TURNER FUNDS
1205 Westlakes Drive, Suite 100
Berwyn, PA 19312
July 21, 2006
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
100 "F" Street, N.E.
Washington, D.C. 20549
Re: Turner Funds (the "Trust")/ Registration Statement on Form N-14
(Registration No. 333-135090)
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Ladies and Gentlemen:
Attached is a memorandum which summarizes the staff's comments on the
Registration Statement on Form N-14 (the "Registration Statement") and the
Trust's responses to such comments.
The Trust acknowledges that it is responsible for the adequacy and
accuracy of the disclosure in the Registration Statement. The Trust further
acknowledges that staff comments or changes to disclosure in response to staff
comments on the Registration Statement may not foreclose the Securities and
Exchange Commission (the "Commission") from taking any action with respect to
the Registration Statement. The Trust further acknowledges that it may not
assert staff comments as a defense in any proceeding initiated by the Commission
or any party under the federal securities laws of the United States of America.
Very truly yours,
Turner Funds
By: /s/ Thomas Trala
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Thomas Trala
President
MEMORANDUM
TO: Vincent DiStefano CC: Michael P. Malloy
Brian F. McNally
Stephanie A. Djinis
FROM: Joshua Deringer
DATE: July 21, 2006
RE: Response to SEC Staff Comments on the Turner Funds
Registration Statement on Form N-14
(Registration No. 333-135090)
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This memorandum summarizes the disclosure comments received on July 13,
2006 from you on the above-referenced filing and the Registrant's responses.
A. Proxy/Prospectus
1. Comment: The Proxy/Prospectus discusses potential economies
of scale as a reason for the proposed reorganization. However,
the net expense ratio for the combined pro forma fund is only
4 basis points lower than the Turner Technology Fund. Please
supplementally explain how this reflects economies of scale.
Response: As is currently disclosed in the Proxy/Prospectus,
the Board considered the expected realization of economies of
scale in the long run that should over time reduce the
operating expense ratios for the combined Fund as a result of
Turner managing one fund instead of two funds with similar
investment objectives and strategies. With respect to the
specific pro forma expenses for the combined Fund, the Board
concluded that shareholders would benefit from the 4 basis
point reduction in expenses - a material reduction - but also
recognized that more substantial economies of scale could
potentially be achieved in the future.
2. Comment: If Turner anticipates selling some of the
Technology Fund's securities prior to or after the
reorganization, please disclose the possible tax and
transaction cost implications to shareholders of such
transactions.
Response: The Proxy/Prospectus currently includes the
following disclosures:
"Turner anticipates selling portions of the Technology Fund's
securities shortly before or after the Reorganization. To the
extent that the Technology Fund's securities holdings are sold
prior to the Reorganization; the proceeds of such sales will
be held in temporary investments or reinvested in assets that
the New Enterprise Fund may hold. The sale of securities
either prior to the Reorganization or shortly thereafter could
result in the Technology Fund or the New Enterprise Fund
realizing gains, and making taxable distributions to
shareholders attributable to those gains, that would not
otherwise have been realized but for the Reorganization. Such
a sale of assets and the reinvestment of the proceeds would
involve brokerage and other transactional costs to be borne by
the Technology Fund."
"The New Enterprise Fund anticipates selling portions of the
portfolio holdings received from the Technology Fund after the
Reorganization. The sale of these securities after the
Reorganization will result in the New Enterprise Fund
recognizing gains and/or losses that it would not otherwise
have realized were it not for the Reorganization. If the net
effect of these additional gains and/or losses is an increase
in the New Enterprise Fund's net short-term or long-term
capital gain for the current calendar year and/or fiscal year,
the amount of the Fund's taxable distributions to shareholders
may likely be increased."
3. Comment: Please supplement the discussions of the Trustees'
considerations of the Plan of Reorganization.
Response: The disclosure has been supplemented as per your
request. The relevant disclosure now reads as follows (marked
to show changes):
"At a meeting held on May 18, 2006, the Trustees approved the
Plan of Reorganization. The Board of Trustees is proposing the Reorganization in
an attempt to reduce expenses associated with the operations of the Funds. The
Board of Trustees determined that the Funds have identical investment objectives
and similar strategies. The Board also noted that the Funds share the same lead
portfolio manager and that as of May 2, 2006, the portfolios of the Funds had
significant overlap. The Board of Trustees considered the potential effects of
the Reorganization on expense ratios over time. The Board of Trustees was also
advised by Turner that it did not expect the Technology Fund would ever reach
the scale needed to reduce expenses on a stand-alone basis. It was expected that
the larger combined fund should realize economies of scale that may, in the long
run, result in lower expense ratios. Therefore, given the long-term reduction of
expenses expected to be realized by combining the Funds, the reduction of fees
passed on to shareholders, and the compatibility between the investment
objectives and principal strategies of both Funds, the Board of Trustees
determined that the Reorganization would enable the shareholders of the
Technology Fund to continue their individual investment programs without
substantial disruption. In addition, the shareholders of the Technology Fund
will have the same shareholder rights since both Funds are series of the Trust
governed by the same Agreement and Declaration of Trust and Bylaws. The Board of
Trustees considered various factors in reviewing the proposed Reorganization.
