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 39.67% (quarter ended December 31,1999) and the lowest return for a
quarter was -8.85% (quarter ended September 30,1998).
* Prior to ____ 2000, Vanguard Growth Equity Fund was organized as Turner Growth
Equity Fund and was sponsored by Turner Investment Partners, LLC, its
investment adviser. The reorganization brought the Fund into the Vanguard
Group, while maintaining the same investment objective, strategies and
adviser.
<PAGE>
2
- --------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1999
- --------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Vanguard Growth Equity Fund 53.60% 33.98% 23.68%
Russell 1000 Growth Index 33.16 34.21 22.08
- --------------------------------------------------------------------------------
*March 11, 1992
- --------------------------------------------------------------------------------
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based on amounts now in effect.*
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID directly FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the fund's assets)
Management Expenses: ____%
12b-1 Distribution Fee: None
Other Expenses: ____%
Total Annual Fund Operating Expenses: 0.65%
</TABLE>
* The information in the table has been restated to reflect current expenses
rather than last year's expenses because these amounts changed materially when
the Fund became a member of The Vanguard Group on ____, 2000.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$---- $---- $---- $----
- --------------------------------------------------------------------------------
This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>
3
PLAIN TALK ABOUT Fund Expenses All mutual funds have operating expenses. These
expenses, which are deducted from a fund's gross income, are expressed as a
percentage of the net assets of the fund. Vanguard Growth Equity Fund's
estimated expense ratio for its first full year of operations as a Vanguard fund
is 0.65%, or $6.50 per $1,000 of average net assets. The average growth and
equity mutual fund had expenses in 1999 of _____%, or $_____ per $1,000 of
average net assets, (derived from data provided by Lipper Inc., which reports on
the mutual fund industry)*.
PLAIN TALK ABOUT
The Costs of Investing
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
Additional Information
Dividends and Capital Gains
Distributed ____________
Investment Adviser
Turner Investment Partners, Inc.
Berwyn, PA, since inception
Inception Date
March 11, 1992
Net Assets as of September 30, 1999
$142.8 million
Suitable for IRAs
Yes
Minimum Initial Investment
$10,000; $1,000 for IRAs and custodial accounts for minors
Newspaper Abbreviation
- -------
Vanguard Fund Number
- -------
Cusip Number
- -------
Ticker Symbol
- -------
- --------------------------------------------------------------------------------
A Word About Risk
This prospectus describes risks you would face as an investor in Vanguard Growth
Equity Fund. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Growth Equity Fund,
you should also take into account your personal tolerance for the daily
fluctuations of the stock market.
Look for this [FLAG SYMBOL] symbol throughout the prospectus. It is used to
mark detailed information about each type of risk that you would confront as a
shareholder of the Fund.
- --------------------------------------------------------------------------------
<PAGE>
4
Who Should Invest
The Fund may be a suitable investment for you if:
[bullet] You wish to add a growth equity fund to your existing holdings, which
could include other stock investments as well as bond, money market,
and tax-exempt investments.
[bullet] You are seeking growth of capital over the long term--at least five
years.
[bullet] You are not looking for current income.
[bullet] You are seeking a fund that emphasizes companies with established
records of growth.
The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
PLAIN TALK ABOUT
Costs and Market-Timing
Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
The Fund has adopted the following policies, among others, to discourage
short-term trading:
[bullet] The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to
the efficient management of the Fund. A purchase request could be
rejected because of the timing of the investment or because of a
history of excessive trading by the investor.
[bullet] There is a limit on the number of times you can exchange into and out
of the Fund (see "Redeeming Shares" in the Investing with Vanguard
section).
[bullet] The Fund reserves the right to stop offering shares at any time.
PLAIN TALK ABOUT
Growth Funds and Value Funds
Growth investing and value investing are two styles employed by stock fund
managers. Growth funds generally focus on companies believed to have above-
average potential for growth in revenue and earnings. Reflecting the market's
high expectations for superior growth, the prices of such stocks are typically
above-average in relation to such measures as revenue, earnings, and book
value. Generally, growth stocks have below-average dividend yields relative to
value stocks. Value funds generally emphasize stocks of companies from which the
market does not expect strong growth. The prices of value stocks typically are
below-average in comparison to such factors as earnings and book value, and
these stocks typically have above-average dividend yields. Growth and value
stocks have, in the past, produced similar long-term returns, though each
category has periods when it outperforms the other.
<PAGE>
5
Primary Investment Strategies
This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective, long-term capital appreciation. It also explains how
the adviser implements these strategies. In addition, this section discusses
several important risks--market risk, investment style risk, and manager
risk--faced by investors in the Fund.
The Fund's Board of Trustees oversees the management of the Fund and may change
the investment strategies in the interest of shareholders.
PLAIN TALK ABOUT
Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks of publicly traded companies--and mutual funds that hold these stocks--
can be classified by the companies' market value, or capitalization. Market
capitalization changes over time, and there is no "official" definition of the
boundaries of large-, mid-, and small-cap stocks. Vanguard generally defines
large-capitalization (large-cap) funds as those holding stocks of companies
whose outstanding shares have a market value exceeding $12 billion; mid-cap
funds as those holding stocks of companies with a market value between $1
billion and $12 billion; and small-cap funds as those typically holding stocks
of companies with a market value of less than $1 billion. Vanguard periodically
reassesses these classifications.
Market Exposure
The Fund invests primarily in the common stocks of U.S. companies with medium
and large capitalizations, that are believed to have strong earnings growth
potential and that are reasonably valued at the time of purchase.
[FLAG SYMBOL] The Fund is subject to market risk, which is the possibility that
stock prices overall will decline over short or even long periods. Stock markets
tend to move in cycles, with periods of rising prices and periods of falling
prices.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.
- --------------------------------------------------------------------------------
U.S. Stock Market Returns (1926-1999)
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
- --------------------------------------------------------------------------------
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on stocks
for all of the 5-year periods
<PAGE>
6
was 11.0%, returns for individual 5-year periods ranged from a -12.4% average
(from 1928 through 1932) to 28.6% (from 1995 through 1999). These average
returns reflect past performance on common stocks; you should not regard them as
an indication of future returns from either the stock market as a whole or this
Fund in particular.
[FLAG SYMBOL] The Fund is subject to investment style risk, which is the
possibility that returns from medium and large-capitalization growth stocks will
trail returns from other asset classes or the overall stock market. As a group,
medium and large-capitalization growth stocks tend to go through cycles of doing
better--or worse--than common stocks in general. These periods have, in the
past, lasted for as long as several years.
PLAIN TALK ABOUT
Fund Diversification
In general, the more diversified a fund's stock holdings, the less likely it is
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of its assets represented by its ten
largest holdings. The average U.S. equity mutual fund has about 34% of its
assets invested in its ten largest holdings, while some less-diversified funds
have more than 50% of their assets invested in the stocks of just ten companies.
Security Selection
Turner Investment Partners, Inc. (Turner), the Fund's adviser, seeks to buy
stocks of companies with strong earnings dynamics, and sell those with
deteriorating earnings prospects. Turner believes forecasts for market timing
and sector rotation are unreliable, and introduce an unacceptable level of risk.
Turner also believes that it is imprudent to be overly invested in any
individual security. Accordingly, Turner invests the Fund's assets across major
economic sectors and attempts to maintain sector exposure that approximates its
performance benchmark, the Russell 1000 Growth Index (the "Index"). In addition,
Turner generally invests no more than 2% of the Fund's assets in any one
security. However, a security's weighting within the Fund at the time of
purchase may equal up to twice its weighting within the Index, if such security
represents between 1% and 5% of the Index. For securities representing more than
5% of the Index, the Fund may invest in up to one and one-half times the Index
weighting. This policy allows Turner's stock selection process to be the primary
determinant of performance.
The Fund is run by Turner according to traditional methods of active
investment management. This means that securities are bought and sold according
to Turner's judgments about companies and their financial prospects, within the
context of the stock market and the economy in general.
The Fund is generally managed without regard to tax ramifications.
[FLAG SYMBOL] The Fund is subject to manager risk, which is the possibility that
the adviser may do a poor job of selecting stocks.
Turnover Rate
The Fund retains the right to sell securities regardless of how long the
securities have been held. Historically, due to its investment strategy, the
Fund has had a high turnover rate. The
<PAGE>
7
Fund's average turnover rate for the past five years has been about 216%. (A
turnover rate of 100% would occur, for example, if the Fund sold and replaced
securities valued at 100% of its net assets within a one-year period.)
PLAIN TALK ABOUT
Turnover Rate
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. The average turnover rate for all domestic stock funds is
approximately 86%, according to Morningstar, Inc.
Other Investment Policies and Risks
Besides investing in common stocks of growth companies, the Fund may make
certain other kinds of investments to achieve its objective.
The Fund may invest a portion of its assets in securities that are
convertible to common stocks, warrants, rights to purchase common stocks, and
American Depository Receipts (ADRs).
The Fund may also invest in stock futures, stock index futures, and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small movement in a futures contract may result in an immediate and substantial
loss (or gain) for a fund. This Fund will not use futures for speculative
purposes or as leveraged investments that magnify the gains or losses of an
investment. The Fund's obligation to purchase securities under futures contracts
will not exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
[bullet] To keep cash on hand to meet shareholder redemptions or other needs
while simulating full investment in stocks.
[bullet] To reduce the Fund's transaction costs or add value when these
instruments are favorably prices.
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.
<PAGE>
8
PLAIN TALK ABOUT
Derivatives
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
The Fund and Vanguard
The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 distinct investment portfolios holding assets worth
more than $___ billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.
PLAIN TALK ABOUT
Vanguard's Unique Corporate Structure
The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
Investment Adviser
The Fund employs Turner Investment Partners, Inc. ("Turner"), 1235 Westlakes
Drive, Suite 350, Berwyn, PA 19312 as its investment adviser. Turner manages the
Fund subject to the control of the Trustees and officers of the Fund.
Turner's advisory fee is paid quarterly. The fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter. In addition, the quarterly fee is increased or decreased based upon
Turner's performance in comparison to its benchmark index. For these purposes,
Turner's cumulative investment performance over a trailing 36-month period is
compared to the cumulative total return of the Russell 1000 Growth Index over
the same period.
