TIFF PROSPECTUS
INVESTMENT
PROGRAM, INC. April 26, 1995
Including These Funds: Available through:
TIFF Multi-Asset Fund Foundation Advisers, Inc.
TIFF Global Equity Fund P.O. Box 5165
TIFF International Equity Fund Charlottesville, VA 22905
TIFF Emerging Markets Fund
TIFF U.S. Equity Fund phone (800) 984-0084
TIFF Bond Fund Fund fax (804) 977-4479
TIFF Short-Term Fund
TIFF Investment Program, Inc. (TIP) is a no-load, open-end
management investment company that seeks to improve the net
investment returns of its shareholders ("Members") by making
available to them a series of investment vehicles (the "Funds"),
each with its own investment objective and policies. The Funds
are available exclusively to foundations and other 501(c)(3)
organizations except educational endowments (see ELIGIBLE
INVEST'RS). The Funds and their Adviser, Foundation
Advisers, Inc. ("FAI"), have been organized by a nationwide
network of foundations. FAI is a non-stock corporation, no part
of the earnings of which may inure to any private individual or
corporation. FAI is responsible for selecting Money Managers
for each Fund and for allocating Fund assets among these Money
Managers, subject to the approval of TIP's Board of Directors.
With the exception of FAI's President, all FAI and TIP Directors
serve as unpaid volunteers. Because FAI does not seek to earn a
profit, it may waive a portion of its fees from time to time.
The Funds currently available are: (1) TIFF Multi-Asset Fund
('Multi-Asset Fund"); (2) TIFF Global Equity Fund ("Global
Equity Fund"); (3) TIFF International Equity Fund
("International Equity Fund"); (4) TIFF Emerging Markets Fund
("Emerging Markets Fund"); (5) TIFF U.S. Equity Fund ("U.S.
Equity Fund"); (6) TIFF Bond Fund ("Bond Fund"); and (7)
TIFF Short-Term Fund ("Short-Term Fund"). With the
exception of the Short-Term Fund, which is designed primarily as
a vehicle for investment of funds that Members intend to spend or
distribute within one year, the Funds are intended as vehicles for
the implementation of long-term asset allocation policies.
Shares of each Fund may be purchased through FAI as a branch
office of TIP's distributor, AMT Capital Services, Inc. The
minimum initial investment in each Fund is $100,000, with the
exception of the Short-Term Fund which has a minimum initial
investment of $50,000. The minimum for subsequent purchases
and exchanges among Funds is $5,000. This Prospectus sets
forth concisely the information about the Funds that a prospective
Member should know before investing. Additional information
about TIP is contained in the Statement of Additional Information
dated April 24, 1995, which has been filed with the Securities and
Exchange Commission (the "Commission"), and which can be
obtained without charge by contacting FAI at the address and
telephone number above. The Statement of Additional
Information is incorporated herein by reference. This Prospectus
should be read carefully and retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
CONTENTS
HIGHLIGHTS ..........................................4
FEES AND ANNUAL FUND OPERATING EXPENSES .............6
FINANCIAL HIGHLIGHTS ................................8
TIP'S ORIGINS AND MISSION ...........................9
ELIGIBLE INVESTORS ..................................11
MANAGEMENT AND ADMINISTRATION OF THE FUNDS...........11
MONEY MANAGERS ......................................16
INVESTMENT OBJECTIVES, POLICIES, AND
RESTRICTIONS ........................................20
POLICY IMPLEMENTATION AND RISKS .....................29
RISK FACTORS...SEE POLICY IMPLEMENTATION AND RISKS ..29
PURCHASES AND REDEMPTIONS ...........................47
DIVIDENDS AND DISTRIBUTIONS .........................49
TAX CONSIDERATIONS ..................................51
MEMBER VOTING RIGHTS AND PROCEDURES .................53
PERFORMANCE AND EXPENSE INFORMATION .................53
MEMBER INQUIRIES ....................................53
MONEY MANAGER PROFILES APPENDIX A
DESCRIPTION OF INDICES APPENDIX B
SERVICE PROVIDER PROFILES APPENDIX C
HIGHLIGHTS
TIP'S ORIGINS AND MISSION. TIP seeks to fulfill its
Mission of improving the net investment returns of grantmaking
foundations and other 501(c)(3) organizations by providing a
series of no-load open-end mutual funds to its Members on an
economical and convenient basis. The Funds seek to provide
eligible organizations with multiple benefits, including:
The opportunity to delegate responsibility for certain
tasks, especially those which are time- or data-intensive, to a
group of investment professionals with significant experience
investing eleemosynary assets. These tasks include vendor
selection and monitoring and, with respect to the Multi-Asset
Fund, the formulation of asset allocation policies and strategies
that have the potential to produce real or inflation-adjusted
returns sufficient to preserve the purchasing power of Members'
invested assets.
The opportunity to exploit more fully the economies of
scale inherent in many aspects of investing. These potential
economies of scale include enhanced diversification of assets
across investment styles and money managers, enhanced access to
money managers that might otherwise be unavailable due to
account size minimums, and reduced investment-related expenses.
Monthly statements and periodic reports to Members
designed to be responsive to the idiosyncratic needs of
participating foundations, including especially private foundation
tax requirements.
The Funds and their Adviser, Foundation Advisers, Inc., have
been organized by a nationwide network of grantmaking
foundations. FAI is a non-stock corporation, no part of the
earnings of which may inure to any private individual or
corporation. FAI is responsible for selecting Money Managers
for each Fund and for allocating Fund assets among these Money
Managers, subject to the approval of TIP's Board of Directors.
All of TIP's and FAI's Directors have extensive experience
investing institutional assets and hold or have held senior
investment-related positions at foundations, endowments, or
other institutional funds. With the exception of FAI's President,
all FAI and TIP Directors serve as unpaid volunteers. PAGES 7-9
ELIGIBLE INVESTORS are grantmaking foundations and other
501(c)(3) organizations except educational endowments. PAGE 9
MEMBER VOTING RIGHTS AND PROCEDURES provide for
ultimate Member control of the composition of TIP's Board of
Directors and the Funds' fundamental investment objectives,
policies, and restrictions. PAGES 46-47
PURCHASES AND REDEMPTIONS of shares include no sales
loads or 12b-1 charges. However, there are transaction charges
payable to the Funds (not to FAI or other service providers) on
purchases ("entry fees") and redemptions ("exit fees") of
shares of the Multi-Asset (0.75%), Global Equity (0.75%),
International Equity (0.75%), Emerging Markets (1.00%), and
U.S. Equity (0.25%) Funds. Shares are offered and orders to
purchase are accepted on each business day. Redemption of
shares may be requested on any business day. PAGES 41-43
DIVIDENDS AND DISTRIBUTIONS may be reinvested in
additional shares or received in cash. Dividends from net
investment income are declared daily and paid monthly by the
Short-Term and Bond Funds; declared and paid quarterly by the
U.S. Equity Fund; declared and paid semi-annually by the
International Equity, Global Equity, and Multi-Asset Funds; and
declared and paid annually by the Emerging Markets Fund. All
Funds declare distributions from net realized capital gains, if any,
at least annually. PAGES 43-45
INVESTMENT OBJECTIVES, POLICIES, AND
RESTRICTIONS apply to each Fund, and are summarized in the
table on this page. While a Fund's performance objective serves
an important function in monitoring the success of TIP's multi-
manager approach over a full market cycle, the performance of
each Fund compared to the specified index can be expected to
vary from year to year. For these purposes, market cycle is
defined as the period from the peak of one rising market to the
peak of the next rising market, or the corresponding troughs of
falling markets. The Funds will attempt to attain their
performance objectives over a combination of rising and falling
markets, not during a single rising or falling market or a defined
time period (such as one year). There can be no assurance that a
Fund will attain its investment or performance objective. PAGES
18-26
Fund Investment Objective Performance Objective
Multi-Asset Provide a growing stream of Outperform the following
current income and appreciation constructed index by 0.50%
of principal that at least annually over a market cycle net
offsets inflation of all expenses: 25% Wilshire 5000
[U.S.] Index; 30% MSCI All
Country World ex USA Index;
15% Treasury Bills plus 5%
per annum; 10% resource-related
sectors of MSCI World
Index (7% Energy Sources and
Equipment; 2% Gold Mines; 1%
Metals plus Forest Products
plus Misc. Materials); 15%
Lehman Aggregate Bond Index;
and 5% Lehman Majors ex US Bond
Index
Global Provide a growing stream of Outperform the MSCI All Country
Equity current income and World Index (a capitalization-
appreciation of principal weighted index of publicly traded
that at least offsets common stocks) by 1.00% annually
inflation over a market cycle net of all
expenses
International Provide a growing stream of Outperform the MSCI All Country
Equity current income and World ex USA Index (a capitali-
appreciation of principal zation-weighted index of non-U.S.
that at least offsets publicly traded common stocks)
inflation by 1.00% annually over a market
cycle net of all expenses
Emerging Provide appreciation of Outperform the MSCI Emerging
Markets principal that at least Markets Free Index (a
offsets inflation capitalization-weighted index
of common stocks publicly
traded on selected developing
foreign market exchanges)
by 1.00% annually over a market
cycle net of all expenses
U.S. Provide a growing stream Outperform the Wilshire 5000
Equity of current income and Index (a capitalization-
appreciation of principal weighted index of all publicly
that at least offsets traded U.S. stocks for which
inflation price quotations are readily
available) by 0.75% annually
over a market cycle net of all
expenses
Bond Provide: (1) a hedge Outperform the Lehman Aggregate
against deflation; and Bond Index (a market-weighted
(2) a high rate of index of publicly traded U.S.
current income, subject dollar-denominated fixed income
to restrictions designed securities) by 0.50% annually
to ensure liquidity and over a market cycle net of all
control exposure to interest expenses
rate and credit risk
Short- Provide a high rate of Outperform the Merrill Lynch
Term current income, subject 182-Day Treasury Bill Index
to restrictions designed net of all expenses
to control share price
volatility
Management and Administration of the Funds are provided by FAI and external
Money Managers selected by it, subject to approval by TIP's Board of
Directors. AMT Capital Services, Inc. ("AMT Capital"), a firm specializing
in mutual fund administration and distribution, supervises the Funds'
day-to-day operations other than portfolio management. Investors Bank &
Trust Company serves as the Funds'Custodian and Fund Accounting Agent,
Transfer Agent, and Dividend Disbursing Agent. Price Water House LLP serves
as the Funds' independent accountant. PAGES 9-14
MONEY MANAGERS are selected by FAI in accordance with criteria that represent
a synthesis of the experience of FAI's Directors and Officers.
Money Managers have discretion to purchase and sell securities for their
allocated portions of a Fund's assets, subject to the Fund's written
investment objectives, policies, and restrictions and the specific strategies
developed by TIP's Board of Directors and FAI. Money Manager profiles
appear in Appendix A. Not all Money Managers profiled in Appendix A will be
employed at all times. Whether a given Money Manager is employed at given
time depends on a Fund's size, its projected growth rate, and FAI's
perception of the relative attractiveness of the Money Manager's approach in
light of prevailing market conditions. Although FAI is not expected to have
a principal role in actively investing a Fund's assets, FAI is responsible
for investing funds until they are allocated to a Money Manager. PAGES 14-18
POLICY IMPLEMENTATION AND RISKS describes the strategies, tactics, and types
of investments that the Funds are permitted to employ and certain associated
risks. Under normal market conditions, each Fund intends to be substantially
fully invested in accordance with its investment objective and policies.
Due to substantial differences in the securities in which they will primarily
invest, the Funds may exhibit varying levels of volatility. No single Fund
should be considered a complete investment program, and an investment in any
Fund other than the Short-Term Fund should be regarded as a long-term
commitment to be held through one or more market cycles. PAGES 26-41
FEES AND ANNUAL FUND OPERATING EXPENSES summarizes the fees to be paid by
Members and the effect of these fees on a hypothetical $1,000 investment over
time. With the exception of the Emerging Markets Fund, each Fund employs
Money Managers whose fees are based on their performance relative to
benchmarks deemed appropriate by TIP's Directors in light of each Money
Manager's investment approach. Consequently, each Fund's overall expense
ratio may fluctuate over time. PAGES 5-6
FEES AND ANNUAL FUND OPERATING EXPENSES
ILLUSTRATIONS. The table below illustrates the fees and expenses that a
Member of TIP can expect to incur.
Multi- Global International Emerging U.S. Short-
Asset Equity Equity Markets Equity Bond Term
Sales Loads
Sales Load on
Purchases None None None None None None None
Sales Load
on Reinvested
Dividends None None None None None None None
Deferred Sales
Load None None None None None None None
Transaction Charges
Paidto Funds
(as percentage of
transaction amount)
Entry Fees on
Purchases[a] 0.75% 0.75% 0.75% 1.00% 0.25% None None
Exit Fees
on Redemptions
[a] 0.75% 0.75% 0.75% 1.00% 0.25% None None
Exchange Fees
[a] 0.75% 0.75% 0.75% 1.00% 0.25% None None
Annual Operating
Expenses(as
percentage of
average net assets)
Adviser Fees (Paid
to FAI) 0.20% 0.15% 0.15% 0.15% 0.15% 0.10% 0.03%
Money Manager
Fees [b] 0.50% 0.50% 0.60% 1.10% 0.30% 0.19% 0.14%
Administration
Fees (Paid to
AMT) 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
Other
Expenses [c] 0.18% 0.18% 0.26% 0.51% 0.33% 0.26% 0.16%
Total
Operating
Expenses 0.95% 0.90% 1.08% 1.83% 085% 0.62% 0.40%
EXAMPLE: Expenses per $1,000 Investment. The table on the following
page illustrates the expenses that an investor would pay on each $1,000
increment of its investment over the indicated time periods, assuming
(i) a 5% annual return; (ii) fees and expenses (including entry and exit
fees) paid at the rates provided in the preceding tables; and (iii)
reinvestment of all dividends and distributions. For a discussion of the
performance-based Money Manager fees, see footnote [b] below.
Multi- Global International Emerging U.S. Short-
Asset Equity Equity Markets Equity Bond Term
1 Year
With redemption
at end of
period $25 $24 $25 $36 $12 $5 $4
No redemption
at end of
period 17 17 18 25 9 5 4
3 Years
With redemption
at end of
period $47 $45 $48 $69 $26 $16 $11
No redemption
at end of
period 38 36 40 58 23 16 11
The purpose of the foregoing tables is to assist eligible organizations
in understanding the various costs and expenses that they would bear directly
or indirectly as Members of each Fund. These tables should not be considered
representative of future expenses or performance. Actual operating expenses
and annual returns may be greater or less than those shown.
[a] Entry and Exit Fees of Equity Funds. All Funds except the Bond and
Short-Term Funds assess entry and exit fees that are paid directly to the
Funds themselves, and not to FAI or other vendors supplying services to the
Funds. These are not sales charges; they apply to initial investments in
each Fund and all subsequent purchases, exchanges, or redemptions, but not
to reinvested dividends or capital gains distributions. These entry and exit
fees are designed to allocate transaction costs associated with purchases,
exchanges, and redemptions of shares of the Funds that assess such fees to
Members actually making such purchases, exchanges, and redemptions rather
than to the Funds' other Members. These fees are deducted automatically from
the amount invested or redeemed; they cannot be paid separately. Entry and
exit fees may be waived at the Adviser's discretion for transactions
involving in-kind purchases and redemptions. See PURCHASES AND REDEMPTIONS.