Such factors include, but are not limited to the following:
o improved operating efficiencies of the Funds after the Reorganization
due to the combination of similar Funds;
o While the gross total operating expenses of the New Enterprise Fund
after the reorganization are expected to be higher than the current
gross total operating expenses of the Technology Fund, the net total
operating expenses are expected to decrease and be lower than those of
the Technology Fund in light of the fact that Turner has contractually
committed, effective in May 2006, to limit expenses of the New
Enterprise Fund through November 2007;
o the fact that both Funds pay a performance-based advisory fee, and
that, although the Funds' advisory fees track different indices, the
New Enterprise Fund must outperform its index by a greater margin in
order for Turner to earn the maximum performance fee (a greater margin
also applies for Turner to earn the minimum performance fee);
o the expected realization of economies of scale in the long run that
should over time reduce the operating expense ratios for the combined
Fund as a result of Turner managing one fund instead of two funds with
similar investment objectives and strategies;
o similarities between the investment objectives, policies and strategies
of the Technology Fund and those of the New Enterprise Fund;
o the significant overlap of the current portfolio holdings of the
Technology Fund and the New Enterprise Fund;
o the expectation of no reduction of the services provided to the
Technology Fund shareholders after the Reorganization;
o the fact that the Funds share the same service providers;
o the proposed Reorganization will not result in the recognition of any
gain or loss for federal income tax purposes by the Technology Fund,
the New Enterprise Fund or their respective shareholders;
o neither the Technology Fund nor the New Enterprise Fund will bear any
direct fees or expenses in connection with the reorganization;
o the proposed Reorganization is in the best interests of both Funds and
their shareholders and will not dilute the interests of either Fund's
shareholders; and
o the Technology Fund shareholders will have the opportunity to vote on
the Reorganization.; and
o The recent investment performance of the New Enterprise Fund has
generally been stronger than that of the Technology Fund.
In addition, the Trustees considered the capital loss tax carryforwards
of the Technology Fund, which were approximately $130 million as of the end of
the Fund's last tax year ended September 30, 2005. The Trustees were informed
that while those capital loss tax carryforwards will be transferred to the New
Enterprise Fund in the Reorganization, most of the carryforwards will not be
usable, due to annual limitations resulting from the Reorganization. Therefore,
one consequence of the Reorganization will be to increase the likelihood that
shareholders of the Technology Fund who become shareholders of the New
Enterprise Fund will receive capital gains distributions after the
Reorganization that are taxable to them. The Trustees considered the loss of the
potential benefits of the capital loss tax carryforwards to the Technology Fund
and its shareholders in light of a number of factors including: (i) the
potential benefits of the Reorganization; and (ii) the possibility that, in
light of the Technology Fund's declining asset base, the potential benefits of a
substantial portion of that fund's capital loss carryforwards would remain
unused by the time they expired in 2009, 2010 and 2011.
For these and other reasons, the Board of Trustees believes that the
Reorganization is in the best interest of the Technology Fund and its
shareholders."
4. Comment: Please supplementally confirm whether Turner's
contractual expense limitation provides for recoupment.
Response: The expense limitation does not provide for
recoupment.
5. Comment: Based upon the pro forma statement of operations,
it appears that the net operating expenses of the combined
fund and the New Enterprise Fund are higher than those of the
Technology Fund.
Response: The expense ratio of the combined Fund is lower than
that of the Technology Fund. While, on an absolute dollar
basis, the expenses may be higher in the combined Fund, when
divided over a larger asset base, shareholders of the combined
Fund will be paying lower expenses than New Enterprise Fund
shareholders currently pay.
6. Comment: The Proxy/Prospectus states that the Trustees
considered that recent investment performance of the New
Enterprise Fund has generally been stronger than that of the
Technology. However, it appears that the Technology Fund has
stronger performance.
Response: The New Enterprise Fund has consistently had
stronger performance than the Technology Fund. The performance
as of March 31, 2006 for the New Enterprise Fund was stronger
than that of the Technology Fund for the 6 month,
year-to-date, one-year, three-year and five-year periods.
If you have any questions or comments concerning this memorandum,
please contact me at (215) 988-2959.