For the fiscal year ended September 30, 1999, the investment advisory fees
paid to Turner represented an effective annual rate of 0.75% of the Fund's
average net assets. (Please note that these fees were calculated under a prior
advisory agreement. Had the
<PAGE>
9
current fee schedule been in place for fiscal 1999, the investment advisory fee
would have represented an effective annual rate of ___% of the Fund's average
net assets.)
The Fund has authorized Turner to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, Turner may
choose brokers who charge higher commissions. If more than one broker can obtain
the best available price and favorable execution of a transaction, then Turner
is authorized to choose a broker who, in addition to executing the transaction,
will provide research services to Turner or the Fund. Also, the Fund may direct
Turner to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for Turner or as an additional adviser. However, any such change
will be communicated to shareholders in writing.
PLAIN TALK ABOUT
The Fund's Adviser
Turner Investment Partners, Inc. is a professional advisory firm founded in
1990, specializing in growth equity investing. As of March 31, 2000, Turner had
discretionary management authority with respect to approximately $____ billion
in assets, including 10 non-Vanguard mutual funds with $____ in assets.
Robert E. Turner, CFA, Chairman and Chief Investment Officer of Turner since co-
founding the firm in 1990; has worked in investment management since 1981; B.S.
and M.B.A., Bradley University.
John Hammerschmidt, Senior Equity Portfolio Manager of Turner since 1992; has
worked in investment management since 1983; B.S., Lehigh University; M.B.A.,
Duke University.
Christopher McHugh, Senior Equity Portfolio Manager of Turner since 1990; has
worked in investment management since 1986; B.S., Philadelphia College of
Textiles and Science; M.B.A., St. Joseph's University.
Mark Turner, President of Turner since co-founding the firm in 1990; has worked
in investment management since 1982; B.S., Bradley University; M.B.A.,
University of Illinois.
PLAIN TALK ABOUT
Distributions
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term depending
on whether the fund held the securities for one year or less, or more than one
year.
<PAGE>
10
Dividends, Capital Gains, and Taxes
FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.
BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
[bullet] Distributions are taxable to you whether or not you reinvest these
amounts in additional Fund shares.
[bullet] Distributions declared in December--if paid to you by the end of
January--are taxable for federal income tax purposes as if received in
December.
[bullet] Any dividends and short-term capital gains that you receive are taxable
to you as ordinary income for federal income tax purposes.
[bullet] Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how
long you've owned shares in the Fund.
[bullet] Capital gains distributions may vary considerably from year to year as
a result of the Fund's normal investment activities and cash flows.
[bullet] A sale or exchange of Fund shares is a taxable event. This means that
you may have a capital gain to report as income, or a capital loss to
report as a deduction, when you complete your federal income tax
return.
[bullet] State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from
any sale or exchange of Fund shares.
GENERAL INFORMATION
Backup withholding. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
[bullet] provide us with your correct taxpayer identification number;
[bullet] certify that the taxpayer identification number is correct; and
[bullet] confirm that you are not subject to backup withholding.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.
Foreign investors. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
Invalid addresses. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
Tax consequences. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.
<PAGE>
11
PLAIN TALK ABOUT
"Buying a Dividend"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: on December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
Share Price
The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of regular trading on the New York Stock Exchange
(the NAV is not calculated on holidays or other days when the Exchange is
closed). Net asset value per share is computed by adding up the total value of
the Fund's investments and other assets, subtracting any of its liabilities
(debts), and then dividing by the number of Fund shares outstanding:
Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding
Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A Note on Pricing: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is _____.
Financial Highlights
The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). This information has been derived from the financial
statements audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.
<PAGE>
12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Vanguard Growth Equity Fund(4)
Year Ended September 30,
-----------------------------------------------------------------------
Six
Months
Ended
March
31, 2000 1999 1998 1997 1996(2) 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.87 $16.64 $17.03 $14.97 $2.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income (0.05) (0.05) (0.03) 0.02 0.10
Net Realized and Unrealized Gain (Loss) on Investments 4.66 1.10 4.23 2.91 2.52
----------------------------------------------------------------------
Total from Investment Operations 4.61 1.05 4.20 2.93 2.62
----------------------------------------------------------------------
Distributions
Dividends from Net Investment Income -- -- -- (0.02) (0.11)
Distributions from Realized Capital Gains (1.60) (4.82) (4.59) (0.85)
Total Distributions (1.60) (4.82) (4.59) (0.87) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.88 $12.87 $16.64 $17.03 $14.97
====================================================================================================================================
Total Return(1) 38.16% 10.71% 32.61% 20.61% 21.15%
====================================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Thousands) $142,824 $97,857 $99,590 $96,164 $115,819
Ratio of Total Expenses to Average Net Assets 0.96% 1.04% 1.02% 1.06%(3) 1.03%
Ratio of Net Income (Loss) to Average Net Assets (0.42)% (0.42)% (0.25)% 0.03%(3) 0.69%
Ratio of Expenses to Average Net Assets (excluding waivers) 0.96% 1.12% 1.05% 1.06%(3) 1.03%
Ratio of Net Investment Income (Loss) to Average Net Assets
(excluding waivers) (0.42)% (0.50)% (0.28) 0.03%(3) 0.69%
Turnover Rate 328.26% 249.58% 178.21% 147.79% 177.86%
====================================================================================================================================
</TABLE>
(1) Returns are for the period indicated and have not been annualized.
(2) On April 19, 1996, the Board of Trustees of the Fund voted to approve a
tax-free reorganization of the Fund. In connection with the reorganization,
the Fund changed its fiscal year end from October 31 to September 30,
effective September 30, 1996.
(3) Annualized.
(4) The Fund was organized as Turner Growth Equity Fund, and was not a member of
the Vanguard Group. On o, 2000, the Fund acquired all assets and liabilities
of Turner Growth Equity Fund in a tax-free reorganization. The Fund had no
operations prior to the reorganization.
<PAGE>
13
PLAIN TALK ABOUT
How to Read the Financial Highlights Table
The Fund began fiscal 1999 with a net asset value (price) of $12.87 per share.
During the year, the Fund's expenses exceeded its investment income by $0.05 per
share. The Fund earned $4.66 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.
Shareholders received $1.60 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
The earnings ($4.61 per share) minus the distributions ($1.60 per share)
resulted in a share price of $15.88 at the end of the year. This was an increase
of $4.01 per share (from $12.87 at the beginning of the year to $15.88 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was 38.16% for the year.
As of September 30, 1999, the Fund had $142.824 million in net assets. For the
year, its expense ratio was 0.96% ($9.60 per $1,000 of net assets); and its net
investment income amounted to (0.42)% of its average net assets. It sold and
replaced securities valued at 328.26% of its net assets.
<PAGE>
14
Investing with Vanguard
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer. Booklets providing detailed information are available on the services
marked with a [BOOKLET SYMBOL]. Please call us to request copies.
Services and Account Features
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
Telephone Redemptions (Sales and Exchanges)
Automatically set up for this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
Vanguard Direct Deposit Service [BOOKLET SYMBOL]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service [BOOKLET SYMBOL]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [BOOKLET SYMBOL]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend ExpressTM [BOOKLET SYMBOL]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
Vanguard Tele-Account(R) 1-800-662-6273 (ON-BOARD) [BOOKLET SYMBOL]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------
Access VanguardTM www.vanguard.com [COMPUTER SYMBOL]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:
[bullet] Open a new account.*
[bullet] Buy, sell, or exchange shares of most funds.
[bullet] Change your name/address.
<PAGE>
15
[bullet] Add/change fund options (including dividend options, Vanguard Fund
Express, bank instructions, checkwriting, and Vanguard Automatic
Exchange Service). (Some restrictions may apply.) Please call our
Client Services Department for assistance.
*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
Investor Information Department: 1-800-662-7447 (SHIP) Text Telephone:
1-800-952-3335 Call Vanguard for information on our funds, fund services, and
retirement accounts, and to request literature.
- --------------------------------------------------------------------------------
Client Services Department: 1-800-662-2739 (CREW) Text Telephone: 1-800-749-7273
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
Services for Clients of Vanguard's Institutional Division: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
Types of Accounts
Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
For One or More People
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
For Holding Personal Trust Assets [BOOKLET SYMBOL]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [BOOKLET SYMBOL]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
For an Organization [BOOKLET SYMBOL]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
For Third-Party Trustee Retirement Investments
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
Vanguard Prototype Plans
Open a variety of retirement accounts
using Vanguard prototype plans for individuals, sole proprietorships, and small
businesses. For more information, please call 1-800-662-2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A Note on Investing with Vanguard Through Other Firms
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------
<PAGE>
16
Buying Shares
You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
Minimum Investment to . . .
open a new account
$10,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).
add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A Note on Low Balances
The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
- --------------------------------------------------------------------------------
By Mail to . . . [ENVELOPE SYMBOL]
open a new account
Complete and sign the account registration form and enclose your check.
add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form. Please do not alter Invest-By-Mail
forms, since they are fund-and account-specific.
Make your check payable to: The Vanguard Group - ________
All purchases must be made in U.S. dollars, and checks must be drawn on
U.S. banks.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
By Telephone to . . . [PHONE SYMBOL]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type).
<PAGE>
17
add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.) Use Vanguard Fund Express (see
Services and Account Features) to transfer assets from your bank account. Call
Client Services before your first use to verify that this option is available.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you have requested a telephone transaction and a
confirmation number has been assigned, the transaction cannot be revoked. We
reserve the right to refuse any purchase request.
- --------------------------------------------------------------------------------
By Wire to Open a New Account or Add to an Existing Account [WIRE SYMBOL
OMITTED]
Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.
Wire to:
FRB ABA 021001088
HSBC Bank USA
For credit to:
Account: 000112046
Vanguard Incoming Wire Account
In favor of:
Vanguard Growth Equity Fund - ___________
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A Note on Large Purchases
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------
<PAGE>
18
Redeeming Shares
This section describes how you can redeem--that is, sell or exchange--the Fund's
shares.
When Selling Shares:
[bullet] Vanguard sends the redemption proceeds to you or a designated third
party.*
[bullet] You can sell all or part of your Fund shares at any time.