[b] Money Manager Fees. The Money Manager fees as noted in the table are
estimates for the current fiscal year. Commencing with the third calendar
month of investment operations of each Fund, the portfolio management fees
accrued by all Funds except the Emerging Markets Fund in the determination of
daily net asset values are adjusted based on the performance of certain Money
Managers relative to specified indices. However, with respect to the third
through fourteenth calendar month of each Fund's operation (except Emerging
Markets) such accrued performance fees (in excess of the minimum fee) will
not be paid until after the fourteenth calendar month of the Fund's
operations. On an annual basis the total fees payable to Money Managers that
have agreed to performance-based fee arrangements are likely to range as
suggested in the graphs furnished in Appendix A entitled MONEY
MANAGER PROFILES and as described in the section of the Statement of
Additional Information entitled PERFORMANCE-BASED FEES FOR MONEY MANAGERS.
As described therein, starting with the third calendar month of investment
operations, total expenses of the Funds will depend in part on the Money
Managers' performance (which cannot be estimated with any degree of
certainty) and could be higher or lower than the estimated expenses shown in
the table. Certain Money Managers receive asset-based fees not tied to
performance.
[c] Other Expenses. This category includes custodial and transfer agent
fees, legal and audit expenses, and miscellaneous Fund expenses, as estimated
for the current fiscal year.
FINANCIAL HIGHLIGHTS
The following audited financial information is for the period from
May 31, 1994 (commencement of TIP operations) through December 31, 1994.
The audited financial statements for the period ended December 31, 1994 are
incorporated by reference in the Statement of Additional Information, and are
available upon request from Foundation Advisers, Inc. The TIFF Global Equity
and Multi-Asset Funds have not yet begun operations.
International Emerging U.S. Short-
Equity Markets Equity Bond Term
Per Share Data
Net Asset Value
(beginning of period) $10.00 $10.00 $10.00 $10.00 $10.00
Income from
Investment Operations
Investment Income, Net+ 0.05 0.01 0.15 0.36 0.28
Net Realized and
Unrealized Gain
(Loss) on Investments,
Options,
and Financial Futures
Contracts 0.06 (0.71) 0.19 (0.32) 0.02
Total from Investment
Operations 0.11 (0.70) 0.34 0.04 0.30
Less Distributions
From Net Investment
Income 0.04 0.01 0.15 0.36 0.28
Amounts in Excess of
Net Gain on
Investments, Options,
and Financial Futures
Contracts 0.01 0.00 0.00# 0.00# 0.00#
Net Realized and
Unrealized Gain
on Investments, Options,
and Financial Futures
Contracts 0.00 0.00 0.01 0.00 0.01
Amounts in Excess of
Net Realized and
Unrealized Gain on
Investments, Options,
and Financial
Futures Contracts 0.08 0.05 0.16 0.00 0.01
Total Distributions 0.13 0.06 0.31 0.36 0.30
Net Asset Value (end of
period) $9.98 $9.24 $10.02 $9.68 $10.00
Total Return (c) 0.98%(b) (6.97% )(b) 3.49%(b) 0.46%(b) 3.10%(b)
Ratios / Supplemental
Data
Net Assets (end of
period) $89,308,767 $50,032,217 $58,173,066 $79,671,253
$34,283,424
Ratio of Expenses
to Average
Net Assets 1.08%[a] 1.83%[a] 0.85%[a] 0.62%[a] 0.40%[a]
Ratio of Expenses
to Average
Net Assets Before
Expense Waiver 1.27%[a] 2.25%[a] 1.06%[a] 0.94% a] 1.72%[a]
Ratio of Net Investment
Income to Average Net
Assets 0.95%[a] 0.40%[a] 2.52%[a] 6.37%[a] 4.98%[a]
Portfolio Turnover 14.71%(b) 26.37%(b) 44.59%(b) 162.06%(b) NA
+ Net of Waivers
Which Amounted to 0.01 0.01 0.01 0.02 0.08
(a] Annualized
(b] Not Annualized
(c] Total Return
Would be Lower Had
Certain Expenses Not Been
Waived or Reimbursed
# Rounds to Less Than 0.01
NA = Not applicable.
TIP's Origins and Mission
TIP's Origins. TIFF Investment Program, Inc. is a no-load, non-diversified,
open-end management investment company that seeks to improve the net
investment returns of its Members by making available to them a series of
investment vehicles, each with its own investment objective and policies.
The Funds are open exclusively to foundations and other 501(c)(3)
organizations except educational endowments (see ELIGIBLE INVESTORS).
The Funds are advised by Foundation Advisers, Inc., a non-stock corporation,
no part of the earnings of which may inure to any private individual or
corporation. FAI is responsible for selecting Money Managers for each Fund
and for allocating Fund assets among the Money Managers, subject to the
approval of TIP's Board of Directors. TIP and FAI were organized by The
Investment Fund for Foundations ("TIFF"), a tax-exempt, not-for-profit,
member-controlled organization dedicated to enhancing foundations'
investment returns. TIFF was established by grantmaking foundations.
Although certain members of TIFF's Board of Trustees serve as Directors of
TIP and FAI, TIFF does not exercise control over TIP. The Directors of TIP
will be elected by the Members of the Funds described in this Prospectus.
TIFF has provided financial support to FAI in the form of approximately
$200,000 in cash payments to FAI to finance legal fees, FAI staff salaries
and other expenses associated with TIP's establishment. FAI is a
Director-controlled corporation and a majority of its Directors are not
affiliated persons or interested persons of TIFF as those terms are defined
in the Investment Company Act of 1940 (the "1940 Act").
TIFF has agreed (but not irrevocably) to permit TIP to use the acronym
"TIFF" in its name as an expression of support for TIP's programs and
policies. TIFF's revocation of the right to use this acronym would compel
TIP to adopt a new legal name, and the withdrawal of TIFF's endorsement of
the Funds could also produce a large volume of redemption requests that could
impair the net asset value of shares held by remaining Members.
The decision to use the acronym "TIFF" reflects a decision by TIP's Directors
that the advantages of doing so outweigh the risks associated with the
potential revocation of this privilege. This decision in turn reflects the
Directors' belief that TIFF is unlikely to withdraw its endorsement of the
Funds unless TIP ceases pursuing TIP's Mission as described herein.
INVESTMENT EXPERIENCE OF DIRECTORS. All of TIP's and FAI's Directors have
extensive experience investing institutional assets and hold or have held
senior investment-related positions at foundations, endowments, or other
institutional funds. Collectively, members of TIP's and FAI's Boards have
over 250 years of experience supervising institutional funds and are employed by
or serve as trustees of 47 endowed institutions with aggregate assets
exceeding $13 billion.
TIP'S MISSION. The Funds seek to provide Members with a
number of benefits, including:
The opportunity to delegate responsibility for certain tasks,
especially those which are time- or data-intensive, to a group
of investment professionals with significant experience
investing eleemosynary assets. These tasks include vendor
selection and monitoring and, with respect to the Multi-Asset
Fund, the formulation of asset allocation policies and strategies
that have the potential to produce real or inflation-adjusted
returns sufficient to preserve the purchasing power of Members'
invested assets.
The opportunity to exploit more fully the economies of
scale inherent in many aspects of investing. These potential
economies of scale include enhanced diversification of assets
across investment styles and Money Managers, enhanced access
to Money Managers that might otherwise be unavailable due to
account size minimums, and reduced investment-related expenses.
Monthly statements and periodic reports to Members
designed to be responsive to the idiosyncratic needs of
participating foundations, including especially private foundation
tax requirements.
MULTI-MANAGER STRUCTURE. Each TIP Fund employs multiple Money Managers.
The Directors of TIP and FAI believe that some Money Managers potentially
are able to achieve superior investment returns within selected asset classes
and investment sectors. FAI seeks to facilitate the attainment of each
Fund's investment and performance objectives by allocating a portion of a
Fund's assets to a number of Money Managers, each of whom is employed to
specialize in a particular market sector or to utilize a particular
investment style. The amount of assets that FAI allocates to a Money Manager
may be based, in part, on the weighting of the particular sector in which the
Money Manager specializes in the Fund's performance benchmark index.
Although currently it is anticipated that each of the Money Managers listed
in Appendix A will actively manage a portion of a Fund's assets, FAI may
adjust the allocation of a Fund's assets among its Money Managers.
The management fees of a majority of TIP's Money Managers are adjusted
upwards or downwards based on the investment performance of the Money Manager
relative to a benchmark rate of return that TIP's Directors believe is an
appropriate measurement of that Money Manager's performance. See Appendix A
for additional information about Money Managers.
ADDITIONAL INFORMATION ABOUT TIP. TIP was established under Maryland law on
December 23, 1993. TIP's Articles of Incorporation authorize issuance of
shares in series evidencing ownership of separate Funds and permit new series
of shares evidencing new Funds in addition to the seven Funds that are described
in this Prospectus. TIP bears all of its own expenses, such as: advisory
fees; Money Manager fees; administration fees; custody and fund accounting
agent fees and expenses; transfer agent and dividend disbursing agent fees and
expenses; legal and auditing fees; expenses of preparing and printing Member
reports; registration fees and expenses; and proxy and annual Member meeting
expenses, if any. Almost all of TIP's organizational expenses have been paid by
FAI with proceeds of contributions from TIFF. Costs allocable to more
than one Fund will be allocated among Funds in a manner approved by TIP's
Board of Directors.
ELIGIBLE INVESTORS
ELIGIBILITY CRITERIA. Investment in TIP Funds is available to organizations
that: (1) are organized and operated exclusively for charitable purposes,
no part of the net earnings of which inures to the benefit of any private
individual or corporation, (2) qualify for exemption from federal income
taxes under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"); and (3) are not eligible to invest through The Common
Fund for educational endowments. Organizations eligible to invest through
TIP fall into three categories:
Private Foundations: Private (including corporate) foundations as defined in
Section 509(a) of the Code that are required to file Form 990-PF annually are
eligible to invest in TIP.
Community Foundations: Community foundations that qualify for membership in
the Council on Foundations (whether or not the organization is actually a
member of the Council) are eligible to invest in TIP. A list of these
qualifications is available upon request from FAI or the Council on
Foundations.
Other 501(c)(3) Organizations: Other non-profit organizations (except
educational endowments) that have received a letter of exemption under
Section 501(c)(3) of the Code are eligible to invest in TIP.
Organizations that are unsure whether they satisfy the eligibility criteria
specified above should contact FAI at 804-984-0084.
ELIGIBILITY CERTIFICATE. An organization interested in investing in one or
more TIP Funds must complete an eligibility certificate (included in the
Account Application) and furnish TIP with a copy of its letter of
determination of exempt status from the IRS. Organizations admitted as
Members of TIP that are subsequently determined to be ineligible will be
asked to redeem all shares that they hold in all TIP Funds. TIP's Articles of
Incorporation provide that, in such circumstances, TIP is empowered to redeem
the investor's shares and place the proceeds in an account for the benefit of
the investor at a bank chosen by TIP. This authority can and will be used
only in the event that an investor determined ineligible for participation in
TIP does not redeem its shares in all TIP Funds within 30 days after TIP's
transmission of such request to the investor.
MANAGEMENT AND ADMINISTRATION OF THE FUNDS
DIRECTORS AND OFFICERS OF TIP AND FAI. FAI is responsible for selecting
Money Managers for each Fund and for allocating Fund assets among these Money
Managers, subject to the approval of TIP's Board of Directors. TIP's Board of
Directors is responsible for the overall management and supervision of TIP.
Individuals currently serving as Directors or Officers of TIP and FAI are
identified below. In the table, an asterisk (*) has been placed next to the
names of the two members of TIP's Board of Directors who are "interested
persons" in TIP, as such term is defined in the 1940 Act, by virtue of their
affiliations with FAI (the Funds' Adviser and exclusive Distributor).
Selection Process. Initial members of the Boards of FAI and TIP were
selected by the Board of Trustees of The Investment Fund for Foundations.
TIP's Directors are subject to election by the Funds' Members (see MEMBER
VOTING RIGHTS AND PROCEDURES). Pursuant to FAI's organizing documents, FAI's
Directors are elected in accordance with procedures designed to ensure that
FAI's Directors, Officers and employees remain responsive to the needs of
foundations eligible to invest through TIP.
TIP FAI
Directors Officers Directors Officers
Unpaid Directors
Barbara B. Lawson Director
William F. McCalpin Director
William F. Nichols Chair
Alicia A. Philipp Director
Fred B. Renwick Director
Linda S. Tafoya Director
Robert E. Wise Director
Lawrence L. Landry* Director Director
John E. Craig Chair
Gregory D. Curtis Director
Alice W. Handy Director
John G. Mebane Director
Jack R. Meyer Director
Carl W. Schafer Director
Ann B. Sloane Director
David F. Swensen Director
Arthur Williams III Director
Officers and
Paid Directors
David A. Salem* Director President Director President
Esther L. Cash Vice President/Secretary VP/Secretary/Treasurer
William E. Vastardis Treasurer
Carla E. Dearing Assistant Treasurer
Biographies of Unpaid Directors
John E. Craig, Jr. is Executive Vice President and Treasurer of The
Commonwealth Fund, One East 75th Street, New York, NY, 10021, where he
oversees assets exceeding $400 million. Mr. Craig was formerly Assistant
Director of the John A. Hartford Foundation. He chairs the Board of the
Non-Profit Coordinating Committee of New York; chairs the Investment
Committee of the Social Science Research Council; and is a member of the
Publications Committee of New York's City Journal. He is a member of the
boards of the Davidson College Board of Visitors, the Rockefeller Archive
Center, and the US-New Zealand Council; and a trustee of The Investment Fund
for Foundations.
Gregory D. Curtis is President of Grecourt & Co., Four Gateway Center,
Pittsburgh, PA, 15222, an investment banking firm. Mr. Curtis was formerly
President of the Laurel Foundation and C.S. May Associates, a diversified
investment and financial services firm. He is a trustee of Contemporary Arts
Stabilization Trust, The Ellis School, The Emerging International City, Inc.,
and St. John's College. He is also a director of several for-profit
corporations.
Alice W. Handy is Treasurer of the University of Virginia, Box 9012,
Charlottesville, VA, 22906, which has endowment assets exceeding $600
million. Ms. Handy was formerly Treasurer of the Commonwealth of Virginia.
She is a member of the Municipal Securities Rulemaking Board, a member of the
Investment Advisory Committee of the Virginia Retirement System, and a member
of the board of Connecticut Mutual Property Management.
*Lawrence L. Landry is Vice President and Chief Financial Officer of The John
D. and Catherine T. MacArthur Foundation, 140 South Dearborn Street, Suite
1100, Chicago, IL, 60603, where he oversees assets exceeding $3 billion.
Mr. Landry was formerly Chief Financial Officer of Southern Methodist
University, Swarthmore College, and Clark University. He is a director of
Computervision and Hercules Engine Co., and Chair of the Board of The
Investment Fund for Foundations.
Barbara B. Lawson is Vice President of Administration and Finance of the
Marin Community Foundation, 17 East Sir Francis Drake Boulevard, Suite 200,
Larkspur, CA, 94939, which has assets exceeding $500 million. Ms. Lawson was
formerly Chief Financial Officer of the Pacific Stock Exchange. She is a
member of the boards of the San Francisco Bay Girl Scout Council and the San
Francisco AIDS Foundation, and a trustee of The Investment Fund for
Foundations.
William F. McCalpin is Director of Investments Related to Programs of The
John D. and Catherine T. MacArthur Foundation, 140 South Dearborn Street,
Suite 1100, Chicago, IL, 60603. Mr. McCalpin was formerly Program Officer and
Treasurer of the Rockefeller Brothers Fund. He is a member of the boards of
the Lingnan Foundation and The Investment Fund for Foundations.
John G. Mebane, Jr. is Senior Investment Officer of The Duke Endowment,
100 North Tryon Street, Charlotte, NC, 28202, a private foundation with
assets exceeding $1.4 billion. He was formerly Vice President and Manager
of Personal Trust Portfolio Management at Wachovia Bank in Winston-Salem, NC.
He serves on the Investment Committee of the Christ Episcopal Church
Foundation and on the Board of Arthritis Patient Services, and is a
Chartered Financial Analyst.
Jack R. Meyer is President and Chief Executive Officer of
Harvard Management Company (HMC), 600 Atlantic Avenue,
Boston, MA, 02110. HMC is the endowment management
subsidiary of Harvard University, which has endowment assets
exceeding $6 billion. Mr. Meyer was formerly Treasurer and
Chief Investment Officer of the Rockefeller Foundation, Deputy
Comptroller of New York City, and a Director of the Investor
Responsibility Research Center.
William F. Nichols is Treasurer of the William and Flora Hewlett
Foundation, 525 Middlefield Road #200, Menlo Park, CA,
94025, which has assets exceeding $900 million. He is also
Treasurer and a trustee of Channing House, a member of the
Legislative and Regulation Committee of the Council on
Foundations, and a trustee of The Investment Fund for
Foundations.
Alicia A. Philipp is Executive Director of the Metropolitan
Atlanta Community Foundation, 50 Hurt Plaza, Suite 449,
Atlanta, GA, 30303, which has assets exceeding $120 million.
She previously served as Assistant to the President of Central
Atlanta Progress, and currently serves as a trustee of The
Investment Fund for Foundations.
Fred B. Renwick is Professor of Finance at the Leonard M. Stern
School of Business, New York University, 4 West 4th Street,
Suite 9-190, New York, NY, 10012. Professor Renwick is Chair
of the Finance Committee of Morehouse College; Chair of the
Investment Committees of the American Bible Society and
Wartburg Home Foundation; and a trustee of The Investment
Fund for Foundations. He was formerly Vice Chair of the Board
of Pensions of the Evangelical Lutheran Church of America.
Carl W. Schafer is President of The Atlantic Foundation, 16
Farber Road, Princeton, NJ, 08540, which has assets exceeding
$100 million. Mr. Schafer was formerly Financial Vice President
and Treasurer of Princeton University and was also Chair of the
Investment Advisory Committee of the Howard Hughes Medical
Institute. He is Chair of the Board of Johnson Atelier and School
of Sculpture and a member of the boards of the Jewish Guild for
the Blind and Harbor Branch Institution.
Ann Brownell Sloane is President of Sloane & Hinshaw, 165 East
72nd Street, New York, NY, 10021, a firm that furnishes
strategic, financial planning and management services to
foundations and other tax-exempt grantmaking organizations.
Ms. Sloane is a former trustee of Swarthmore College, and
continues as a member for 18 years of the Investment Committee
of its Board of Managers, and a trustee of The Investment Fund
for Foundations.
David F. Swensen is Chief Investment Officer of Yale University,
230 Prospect Street, New Haven, CT, 06511-2107, which has
assets exceeding $3.6 billion. Mr. Swensen was formerly a Senior
Vice President at Lehman Brothers. He also teaches finance and
portfolio theory at the University, and serves as a trustee of The
Carnegie Institution of Washington. He is currently a member of
the Investment Advisory Committees of the Edna McConnell
Clark Foundation and Howard Hughes Medical Institute.
Linda S. Tafoya is Executive Director of the Adolph Coors
Foundation, 3773 Cherry Creek North Drive, Denver, CO,
80209, which has assets exceeding $130 million. Ms. Tafoya is
President of Columbine United Church; a member of the board of
the Conference of Southwest Foundations, and a trustee of The
Investment Fund for Foundations.
Arthur Williams III is President of Pine Grove Associates, Inc.,
382 Springfield Avenue, Summit, NJ, 07901, a consulting and
asset management firm providing services to high net worth
families and institutions. He is former Director of Retirement
Plan Investments and other investment programs for McKinsey &
Company, Inc., where he oversaw assets exceeding $700 million.
He is the author of Managing Your Investment Manager and a
member of the Nominating Committee of the Institute for
Quantitative Research in Finance. He also serves as trustee for a
number of families.
Robert E. Wise is Vice President, Treasurer, and Chief Financial
Officer of the Meadows Foundation, Wilson Historic Block, 3003
Swiss Avenue, Dallas, TX, 75204, which has assets exceeding
$575 million. Mr. Wise was formerly Secretary, Treasurer, and
Chief Operating Officer of the Welch Foundation, and a trustee of
the Memorial Hospital Foundation and the Memorial Health Care
System. He is currently a member of the Investment Advisory
Committee of the University of Texas Permanent University
Fund, a member of the Investment Committee of Southern
Methodist University, and a trustee of The Investment Fund for
Foundations.
Biographies of Officers
Esther L. Cash is Vice President, Secretary, and Treasurer of
Foundation Advisers Inc., P.O. Box 5165, Charlottesville, VA,
22905, and Vice President of Operations of The Investment Fund
for Foundations. Prior to joining FAI, Ms. Cash was employed
by Grantham, Mayo, Van Otterloo & Co. ("GMO"), where her
responsibilities included operations, investment research, asset
allocation, regulatory compliance, and communications for
GMO's institutional mutual funds. Prior to joining GMO, she
was employed by Cambridge Associates, Inc., where she was
involved in systems design, research, and consulting.
Carla E. Dearing is Managing Director, Principal, and Director of
AMT Capital Services, Inc., 430 Park Avenue, New York, NY,
10022. Ms. Dearing is also Senior Vice President and Principal
of AMT Capital Advisers, Inc. (For a description of AMT
Capital, see ADDITIONAL SERVICE PROVIDERS.) Ms.
Dearing was formerly a Vice President of Morgan Stanley & Co.
where her responsibilities included product planning and
development for Morgan Stanley Capital International (MSCI).
*David A. Salem is President of Foundation Advisers, Inc., P.O.
Box 5165, Charlottesville, VA, 22905 and President and Chief
Executive Officer of The Investment Fund for Foundations. Prior
to assuming FAI's presidency in 1993, Mr. Salem was a partner
in the Boston-based investment advisory firm Grantham, Mayo,
Van Otterloo & Co., where his responsibilities included asset
allocation and strategic planning. Prior to joining GMO, Mr.
Salem was a Managing Director of Cambridge Associates, Inc.,
which provides investment and financial planning services
primarily to not-for-profit endowed institutions. He has served
on the faculties of Middlebury College (from which he earned his
undergraduate degree summa cum laude) and the University of
Virginia, and in the Office of the Counsel to the President of the
United States. He holds a J.D. cum laude from Harvard Law
School and an MBA with High Distinction from Harvard
Business School, where he was elected a Baker Scholar. Mr.
Salem is a trustee of the Core Knowledge Foundation and the St.
Anne's-Belfield Foundation, and is former co-chair of the
Cabinet of the Thomas A. Jefferson Memorial Foundation
(Monticello).
William E. Vastardis is Senior Vice President of Fund
Administration of AMT Capital Services, Inc., 430 Park Avenue,
New York, NY, 10022. Prior to joining AMT Capital, Mr.
Vastardis served as Vice President and head of the private label
mutual fund administration division of the Vanguard Group, Inc.
(1984-92) and in Vanguard's fund accounting operations (1978-
84). The Vanguard Group, headquartered in Valley Forge, PA, is
the second largest mutual fund family in the U.S.
Remuneration of Directors and Officers; Reimbursement of
Expenses. The only individuals who receive remuneration for
their services as Directors or Officers of TIP or FAI are Ms.
Cash, Ms. Dearing, Mr. Salem and Mr. Vastardis. Ms. Cash and
Mr. Salem are paid employees of FAI and receive no
compensation directly from TIP. Ms. Dearing and Mr. Vastardis
are paid employees of AMT Capital Services and receive no
compensation directly from FAI or TIP. FAI and TIP Directors
may be reimbursed for their out-of-pocket outlays associated with
attending Board meetings. Because only grantmaking
foundations are eligible to invest in the Funds, Directors and
Officers of TIP cannot own any of TIP's shares.
ADVISER. Pursuant to criteria outlined below (see MONEY
MANAGERS), the assets of each Fund are allocated among one
or more Money Managers recommended by Foundation Advisers,
Inc., P.O. Box 5165, Charlottesville, Virginia 22905.
Incorporated on August 20, 1993, FAI is a non-exempt
membership corporation that serves as the Adviser to all TIP
Funds. FAI was formed to facilitate investment by private
foundations, community foundations, and other 501(c)(3)
organizations in stocks, securities, and other assets. The affairs of
FAI are managed by its Board of Directors. The Directors of FAI
are members of the corporation and are "controlling persons"
(as that term is defined in the Rules and Regulations of the
Commission) of FAI. Although not tax-exempt, FAI does not
seek to earn a profit and no part of the net earnings of the
corporation may inure to the benefit of or be distributable to its
Directors, Officers, or any other private persons. This limitation
does not prevent payment of reasonable compensation for
services rendered in carrying out FAI's activities. All of FAI's
Directors have extensive experience investing foundation assets
and hold or have held senior investment-related positions at
foundations or endowments.
Advisory Agreement. Pursuant to each Fund's Advisory
Agreement with TIP (the "Advisory Agreements"), FAI: (a)
develops investment programs, selects Money Managers from a
broad universe of candidates, and monitors Money Manager
investment activities and results; (b) provides or oversees the
provision of all general management, investment advisory, and
portfolio management services to TIP; and (c) provides TIP with
office space, equipment, and personnel. The Advisory
Agreements are summarized in the Statement of Additional
Information and the fees payable to FAI thereunder are set forth
above under "Fees and Annual Fund Operating Expenses."
Because FAI does not seek to earn a profit, it may waive a
portion of its fees from time to time.
DISTRIBUTOR. Shares of TIP are distributed by FAI as a
registered branch office of AMT Capital Services, Inc., pursuant
to a Distribution Agreement (the "Distribution Agreement")
dated January 1, 1995 between TIP and AMT Capital Services,
Inc. No fees are payable by TIP pursuant to the Distribution
Agreement, and AMT Capital Services, Inc. and FAI bear the
expense of their distribution activities.
ADMINISTRATOR. Pursuant to an Administration Agreement
dated February 10, 1994 between TIP and AMT Capital Services,
Inc., 430 Park Avenue, New York, New York, 10022, AMT
Capital assists in managing and supervising certain day-to-day
business activities and operations of TIP, including custodial,
transfer agency, dividend disbursing, accounting, auditing,
compliance, and related activities. AMT Capital is a registered
broker-dealer whose senior managers are former officers of
Morgan Stanley and the Vanguard Group, where they were
responsible for the administration and distribution of The Pierpont
Funds, a $5 billion fund complex, and the private label
administration group of Vanguard, which administered
approximately $10 billion in assets for 45 portfolios.
MONEY MANAGERS
DISCRETION AFFORDED MONEY MANAGERS. Each
Money Manager has discretion to purchase and sell securities for
its allocated portion of a Fund's assets, subject to the Fund's
written investment objectives, policies, and restrictions. Although
the Money Managers' activities are subject to general oversight
by the Boards of Directors and Officers of TIP and FAI, neither
the Boards nor the Officers of FAI evaluate the investment merits
of the Money Managers' individual security selections.
MANAGER SELECTION PROCESS. With the exception of
funds held in the form of cash reserves pending allocation to
Money Managers or distribution to Members, the assets of each
Fund will be allocated by FAI among the Money Managers
profiled in Appendix A who will employ the investment
approaches described therein. FAI is responsible for identifying
qualified Money Managers for each Fund and negotiating the
terms of Agreements under which they are willing to provide
services to the Funds. These Agreements are then submitted for
approval by the Board of Directors of TIP, which retains the right
to disapprove the hiring of Money Managers recommended by
FAI and to terminate Agreements (subject to termination
provisions contained therein) between TIP and all vendors
employed by it, including FAI and the Money Managers. In
identifying Money Managers, FAI reviews the historical
investment results of a universe of money managers, evaluates
written information about these money managers supplied by both
the money managers and outside parties, and conducts face-to-
face interviews with the individuals who would actually manage
money for TIP were their firms to be employed by it.
Other FAI Investment Advisory Duties. In addition to identifying
prospective Money Managers and negotiating Agreements with
them, FAI is also responsible for allocating and reallocating each
Fund's assets among the Money Managers employed by it,
monitoring their performance, and investing funds held in the
form of cash reserves pending allocation to Money Managers or
distribution to Members. Within FAI, responsibility for setting
allocation ranges for each Money Manager is retained by FAI's
Directors, who meet regularly to establish and review these
ranges, review TIP's relationship with each Money Manager,
and to evaluate the need for changes in the roster of Money
Managers employed by TIP. Responsibility for investing
unallocated funds is delegated by FAI's Directors to FAI's
President (David A. Salem), who is assisted in this task by FAI's
Vice President, Secretary, and Treasurer (Esther L. Cash).
Unallocated funds will be invested in accordance with each
Fund's stated investment objective and policies. See POLICY
IMPLEMENTATION AND RISKS.
Money Manager Agreements. Money Managers and the terms of
Agreements under which they provide services to the Funds must
be approved by the Board of Directors of TIP. In order to
preserve the flexibility needed to respond to changes in the
environment in which TIP is operating, including especially the
relative performance of investment styles and individual Money
Managers, the Agreements between TIP and each Money
Manager do not specify the percentage of a Fund's assets to be
allocated to the Money Manager, and TIP's Directors therefore
rely on FAI to allocate and reallocate assets among Money
Managers in accordance with criteria set forth below. See
MANAGER ALLOCATION PROCESS. These Agreements
between the Funds and Money Managers provide that such
Agreements may remain in force for periods exceeding two years
only if their continuance is specifically approved at least annually
by TIP's Board of Directors.
Fees. As discussed in more detail in Appendix A and in the
Statement of Additional Information, the majority of the Money
Managers will receive annual management fees equal to a stated
percentage of the value of Fund assets under management that is
adjusted upwards or downwards, proportionately, to reflect
actual investment performance over the applicable time period
relative to a chosen benchmark rate of return. Certain Money
Managers, however, will receive management fees equal to a flat
percentage per annum of assets under management. For a variety
of reasons, individual Money Managers may be entitled to
management fees at differing rates even when they are managing
assets of the same Fund.
The following table identifies Money Managers who provide
services to the Funds and the minimum and maximum fee rate
under the Agreement between each Money Manager and TIP.
Unless otherwise indicated, the management fee received by a
Money Manager varies based on the Money Manager's
investment performance. See Appendix A for more detailed
information about the Money Managers.