*May require a signature guarantee; see footnote on page 20. A signature
guarantee may be obtained from most commercial and savings banks, credit
unions, trust companies, or member firms of a U.S. stock exchange.
When Exchanging Shares:
[bullet] The redemption proceeds are used to purchase shares of a different
Vanguard fund.
[bullet] You must meet the receiving fund's minimum investment requirements.
[bullet] Vanguard reserves the right to revise or terminate the exchange
privilege, limit the amount of an exchange, or reject an exchange at
any time, without notice.
[bullet] In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification
number), you must include the guaranteed signatures of all current
account owners on your written instructions.
In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
Note: Once a redemption is initiated and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------
HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
The Vanguard funds whose shares you cannot exchange online or by telephone
are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund, Vanguard
International Stock Index Funds, Vanguard REIT Index Fund, Vanguard Total
International Stock Index Fund, and Vanguard Growth and Income Fund.
These funds do, however, permit online and telephone exchanges within IRAs and
other retirement accounts. If you sell shares of these funds online, you will
receive a redemption check at your address of record.
- --------------------------------------------------------------------------------
Online Requests [SYMBOL OF COMPUTER OMITTED]
Access Vanguard at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).
- --------------------------------------------------------------------------------
Telephone Requests [SYMBOL OF PHONE OMITTED]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.
<PAGE>
19
Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable
to provide:
[bullet] The ten-digit account number.
[bullet] The name and address exactly as registered on the account.
[bullet] The primary Social Security or employer identification number as
registered on the account.
[bullet] The Personal Identification Number, if applicable (for instance, Tele-
Account).
Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A Note on Unusual Circumstances
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
Mail Requests [SYMBOL OF ENVELOPE OMITTED]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
Vanguard Retirement Accounts:
For information on how to request distributions from:
[bullet] Traditional IRAs and Roth IRAs--call Client Services.
[bullet] SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing
and Money Purchase Pension (Keogh) Plans--call Individual Retirement
Plans at 1-800-662-2003.
Depending on your account registration type, additional documentation may
be required.
<PAGE>
20
Redeeming Shares (continued)
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division ...
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A Note on Large Redemptions
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for+cash.
- --------------------------------------------------------------------------------
OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express redemption.
- --------------------------------------------------------------------------------
Check Redemptions
Normally, Vanguard will mail your check within two business days of
a redemption.
- --------------------------------------------------------------------------------
Exchange Redemptions
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
Fund Express Redemptions
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.
- --------------------------------------------------------------------------------
FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:
Request in "Good Order"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
[bullet] The Fund name and account number.
[bullet] The amount of the transaction (in dollars or shares).
[bullet] Signatures of all owners exactly as registered on the account (for mail
requests).
[bullet] Signature guarantees (if required).*
[bullet] Any supporting legal documentation that may be required.
[bullet] Any outstanding certificates representing shares to be redeemed.
*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most banks, credit unions,
and licensed brokers.
<PAGE>
21
Transactions are processed at the next-determined share price after Vanguard has
received all required information.
- --------------------------------------------------------------------------------
Limits on Account Activity
Because excessive account transactions can disrupt the management of the Fund
and increase the Fund's costs for all shareholders, Vanguard limits account
activity as follows:
[bullet] You may make no more than two substantive "round trips" through the
Fund during any 12-month period.
[bullet] Your round trips through the Fund must be at least 30 days apart.
[bullet] The Fund may refuse a share purchase at any time, for any reason.
[bullet] Vanguard may revoke an investor's telephone exchange privilege at any
time, for any reason.
A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, a "round trip" covers transactions accomplished by any
combination of methods, including transactions conducted by check, wire, or
exchange to/from another Vanguard fund. "Substantive" means a dollar amount that
Vanguard determines, in its sole discretion, could adversely affect the
management of the Fund.
- --------------------------------------------------------------------------------
Return Your Share Certificates
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
All Trades Are Final
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
Uncashed Checks
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
Transferring Registration
You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
<PAGE>
22
For clients of Vanguard's Institutional Division. . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
Fund and Account Updates
STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income
tax returns.
In addition, you will receive financial reports about the Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the financial markets, a
report from the adviser, and the Fund's financial statements which include a
listing of the Fund's holdings.
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mail- ings to the same address. When two or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, notify our Client Services Department at
1-800-662-2739.
- --------------------------------------------------------------------------------
Confirmation Statement
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
Portfolio Summary [SYMBOL OF BOOKLET OMITTED]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
Fund Financial Reports
Mailed in October and April for this Fund.
- --------------------------------------------------------------------------------
Tax Statements
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement [SYMBOL OF BOOKLET OMITTED]
Issued quarterly for most taxable accounts opened after _____, 2000 (accompanies
your Portfolio Summary); shows the average cost of shares that you redeemed
during the calendar year, using only the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE>
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<PAGE>
(This page intentionally left blank.)
<PAGE>
Glossary of Investment Terms
Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.
Cash Reserves
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
Common Stock
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
Dividend Income
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
Expense Ratio
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.
Growth Stock Fund
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, the
prices of growth stocks often are relatively high in comparison with such
factors as revenue, earnings, book value, and dividends.
Investment Adviser
An organization that makes the day-to-day decisions regarding a fund's
investments.
Mutual Fund
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
Net Asset Value (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
Price/Earnings (P/E) Ratio
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.
Principal
The amount of your own money you put into an investment.
Securities
Stocks, bonds, and other investment vehicles.
Total Return
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
Volatility
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
Yield
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>
[VANGUARD LOGO OF SHIP OMITTED]
THE VANGUARD GROUP[R]
POST OFFICE BOX 2600
VALLEY FORGE, PA 19483-2600
For More Information
If you'd like more information about Vanguard Growth Equity Fund, the following
documents are available free upon request:
Annual/Semiannual Reports to Shareholders
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund.
The current annual and semiannual reports and the SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Fund or other Vanguard funds, please
contact us as follows:
The Vanguard Group
Investor Information
Department
P.O. Box 2600
Valley Forge, PA 19482-2600
Telephone:
1-800-662-7447 (SHIP)
Text Telephone:
1-800-952-3335
World Wide Web:
www.vanguard.com
If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:
Client Services Department
Telephone:
1-800-662-2739 (CREW)
Text Telephone:
1-800-749-7273
Information provided by the Securities and Exchange Commission (SEC)
You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, DC. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website (www.sec.gov), or you can
receive copies of this information, for a fee, by writing the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.
Fund's Investment Company Act
file number: 811-_______
[C] 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.
PO ___ N - _____
PART B
VANGUARD[R] FENWAY FUNDS
(THE TRUST)
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 21, 2000;
REVISED MAY ___, 2000
This Statement is not a Prospectus but should be read in conjunction with the
Trust's current Prospectuses (dated January 21, 2000 for Vanguard Equity Income
Fund and May ___, 2000 for Vanguard Growth Equity Fund). To obtain the
Prospectuses or the most recent Annual Reports to Shareholders, which contain
the Trust's financial statements as hereby incorporated by reference, please
call:
INVESTOR INFORMATION DEPARTMENT
1-800-662-7447
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST .................................................B-__
INVESTMENT POLICIES ......................................................B-__
FUNDAMENTAL INVESTMENT LIMITATIONS .......................................B-__
PURCHASE OF SHARES .......................................................B-__
REDEMPTION OF SHARES .....................................................B-__
SHARE PRICE ..............................................................B-__
MANAGEMENT OF THE FUNDS...................................................B-__
YIELD AND TOTAL RETURNS ..................................................B-__
INVESTMENT ADVISORY SERVICES .............................................B-__
PORTFOLIO TRANSACTIONS ...................................................B-__
FINANCIAL STATEMENTS .....................................................B-__
COMPARATIVE INDEXES ......................................................B-__
DESCRIPTION OF THE TRUST
ORGANIZATION
The Trust was organized as Vanguard Equity Income Fund, Inc., a Maryland
corporation, in 1987, and was reorganized as Vanguard Equity Income, a Delaware
business trust, in May 1998. On March 1, 2000, the Trust was renamed Vanguard
Fenway Funds. The Trust is registered with the United States Securities and
Exchange Commission (the Commission) under the Investment Company Act of 1940
(the 1940 Act) as an open-end, diversified management company. It currently
offers the following funds:
VANGUARD EQUITY INCOME FUND
VANGUARD GROWTH EQUITY FUND
(INDIVIDUALLY, THE FUND; COLLECTIVELY THE FUNDS)
The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that each Fund may
issue.
SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as the custodian for Vanguard Equity Income
Fund. The custodian for Vanguard
B-1
<PAGE>
Capital Growth Fund is First Union National Bank, PA4943, 530 Walnut Street,
Philadelphia, Pennsylvania 19106. The custodians are responsible for maintaining
the Funds' assets and keeping all necessary accounts and records.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Funds' independent accountants.
The accountants audit the Funds' financial statements and provide other related
services.
TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.
CHARACTERISTICS OF THE FUND'S SHARES
RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Funds' shares, other
than the possible future termination of the Funds. Each Fund may be terminated
by reorganization into another mutual fund or by liquidation and distribution of
its assets. Unless terminated by reorganization or liquidation, the Funds will
continue indefinitely.
SHAREHOLDER LIABILITY. The Funds are organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a shareholder of a Fund will
not be personally liable for payment of the Fund's debts except by reason of his
or her own conduct or acts. In addition, a shareholder could incur a financial
loss on account of a Fund obligation only if the Fund itself had no remaining
assets with which to meet such obligation. We believe that the possibility of
such a situation arising is extremely remote.
DIVIDEND RIGHTS. The shareholders of a Fund are entitled to receive any
dividends or other distributions declared for such Fund. No shares have priority
or preference over any other shares of the same Fund with respect to
distributions. Distributions will be made from the assets of a Fund, and will be
paid ratably to all shareholders of the Fund according to the number of shares
of such Fund held by shareholders on the record date.
VOTING RIGHTS. Shareholders are entitled to a vote on a matter if: (i) a
shareholder vote is required under the 1940 Act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a material
degree the rights and preferences of the shares of any Fund; or (iii) the
Trustees determine that it is necessary or desirable to obtain a shareholder
vote. The 1940 Act requires a shareholder vote under various circumstances,
including to elect or remove Trustees upon the written request of shareholders
representing 10% or more of a Fund's net assets, and to change any fundamental
policy of a Fund. Shareholders of each Fund receive one vote for each dollar of
net asset value owned on the record date, and a fractional vote for each
fractional dollar of net asset value owned on the record date. However, only the
shares of the Fund affected by a particular matter are entitled to vote on that
matter. Voting rights are non-cumulative and cannot be modified without a
majority vote.
LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rata share of the applicable Fund's net assets.
PREEMPTIVE RIGHTS. There are no preemptive rights associated with each
Fund's shares.
CONVERSION RIGHTS. There are no conversion rights associated with each
Fund's shares.
REDEMPTION PROVISIONS. Each Fund's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.
SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.
CALLS OR ASSESSMENT. Each Fund's shares, when issued, are fully paid and
non-assessable.
B-2
<PAGE>
TAX STATUS OF THE FUNDS
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. This special tax status means that a
Fund will not be liable for federal tax on income and capital gains distributed
to shareholders. In order to preserve its tax status, each Fund must comply with
certain requirements. If a Fund fails to meet these requirements in any taxable
year, it will be subject to tax on its taxable income at corporate rates, and
all distributions from earnings and profits, including any distributions of net
tax-exempt income and net long-term capital gains, will be taxable to
shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make
substantial distributions before regaining its tax status as a regulated
investment company.
INVESTMENT POLICIES
The following policies supplement the Funds' investment objectives and policies
set forth in the Prospectuses. Vanguard Equity Income Fund intends to invest at
least 65% of its total assets in equity securities intended to produce income.
Vanguard Growth Equity Fund intends to invest at least 65% of its total assets
in common stocks of growth companies.
FUTURES CONTRACTS AND OPTIONS
Each Fund may enter into futures contracts, options, and options on futures
contracts in order to maintain cash reserves while simulating full investment.
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. Futures contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC), a U.S.
Government Agency. Assets committed to futures contracts will be segregated to
the extent required by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to the market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. Each Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures
B-3
<PAGE>
contracts with the expectation of realizing profits from fluctuations in the
value of the underlying securities. Each Fund intends to use futures contracts
only for bona fide hedging purposes. Regulations of the CFTC applicable to each
Fund require that all of its futures transactions constitute bona fide hedging
transactions except to the extent that the aggregate initial margins and
premiums required to establish any non-hedging positions do not exceed five
percent of the value of the respective Fund's portfolio.
Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of a Fund's income to fluctuations in the
market value of its securities, the use of futures contracts may be a more
effective means of hedging this exposure. While the Funds will incur commission
expenses in both opening and closing out futures positions, these costs are
lower than transaction costs incurred in the purchase and sale of the underlying
securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. Each Fund will
not enter into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds 5%
of the Fund's total assets. In addition, each Fund will not enter into futures
contracts to the extent that its outstanding obligations to purchase securities
under these contracts would exceed 20% of the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures may be closed
out only on an Exchange which provides a secondary market for such futures.
However, there can be no assurance that a liquid secondary market will exist for
any particular futures contract at any specific time. Thus, it may not be
possible to close a futures position. In the event of adverse price movements,
each Fund would continue to be required to make daily cash payments to maintain
its required margin. In such situations, if the Fund has insufficient cash, it
may have to sell portfolio securities to meet daily margin requirements at a
time when it may be disadvantageous to do so. In addition, each Fund may be
required to make delivery of the instruments underlying the futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge. Each Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out.
A 15% decrease in the value of the futures contract would result in a loss
equal to 150% of the original margin deposit if the contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the contract. However, because the futures strategies of
each Fund are engaged in only for hedging purposes, the Advisers do not believe
that the Funds are subject to the risks of loss frequently associated with
futures transactions. Each Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.
Utilization of futures transactions by each Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that each Fund could both lose money on futures contracts and also
experience a decline in the value of its portfolio securities. There is also the
risk of loss by each Fund of margin deposits in the event of bankruptcy of a
broker with whom the respective Fund has an open position in a futures contract
or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a
B-4
<PAGE>
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions that
each Fund has identified as hedging transactions, each Fund is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts held as of the end of
the year as well as those actually realized during the year. In most cases, any
gain or loss recognized with respect to a futures contract is considered to be
60% long-term capital gain or loss and 40% short-term capital gain or loss,
without regard to the holding period of the contract. Furthermore, sales of
futures contracts which are intended to hedge against a change in the value of
securities held by each Fund may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition. The Funds may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Funds.
In order for each Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such securities or currencies. It is anticipated that
any net gain realized from the closing out of futures contracts will be
considered qualifying income for purposes of the 90% requirement.
Each Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes including unrealized
gains at the end of the Fund's fiscal year on futures transactions. Such
distributions will be combined with distributions of capital gains realized on a
Fund's other investments and shareholders will be advised on the nature of the
payments.
REPURCHASE AGREEMENTS
Each Fund, along with other members of The Vanguard Group, may invest in
repurchase agreements with commercial banks, brokers or dealers either for
defensive purposes due to market conditions or to generate income from its
excess cash balances. A repurchase agreement is an agreement under which a Fund
acquires a fixed-income security (generally a security issued by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement and are held by a custodian bank until
repurchased. In addition, each Fund's Board of Trustees will monitor repurchase
agreement transactions generally and will establish guidelines and standards for
review by the investment adviser of the creditworthiness of any bank, broker or
dealer party to a repurchase agreement
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, a
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to the liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by a Fund not within the control of
a Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
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substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Funds'
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
LENDING OF SECURITIES
Each Fund may lend its investment securities to qualified institutional
investors (typically brokers, dealers, banks or other financial institutions)
who need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its investment securities, a Fund attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Fund. The terms, the
structure and the aggregate amount of such loans must be consistent with the
1940 Act and the Rules and Regulations or interpretations of the Commission
thereunder. These provisions limit the amount of securities a Fund may lend to
33 1/3% of the Fund's total assets, and require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit or securities issued or guaranteed by the United States Government having
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Fund at any time and (d) the Fund receive
reasonable interest on the loan (which may include the Fund's investing any cash
collateral in interest bearing short-term investments), any distribution on the
loaned securities and any increase in their market value. Loan arrangements made
by a Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which presently require the
borrower, after notice, to redeliver the securities within the normal settlement
time of three business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Funds' Board of Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on the loan, the loan must be called and the securities voted.
VANGUARD INTERFUND LENDING PROGRAM
The Commission has issued an exemptive order permitting each Fund to participate
in Vanguard's interfund lending program. This program allows the Vanguard funds
to borrow money from and loan money to each other for temporary or emergency
purposes. The program is subject to a number of conditions, including the
requirement that no fund may borrow or lend money through the program unless it
receives a more favorable interest rate than is available from a typical bank
for a comparable transaction. In addition, a fund may participate in the program
only if and to the extent that such participation is consistent with the fund's
investment objective and other investment policies. The Boards of Trustees of
the Vanguard funds are responsible for ensuring that the interfund lending
program operates in compliance with all conditions of the Commission's exemptive
order.
TEMPORARY INVESTMENTS
Each Fund may take temporary defensive measures that are inconsistent with the
Fund's normal fundamental or non-fundamental investment policies and strategies
in response to adverse market, economic, political or other conditions. Such
measures could include investments in (a) highly liquid short-term fixed income
securities issued by or on behalf of municipal or corporate issuers, obligations
of the U.S. Government and its agencies, commercial paper, and bank certificates
of deposit; (b) repurchase agreements involving any such securities; (c) shares
of other investment companies which have investment objectives consistent with
those of the Fund; and (d) other
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money market instruments. There is no limit on the extent to which a Fund may
take temporary defensive measures. In taking such measures, a Fund may fail to
achieve its investment objective.
FOREIGN INVESTMENTS
As indicated in the Prospectuses, Vanguard Equity Income Fund and Vanguard
Growth Equity Fund each may invest up to 20% of its total assets in securities
of foreign companies. Investors should recognize that investing in foreign
companies involves certain special considerations which are not typically
associated with investing in U.S. companies.
CURRENCY RISK. Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, Vanguard Equity
Income Fund and Vanguard Growth Equity Fund will be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.
The investment policies of each Fund permit it to enter into forward foreign
currency exchange contracts in order to hedge holdings and commitments against
changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
FEDERAL TAX TREATMENT OF NON-U.S. TRANSACTIONS. Special rules govern the
Federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option or similar
financial instrument if such instrument is not marked to market. The disposition
of a currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the marking-to-market rules
applicable to other futures contracts unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. The Treasury Department issued regulations under which
certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Internal Revenue Code of
1986, as amended, and the Treasury regulations) will be integrated and treated
as a single transaction or otherwise treated consistently for purposes of the
Code. Any gain or loss attributable to the foreign currency component of a
transaction engaged in by the Fund which is not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction. It is anticipated that some of the
non-U.S. dollar-denominated investments and foreign currency contracts the Fund
may make or enter into will be subject to the special currency rules described
above.
COUNTRY RISK. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of
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expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in companies in
those countries.
Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of foreign securities will be somewhat greater than the expenses
for the custodial arrangements for handling U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income the Fund receives from its foreign investments.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities that may not be sold or disposed of in the
ordinary course of business within seven business days at approximately the
value at which they are being carried on a Fund's books.
Each Fund may invest in restricted, privately placed securities that, under
the Commission's rules, may be sold only to qualified institutional buyers.
Because these securities can be resold only to qualified institutional buyers,
they may be considered illiquid securities--meaning that they could be difficult
for a Fund to convert to cash if needed.
If a substantial market develops for a restricted security held by a Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Funds' Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the Securities Act of 1933 (the 1933
Act). While the Funds' investment advisers determine the liquidity of restricted
securities on a daily basis, the Board oversees and retains ultimate
responsibility for the advisers' decisions. Several factors the Board considers
in monitoring these decisions include the valuation of a security, the
availability of qualified institutional buyers, and the availability of
information about the security's issuer.
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institutional (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.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
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VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or undconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its investment portfolio, a Fund
may dispose of a when- issued security or forward commitment prior to settlement
if it deems appropriate.