Fee as Percent of Assets Managed
Minimum Maximum
TIFF Multi-Asset Fund
Bee & Associates 0.15 2.00
Blairlogie Capital Management 0.60* 0.95
Lazard Freres Asset Management 0.50** 0.50
Gary Shilling & Co., Inc. 0.15 2.00
TCW Funds Management, Inc. 0.50* 0.75
Wellington Management Company 0.35* 0.45
TIFF Global Equity Fund
Bee & Associates 0.15 2.00
Blairlogie Capital Management 0.60* 0.95
Delaware International Advisers Ltd. 0.30* 0.50
First Quadrant 0.15 3.00
Harding, Loevner Management, L.P. 0.10 1.50
Lazard Freres Asset Management 0.50** 0.50
TIFF International Equity Fund
Blairlogie Capital Management 0.60* 0.95
Delaware International Advisers Ltd. 0.30* 0.50
Harding, Loevner Management, L.P. 0.10 1.50
Marathon Asset Management Ltd. 0.15 1.60
Warburg Investment Management International Ltd. 0.50** 0.50
TIFF Emerging Markets Fund
BEA Associates 0.60* 0.95
Blairlogie Capital Management 0.60* 0.95
Emerging Markets Management 1.00* 1.25
Genesis Asset Managers, Ltd. 0.60* 1.10
TIFF U.S. Equity Fund
Aronson + Fogler Investment Management 0.10% 0.80%
Eagle Capital Management 0.00 2.00
First Quadrant 0.15 3.00
Investment Research Company 0.10 2.00
Jacobs Levy Equity Management 0.15 1.25
Kayne, Anderson Investment Management, Inc. 0.15 0.65
Martingale Asset Management, L.P. 0.05* 0.10
Palo Alto Investors 0.10 2.00
Turner Investment Partners, Inc. 0.15 1.50
Westport Asset Management, Inc. 0.15 2.00
TIFF Bond Fund
Atlantic Asset Management Partners, Inc. 0.10 0.60
Fischer Francis Trees & Watts, Inc. 0.10 0.80
Seix Investment Advisors, Inc. 0.10 0.80
Smith Breeden Associates, Inc. 0.10 0.85
TIFF Short-Term Fund
Fischer Francis Tress & Watts, Inc. 0.15* 0.20
Smith Breeden Associates, Inc. 0.05 0.75
* Money Manager receives a fee that does not include performance component.
The Minimum Fee reflects "breakpoints" and is applied only to assets in excess
of the highest "breakpoint."
** Money Manager receives a straight asset-based fee regardless of the amount
of assets managed for TIP (i.e., there are neither "breakpoints" in the fee
agreement nor a performance component).
The combined fees charged by FAI and the Money Managers, to the extent that
they exceed 0.75% on a annualized basis, are higher than that charged by
some open-end investment companies.
Exemption from Requirement that Members Approve New
Money Manager Agreements. TIP has applied for an order from
the Commission exempting each of the TIP Funds from the
requirement that agreements between regulated investment
companies and their investment advisers or subadvisers be
approved by a vote of a majority of the outstanding voting
securities of such investment companies. TIP's Board of
Directors believes that such Member approval of agreements
between the Funds and Money Managers employed by them is
not necessary for the protection of participating organizations and
would needlessly encumber the Funds' operations. Pursuant to
this exemption, TIP's Board of Directors could, without the
approval of Members: (1) employ a new Money Manager
pursuant to the terms of a new Money Manager Agreement,
either as a replacement for an existing Money Manager or as an
additional Money Manager; (2) change the terms of a Money
Manager Agreement; or (3) continue to employ an existing
Money Manager on the same terms where an Agreement has been
assigned because of a change in control of the Money Manager.
Any such action would be taken only upon not less than 30 days'
prior written notice to Members, which notice would include the
information concerning the Money Manager that would normally
be included in a proxy statement. In accordance with the terms of
the requested exemption order, Members seeking to redeem
shares in any TIP Fund that assesses exit fees could do so without
paying such fees for a period of 90 days following the initial
funding of a Money Manager whose hiring has not been approved
by a vote of the Fund's shareholders.
MANAGER SELECTION CRITERIA. In determining which
Money Managers to select, FAI weighs a number of relevant
factors, and makes its selection based on a comparison of all such
factors. However, each of the Disqualifying Attributes noted
below constitutes a sufficient ground for rejection or dismissal of
a Money Manager displaying it. The factors considered by FAI in
selecting the Fund's current Money Managers and in considering
the selection of other Money Managers include:
Important Attributes. (1) A well-defined investment philosophy
that gives the manager a discernible competitive advantage in the
gathering or processing of investment data; (2) a verifiable record
that the firm has faithfully executed this philosophy over time; (3)
a proven capacity to deliver reasonably uniform results to all
client's assets to which the philosophy is applied; (4) a
reasonable amount of assets under management to which this
philosophy is applied; (5) satisfactory returns versus relevant
benchmark indices; (6) a proven capacity to adapt to changes in
financial markets; (7) a proven willingness to invest adequately in
its own business (including technological resources) in light of
such changes; and (8) investment professionals who have strong
personal incentives (both financial and psychological) to produce
satisfactory results for their clients.
Helpful Attributes. (1) Money management is the firm's sole
(preferably) or primary line of business; (2) the firm's decision-
makers are seasoned professionals or the firm's philosophy is
unusually innovative (preferably both); (3) the firm is willing to
use performance-based fee arrangements as an expression of
confidence in its own abilities; and (4) the firm complies fully with
the Performance Standards promulgated by the Association for
Investment Management and Research.
Undesirable Attributes. (1) A high degree of personnel turnover;
(2) insufficiently trained administrative personnel; (3)
insufficiently robust investment accounting systems; (4)
investment decision-makers who are unduly burdened with
administrative tasks; and (5) an unwillingness to specify asset size
limits for products or services that require such limits.
Disqualifying Attributes. (1) Investment decisionmakers who are
engaged primarily in brokerage or financial planning (as distinct
from portfolio management); (2) an inability to meet performance
reporting deadlines; and (3) relevant criminal convictions or
sanctions by the Commission or other federal or state regulatory
agencies.
MANAGER ALLOCATION CRITERIA. As with the criteria
employed by FAI in selecting Money Managers for each Fund,
the criteria employed by FAI in allocating each Fund's assets
among Money Managers represent a synthesis of the combined
investment experience of TIP's and FAI's Directors and
Officers.
Multiple Variables Considered. In making manager allocation
decisions, FAI considers each Fund's investment and
performance objectives as well as several other variables,
including: (a) each Money Manager's investment approach,
trading practices, and fee arrangements; (b) the potential volatility
of the Fund's relative return (i.e., the margin by which alternate
allocation decisions could cause the Fund to under- or outperform
its benchmark in any given time period); (c) the Fund's overall
expense ratio; and (d) the Fund's liquidity relative to the
expected volume of Member purchases and redemptions. To
accommodate fluctuations in the relative sizes of Money
Managers' accounts caused solely by market movements, Money
Manager allocations formulated by FAI take the form of ranges:
minimum, normal, and maximum percentages of the assets of a
Fund to be allocated to each Money Manager retained by it.
While these ranges are not expected to change frequently, FAI
has discretionary authority to alter these ranges and to reallocate
assets among Money Managers in response to changing market
conditions.
Phased Activation of Money Managers' Accounts. Not all
Money Managers profiled in Appendix A are employed at all
times. Whether a given Money Manager is employed at a given
time depends on a Fund's size, its projected growth rate, FAI's
perception of the relative attractiveness of the Money Manager's
approach in light of prevailing market conditions, and the extent
to which a given Money Manager's investment style would
complement those of the other Money Managers to whom a
Fund's assets have been allocated. Because future market
conditions are inherently unforecastable, TIP cannot predict the
amount to be allocated to each Money Manager over time. As a
general rule, however, in light of the incremental custodial costs
of activating a Money Manager's account, it is expected that the
initial allocation to each Money Manager will be at least $5
million. A Money Manager receives no compensation from TIP
until it is actually managing funds for TIP, and is entitled to no
compensation if, due to its own changed circumstances or
changes in the investment environment generally, FAI decides not
to allocate funds to the Money Manager. Members and
prospective Members seeking to know the actual allocation of
each Fund's assets across Money Managers at a given time can
obtain this information by contacting FAI using the telephone
number furnished at the front of this Prospectus.
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS
OVERVIEW. Each Fund has a fundamental investment objective
and certain fundamental policies and restrictions which may be
changed only with the approval of the Members holding a
majority of the outstanding voting securities of that Fund. Under
the 1940 Act, a OmajorityO for this purpose means the lesser of:
(1) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented; or (2) more
than 50% of the outstanding shares. Other policies and
restrictions reflect proposed practices of the Funds, and may be
changed by the Funds without the approval of Members. This
section of the Prospectus describes the Funds' objectives,
policies, and restrictions.
INVESTMENT OBJECTIVES AND POLICIES. The following
discussion sets forth each Fund's investment objective, which is
a fundamental policy that cannot be changed without approval by
a majority of the outstanding voting securities of the Fund. There
can be no assurance that a Fund will attain its investment
objectives. (See POLICY IMPLEMENTATION AND RISKS.)
The following discussion also states the fundamental policy
regarding the types of securities in which each Fund will invest.
Ordinarily, each Fund will invest more than 80% of its assets in
such securities. Performance objectives and certain other Fund
policies are not fundamental and may be changed without
Member approval, upon notice to Members.
Multi-Asset Fund. The investment objective of the Multi-Asset
Fund is to provide participating organizations with a growing
stream of current income and appreciation of principal that at
least offsets inflation as measured by the (U.S.) Consumer Price
Index. The performance objective of the Fund is to provide a
total return that exceeds the net total return (after withholding
taxes) of the following constructed index (OConstructed MAF
BenchmarkO) by 0.50% (50 basis points), net of all expenses, on
an annualized basis over a market cycle:
Weight in
Fund's
Asset Class Benchmark Asset Class Benchmark
U.S. Common Stocks 25% Wilshire 5000 Stock Index
Foreign Common Stocks 30% MSCI All Country World ex USA Index
Opportunistic Equity
Substitutes 15% 3-Month Treasury Bills plus 5% per annum
Specialized Equities 10% Resource-Related Sectors of MSCI World Index*:
7% Energy Sources; Energy Equipment and Services
2% Gold Mines
1% Non-Ferrous Metals; Forest Products and
Paper; Misc. Materials and Commodities
Domestic Bonds 15% Lehman Aggregate Bond Index
Foreign Bonds 5% Lehman Majors ex US Bond Index
The Fund may underperform the Constructed MAF Benchmark. This
Constructed MAF Benchmark was selected by TIP's Directors
because they believe that it constitutes an appropriate long-term
asset mix for organizations which seek to maintain the real or
inflation-adjusted value of their invested assets while distributing
annually 4-6% of such assets. There is no assurance that the
Fund will achieve its objective of producing a 4-6% real or
inflation-adjusted return. See Appendix B for a description of the
components of the Constructed MAF Benchmark.
The Fund will attempt to achieve its objective by investing
primarily in common stocks (including ADRs and EDRs),
securities convertible into such common stocks, rights, warrants,
forward foreign currency exchange contracts, securities of
investment companies and other commingled investment vehicles
(subject to the 1940 Act and state limits on such investments),
and available debt securities such as those listed in the
descriptions of the Bond and Short-Term Funds.
The Fund will invest broadly in the available universe of securities
domiciled in the United States plus at least ten other countries,
including: (1) Europe, including Austria, Belgium, Denmark,
Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Spain, Sweden, Switzerland, and the
United Kingdom; (2) the Pacific Rim, including Australia, Hong
Kong, Japan, Malaysia, New Zealand, and Singapore; (3) Canada;
and (4) countries with Oemerging markets,O as that term is
defined in the discussion of the Emerging Markets Fund above.
Many of these securities will be denominated in currencies other
than the U.S. dollar. Under normal circumstances, not more than
40% of the Fund's assets will be invested in securities domiciled
in countries with "emerging markets."
How Fund Seeks to Outperform Its Benchmark: The Fund seeks
to outperform its Multi-Asset Fund's Constructed Benchmark
principally through three means:
Active Security Selection within Asset Class Segments: One
means that the Fund will employ in seeking to outperform its
benchmark will be to retain Money Managers that potentially can
select securities that will outperform the securities comprising
each segment of the Multi-Asset Fund's Constructed
Benchmark. Example: an international equity manager that
potentially can outperform the 30% of the Multi-Asset Fund's
Constructed Benchmark devoted to stocks traded in foreign
markets.
Strategic Asset Allocation: The second means that the Fund will
employ in seeking to outperform its benchmark will be to retain
Money Managers that can potentially enhance the Fund's returns
by utilizing in a timely manner authority conferred upon them by
TIP's Directors to rotate Fund assets among multiple asset
classes. Example: a manager that can potentially outperform a
hybrid stock/bond benchmark by making timely shifts between
equity and fixed income markets (each Manager's performance
benchmark is described in Appendix B).
Investment in Other Commingled Investment Vehicles: The third
means that the Fund will employ in seeking to outperform its
benchmark will be to invest a portion of the Fund's assets in
securities issued by other commingled vehicles (including
investment companies) whose expected returns are, in the
judgment of FAI's Directors, superior to those of Money
Managers that the Fund might employ directly. As such, this
third means is analogous to the first means (or, in rare cases, the
second means) described immediately above. Example: at its
discretion, FAI might elect to invest a portion of the Fund's
assets in securities issued by an investment partnership managed
by an investment manager that FAI believes is especially skillful
but that is closed to new separate accounts, is unwilling to
manage assets directly on a Fund's behalf, or whose services can
be purchased indirectly at a lower cost by investing in securities
issued by an existing partnership or other commingled investment
vehicle. Under the 1940 Act, not more than 15% of any TIP
Fund's assets may be invested in securities (including interests in
other commingled funds) that are not readily reducible to cash in
seven business days.
Global Equity Fund. The investment objective of the Global
Equity Fund is to provide participating foundations with a
growing stream of current income and appreciation of principal
that at least offsets inflation as measured by the (U.S.) Consumer
Price Index. The performance objective of the Fund is to provide
a total return that exceeds the net total return (after withholding
taxes) of the MSCI All Country World Stock Index (a
capitalization-weighted index of stocks traded on both U.S. and
foreign stock markets) by 1.00% (100 basis points), net of all
expenses, on an annualized basis over a market cycle. The Fund
may underperform the MSCI All Country World Stock Index.
(See Appendix B for a description of the MSCI All Country
World Stock Index.)
The Fund will attempt to achieve its objective by investing
primarily in common stocks (including ADRs and EDRs),
securities convertible into such common stocks, rights, warrants,
forward foreign currency exchange contracts, and securities of
investment companies (subject to the 1940 Act limits on such
investments).
The Fund will invest broadly in the available universe of common
stocks of companies domiciled in the United States plus at least
ten other countries, including: (1) Europe, including Austria,
Belgium, Denmark, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Spain, Sweden,
Switzerland, and the United Kingdom; (2) the Pacific Rim,
including Australia, Hong Kong, Japan, Malaysia, New Zealand,
and Singapore; (3) Canada; and (4) countries with Oemerging
markets,O as that term is defined in the discussion of the
Emerging Markets Fund below. Many of these securities will be
denominated in currencies other than the U.S. dollar. Under
normal circumstances, not less than 15% nor more than 50% of
the Fund's assets will be invested in common stocks of
companies domiciled in the United States, nor will more than
40% of the Fund's assets be invested in stocks of companies
domiciled in countries with Oemerging markets.O
International Equity Fund. The investment objective of the
International Equity Fund is to provide participating organizations
with a growing stream of current income and appreciation of
principal that at least offsets inflation as measured by the (U.S.)