FUNDAMENTAL INVESTMENT LIMITATIONS
Each Fund is subject to the following fundamental investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the Fund's shares. For these purposes, a "majority" of the Fund's
shares means shares representing the lesser of: (i) 67% or more of the votes
cast to approve a change, so long as shares representing more than 50% of the
Fund's net assets value are present or represented by proxy; or (ii) more than
50% of a Fund's net asset value.
BORROWING. Vanguard Equity Income Fund may not borrow money, except for
temporary purposes in an amount not exceeding 15% of the Fund's net assets.
Vanguard Growth Equity Fund may not borrow money in an amount exceeding 33 1/3%
of the value of its total assets, provided that, for purposes of this
limitation, investment strategies which either obligate the Fund to purchase
securities or require the Fund to segregate assets are not considered to be
borrowings. For Vanguard Growth Equity Fund, asset coverage of at least 300% is
required for all borrowings, except where the Fund has borrowed for temporary
purposes in amounts not exceeding 5%. Each Fund may borrow money through banks,
or Vanguard's interfund lending program only, and must comply with all
applicable regulatory conditions. Each Fund may not make any additional
investments whenever outstanding borrowings exceed 5% of net assets.
COMMODITIES. The Fund may not invest in commodities, except that each Fund
may invest in stock futures contracts, stock options and options on stock
futures contracts. No more than 5% of the Fund's total assets may be used as
initial margin deposit for futures contracts, and no more than 20% of the Fund's
total assets may be obligated under futures contracts or options at any time.
DIVERSIFICATION. With respect to 75% of its total assets, the Fund may not:
(i) purchase more than 10% of the outstanding voting securities of any one
issuer, or (ii) purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's securities. This
limitation does not apply to obligations of the United States Government, its
agencies, or instrumentalities.
INDUSTRY CONCENTRATION. The Fund may not invest more than 25% of its total
assets in any one industry.
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INVESTING FOR CONTROL. The Fund may not invest in a company for the purpose
of controlling its management.*
INVESTMENT COMPANIES. The Fund may not invest in any other investment
company, except through a merger, consolidation or acquisition of assets, or to
the extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objectives
and investment policies consistent with those of the Fund.*
LOANS. The Fund may not lend money to any person except by purchasing fixed
income securities that are publicly distributed, by entering into repurchase
agreements, by lending its portfolio securities, or through Vanguard's interfund
lending program.
MARGIN. The Fund may not purchase securities on margin or sell securities
short, except as permitted by the Fund's investment policies relating to
commodities.*
PLEDGING ASSETS. The Fund may not pledge, mortgage or hypothecate more than
15% of its net assets.*
REAL ESTATE. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate.
SENIOR SECURITIES. The Fund may not issue senior securities, except in
compliance with the 1940 Act.
UNDERWRITING. The Fund may not engage in the business of underwriting
securities issued by other persons. The Fund will not be considered an
underwriter when disposing of its investment securities.
* For Vanguard Growth Equity Fund, this is a non-fundamental limitation and may
be changed by the Fund's Board of Trustees.
None of these limitations prevents the Funds from participating in The
Vanguard Group (Vanguard). Because the Trust is a member of the Group, each Fund
may own securities issued by Vanguard, make loans to Vanguard, and contribute to
Vanguard's costs or other financial requirements. See "Management of the Funds"
for more information.
The investment limitations set forth above are considered at the time
investment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction.
PURCHASE OF SHARES
Each Fund reserves the right in its sole discretion (i) to suspend the offerings
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Fund, and (iii) to reduce or waive
the minimum investment for, or any other restrictions on, initial and subsequent
investments for certain fiduciary accounts or under circumstances where certain
economies can be achieved in sales of the Fund's shares.
TRADING SHARES THROUGH CHARLES SCHWAB
Each Fund has authorized Charles Schwab & Co., Inc. (Schwab) to accept on its
behalf purchase and redemption orders under certain terms and conditions. Schwab
is also authorized to designate other intermediaries to accept purchase and
redemption orders on each Fund's behalf subject to those terms and conditions.
Under this arrangement, a Fund will be deemed to have received a purchase or
redemption order when Schwab or, if applicable, Schwab's authorized designee,
accepts the order in accordance with each Fund's instructions. Customer orders
that are properly transmitted to each Fund by Schwab, or if applicable, Schwab's
authorized designee, will be priced as follows:
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Orders received by Schwab BEFORE 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on the
Fund's net asset value calculated at the close of trading that day. Orders
received by Schwab AFTER 3 p.m. Eastern time, will be sent to Vanguard on the
following business day and your share price will be based on the Fund's net
asset value calculated at the close of trading that day.
REDEMPTION OF SHARES
Each Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange is closed, or trading on the
Exchange is restricted as determined by the Commission, (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for each Fund to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Each Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period.
No charge is made by the Funds for redemptions. Shares redeemed may be
worth more or less than what was paid for them, depending on the market value of
the securities held by the Funds.
SHARE PRICE
Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the close of the
New York Stock Exchange (the Exchange) generally 4:00 p.m. Eastern time on each
day that the Exchange is open for trading.
Portfolio securities for which market quotations are readily available
(includes those securities listed on national securities exchanges, as well as
those quoted on the NASDAQ Stock Market) will be valued at the last quoted sales
price on the day the valuation is made. Such securities which are not traded on
the valuation date are valued at the mean of the bid and ask prices. Price
information on exchange-listed securities is taken from the exchange where the
security is primarily traded. Any foreign securities are valued at the latest
quoted sales price available before the time when assets are valued. Securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities.
Short-term instruments (those acquired with remaining maturities of 60 days
or less) may be valued at cost, plus or minus any amortized discount or premium,
which approximates market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service may be determined without regard to bid or last sale prices of each
security, but take into account institutional-size transactions in similar
groups of securities as well as any developments related to specific securities.
Other assets and securities for which no quotations are readily available
or which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.
The share price for each Fund can be found daily in the mutual fund
listings of most major newspapers under the heading of Vanguard Funds.
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MANAGEMENT OF THE FUNDS
OFFICERS AND TRUSTEES
The Officers of the Funds manage their day-to-day operations and are responsible
to the Funds' Board of Trustees. The Trustees set broad policies for each Fund
and choose its Officers. The following is a list of Trustees and Officers of
each Fund and a statement of their present positions and principal occupations
during the past five years. As a group, the Fund's Trustees and Officers own
less than 1% of the outstanding shares of the Fund. Each Trustee also serves as
a Director of The Vanguard Group, Inc., and as a Trustee of each of the 103
funds administered by Vanguard (93 in the case of Mr. MacLaury). The mailing
address of the Trustees and Officers of the Funds is Post Office Box 876, Valley
Forge, PA 19482.
JOHN J. BRENNAN, (DOB: 7/29/1954) CHAIRMAN, CHIEF EXECUTIVE OFFICER & TRUSTEE*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc., and
Trustee of each of the investment companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) TRUSTEE
Vice President, Chief Information Officer, and member of the Executive Committee
of Johnson & Johnson (Pharmaceuticals/Consumer Products); Director of Johnson &
Johnson*MERCK Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY, (DOB: 5/7/1931) TRUSTEE
President Emeritus of The Brookings Institution (Independent Non-Partisan
Research Organization); Director of American Express Bank, Ltd., The St. Paul
Companies, Inc. (Insurance and Financial Services), and National Steel Corp.
ALFRED M. RANKIN, JR., (DOB: 10/8/1941) TRUSTEE
Chairman, President, Chief Executive Officer, and Director of NACCO Industries,
Inc. (Machinery/ Coal/Appliances); and Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals).
JOHN C. SAWHILL, (DOB: 6/12/1936) TRUSTEE
President and Chief Executive Officer of The Nature Conservancy (Non-Profit
Conservation Group); Director of Pacific Gas and Electric Co., Procter & Gamble
Co., NACCO Industries (Machinery/Coal/ Appliances), and Newfield Exploration Co.
(Energy); formerly, Director and Senior Partner of McKinsey & Co., and President
of New York University.
JAMES O. WELCH, JR., (DOB: 5/13/1931) TRUSTEE
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chairman
and Director of RJR Nabisco (Food and Tobacco Products); Director of TECO
Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON, (DOB: 3/2/1936) TRUSTEE
Retired Chairman of Rohm & Haas Co. (Chemicals); Director of Cummins Engine Co.
(Diesel Engine Company), and The Mead Corp. (Paper Products); and Trustee of
Vanderbilt University.
RAYMOND J. KLAPINSKY, (DOB: 12/7/1938) SECRETARY*
Managing Director of The Vanguard Group, Inc.; Secretary of The Vanguard Group,
Inc. and of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS, (DOB: 5/21/1957) TREASURER*
Principal of The Vanguard Group, Inc.; Treasurer of each of the investment
companies in The Vanguard Group.
ROBERT D. SNOWDEN, (DOB: 9/4/1961) CONTROLLER*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
* OFFICERS OF THE FUND ARE "INTERESTED PERSONS" AS DEFINED IN THE 1940 ACT.
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THE VANGUARD GROUP
Each Fund is a member of The Vanguard Group of Investment Companies, which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Funds and the other funds in The Vanguard
Group obtain at cost virtually all of their corporate management, administrative
and distribution services. Vanguard also provides investment advisory services
on an at-cost basis to certain of the Vanguard funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the funds and also
furnishes the funds with necessary office space, furnishings and equipment. Each
fund pays a share of Vanguard's total expenses which are allocated among the
funds under methods approved by the Board of Trustees of each fund. In addition,
each fund bears its own direct expenses such as legal, auditing and custodian
fees. In order to generate additional revenues for Vanguard and thereby reduce
the funds' expenses, Vanguard also provides certain administrative services to
other organizations.
The funds' Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the funds.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the 1940 Act. The Code is designed to prevent unlawful practices in
connection with the purchase or sale of securities by persons associated with
Vanguard. Under Vanguard's Code of Ethics, certain Officers and employees of
Vanguard who are considered access persons are permitted to engage in personal
securities transactions. However, such transactions are subject to procedures
and guidelines similar to, and in many cases more restrictive than, those
recommended by a blue ribbon panel of mutual fund industry executives.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the funds.
The amounts which each of the funds have invested are adjusted from time to time
in order to maintain the proportionate relationship between each fund's relative
net assets and its contribution to Vanguard's capital. At May 31, 2000, Vanguard
Equity Income Fund had contributed $___ to Vanguard, representing ___% of the
Fund's net assets and ___% of Vanguard's capitalization. (Vanguard Growth Equity
Fund had not commenced operations as a Vanguard fund as of May 31, 2000.) The
Amended and Restated Funds' Service Agreement provides as follows: (a) each
Vanguard fund may be called upon to invest up to 0.40% of its current assets in
Vanguard, and (b) there is no other limitation on the dollar amount that each
Vanguard fund may contribute to Vanguard's capitalization.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the funds by third parties.
DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc., provides all distribution and marketing activities for
the funds in the Group. The principal distribution expenses are for advertising,
promotional materials and marketing personnel. Distribution services may also
include organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
Trustees and Officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each fund, and
whether to organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the funds based upon relative net assets. The remaining one
half of those expenses is allocated among the funds based upon each fund's sales
for the preceding 24 months relative to the total sales of the funds as a Group,
provided, however, that no fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
the average distribution expense rate for The Vanguard Group, and that no fund
shall incur annual distribution expenses in excess of 20/100 of 1% of its
average month-end net assets.
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During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following approximate amounts of The Vanguard
Group's management (including transfer agency), distribution, and marketing
expenses: $4,423,000, $5,443,000, and $7,897,000, respectively.
Prior to joining the Vanguard Group, Vanguard Growth Equity Fund was party
to an administration agreement, under which, for the fiscal years ended
September 30, 1997, 1998, and 1999, the Fund paid the following administrative
fees, net of waivers: $110,759, $114,049, and $117,203, respectively.
INVESTMENT ADVISORY SERVICES. An experienced investment management staff
employed directly by Vanguard provides investment advisory services to Vanguard
Equity Income Fund and many Vanguard funds. These services are provided on an
internalized, at-cost basis. The compensation and other expenses of this staff
are paid by the funds utilizing these services.
TRUSTEE COMPENSATION
The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table appearing below, and each fund pays a
proportionate share of the Trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by the
Vanguard Group, Inc., not the funds.
INDEPENDENT TRUSTEES. The funds compensate their independent Trustees--that
is, the ones who are not also officers of the fund--in three ways:
[bullet] The independent Trustees receive an annual fee for their service to the
Funds, which is subject to reduction based on absences from scheduled
Board meetings.
[bullet] The independent Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.
[bullet] Upon retirement, the independent Trustees receive an aggregate annual
fee of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement,
or until each Trustee's death.
"INTERESTED" TRUSTEE. Mr. Brennan serves as a Trustee, but is not paid in
this capacity. He is, however, paid in his role as officer of The Vanguard
Group, Inc.
COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Funds for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard funds. All information shown is for the fiscal year
ended September 30, 1999:
B-14
<PAGE>
VANGUARD FENWAY FUNDS
TRUSTEES' COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS ESTIMATED FROM ALL
COMPENSATION PART OF THESE ANNUAL VANGUARD
FROM THESE FUNDS' BENEFITS UPON FUNDS PAID TO
NAMES OF TRUSTEES FUNDS EXPENSES RETIREMENT TRUSTEES(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Bogle (2)...................... None None None None
John J. Brennan........................ None None None None
Barbara Barnes Hauptfuhrer (3)......... $167 $21 $15,000 $0
JoAnn Heffernan Heisen................. $667 $37 $15,000 $80,000
Bruce K. MacLaury...................... $697 $62 $12,000 $75,000
Alfred M. Rankin, Jr................... $667 $44 $15,000 $80,000
John C. Sawhill........................ $667 $57 $15,000 $80,000
James O. Welch, Jr..................... $667 $65 $15,000 $80,000
J. Lawrence Wilson..................... $667 $48 $15,000 $80,000
<FN>
(1) THE AMOUNTS REPORTED IN THIS COLUMN REFLECT THE TOTAL COMPENSATION PAID TO
EACH TRUSTEE FOR HIS OR HER SERVICE AS TRUSTEE OF 103 VANGUARD FUNDS (93 IN
THE CASE OF MR. MACLAURY).
(2) MR. BOGLE HAS RETIRED FROM THE VANGUARD EQUITY INCOME FUND'S BOARD,
EFFECTIVE DECEMBER 31, 1999.
(3) MRS. HAUPTFUHRER HAS RETIRED FROM VANGUARD EQUITY INCOME FUND'S BOARD,
EFFECTIVE DECEMBER 31, 1998.
</FN>
</TABLE>
YIELD AND TOTAL RETURNS
The yield of Vanguard Equity Income Fund for the 30-day period ended September
30, 1999 was 2.64%. The yield is calculated daily. The average annual total
return of Vanguard Equity Income Fund for one, five, and ten years ended
September 30, 1999, was 12.56%, 19.53% and 12.96%, respectively.
The yield of Vanguard Growth Equity Fund for the 30-day period ended September
30, 1999 was 0.00%. The yield is calculated daily. The average annual total
return of Vanguard Growth Equity Fund for the one-, and five-years ended
September 30, 1999, and since inception, was 38.16%, 24.63%. and 19.17%,
respectively.
SEC YIELDS
Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, 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 reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
B-15
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of return for
the periods of one year, five years, ten years or the life of a Fund, all ended
on the last day of a recent month. Average annual total return quotations will
reflect changes in the price of each Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over such periods
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)(1/n)-1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment
made at the beginning of the applicable period.
AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION
We calculate the Fund's average annual after-tax total return by finding the
average annual compounded rate of return over the 1-, 5-, and 10-year periods
that would equate the initial amount invested to the after-tax value, according
to the following formulas:
AFTER-TAX RETURN:
P (1+T)(n) = ATV
Where:
P = a hypothetical initial payment of $1,000
T = average annual after-tax total return
n = number of years
ATV = after-tax value at the end of the 1-, 5-, or 10-year periods
of a hypothetical $1,000 payment made at the beginning of
the time period, assuming no liquidation of the investment
at the end of the measurement periods.
INSTRUCTIONS.
1. Assume all distributions by each Fund are reinvested--less the taxes due on
such distributions--at the price on the reinvestment dates during the
period. Adjustments may be made for subsequent re-characterizations of
distributions.
2. Calculate the taxes due on distributions by each Fund by applying the
highest federal marginal tax rates to each component of the distributions
on the reinvestment date (e.g., ordinary income, short-term capital gain,
long-term capital gain, etc.). For periods after December 31, 1997, the
federal marginal tax rates used for the calculations are 39.6% for ordinary
income and short-term capital gains and 20% for long-term capital gains.
Note that the applicable tax rates may vary over the measurement period.
Assume no taxes are due on the portions of any distributions classified as
exempt interest or non-taxable (i.e., return of capital). Ignore any
potential tax liabilities other than federal tax liabilities (e.g., state
and local taxes).
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the Fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees.
4. State the total return quotation to the nearest hundredth of one percent.
B-16
<PAGE>
CUMULATIVE TOTAL RETURN
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P)-1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
INVESTMENT ADVISORY SERVICES
VANGUARD EQUITY INCOME FUND
The Fund currently has four investment advisers: Newell Associates (Newell),
525 University Avenue, Palo Alto, California 94301; John A. Levin & Co., Inc.
(Levin), One Rockefeller Plaza, 19th Floor, New York, NY 10020; Wellington
Management Company, LLP (Wellington Management), 75 State Street, Boston MA
02109; and The Vanguard Group, Inc. (Vanguard), Post Office Box 2600, Valley
Forge, PA 19482. Prior to January 1, 1995, Newell was the sole investment
adviser to the Fund. Spare, Kaplan, Bischel & Associates (Spare Kaplan) served
as an adviser to the Fund from 1995 through 1999. Levin was added as an
investment adviser effective January 1, 1995. Vanguard was added as an adviser
effective January 16, 1998. Wellington Management was added as an adviser
effective January 1, 2000. The Fund has entered into investment advisory
agreements with Newell, Levin, and Wellington Management which provide that the
advisers manage the investment and reinvestment of the Fund's assets and
continuously review, supervise and administer the Fund's investment program. The
advisers discharge their responsibilities subject to the control of the Officers
and Trustees of the Fund.
The proportion of the net assets of the Fund managed by each adviser is
established by the Board of Trustees, and may be changed in the future as
circumstances warrant. As of March 31, 2000, Newell was responsible for
approximately ___% of the Fund's investment, and Levin was responsible for
approximately ___%, and Wellington Management was responsible for approximately
___%. Vanguard's advisory role is limited; it currently manages just the Fund's
cash reserves, which normally represent about 5% of the Fund's assets.
NEWELL ASSOCIATES
The Fund pays Newell an advisory fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the average month-end net assets managed by Newell for the
quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $250 million............................ .200%
Next $500 million............................. .150%
Next $250 million............................. .100%
Over $1 billion............................... .080%
B-17
<PAGE>
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following advisory fees owed to Newell:
$1,526,568, $1,851,435, and $2,150,288, respectively.
JOHN A. LEVIN & CO., INC.
The Fund pays Levin a basic advisory fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the average month-end assets of the Fund managed by Levin
(Levin Portfolio) for the quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $100 million ..................... 0.40%
Next $200 million ...................... 0.25%
NEXT $200 MILLION ...................... 0.30%
NEXT $500 MILLION ...................... 0.25%
OVER $1 BILLION ........................ 0.10%
The basic fee paid to Levin, as provided above, may be increased or
decreased by applying an incentive/penalty adjustment to the basic fee
reflecting the investment performance of the Levin Portfolio relative to the
return of the Standard and Poor's 500 Composite Stock Price Index (S&P 500
Index), an index which emphasizes large capitalization companies.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Levin under the investment advisory agreement:
THREE YEAR PERFORMANCE PERFORMANCE FEE
DIFFERENTIAL VS. THE S&P 500 INDEX ADJUSTMENT*
---------------------------------- ---------------
Less than 0% ............................ -0.40 x Basic Fee
Between 0% and 3% ....................... -0.20 x Basic Fee
Between 3% and 6% ....................... 0.00 x Basic Fee
Between 6% and 9% ....................... 0.20 x Basic Fee
More than 9% ............................ 0.40 x Basic Fee
* FOR PURPOSES OF THIS CALCULATION, THE BASIC FEE IS CALCULATED BY APPLYING A
QUARTERLY RATE BASED ON THE ANNUAL BASIC FEE RATE USING AVERAGE ASSETS OVER THE
SAME PERIOD OVER WHICH THE PERFORMANCE IS MEASURED.