Consumer Price Index. The performance objective of the Fund is
to provide a total return that exceeds the net total return (after
withholding taxes) of the Morgan Stanley Capital International
(OMSCIO) All Country World ex USA Stock Index (a
capitalization-weighted index of non-U.S. stocks) by 1.00% (100
basis points), net of all expenses, on an annualized basis over a
market cycle. The Fund may underperform the MSCI All
Country World ex USA Stock Index. (See Appendix B for a
description of the MSCI All Country World ex USA Stock
Index.)
The Fund will attempt to achieve its objective by investing
primarily in common stocks of companies domiciled in countries
other than the United States [including American Depositary
Receipts (OADRsO) and European Depositary Receipts
(OEDRsO)], securities convertible into such common stocks,
rights, warrants, forward foreign currency exchange contracts,
and securities of investment companies (subject to the 1940 Act
and state limits on such investments). The Fund may also invest
in securities of U.S. companies which derive, or are expected to
derive, a significant portion of their revenues from their foreign
operations, although under normal circumstances not more than
15% of the Fund's assets will be invested in securities of U.S.
companies.
The Fund will invest broadly in the available universe of common
stocks of companies domiciled in at least ten different countries
(other than the United States), including: (1) Europe, including
Austria, Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden,
Switzerland, and the United Kingdom; (2) the Pacific Rim,
including Australia, Hong Kong, Japan, New Zealand, and
Singapore; (3) Canada; and (4) countries with Oemerging
markets,O as that term is defined in the discussion of the
Emerging Markets Fund below. Most of these securities will be
denominated in currencies other than the U.S. dollar. Under
normal circumstances, not more than 30% of the Fund's assets
will be invested in common stocks of companies domiciled in
countries with Oemerging markets.O
Emerging Markets Fund. The investment objective of the
Emerging Markets Fund is to provide participating organizations
with appreciation of principal that at least offsets inflation as
measured by the (U.S.) Consumer Price Index. The performance
objective of the Fund is to provide a total return that exceeds the
total return (net of withholding taxes) of the Morgan Stanley
Capital International Emerging Markets Free Index by 1.00%
(100 basis points), net of all expenses, on an annualized basis over
a market cycle. The Fund may underperform the MSCI Emerging
Markets Free Index. (See Appendix B for a description of the
Morgan Stanley Capital International Emerging Markets Free
Index.)
The Fund will attempt to achieve its objective by investing
primarily in common stocks of companies domiciled in countries
with emerging markets, securities convertible into such common
stocks, closed-end investment companies, rights, warrants,
forward foreign currency exchange contracts, and securities of
investment companies (subject to the 1940 Act and state limits on
such investments).
Emerging markets include any countries: (1) having an
Oemerging stock marketO as defined by Morgan Stanley Capital
International; (2) with low- to middle-income economies
according to the World Bank; or (3) listed in World Bank
publications as developing. Currently, all countries in the world
are included in these categories except: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the
United Kingdom, and the United States. In order to exploit
circumstances in which the Fund's Money Managers believe that
securities traded primarily in the developed markets listed
immediately above are more attractively priced than securities
traded primarily in emerging markets, the Fund may invest in
these developed markets. The Fund may also invest in securities
of U.S. companies which derive, or are expected to derive, a
significant portion of their revenues from their foreign operations.
Most of the Fund's assets will be denominated in currencies
other than the U.S. dollar. Under normal circumstances, not
more than 30% of the Fund's assets will be invested in securities
issued by companies domiciled in developed markets, and not
more than 15% of the Fund's assets will be invested in securities
issued by U.S. companies.
U.S. Equity Fund. The investment objective of the U.S. Equity
Fund is to provide participating organizations with a growing
stream of current income and appreciation of principal that at
least offsets inflation as measured by the Consumer Price Index.
The performance objective of the Fund is to provide a total return
that exceeds the total return of the Wilshire 5000 Stock Index (a
capitalization-weighted index of all publicly-traded U.S. stocks
for which price quotations are readily available) by 0.75% (75
basis points), net of all expenses, on an annualized basis over a
market cycle. The Fund may underperform the Wilshire 5000
Stock Index. (See Appendix B for a description of the Wilshire
5000 Stock Index.)
The Fund will attempt to achieve its objectives by investing
primarily in common stocks, securities convertible into common
stocks, rights, and warrants.
The Fund will invest broadly in the available universe of common
stocks including: (1) large capitalization stocks such as those
included in the Standard and Poors 500 Composite Stock Index
(TM); (2) growth-oriented stocks of companies that are expected
to experience higher than average growth of earnings or growth
of stock price; (3) value-oriented stocks with lower price
multiples (either price/earnings or price/book) than others in their
industry, or which have improving fundamentals (such as growth
of earnings and dividends); (4) income-oriented stocks with
higher than average dividend yields relative to other stocks of
issuers in the same industry; (5) small capitalization stocks, which
are stocks with market capitalizations of less than $300 million;
and (6) stocks of non-U.S. companies, although under normal
circumstances not more than 15% of the Fund's assets will be
invested in common stocks of foreign issuers [i.e., 10% maximum
in ADRs and 5% maximum in other foreign securities].
Bond Fund. The investment objective of the Bond Fund is to
provide participating organizations with: (1) a high rate of
current income, subject to restrictions designed to ensure liquidity
and manage exposure to interest rate and credit risk; and (2) a
hedge against deflation-induced declines in common stock prices
and dividend streams. The performance objective of the Fund is
to outperform the Lehman Brothers Aggregate Bond Index by
0.50% (50 basis points), net of all expenses, on an annualized
basis over a market cycle. The Fund may underperform the
Lehman Brothers Aggregate Bond Index. (See Appendix B for a
description of the Lehman Brothers Aggregate Bond Index.) The
Fund will attempt to achieve its objectives by investing primarily
in U.S. and non-U.S. debt securities with varying maturities
denominated in various currencies.
The Fund will invest broadly in the universe of available debt
securities, including U.S. dollar and non-dollar: (1) obligations
issued or guaranteed by the United States Government, such as
United States Treasury securities; (2) obligations backed by the
full faith and credit of the United States, such as obligations of the
Government National Mortgage Association and the Export-
Import Bank; (3) obligations issued or guaranteed by United
States Government agencies or instrumentalities where the Fund
must look principally to the issuing or guaranteeing agency for
ultimate repayment; (4) obligations issued or guaranteed by a
foreign government, or any of its political subdivisions,
authorities, agencies, or instrumentalities or by supranational
organizations; (5) obligations of domestic or foreign corporations
or other entities; (6) obligations of domestic or foreign banks; (7)
mortgage- and asset-backed securities; (8) short-term securities
such as time deposits, certificates of deposit (including marketable
variable rate certificates of deposit), and bankersO acceptances
issued by a commercial bank or savings and loan association; (9)
convertible securities; and (10) short-term securities such as those
listed in the description of the Short-Term Fund. The Fund may
own debt securities of all grades, including both rated and unrated
securities, provided, however, that not more than 10% of its
assets may be invested in securities that are rated below
investment grade [i.e., BBB by Standard & Poors Corporation
(OS&PO) or Baa by MoodyOs Investors Service, Inc.
(OMoodyOs)].
Certain Money Managers employed by the Fund may employ
multi-currency fixed income management techniques in an
attempt to invest in debt securities that offer the most attractive
returns relative to inflation. Under normal circumstances, not
more than 40% of the Fund's assets will be invested in non-
dollar denominated securities, and not more than 30% of the
Fund's assets will be exposed to foreign currency exchange risk
(i.e., invested in non-dollar denominated securities on an
unhedged basis).
Short-Term Fund. The investment objective of the Short-Term
Fund is to generate a high rate of current income, subject to
restrictions designed to ensure that the Fund's interest rate risk
does not exceed the interest rate risk of a portfolio invested
exclusively in six-month U.S. Treasury securities on a constant
maturity basis. The performance objective of the Fund is to
outperform the Merrill Lynch 182-Day Treasury Bill Index net of
all expenses. The Fund will attempt to achieve its objectives by
investing primarily in U.S. and non-U.S. debt securities,
including: (1) securities issued or guaranteed by the U.S.
Government and its agencies or instrumentalities; (2) obligations
issued or guaranteed by a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or
by supranational organizations; (3) obligations of domestic or
foreign corporations or other entities; (4) obligations of domestic
or foreign banks; (5) mortgage- and asset-backed securities; and
(6) short-term securities such as time deposits, certificates of
deposit (including marketable variable rate certificates of deposit),
and bankersO acceptances issued by a commercial bank or
savings and loan association. The Fund may own debt securities
of all grades, including both rated and unrated securities,
provided, however, that not more than 5% of its total assets may
be invested in securities that are rated below investment grade.
As experienced foundation fiduciaries, members of the Boards of
TIP and FAI recognize that many foundations seek to control
downward fluctuations in the monetary value of assets earmarked
for spending or distribution (in the form of grants) within twelve
months (Ocurrent year spendingO) by investing them exclusively
in cash equivalents, either directly or via money market funds.
While such a policy comports well with the risk tolerances of
some foundation fiduciaries, numerous studies of the risk and
return characteristics of alternate short-term investment strategies
suggest that a short-term bond fund whose average maturity
ranges between the one to three months typical of regulated
money market funds and the six months inherent in the Short-
Term Fund's performance benchmark has the potential to
augment foundation resources over time. To be sure, the higher
starting yields that, for example, three- to six-month instruments
typically display relative to shorter-term instruments may be
insufficient to offset the larger principal losses that the former
may produce relative to the latter in environments of sharply
rising short-term interest rates. However, as the data provided
below indicate, there is a high probability of earning positive total
returns in any given month by investing exclusively in the
instruments constituting the Short-Term Fund's performance
benchmark (i.e., six-month Treasury bills).
6-Month Treasury Bill Returns January 1975 - February 1995
Holding Periods That Resulted One-Month Holding Periods October 1979 -0.15%
in Negative Returns February 1980 -0.10%
August 1980 -0.03%
April 1981 -0.12%
Two-Month Holding Periods None NA
Arithmetic Average One-Month Holding Periods 242 Observations 0.65%
of All Observations Two-Month Holding Periods 241 Observations 1.31%
Risks of Investing Monies Earmarked for Near-Term Spending in Debt
Instruments with an Average Maturity of Six Months. As the above data
indicate, in the twenty years and two months February 28, 1995,
there were only four calendar months in which a portfolio
invested exclusively in six-month Treasury bills produced a
negative total return. The worst of these months produced a
maximum loss of 0.15% (October 1979); the average loss (four
months, equally weighted) was 0.10%. Importantly, this period
encompasses several years (i.e., 1979D81) in which short-term
interest rates rose at unprecedentedly rapid rates to
unprecedentedly high levels. While there is no assurance that the
Short-Term Fund's average duration will be less than six months
in an environment of rising short-term interest rates, the Fund's
Money Managers are authorized to shorten its average duration if
they expect short-term interest rates to rise, and they are
prohibited by the Fund's investment policy from maintaining a
weighted average duration exceeding six months. Consequently,
in the opinion of TIP's Board, it is unlikely that rising interest
rates alone will cause the Fund's net asset value to decline
materially over one-month (or longer) holding periods even if
short-term interest rates rise at the same rapid rate that they rose
in the 1979-81 time period. However, because the Fund will not
be invested exclusively in instruments backed by the full faith and
credit of the U.S. Government, it is possible that downgrades,
defaults, and other manifestations of credit (as distinct from
interest rate) risk could cause the Fund's net asset value to
decline by more than 0.15% in any given one-month holding
period. In the judgment of TIP's Board, the potential rewards of
investing monies earmarked for current year spending in a more
aggressive manner than that which is typical of money market
funds in general, and government money market funds in
particular, outweigh the risks. However, the Board recognizes
that many foundations may remain unpersuaded by the arguments
favoring a more aggressive approach toward the investment of
current year spending resources, and it encourages such
foundations to invest such monies not in the Short-Term Fund but
rather in carefully selected, institutionally-oriented money market
funds with competitive expense ratios and adequate restrictions
on the maturity and quality of portfolio holdings.
Certain Money Managers employed by the Fund may employ
multi-currency fixed income management techniques in an
attempt to invest in debt securities that offer the most attractive
returns relative to inflation. Under normal circumstances, not
more than 20% of the Fund's assets will be invested in non-
dollar denominated securities.
INVESTMENT RESTRICTIONS. The Funds have adopted
certain fundamental investment restrictions which cannot be
changed without the approval of the holders of a majority of the
outstanding voting securities of a Fund. Under these restrictions,
which apply on a Fund-by-Fund basis, no Fund may:
1. Invest more than 25% of the value of the Fund's total
assets in the securities of companies engaged primarily in any one
industry (other than the U.S. government, its agencies and
instrumentalities). For purposes of this restriction, wholly-owned
finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of their parents. This restriction shall not apply,
however, to the Short-Term Fund, which may invest more than
25% of its total assets in domestic bank obligations.
2. Acquire short positions in the securities of a single issuer
(other than the U.S. government, its agencies and
instrumentalities) whose value (as measured by the amounts
needed to close such positions) exceeds 2% of the Fund's total
assets.
3. Borrow money, except from a bank for temporary or
emergency purposes provided that bank borrowing not exceed
one-third (331/3%) of the Fund's total assets at the time of
borrowing; nor may any Fund borrow for leveraging purposes.
Reverse repurchase agreements, dollar roll transactions, and
collateralized securities loans that are covered with cash or liquid
high grade securities or other acceptable assets are not considered
borrowings subject to this restriction.
4. Issue senior securities [other than as permitted in (2) and
(3)].
5. Make loans, except: (a) through the purchase of all or a
portion of an issue of debt securities in accordance with its
investment objective, policies, and limitations; (b) by engaging in
repurchase agreements with respect to portfolio securities; or (c)
by lending securities to other persons, provided that no securities
loan may be made, if, as a result, more than one-third (331/3%) of
the value of the Fund's total assets would be loaned to other
persons.
6. Underwrite securities of other issuers.
7. Purchase or sell real estate, other than marketable
securities representing interests in, or backed by, real estate and
securities of companies that deal in real estate or mortgages, or
invest in real estate limited partnerships, or purchase or sell
physical commodities.
The Funds have adopted certain non-fundamental restrictions
which may be changed by the Board of Directors without
Member approval. Under these restrictions, no Fund may:
1. Acquire more than 10% of the outstanding voting
securities or 10% of all of the securities of any one issuer.
2. Acquire long positions in the securities of a single issuer
(other than the U.S. government, its agencies and
instrumentalities) whose value exceeds 10% of the Fund's total
assets.
3. Purchase securities of any company having less than three
years' continuous operations (including operations of any
predecessors) if such purchase causes the value of the Fund's
investments in all such companies to exceed 5% of its total assets.
This restriction shall not apply, however, to purchases of
investment company securities, U.S. government securities,
securities of issuers that are rated investment grade by at least one
nationally recognized statistical rating organization, municipal
obligations, and obligations issued by any foreign governments,
agencies or instrumentalities, or any political subdivisions thereof.
4. Purchase securities of another investment company if such
purchases cause the percentage of such investment companyOs
outstanding shares owned by the TIP Fund in question to exceed
3%.
5. Invest in companies for the purpose of exercising control
or management.
6. Invest directly in interests in oil, gas, or other mineral
exploration or development programs or mineral leases.
7. Invest more than 15% of the Fund's net assets in illiquid
securities.
8. Invest more than 5% of the Fund's total assets in
restricted securities.
9. Purchase puts, calls, straddles, spreads, and any
combination thereof, if the value of such purchases, excluding
offsetting positions and in-the-money amounts, exceeds 5% of the
Fund's total assets.
Percentage Limitations Applied at Time of Purchase. Whenever
an investment policy or limitation states a maximum percentage of
a Fund's assets that may be invested in any security or other
asset or sets forth a policy regarding quality standards, such
standard or percentage limitation shall be determined immediately
after and as a result of the Fund's acquisition of such security or
other asset. Accordingly, any later increase or decrease in a
percentage resulting from a change in values, assets, or other
circumstances will not be considered when determining whether
that investment complied with the Fund's investment policies
and limitations.
POLICY IMPLEMENTATION AND RISKS
OVERVIEW. In attempting to achieve its investment objective,
each Fund will utilize certain investment strategies and tactics and
certain types of investments commonly used by institutional
investors. OStrategyO as used here is the allocation of Fund
assets across asset classes (e.g., U.S. stocks versus foreign
stocks), subclasses (e.g., U.S. small companies versus large
companies), and individual securities based on return expectations
over time horizons appropriate to the strategies being employed.
OTacticsO are the precise methods by which strategies are
implemented - decisions that typically depend on market
conditions at the particular instant a tactical choice is made as
well as expected changes in such conditions over a very short
time horizon. These strategies, tactics, and investments, and their
associated risks, are described below and in SUPPLEMENTAL
DISCUSSION OF POLICY IMPLEMENTATION AND RISKS
in the Statement of Additional Information. Unless otherwise
noted, each Fund is authorized to employ each of the strategies,
tactics, and types of investments described below, subject to the
restrictions specified in this section and in INVESTMENT
OBJECTIVES, POLICIES, AND RESTRICTIONS. Members
should understand that all investments involve risks and there can
be no guarantee against loss resulting from an investment in any
of the Funds, nor can there be any assurance that any Fund will
achieve its investment or performance objective.
Funds to Be Substantially Fully Invested. With the exception of
the Short-Term Fund, which is designed primarily as a vehicle for
investment of funds that participating organizations intend to
spend or distribute within one year, the Funds are intended as
vehicles for the implementation of long-term asset allocation
strategies adopted by the governing boards of such organizations.
An investment in any Fund other than the Short-Term Fund
should be regarded as a long-term commitment to be held through
one or more market cycles. Because long-term asset allocation
strategies are designed to spread investment risk across the
various segments of the securities markets through investment in
a number of Funds, after an appropriate time period following the
initial infusion of capital into it, each Fund intends to be
substantially fully invested in accordance with its investment
objective and policies under normal market conditions.
Deployment of Cash Reserves. Each Fund is authorized to invest
its cash reserves (funds awaiting investment in the specific types
of securities in which it will primarily invest) in money market
instruments and in debt securities that are at least comparable in
quality to the Fund's permitted investments. In lieu of having
each of the Funds make separate, direct investments in money
market instruments, each Fund and its Money Managers may
elect to invest the Fund's cash reserves in other regulated
investment companies approved by TIP's Board of Directors,
subject to the limitations respecting Fund investments in other
investment companies described in INVESTMENT
OBJECTIVES, POLICIES, AND RESTRICTIONS -
INVESTMENT RESTRICTIONS. Alternatively, FAI may
exercise investment discretion or select a Money Manager to
exercise investment discretion over the cash reserves component
of a Fund. At FAI's discretion, the cash reserves segment of
each Fund may be used to create a temporary equity exposure for
the Multi-Asset, Global Equity, and U.S. Equity Funds, or a
foreign equity exposure for the Multi-Asset, Global Equity,
International Equity, and Emerging Markets Funds, or a fixed
income exposure of suitable duration for the Bond and Multi-
Asset Funds, as the case may be, until those balances are
allocated to and invested by the Money Managers or used for
Fund transactions. The desired market exposure would be
created with long positions in the appropriate number of futures
contracts or options on futures contracts, within applicable
regulatory limits. FAI receives no compensation for managing
cash reserves (or for rendering any other services to the Funds)
other than the fees to which it is entitled under the Advisory
Agreement.
Portfolio Turnover. Decisions to buy and sell securities are made
by the Money Managers with respect to the assets assigned to
them, and by FAI with respect to cash reserves not allocated to
Money Managers. Each Money Manager makes decisions to buy
or sell securities independently of other Money Managers.
Generally, the Multi-Asset, Global Equity, International Equity,
Emerging Markets, and U.S. Equity Funds will not trade in
securities for short-term profits but, when circumstances warrant,
securities may be sold without regard to length of time held. It is
expected that the annual portfolio turnover rate normally will not
exceed 100%. However, due to some Money Managers' active
management styles, turnover rates for the Bond and Short-Term
Funds may be higher than other mutual funds investing primarily
in debt securities and could exceed 100%. In the Bond and
Short-Term Funds, the costs associated with turnover are
expected to be lower than equity fund turnover costs.
Primary Risks: High portfolio turnover may involve
correspondingly greater brokerage commissions and other
transaction costs, which will be borne by the Funds. In addition,
high portfolio turnover rates may result in increased short-term
capital gains which, when distributed to private foundation
Members, are treated as ordinary income for purposes of excise
taxation. See TAX CONSIDERATIONS. If there are more than
one Money Manager for a Fund, one Money Manager could be
selling a security when another for the same Fund is purchasing
the same security. In addition, when a Money Manager's
services are terminated and those of another are retained, the new
Money Manager may significantly restructure the portfolio.
These practices may increase the Funds' portfolio turnover rates,
realization of gains or losses, and brokerage commissions.
INVESTMENT STRATEGIES. As multi-manager funds, each
TIP Fund will employ a variety of strategies and tactics, including
those described below and in Appendix A entitled MONEY MANAGER PROFILES.
Multi-Market and Multi-Currency Investing. Subject to the
limitations on foreign securities and foreign currency exposure in
the table below and in INVESTMENT OBJECTIVES,
POLICIES, AND RESTRICTIONS, the Money Managers will
adjust the exposure of the Funds to different countriesO markets
and currencies based on their perceptions of the relative
valuations of these markets and currencies. In doing so, the
Money Managers will assess general market and economic
conditions, the relative yield and anticipated direction of interest
rates in particular markets, and the relationship of currencies of
various countries to each other. In their evaluations, the Money
Managers will use internal financial, economic, and credit analysis
resources as well as information obtained from external sources.
U.S. Securities Foreign Securities Currency Hedges*
Minimum/Normal/Maximum Minimum/Normal/Maximum Minimum/Normal/Maximum
Multi-Asset 25/60/90 10/40/75 0/0/50
Global Equity 10/35/60 40/65/90 0/0/50
International
Equity 0/0/15 85/100/100 0/0/50
Emerging
Markets 0/0/15 85/100/100 0/0/50
U.S. Equity 85/100/100 0/0/15 0/100/100
Bond 60/100/100 0/0/30** 0/100/100
Short-Term 80/100/100 0/0/20 0/100/100
* Expressed as a percentage of foreign securities exposure.
** The 30% limit on the Bond Fund's foreign securities increases to 40% if
incremental 10% is covered by currency hedges. The intent of
permitting an additional 10% in hedged foreign bonds is to permit
the Fund's Money Managers to exploit anticipated reductions in
foreign interest rates without boosting the Fund's exposure to
foreign currencies beyond the 30% limit.
The preceding table indicates the percentage of each Fund's assets that,
under normal circumstances, will be invested in securities denominated in
currencies other than the U.S. dollar. The first column of the
table indicates the minimum, normal, and maximum percentages
of each Fund's assets that, under normal circumstances, may be
invested in U.S. dollar-denominated securities. The second
column of the table indicates the minimum, normal, and maximum
percentages of each Fund's assets that, under normal
circumstances, may be invested in securities denominated in one
or more foreign currencies. The last column of the table indicates
the minimum, normal, and maximum percentages of each Fund's
foreign securities that may be covered by currency hedging
transactions.
The ranges permit Money Managers employed by the U.S. Equity
Fund to respond to circumstances in which stocks of companies
domiciled in foreign countries are more attractively priced than
stocks of companies domiciled in the United States by investing
up to 15% of the Fund's assets in foreign stocks, and they permit
Money Managers in the Multi-Asset, Global Equity, International
Equity, and Emerging Markets Funds to hedge up to 50% of the
foreign currency exposure of each Fund's assets. It is expected
that adjustments to the country and currency exposures of each
Fund to be gradual and moderate, especially within the U.S.
Equity, Bond, and Short-Term Funds.
Primary Risks: There is no assurance that changes in a Fund's
country and currency allocations will enhance returns relative to
more static allocations or allocations that resemble more closely
the country and currency allocations inherent in a Fund's
performance benchmark.
Duration Management. The Multi-Asset, Bond, and Short-Term
Funds will invest in debt securities of varying durations. Duration
is a measure of the expected life of a debt security on a present
value basis. It takes the length of the time intervals between the
present time and the time that the interest and principal payments
are scheduled to be received, and weights them by the present
values of the cash to be received at each future point in time.
While duration is an appropriate measurement tool for securities
for which the timing of the receipt of principal and interest cash
flows is certain, it is a less accurate measurement tool in instances
where the timing of the receipt of cash flows is less certain due to
the presence of options embedded in the securities (e.g., callable
bonds, prepayment impact on mortgage-backed securities) or
when securities have a floating rate. A more appropriate
measurement tool for these securities is effective duration.
Effective duration measures the price change that a given security
will exhibit as a result of a change in interest rates. Computing
the effective duration of a portfolio comprising option-embedded
securities requires a highly robust pricing model. The longer the
duration or effective duration of a debt security, the more its price
will tend to fall as interest rates in the economy generally rise, and
vice-versa. For example, in a portfolio with a duration of 5 years,
a 1% increase in interest rates could result in approximately a 5%
decrease in market value. Money Managers can shorten the
weighted average duration of their holdings as interest rates fall
by replacing portfolio securities or by using derivative securities.
Duration of Fixed Income Derivatives. Futures, options, and
options on futures have durations which, in general, are closely
related to the duration of the securities underlying them. Holding
long futures or call options will lengthen a Fund's duration by
approximately the same amount that holding an equivalent
amount of the underlying securities would. A short position in
such fixed income derivatives has the effect of reducing fund
duration by approximately the same amount that selling an
equivalent amount of the underlying securities would.
Duration Ranges for Bond, Short-Term, and Multi-Asset Funds.
In allocating assets among managers with different approaches to
debt security portfolio management, and in preparing guidelines
for each manager to follow in investing its segment of a Fund,
FAI attempts to ensure that, under normal circumstances: (1) the
weighted average effective duration of the Bond Fund's holdings
ranges between 85% and 115% of the average duration of the
Lehman Aggregate Bond Index; (2) the weighted average
effective duration of the Short-Term Fund's holdings ranges
between one and six months; and (3) the weighted average
effective duration of that portion of the Multi-Asset Fund's
assets invested in bonds ranges between 85% and 115% of the
weighted average duration of a constructed index (chosen to
mimic precisely the Fund's OnormalO allocations to domestic
and foreign bonds) comprising the Lehman Aggregate Bond
Index (75% weight) and the Lehman Majors ex-US Bond Index
(residual 25% weight). As of February 28, 1995, the approximate
duration of the Lehman Aggregate Bond Index was 4.76 years;
the approximate duration of the Lehman Majors ex US Bond
Index was 4.74 years. The duration of the Merrill Lynch 182-Day
Treasury Bill Index, Short-Term Fund's performance benchmark
(i.e., a portfolio invested exclusively in six-month U.S. Treasury
securities sold at a discount and without interim interest
payments), is always equal to six months.
Primary Risks: Changes in the weighted average duration of the
Funds' holdings are not likely to be so large as to cause them to
fall outside the ranges specified above. However, there is no
assurance that deliberate changes in a Fund's weighted average
duration will enhance its return relative to more static duration
policies or portfolio structures. For example, a managerOs
decision to increase the duration of its segment of the Bond Fund
could reduce the Fund's return if interest rates in the economy
generally rise following the managerOs duration-lengthening
trades.
Hedging and Income Enhancement Strategies. Each Fund may
engage in various portfolio strategies to: (1) enhance the Fund's
income or total return; (2) reduce certain risks of its investments;
(3) adjust exposure to particular securities or currencies to more
closely reflect such securitiesO or currenciesO exposure in the
Fund's benchmark; or (4) create suitable market exposure for
temporary cash balances.
Foreign Currency Hedging or Income Enhancement Strategies.
Each Fund may enter into forward foreign currency exchange
contracts and may purchase and sell exchange-traded and over-
the-counter (OOTCO) options on currencies, foreign currency
futures contracts, and options on foreign currency futures
contracts to hedge the currency exchange risk associated with its
assets or obligations denominated in foreign currencies or to
adjust the exposure to a particular currency to more closely
reflect the exposure of that currency in the Fund's benchmark.
An example of a transaction entered into for hedging purposes
would be the sale of Yen futures contracts to partially offset the
currency exchange risk inherent in Yen-denominated stocks
owned by the International Equity Fund. An example of a
transaction entered into to adjust exposure to more closely reflect
a Fund's benchmark would be the purchase of Deutschemark
futures contracts to increase the International Equity Fund's
exposure to Deutschemarks above the level produced by the
Fund's purchase of Deutschemark-denominated stocks. The use
of the hedging or investing techniques described in this paragraph
could cause the net exposure of each Fund to any one currency to
differ from that of its total assets denominated in such currency.
Each Fund may decide whether to hedge foreign currency
positions or adjust currency exposure to more closely reflect the
exposure of a currency in the Fund's benchmark. Each Fund
may also engage in foreign currency transactions, including the
speculative purchase or sale of foreign currency futures or options
contracts, in an effort to profit from anticipated changes in the
relation between or among the rates of exchange between various
currencies of the countries in which they are permitted to invest.
Interest Rate Hedging. In order to hedge against changes in
interest rates, and in connection with the duration management
strategies described above, the Multi-Asset, Bond, and Short-
Term Funds may purchase and sell exchange-traded or OTC put
and call options on any debt security in which they are permitted
to invest or on any security index or other index based on the
securities in which they may invest, and may purchase and sell
financial futures contracts for the future delivery of debt securities
or contracts based on financial indices, and options on such
futures.
Income Enhancement Strategies. These strategies are described
in the subsection below entitled TYPES OF
INVESTMENTS-Derivative Securities-Options. Each Fund
may also seek to enhance its income by engaging in securities
lending, which is described in the subsection below entitled
INVESTMENT TACTICS-Securities Lending.
Primary Risks of Hedging and Income Enhancement Strategies
Generally: These strategies typically require participation in the
options or futures markets or in currency exchange transactions.
As such, these strategies entail risks and transaction costs to
which a Fund would not be subject absent the use of these
strategies. If a Money Manager's expectations respecting
movements in the direction of the securities, foreign currency, or
bond markets are inaccurate, the strategy may leave the Fund in a
worse position than if the strategy were not used. Risks inherent
in the use of options, foreign currency and futures contracts, and
options on futures contracts include: (1) dependence on the
Money Manager's ability to anticipate correctly movements in
the direction of interest rates, securities prices, and currency
markets; (2) imperfect correlation between the price of options
and futures contracts and options thereon and movements in the
prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid
secondary market for any particular instrument at any time; and
(5) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences. Moreover, hedging
transactions that are not entered into on a U.S. or foreign
exchange may subject a Fund to exposure to the counterpartyOs
credit risk.