The investment performance of the Levin Portfolio, for any period,
expressed as a percentage of the "Levin Portfolio Unit Value" at the beginning
of such period, will be the sum of: (i) the change in the Levin Portfolio Unit
Value during such period; (ii) the unit value of the Fund's cash distributions
from the Levin Portfolio's net investment income and realized net capital gains
(whether long-term or short-term) having an ex-dividend date occurring within
such period; and (iii) the unit value of capital gains taxes paid or accrued
during such period by the Fund for undistributed long-term capital gains
realized from the Levin Portfolio.
The Levin Portfolio Unit Value will be determined by dividing the total net
assets of the Levin Portfolio by a given number of units. On the initial date of
the agreement, the number of units in the Levin Portfolio will equal the total
shares outstanding of the Fund. After such initial date, as assets are added to
or withdrawn from the Levin Portfolio, the number of units of the Levin
Portfolio will be adjusted based on the unit value of the Levin Portfolio on the
day such changes are executed.
The investment record of the S&P 500 Index will be calculated monthly by
(i) multiplying the total return for the month (change in market price plus
dividends) of each stock included in the S&P 500 Index by its weighings in the
S&P 500 Index at the beginning of the month, and (ii) adding the values
discussed in (i). For any period, therefore, the investment record of the S&P
500 Index will be the compounded monthly returns of the S&P 500 Index.
B-18
<PAGE>
For the purposes of determining the incentive/penalty fee adjustment, the
net assets managed by Levin will be averaged over the same period as the
investment performance of those assets and the investment record of the S&P 500
Index are computed.
Under the Fund's investment advisory agreement with Levin, the maximum
performance adjustment for an incentive fee is made at a difference of +9
percentage points from the performance of the index over a thirty-six month
period. The maximum performance adjustment for a penalty fee is made at a
difference of less than +0 percentage points from the performance of the index
over a thirty-six month period. On a per year basis, these maximum adjustments
effectively would occur at differences from the index of +3 percentage points
and less than +0 percentage point, respectively.
In the event of termination of this Agreement, the fee paid to Levin shall
be computed on the basis of the period ending on the last business day on which
this Agreement is in effect subject to a pro rata adjustment based on the number
of days elapsed in the current fiscal quarter as a percentage of the total
number of days in such quarter.
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Equity Income Fund incurred the following advisory fees owed to Levin:
1997 1998 1999
-------- ---------- ----------
Basic Fee........................ $781,369 $1,084,801 $1,583,863
Increase or Decrease for
Performance Adjustment........... (228,534) (290,030) (402,526)
-------- ---------- ----------
Total............................ $552,835 $ 794,771 $1,181,337
======== ========== ==========
WELLINGTON MANAGEMENT COMPANY, LLP
The Fund pays Wellington Management a basic advisory fee at the end of each
fiscal quarter, calculated by applying a quarterly rate, based on the following
annual percentage rates, to the average month-end net assets of the Fund managed
by Wellington Management (Wellington Management Portfolio) for the quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $1 billion.............................. .125%
Next $4 billion............................... .100%
Over $5 billion............................... .080%
The basic fee paid to Wellington Management, as provided above, may be
increased or decreased by applying an incentive/penalty adjustment to the basic
fee reflecting the investment performance of the Wellington Management Portfolio
relative to the return of the Lipper Equity Income average.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Wellington Management under the investment advisory agreement:
THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE LIPPER EQUITY PERFORMANCE FEE
INCOME AVERAGE ADJUSTMENT*
-------------- -----------------
Exceeds by 3% to 6%...................... 0.10 x Basic Fee
Exceeds by more than 6%.................. 0.20 x Basic Fee
Trails by 3% to 6%....................... -0.10 x Basic Fee
Trails by more than 6%................... -0.20 x Basic Fee
* FOR PURPOSES OF THIS CALCULATION, THE BASIC FEE IS CALCULATED BY APPLYING A
QUARTERLY RATE BASED ON THE ANNUAL BASIC FEE RATE USING AVERAGE ASSETS OVER
THE SAME PERIOD OVER WHICH THE PERFORMANCE IS MEASURED.
B-19
<PAGE>
The Performance Fee Adjustment will not be fully operable until the quarter
ending December 31, 2002. Until that time, the following transition rules will
apply:
(A) JANUARY 1, 2000 THROUGH SEPTEMBER 30, 2000. Wellington Management's
compensation will be the Basic Fee. No Performance Fee Adjustment will apply
during this period.
(B) OCTOBER 1, 2000 THROUGH DECEMBER 31, 2002. Beginning October 1, 2000,
the Performance Fee Adjustment will take effect on a progressive basis with
regards to the number of months elapsed between January 1, 2000, and the quarter
for which Wellington Management's fee is being computed. During this period, the
Performance Fee Adjustment will be multiplied by a fraction. The fraction will
equal the number of months elapsed since January 1, 2000, divided by thirty-six.
(C) ON AND AFTER DECEMBER 31, 2002. For the quarter ending December 31,
2002, and thereafter, the Performance Fee Adjustment will be fully operable. The
period used to calculate the Adjustment shall be the 36 months preceding the end
of the quarter for which the fee is being computed.
The investment performance of the Wellington Management Portfolio for any
period, expressed as a percentage of the "Wellington Management Portfolio unit
value" at the beginning of such period, will be calculated in a manner
consistent with the total return methodology used by Lipper Inc., to calculate
investment performance.
The "Wellington Management Portfolio unit value" will be determined by
dividing the total net assets of the Wellington Management Portfolio by a given
number of units. Initially, the number of units in the Wellington Management
Portfolio will equal the total shares outstanding of the Fund on January 1,
2000. Subsequently, as assets are added to or withdrawn from the Wellington
Management Portfolio, the number of units of the Wellington Management Portfolio
will be adjusted based on the unit value of the Wellington Management Portfolio
on the day such changes are executed. Any cash buffer maintained by the Fund
outside of the Wellington Management Portfolio shall neither be included in the
total net assets of the Wellington Management Portfolio nor included in the
computation of the Wellington Management Portfolio Unit Value.
The investment record of the Lipper Equity Income average for any period
will be obtained from an independent source at the end of each applicable
quarter. The calculation will be based on the thirty-six month period ending
with the applicable quarter and will be gross of applicable costs and expenses.
In the event of termination of this agreement with Wellington Management,
the fees will be computed on the basis of the period ending on the last business
day on which this agreement is in effect, subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter.
This agreement became effective on January 1, 2000, and will continue in
effect until December 31, 2002, and thereafter, only so long as such continuance
is approved at least annually by votes of the Fund's Board of Trustees who are
not parties to the agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. In
addition, the question of continuance of the advisory agreement may be presented
to the shareholders of the Fund; in such event, such continuance will be
effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund.
The Fund's Board of Trustees may, without the approval of shareholders,
provide for:
[bullet] The employment of a new investment adviser pursuant to the terms of a
new advisory agreement, either as a replacement for an existing adviser
or as an additional adviser.
[bullet] A change in the terms of an advisory agreement.
[bullet] The continued employment of an existing adviser on the same advisory
contract terms where a contract has been assigned because of a change
in control of the adviser.
Any such change will be communicated to shareholders in writing.
B-20
<PAGE>
DESCRIPTION OF THE ADVISERS
NEWELL ASSOCIATES. Newell Associates, a California corporation, was founded
in 1986 to provide investment management services to institutions. Newell
Associates uses its proprietary Relative Yield Strategy to determine when stocks
are undervalued and, therefore, candidates for purchase or overvalued and,
therefore, candidates for sale. The officers of the corporation are: Roger D.
Newell, Chairman; Robert A. Huret, Vice Chairman; and Jennifer C. Newell, CFA,
President.
JOHN A. LEVIN & CO. INC. John A. Levin, which commenced operations in 1982,
provides investment advisory services to institutional and private clients,
including registered investment trusts and several private investment
partnerships. The investment process at Levin emphasizes identifying investment
value through fundamental research. John A. Levin, a founding principal and
Chairman and Chief Executive Officer of Levin, and Jeffrey A. Kigner,
Co-Chairman and Chief Investment Officer of Levin, are responsible for managing
the portion of the Fund's assets managed by Levin. Levin is an indirect
subsidiary of Baker, Fentress & Company.
WELLINGTON MANAGEMENT COMPANY, LLP.Wellington Management is a professional
investment advisory firm that provides services to individuals, employee benefit
plans, endowment funds, and other institutions. The firm was founded in 1928,
and is organized as a Massachusetts limited liability partnership. The managing
partners of Wellington Management are Duncan M. McFarland, Laurie A. Gabriel,
and John R. Ryan. Mr. Ryan is the portfolio manager who is primarily responsible
for Wellington Management's portion of the Fund.
THE VANGUARD GROUP.The Vanguard Group is a family of more than 100 funds
holding assets worth more than $530 billion. Vanguard serves as an investment
adviser to the Fund and currently manages about $320 billion in total assets.
VANGUARD GROWTH EQUITY FUND
TURNER INVESTMENT PARTNERS. The Fund pays Turner a Basic Fee at the end of
each fiscal quarter, calculated by applying a quarterly rate, based on the
following annual percentage rates, to the average month-end net assets of the
Fund.
NET ASSETS ANNUAL RATE
---------- -----------
First $200 million.................................... 0.50%
Next $300 million..................................... 0.40%
Next $1.5 billion..................................... 0.30%
Over $2 billion....................................... 0.20%
The Basic Fee paid to Turner, as provided above, may be increased or
decreased by applying performance adjustment ("Adjustment"). The Adjustment will
be calculated as a percentage of the Basic Fee and will change proportionately
with the investment performance of the Fund relative to the return of the
Russell 1000 Growth Index for the 36-month period ending with the then-ended
quarter.
The following table sets forth the incentive/penalty fee rates payable by
the Fund to Turner under the investment advisory agreement.