INVESTMENT TACTICS. As multi-manager funds, each TIP
Fund employs a variety of investment tactics, including those
described immediately below and in Appendix A entitled
MONEY MANAGER PROFILES.
Dollar Roll Transactions. Dollar roll transactions are transactions
with selected banks and registered broker-dealers in which the
Fund sells mortgage-backed securities for delivery in the current
month and simultaneously enters into an agreement to repurchase
mortgage-backed securities on a specified future date at the same
price. During the roll period, the Fund foregoes principal and
interest paid on the securities in return for use of the proceeds
received on the sale of these securities. The transaction will entail
a gain (or loss) to the extent that earnings on the cash proceeds of
the sale exceed (are less than) transaction costs plus the
repurchase price. If the Fund agrees to repurchase substantially
similar (same type and coupon) securities, the dollar roll will be
treated as a borrowing (i.e., a financing transaction) rather than a
purchase of securities on a forward basis. The Fund will
segregate an amount of cash, U.S. government securities, or other
acceptable assets equal in value to its obligations in respect of
dollar rolls.
Primary Risks: In addition to interest rate risk (defined below),
dollar roll transactions involve counterparty credit risk. The Fund
receives the cash proceeds of the initial sale; but in the event of
counterparty insolvency, its exposure is similar to that of a
forward purchase commitment.
Repurchase Agreements. Each Fund may enter into repurchase
agreements. In a repurchase agreement, the Fund buys a security
from a seller that has agreed to repurchase it at a mutually agreed
upon date at a higher price reflecting an agreed upon interest rate.
The term of these agreements is usually from overnight to one
week and never exceeds one year. Repurchase agreements may be
viewed as fully collateralized loans of money by a Fund to the
selling counterparty. The Fund receives securities as collateral
with a market value at least equal to the purchase price, including
accrued interest, and this value is maintained during the term of
the agreement. Repurchase agreements held for more than seven
days are deemed by the Commission to be illiquid.
Primary Risks: In addition to interest rate risk, a repurchase
agreement involves counterparty credit risk. In the event of
counterparty failure to perform or insolvency, cash transferred to
the counterparty may not be recoverable, and realization on
securities held in exchange may be delayed or otherwise
restricted.
Reverse Repurchase Agreements. In a reverse repurchase
agreement, the Fund transfers possession of a security that the
Fund owns to a bank or registered broker-dealer in exchange for
cash or high grade liquid debt obligations with a market value at
least equal to the securityOs market value. The Fund retains
record ownership of the security involved, including the right to
receive interest and principal payments. At an agreed upon future
date, the Fund repurchases the security by paying an agreed upon
purchase price reflecting the interest rate effective for the term of
the agreement. Reverse repurchase agreements may be viewed as
the economic equivalent of fully collateralized loans of money to
a Fund by the counterparty. The Fund will segregate an amount
of cash, U.S. government securities, or other acceptable assets
equal in value to its obligations in respect of reverse repurchase
agreements.
Primary Risks: In addition to interest rate risk, a reverse
repurchase agreement involves counterparty credit risk. In the
event of counterparty failure to perform or insolvency, securities
transferred to the counterparty may not be recoverable, and
realization on cash or liquid assets held in exchange may be
delayed or otherwise restricted.
Securities Lending. Each Fund may lend its securities to brokers,
dealers, domestic and foreign banks, or other financial institutions
for the purpose of increasing its net investment income. These
loans must be secured continuously by cash or equivalent
collateral or by a letter of credit at least equal to the market value
of the securities loaned plus accrued interest or income. Cash
collateral received by the Fund will be invested in high grade
liquid debt securities. The Fund will retain most rights of
beneficial ownership, including dividends, interest, or other
distributions on the loaned securities. Voting rights may (but
typically do not) pass with the lending. The Funds will call loans
to vote proxies if a material issue affecting the investment is to be
voted upon. A Fund will not enter into securities loan
transactions exceeding in the aggregate 331/3% of the market
value of the Fund's total assets.
Primary Risks: In addition to interest rate risk, a securities loan
involves counterparty credit risk similar to that involved in a
reverse repurchase agreement. In the event of counterparty
failure to perform or insolvency, securities loaned to the
counterparty may not be recoverable, and realization of cash or
liquid assets held as collateral may be delayed or otherwise
restricted.
Short Selling. Each Fund may make short sales, which are
transactions in which a Fund sells a security it does not own in
anticipation of a decline in the market value of that security.
Short selling provides the Money Managers with flexibility to:
(1) reduce certain risks of a Fund's portfolio holdings; and (2)
increase a Fund's total return.
Mechanics of Short Sales. To complete a short sales transaction,
a Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the borrowed security,
which generally entails purchasing it at the market price at the
time of replacement. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. The Fund
also may be required to pay a premium to borrow the security.
The proceeds of the short sale will be retained by the broker, to
the extent necessary to meet margin requirements, until the short
position is closed out. To the extent that a Fund has sold
securities short, it will: (1) maintain a daily segregated account,
containing cash or U.S. Government securities, at such a level
that (a) the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current value
of the security sold short and (b) the amount deposited in the
segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the security at
the time it was sold short; and (2) enter into long futures
contracts on securities of the type represented in the Fund's
benchmark index to the extent necessary to ensure that the
combination of such contracts, plus any amounts deposited in the
segregated account or with the broker as collateral, produce
investment returns approximately equal to the returns that would
be produced were the deposits plus the collateral invested directly
in the securities underlying the contracts. The purpose of such
futures transactions is to ensure that short sales do not undermine
a Fund's capacity to remain substantially fully invested in
securities of the type represented in its benchmark index. A Fund
may not enter into short sales exceeding 25% of the net equity of
the Fund and may not acquire short positions in securities of a
single issuer if the value of such positions exceeds the lesser of
2% of the securities of any class of any issuer. The foregoing
restrictions do not apply to the sale of securities if the Fund
contemporaneously owns or has the right to obtain securities
equivalent in kind and amount to those sold.
Primary Risks: A Fund will incur a loss as a result of a short sale
if the price of the security increases between the date of the short
sale and the date on which the Fund replaces the borrowed
security. The amount of any loss will be increased by the amount
of any premium or amounts in lieu of dividends or interest the
Fund may be required to pay in connection with a short sale.
Unlike long positions, where the potential loss is limited to the
purchase price, the potential loss from a short sale transaction is
unlimited unless accompanied by the purchase of an option to buy
the security at a specified price.
TYPES OF INVESTMENTS
Equity Securities. This subsection describes the characteristics
and primary risks of certain equity securities in which the Funds
may invest. The special characteristics and primary risks of
foreign equities are described below in the subsection entitled
OTHER INSTRUMENTS- Foreign Securities.
Primary Risks of Investing in Equity Securities Generally: As
mutual funds investing in equity securities, the Multi-Asset,
International Equity, Emerging Markets, and U.S. Equity Funds
are subject to stock market risk, i.e., the possibility that common
stock prices will decline over short or extended periods. Both the
U.S. and foreign stock markets tend to be cyclical, with periods
when stock prices generally rise and periods when prices
generally decline.
Growth Stocks. Growth-oriented stocks are the stocks of
companies that are believed to have internal strengths, such as
good financial resources, a satisfactory rate of return on capital, a
favorable industry position, and superior management.
Primary Risks: Growth stocks tend to be more volatile and more
sensitive to market swings than the average stock, and will often
underperform the overall stock market during periods when
investor time horizons generally are shrinking and stock prices
generally are falling.
Value Stocks. Value-oriented stocks have lower price multiples
(either price/earnings or price/book) than other stocks in their
industry and can sometimes also display weaker fundamentals
such as growth of earnings and dividends.
Primary Risks: Value stocks tend to be of lower quality than the
average stock, and will often underperform the overall stock
market during periods when investor time horizons generally are
expanding and stocks prices generally are rising.
Small Capitalization Stocks. Small capitalization stocks are
defined for TIP's purposes as those stocks with market
capitalizations of less than $300 million.
Primary Risks: Small capitalization stocks tend to be more
volatile and more sensitive to market swings than the average
stock, and will often underperform the overall stock market
during periods of general market weakness. Among the reasons
for greater price volatility of small capitalization stocks are the
less certain growth prospects of smaller firms, the lower degree of
liquidity in the markets for such stocks, and the greater sensitivity
of small companies to changing economic conditions. Besides
exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks.
Warrants. Warrants are instruments which give the holder the
right to purchase the issuerOs securities at a stated price during a
stated term.
Primary Risks: Warrants involve a risk of loss of the warrant
purchase price if the market price of the securities subject to the
warrants does not exceed the price paid for the warrants plus the
exercise price of the warrants.
Debt Securities. This subsection describes the characteristics and
primary risks of certain debt securities in which the Funds may
invest. The special characteristics and primary risks of foreign
debt securities are described in the subsection below entitled
OTHER INSTRUMENTS - Foreign Securities.
Primary Risks of Investing in Debt Securities Generally:
Investing in debt securities subjects the Funds to interest rate,
prepayment, and credit risks.
Interest Rate Risk: Interest rate risk is the risk of fluctuations in
bond prices due to changing interest rates. As a rule, bond prices
vary inversely with market interest rates. For a given change in
interest rates, longer-maturity bonds fluctuate more in price than
shorter-maturity bonds. To compensate investors for these larger
fluctuations, longer-maturity bonds usually offer higher yields
than shorter-maturity bonds, other factors, including credit
quality, being equal. As a mutual fund that attempts to
outperform the Lehman Aggregate Bond Index - an index with
an intermediate-term average weighted maturity - the Bond Fund
is expected to be subject to a moderate-to-high level of interest
rate risk, as is that portion of the Multi-Asset Fund normally
invested in bonds (see the subsection above entitled Duration
Management).
Prepayment Risk: Prepayment risk is the possibility that, during
periods of declining interest rates, higher-yielding securities with
optional prepayment rights will be repaid before scheduled
maturity, and a Fund will be forced to reinvest the unanticipated
payments at lower interest rates. Debt obligations that can be
prepaid (including most mortgage-backed securities) will not
enjoy as large a gain in market value as other bonds when interest
rates fall. In part to compensate for prepayment risk, mortgage-
backed securities generally offer higher yields than bonds of
comparable credit quality and maturity.
Credit Risk: Credit risk is the risk that an issuer of securities held
by a Fund will be unable to make payments of interest or
principal. The credit risk assumed by a Fund is a function of the
credit quality of its underlying securities. The average credit
quality of the Bond Fund, and of that portion of the Multi-Asset
Fund normally invested in bonds, is expected to be very high, and
thus credit risk, in the aggregate, should be low. The average
credit quality of the Short-Term Fund is expected to be high also,
but not as high as the Bond Fund or the bond segment of the
Multi-Asset Fund due to these two portfoliosO (i.e., the Bond
Fund as a whole and the bond segment of the Multi-Asset Fund)
expected heavier average weightings in government obligations.
All Funds will also be exposed to event risk, the risk that
corporate debt securities held by them may suffer a substantial
decline in credit quality and market value due to a corporate
restructuring. Corporate restructurings, such as mergers,
leveraged buyouts, takeovers, or similar events, are often financed
by a significant increase in corporate debt. As a result of the
added debt burden, the credit quality and market value of a
firm's existing debt securities may decline significantly. While
event risk may be high for certain securities held by the Funds,
event risk for each Fund in the aggregate should be low because
of the number of issues expected to be held by each Fund. For
further discussion of credit and event risk, see Lower-Rated Debt
Securities below.
Bank Obligations. Each Fund may invest in obligations of
domestic and foreign banks, including time deposits, certificates
of deposit, bankersO acceptances, bank notes, deposit notes,
Eurodollar time deposits, Eurodollar certificates of deposit,
variable rate notes, loan participations, variable amount master
demand notes, and custodial receipts. Time deposits are non-
negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Certificates of
deposit are negotiable short-term obligations issued by
commercial banks or savings and loan associations against funds
deposited in the issuing institution. Variable rate certificates of
deposit are certificates of deposit on which the interest rate is
adjusted periodically prior to their stated maturity based upon a
specified market rate. A bankersO acceptance is a time draft
drawn on a commercial bank by a borrower usually in connection
with an international commercial transaction (to finance the
import, export, transfer, or storage of goods). The Short-Term
Fund may, from time to time, concentrate more than 25% of its
assets in domestic bank obligations. Domestic bank obligations
include instruments that are issued by U.S. (domestic) banks; U.S.
branches of foreign banks, if such branches are subject to the
same regulations as U.S. banks; and foreign branches of U.S.
banks, if FAI or a Money Manager determines that the investment
risk associated with investing in instruments issued by such
branches is the same as that of investing in instruments issued by
the U.S. parent bank, in that the U.S. parent bank would be
unconditionally liable in the event that the foreign branch fails to
pay on its instruments.
Primary Risks: Bank obligations entail varying amounts of
interest rate and credit risk, with the lowest-rated and longest-
dated bank obligations entailing the greatest risk of loss to a
Fund.
Foreign Government and International and Supranational Agency
Debt Securities. Each Fund may purchase debt obligations issued
or guaranteed by foreign governments or their subdivisions,
agencies, and instrumentalities, and debt obligations issued or
guaranteed by international agencies and supranational entities.
Lower-Rated Debt Securities. Each Fund may own debt
securities of all grades, including both rated and unrated
securities, provided however that not more than 5% of the Short-
Term Fund and not more than 10% of the other Funds may be
invested in securities that are rated below investment grade.
OInvestment gradeO means a rating of OBBBO or better by
S&P, OBaaO or better by MoodyOs in the case of securities;
OBO or better by Thomson Bankwatch in the case of bank
obligations; or OA-1O or better by S&P or OPrime-1O or better
by MoodyOs in the case of commercial paper; or similarly rated
by IBCA Ltd. (OIBCAO) in the case of foreign bank obligations.
Debt securities rated Baa by MoodyOs are considered to have
speculative characteristics. Money Managers will be obligated to
liquidate in a prudent and orderly manner debt security portfolio
holdings whose ratings fall below investment grade if, as a result
of such downgrades, more than 10% of the Bond Fund's assets
or 5% of the Short-Term Fund's assets allocated to the Money
Manager are invested in debt securities that are rated below
investment grade. Securities rated below investment grade are
often referred to as Ohigh yieldO or OjunkO bonds. See
Appendix A in the Statement of Additional Information for a
description of security ratings.
Primary Risks: The market values of lower-rated debt securities
tend to reflect individual corporate developments (or, in the case
of lower-rated securities of foreign governments, governmental
developments) to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of
interest rates; and lower-rated securities tend to be more sensitive
to general economic conditions than are higher-rated securities.
Mortgage-Backed Securities and Other Asset-Backed Debt
Securities. Mortgage-backed debt securities are secured or
backed by mortgages or other mortgage-related assets. Such
securities may be issued by such entities as Government National
Mortgage Association (OGNMAO), Federal National Mortgage
Association (OFNMAO), Federal Home Loan Mortgage
Corporation (OFHLMCO), commercial banks, savings and loan
associations, mortgage banks, or by issuers that are affiliates of or
sponsored by such entities. Other asset-backed securities are
secured or backed by assets other than mortgage-related assets,
such as automobile and credit card receivables, and are issued by
such institutions as finance companies, finance subsidiaries of
industrial companies, and investment banks. Each Fund will
purchase only asset-backed securities that FAI or a Money
Manager determines to be liquid. No Fund will purchase non-
mortgage, asset-backed securities that are not rated at least
OAAO by S&P or OAaO by MoodyOs, or determined by FAI or
a Money Manager to be of comparable quality.