CUMULATIVE 36-MONTH ADJUSTMENT AS A
PERFORMANCE OF PORTFOLIO PERCENTAGE OF BASIC FEE (B)
------------------------ ---------------------------
VERSUS THE INDEX (A)
TRAILS BY MORE THAN 9% -75%
TRAILS BY 0% TO 9% LINEAR DECREASE FROM 0% TO 75%
EXCEEDS BY 0% TO 9% LINEAR INCREASE FROM 0% TO +75%
EXCEEDS BY MORE THAN 9% +75%
B-21
<PAGE>
(a) During the first thirty-six month (36) period, inception-to-date Fund
performance versus performance of the Index for the same period will be
utilized. Subject to the transition rules provided for below, the +/-9% hurdle
rate illustrated in the table above will be multiplied by a fraction, the
numerator being the months elapsed since inception and the denominator being
thirty-six (36).
For purposes of the Adjustment calculator, the Basic Fee is calculated by
applying the above rate schedule against the average month-end net assets over
the same time period for which the performance is measured.
(b) Linear application of the adjustment provides for an infinite number of
results within the stated range. Example: Cumulative 36-month performance of
Portfolio versus the Index is +7.2%. Accordingly, a performance fee adjustment
of +60% [(7.2% divided by 9.0%) times 75% maximum] of the Basic Fee would be due
and payable.
The Adjustment will not be fully operable until the Fund has operated under this
Agreement for a full 36 months. Until that time, the following transition rules
will apply:
(a) JUNE 1, 2000 THROUGH MAY 31, 2001. Adviser compensation will be the Basic
Fee. No Adjustment will apply during this period.
(b) JUNE 1, 2001 THROUGH MAY 31, 2003. Beginning June 1, 2001 the Adjustment
will take effect on a progressive basis with regards to the number of months
elapsed between June 1, 2000 and the quarter end for which the Adviser fee is
being computed. During this period, the Adjustment that has been determined as
provided above will be multiplied by a fraction. The fraction's numerator will
equal the number of months that have elapsed since June 1, 2000 and the
denominator will be thirty-six (36).
(c) ON AND AFTER JUNE 1, 2003. Commencing June 1, 2003, the adjustment will be
fully operable.
During the fiscal years ended September 30, 1997, 1998, and 1999, Vanguard
Growth Equity Fund incurred the following investment advisory fees:**
1997 1998 1999
-------- -------- --------
BASIC FEE.......................... $694,046 $664,499 $987,424
ADVISORY FEE WAIVED................ $ 24,250 $76,793 $0
** THESE FEES WERE PAID UNDER A PRIOR INVESTMENT ADVISORY FEE STRUCTURE.
DESCRIPTION OF THE ADVISER
TURNER INVESTMENT PARTNERS. Turner Investment Partners is a professional
advisory firm, founded in March 1990. Robert E. Turner is the Chairman and
controlling shareholder of the Adviser. As of December 31, 1999, Turner had
discretionary management authority with respect to approximately $___, provides
investment advisory services to $5.6 billion of assets. Turner has provided
investment advisory services to investment companies since 1992.
DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS
The Fund's current agreements are renewable for successive one-year periods,
only if each renewal is specifically approved by a vote of the Fund's Board of
Trustees, including the affirmative votes of a majority of Trustees who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of
considering such approval. An agreement is automatically terminated if assigned,
and may be terminated without penalty at any time (1) by vote of the Board of
Trustees of the Fund on 60 days' written notice to the adviser, or (2) by the
adviser upon 90 days' written notice to the Fund.
B-22
<PAGE>
PORTFOLIO TRANSACTIONS
The investment advisory agreements authorize the Advisers (with the approval of
the Fund's Board of Trustees) to select the brokers or dealers that will execute
the purchases and sales of portfolio securities for the Fund and direct the
Advisers to use their best efforts to obtain the best available price and most
favorable execution as to all transactions for the Fund. The Advisers have
undertaken to execute each investment transaction at a price and commission
which provides the most favorable total cost or proceeds reasonably obtainable
under the circumstances.
In placing portfolio transactions, each Adviser will use its best judgment
to choose the broker most capable of providing the brokerage services necessary
to obtain the best available price and most favorable execution. The full range
and quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information and
provide other services in addition to execution services to the Fund and/or the
Adviser. Each Adviser considers such information useful in the performance of
its obligations under the agreement, but is unable to determine the amount by
which such services may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Fund's Board of Trustees, each Adviser may cause the Fund to pay
a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the Adviser to the Fund.
Currently, it is the Fund's policy that each Adviser may at times pay
higher commissions in recognition of brokerage services felt necessary for the
achievement of better execution of certain securities transactions that
otherwise might not be available. Each Adviser will only pay such higher
commissions if it believes this to be in the best interest of the Fund. Some
brokers or dealers who may receive such higher commissions in recognition of
brokerage services related to execution of securities transactions are also
providers of research information to the Adviser and/or the Fund. However, each
Adviser has informed the Fund that it generally will not pay higher commission
rates solely for the purpose of obtaining research services.
Some securities considered for investment by the Fund may also be
appropriate for other clients served by each Adviser. If purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these other clients serviced by the Adviser are considered at or about the
same time, transactions in such securities will be allocated among the Fund and
such other clients in a manner deemed equitable by the Adviser. Although there
may be no specified formula for allocating such transactions, the allocation
methods used, and the results of such allocations, will be subject to periodic
review by the Fund's Board of Trustees.
During the fiscal years ended September 30, 1997, 1998 and 1999, Vanguard
Equity Income Fund paid $1,097,967, $1,404,979, and $1,624,448 respectively, in
brokerage commissions. During the fiscal years ended September 30, 1997, 1998,
and 1999, Vanguard Growth Equity Fund paid $335,291, $464,404, and $671,953,
respectively, in brokerage commissions.
5% SHAREHOLDERS
As of May 31, 2000, the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of
the shares of the Vanguard Growth Equity Fund. 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.
B-23
<PAGE>
FINANCIAL STATEMENTS
Vanguard Equity Income Fund's financial statements for the year ended September
30, 1999, including the financial highlights for each of the five fiscal years
in the period ended September 30, 1999, appearing in the Vanguard Equity Income
Fund 1999 Annual Report to Shareholders, and the report thereon of
PricewaterhouseCoopers LLP, independent accountants, also appearing therein, are
incorporated by reference in this Statement of Additional Information.
For a more complete discussion of the performance, please see each Fund's
Annual Report to Shareholders, which may be obtained without charge.
The financial statements of Turner Growth Equity Fund for the fiscal year
ended September 30, 1999, including notes thereto and the report of Ernest &
Young LLB thereon, are also incorporated by reference in this Statement of
Additional Information. (Prior to ___, 2000, Vanguard Growth Equity Fund was
organized as Turner Growth Equity Fund.)
COMPARATIVE INDEXES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or any
of the member funds of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group, including
Vanguard Equity Income Fund, may, from time to time, use one or more of the
following unmanaged indexes for comparative performance purposes.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--includes stocks selected by
Standard & Poor's Index Committee to include leading companies in leading
industries and to reflect the U.S. stock market.
STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.
STANDARD & POOR'S 500/BARRA VALUE INDEX--consists of the stocks in the Standard
& Poor's 500 Composite Stock Price Index with the lowest price-to-book ratios,
comprising 50% of the market capitalization of the S&P 500.
STANDARD & POOR'S SMALLCAP 600/BARRA VALUE INDEX--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
STANDARD & POOR'S SMALLCAP 600/BARRA GROWTH INDEX--contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.
RUSSELL 1000 VALUE INDEX--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.
WILSHIRE 5000 EQUITY INDEX--consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily listing pricing is
available.
WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 1000 GROWTH INDEX--
RUSSELL 3000 STOCK INDEX--a diversified portfolio of over 3,000 common stocks
accounting for over 90% of the market value of publicly traded stocks in the
U.S.
RUSSELL 2000 STOCK INDEX--composed of the 2,000 smallest securities in the
Russell 3000, representing approximately 7% of the Russell 3000 total market
capitalization.
RUSSELL 2000 VALUE INDEX--contains stocks from the Russell 2000 Index with a
less-than-average growth orientation.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia and the Far East.
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GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
SALOMON BROTHERS BROAD INVESTMENT-GRADE BOND INDEX--is a market-weighted index
that contains over 4,800 individually priced investment-grade corporate bonds
rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
LEHMAN LONG-TERM TREASURY BOND INDEX--is a market-weighted index that contains
individually priced U.S. Treasury Securities with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX--consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (Baa) BOND INDEX--all publicly offered fixed rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $100 million outstanding. This index
includes over 1,500 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $100 million
principal outstanding and maturity greater than 10 years.
BOND BUYER MUNICIPAL BOND INDEX--is a yield index on current coupon high grade
general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
of four high grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX--65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's 500/BARRA
Value Index, and 12.5% Standard & Poor's Utilities Index and 12.5% Standard &
Poor's Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
over 4,000 individually priced U.S. Treasury, agency, corporate, and mortgage
pass-through securities corporate rated BBB- or better. The Index has a market
value of over $5 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains over 1,500 individually priced U.S. Treasury,
agency, and corporate investment grade bonds rated BBB- or better with
maturities between 1 and 5 years. The index has a market value of over $1.6
trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX--is a
market weighted index that contains over 1,500 individually priced U.S.
Treasury, agency, and corporate securities rated BBB- or better with maturities
between 5 and 10 years. The index has a market value of over $800 billion.
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LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market weighted
index that contains over 1,900 individually priced U.S. Treasury, agency, and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $1.1 trillion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper Inc. Lipper defines a small company
growth fund as a fund that by prospectus or portfolio practice, limits its
investments to companies on the basis of the size of the company. From time to
time, Vanguard may advertise using the average performance and/or the average
expense ratio of the small company growth funds. (This fund category was first
established in 1982. For years prior to 1982, the results of the Lipper Small
Company Growth category were estimated using the returns of the Funds that
constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Inc.
LIPPER GENERAL EQUITY FUND AVERAGE--an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Inc.
LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed income
funds with similar investment objectives and policies, as measured by Lipper
Inc.
LIPPER EQUITY INCOME FUND AVERAGE--an industry benchmark of average equity
income funds with similar investment objectives and policies, as measured by
Lipper Inc.
SAI065-05/16/2000
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