Primary Risks: An important feature of mortgage- and other
asset-backed securities is that the principal amount is generally
subject to partial or total prepayment at any time because the
underlying assets (i.e., loans) generally may be prepaid at any
time. If an asset-backed security is purchased at a premium to
par, a prepayment rate that is faster than expected will reduce
yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at
a discount, faster than expected prepayments will increase, while
slower than expected prepayments will decrease, yield to
maturity. It should also be noted that these securities may not
have any security interest in the underlying assets, and recoveries
on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Municipal Debt Securities. The Multi-Asset, Bond, and Short-
Term Funds may, from time to time, purchase municipal debt
securities when, in a Money Manager's opinion, such
instruments will provide a greater return than taxable instruments
of comparable quality. It is not anticipated that such securities
will ever represent a significant portion of any Fund's assets.
Fund distributions that are derived from interest on municipal
debt securities will be taxable to Members in the same manner as
distributions derived from taxable debt securities.
Pay-In-Kind and Zero Coupon Debt Securities. Each Fund may
invest in pay-in-kind debt securities (bonds that pay interest
through the issuance of additional bonds) and zero coupon debt
securities (bonds that pay no interest but are sold at discounted
original issue prices). These bonds may be unrated or rated
below investment grade; debt securities rated below investment
grade will only be purchased within the limits (specified above in
Lower-Rated Debt Securities) governing such investments.
Primary Risks: Because they do not pay interest until maturity,
pay-in-kind and zero coupon securities tend to be subject to
greater fluctuation of market value in response to changes in
interest rates than interest-paying securities of similar maturities.
Additionally, for tax purposes, these securities accrue income
daily even though no cash payments are received, which may
require a Fund to sell securities that would not ordinarily be sold
to provide cash for the Fund's required distributions. Pay-in-
kind bonds tend to be low rated and entail the risks described
above in the subsection entitled Lower-Rated Debt Securities.
U.S. Treasury and Other U.S. Government and Government
Agency Debt Securities. U.S. Government securities are issued
by or guaranteed as to principal and interest by the U.S.
Government, its agencies, or instrumentalities and supported by
the full faith and credit of the United States. These securities
include those issued by a U.S. Government-sponsored enterprise
or federal agency that is supported either by its ability to borrow
from the U.S. Treasury (e.g., Student Loan Marketing
Association) or by its own credit standing (e.g., FNMA). Such
securities do not constitute direct obligations of the United States
but are issued, in general, under the authority of an Act of
Congress.
Primary Risks: The basic principles of bond prices described in
the subsection above entitled Primary Risks of Investing in Debt
Securities Generally apply to U.S. Government securities. A
security backed by the Ofull faith and creditO of the U.S.
Government is guaranteed only as to its stated interest rate and
face value at maturity, not its current market price. Like other
debt securities, Government-guaranteed securities will fluctuate in
value when interest rates change and may involve prepayment
risk.
Derivative, Synthetic, and When-Issued Securities and Forward
Commitments. Each Fund may invest in derivative, synthetic, and
when-issued securities, and may make forward commitments,
subject to certain limitations described below and in
INVESTMENT OBJECTIVES, POLICIES, AND
RESTRICTIONS. This subsection describes the types of
derivative, synthetic, and when-issued securities in which the
Funds may invest, and the forward commitments they may make;
the so-called coverage requirements to which such positions will
be subject; and certain noteworthy risks associated with them. A
more complete discussion of some of these instruments and their
associated risks appears in the section entitled SUPPLEMENTAL
DISCUSSION OF POLICY IMPLEMENTATION AND RISKS
in the Statement of Additional Information.
Coverage Requirements on Derivative Securities. All options on
securities, securities indices, other indices, and foreign currency
written by a Fund constitute commitments by the Fund and are
required to be covered. For example, when a Fund sells a Ocall
optionO (defined below), during the life of the option the Fund
must own or have the contractual right to acquire the securities or
foreign currency subject to the option, or, subject to any
regulatory restrictions, maintain with TIP's Custodian in a
segregated account cash or liquid high-grade securities in an
amount at least equal to the market value of the securities or
foreign currency underlying the option. When a Fund writes a
Oput optionO (also defined below), the Fund will, subject to any
regulatory restrictions, maintain with TIP's Custodian in a
segregated account cash or liquid high-grade securities in an
amount at least equal to the exercise price of the option.
All futures and forward currency contracts purchased or sold by a
Fund also constitute commitments by the Fund and are required
to be covered. For example, when a Fund purchases a Ofutures
contractO or Oforward contractO (discussed in further detail in
the Statement of Additional Information), the Fund will deposit
an amount of assets in a segregated account with TIP's
Custodian so that the amount so segregated plus the amount of
initial and variation margin held for the account of its broker, if
applicable, equal the market value of the futures or forward
currency contract. Assets maintained in segregated accounts
discussed here and elsewhere in this Prospectus may consist of
cash, cash equivalents, liquid high-grade securities, or other
acceptable assets. When a Fund sells a forward currency
contract, during the life of the contract the Fund will own or have
the contractual right to acquire the foreign currency subject to the
forward currency contract or debt securities denominated therein,
or will maintain with TIP's Custodian in a segregated account
cash or liquid high-grade securities so that the amount so
segregated plus the amount of margin held for the account of its
broker at least equals the market value of the foreign currency
underlying the forward currency contract. If the market value of
the contract moves adversely to the Fund, or if the value of the
securities in the segregated account declines, the Fund will be
required to deposit additional cash or securities in the segregated
account even at times when it may be disadvantageous to do so.
Segregation requirements apply to forward buys and forward
sells. However, when a forward buy is made to close a forward
sell, or vice versa, only the net difference must be segregated until
settlement date.
Futures Contracts and Options on Futures Contracts. The Funds
are permitted to enter into financial futures contracts and related
derivative securities (Ofutures contractsO) in accordance with
their investment objectives. A Ofinancial futures contractO is a
contract to buy or sell a specified quantity of financial instruments
such as U.S. Treasury bonds, notes, or bills, commercial paper,
bank certificates of deposit, or the cash value of a financial
instrument index at a specified future date at a price agreed upon
when the contract is made. Substantially all futures contracts are
closed out before settlement date or called for cash settlement. A
futures contract is closed out by buying or selling an identical
offsetting futures contract which cancels the original contract to
make or take delivery. The Funds may purchase or sell options
on futures contracts as an alternative to buying or selling futures
contracts. Options on futures contracts are similar to options on
the security underlying the futures contracts except that options
on stock index futures contracts give the purchaser the right to
assume a position at a specified price in a stock index futures
contract at any time during the life of the option. Upon entering
into a futures contract, a Fund is required to deposit the margin
amount with its custodian for the benefit of the futures broker as
collateral for performance of the contract and to maintain daily
the margin collateral in an agreed amount.
Primary Risks: Futures contracts entail special risks. Among
other things, the ordinary spreads between values in the cash and
futures markets, due to differences in the character of these
markets, are subject to distortions. The possibility of such
distortions means that a correct forecast of general market,
foreign exchange rate or interest rate trends still may not result in
a successful transaction. Although TIP believes that use of
futures contracts will benefit the Funds, if predictions about the
general direction of securities market movements, foreign
exchange rates or interest rates is incorrect, a Fund's overall
performance would be poorer than if it had not entered into any
such contracts or purchased or written options thereon.
Additional risks of participation in the futures markets are
described in the subsection above entitled INVESTMENT
STRATEGIES-Hedging and Income Enhancement Strategies
and in the section of the Statement of Additional Information
entitled SUPPLEMENTAL DISCUSSION OF POLICY IMPLEMENTATION AND RISKS.
Options. Each Fund may invest in options. There are two types
of options: calls and puts. A call option gives the purchaser, in
exchange for a premium paid, the right for a specified period of
time to purchase the securities or currency subject to the option at
a specified price (the exercise price or strike price). The writer of
a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the
option contract, the underlying securities or a specified amount of
cash to the purchaser upon receipt of the exercise price. When a
Fund writes a call option, the Fund gives up the potential for gain
on the underlying securities or currency in excess of the exercise
price of the option during the period that the option is open. A
put option gives the purchaser, in return for a premium, the right,
for a specified period of time, to sell the securities or currency
subject to the option to the writer of the put at the specified
exercise price. The writer of the put option, in return for the
premium, has the obligation, upon exercise of the option, to
acquire the securities or currency underlying the option at the
exercise price. A Fund might, therefore, be obligated to purchase
the underlying securities or currency for more than their current
market price.
The Multi-Asset, International Equity, Global Equity, Emerging
Markets, and U.S. Equity Funds may purchase and write (sell)
options on stocks, stock indices, and foreign currencies. These
options may be traded on national securities exchanges or in the
over-the-counter market. Options on a stock index are similar to
options on stocks except that there is no transfer of a security
upon exercise of the option and settlement is in cash. The Funds
may write covered put and call options to generate additional
income through the receipt of premiums, purchase put options in
an effort to protect the value of a security that a Fund owns
against a decline in market value, and purchase call options in an
effort to protect against an increase in the price of securities (or
currencies) which that Fund intends to purchase. The Multi-
Asset, Bond, and Short-Term Funds may write covered put and
call options on U.S. Government securities to generate additional
income through the receipt of premiums and may purchase both
put options in an effort to protect the value of securities each
Fund holds against a decline in market value and call options to
offset the impact of mortgage prepayments on market value. All
options purchased or sold by the Multi-Asset, Bond, or Short-
Term Funds will be traded on U.S. securities exchanges or will
result from separate, privately negotiated transactions with a
primary government securities dealer recognized by the Board of
Governors of the Federal Reserve System.
Primary Risks: The benefit to a Fund from the purchase of
options will be reduced by the amount of the premium and related
transaction costs. In addition, where markets or currency
exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in
options that would require them to forego a portion or all of the
benefits of advantageous changes in such markets or rates.
Additional risks of participation in the options markets are
described in the subsection above entitled INVESTMENT
STRATEGIES-Hedging and Income Enhancement Strategies
and in the section of the Statement of Additional Information
entitled SUPPLEMENTAL DISCUSSION OF POLICY
IMPLEMENTATION AND RISKS.
Foreign Currency Warrants. Foreign currency warrants such as
currency exchange warrants (OCEWsO) are warrants that entitle
the holder to receive from their issuer an amount of cash
(generally, for warrants issued in the United States in U.S.
dollars) that is calculated pursuant to a predetermined formula
and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the
warrant. Foreign currency warrants generally are exercisable
upon their issuance and expire as of a specified date and time.
Foreign currency warrants have been issued in connection with
U.S. dollar-denominated debt offerings by major corporate issuers
in an attempt to reduce the foreign currency exchange risk that,
from the point of view of prospective purchasers of the securities,
is inherent in the international fixed income marketplace.
Primary Risks: The formula used to determine the
amount payable upon exercise of a foreign currency warrant may
make the warrant worthless unless the applicable foreign currency
exchange rate moves in a particular direction (e.g., unless the
U.S. dollar appreciates or depreciates against the particular
foreign currency to which the warrant is linked or indexed). In
addition, foreign currency warrants are subject to other risks
associated with foreign securities, including risks arising from
complex political or economic factors.
When-lssued and Forward Commitment Securities. Each Fund
may purchase securities on a Owhen-issuedO basis and may
purchase or sell securities on a Oforward commitmentO basis in
order to hedge against anticipated changes in interest rates and
prices. In such transactions, instruments are bought with payment
and delivery taking place in the future in order to secure what is
considered to be an advantageous yield or price at the time of the
transaction. Delivery of and payment for these securities may
take more than a month after the date of the purchase
commitment, but will take place no more than 120 days after the
trade date. No income accrues prior to delivery on securities that
have been purchased pursuant to a forward commitment or on a
when-issued basis. At the time a Fund enters into a transaction
on a when-issued or forward commitment basis, a segregated
account consisting of cash or liquid securities equal to the value
of the when-issued or forward commitment securities will be
established and maintained with its custodian and will be marked
to market daily. Forward commitments, or delayed deliveries, are
deemed to be outside the normal corporate settlement structure.
Like futures contracts, they are subject to segregation
requirements; however, when a forward commitment purchase is
made to close a forward commitment sale, or vice versa, the
difference between the two may be netted for segregation
purposes until settlement date.
Primary Risks: Apart from market risk, when-issued or forward
commitment transactions involve counterparty risk and, in the
event of failure of performance or insolvency, accrued profits in a
position may not be available to a Fund.
Synthetic Securities. The Bond and Short-Term Funds may
combine investments in securities denominated in a given
currency with forward contracts in order to achieve desired credit
and currency exposures. Such a combination is referred to herein
as a Osynthetic security.O To construct a synthetic security, a
Fund will enter into a forward contract for the purchase of a
given currency (the OPurchase CurrencyO) at some future date
against payment in another currency (the OSale CurrencyO).
Simultaneously therewith, a Fund will purchase a security
denominated in the Sale Currency with a maturity date and
amount payable at maturity that coincides with the delivery date
and amount of the forward contract. The Fund will use the
amount payable at maturity of the security to satisfy its obligation
to deliver Sale Currency. Since the amount of Sale Currency
payable at maturity of the security will be exchanged for a
specified amount of Purchase Currency, the overall effect of the
security and foreign exchange transactions is similar to the
purchase of a security denominated in the Purchase Currency.
The effect of the forward contract may be to increase or decrease
the return on the investment in the security, depending on changes
in exchange rates between the purchase date and the maturity
date.
Primary Risks: The primary risks associated with utilization of
synthetic securities arise from the fluctuation of the exchange
rates between the Purchase and Sale Currencies during the period
the synthetic security is maintained, the matching of the principal
and interest from the security with the related forward contract
and the credit risks associated with the issuer of the security and
the forward contract counterparties. In addition, to the extent a
synthetic security is unwound prior to the maturity of the security,
the Fund is exposed to market risk with respect to the value of
the security and to currency exchange risk with respect to the
offsetting transaction. Certain of these risks are described in
more detail below. The value of securities denominated in foreign
currencies may differ from their United States dollar equivalents
as a consequence of market movements in the value of these
currencies between the date on which the security was purchased
and the date on which it matures. These differences may be
accentuated with respect to synthetic securities by changes in the
relative values of the currencies subject to the forward contracts.
TIP believes that the management of synthetic securities and the
risks attendant thereto are not substantively different from the
management and risks of foreign currency-denominated securities
generally.
OTHER INSTRUMENTS
Convertible Securities. A convertible security is a fixed income
security (a bond or preferred stock) which may be converted at a
stated price within a specified period of time into a certain
quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stock in a
corporationOs capital structure, but are usually subordinated to
similar non-convertible securities. Convertible securities provide,
through their conversion feature, an opportunity to participate in
capital appreciation resulting from a market price advance in
common stock into which the security may be converted.
Primary Risks: The price of a convertible security is influenced
by the market value of the underlying common stock and tends to
increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying
stock declines.
Foreign Securities Generally. Foreign securities include equity,
debt, or derivative securities denominated in currencies other than
the U.S. dollar, including any single currency or multi-currency
units, plus ADRs and EDRs. ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are
sometimes referred to as Continental Depositary Receipts, are
receipts issued in Europe, typically by foreign banks and trust
companies, which evidence ownership of either foreign or
domestic underlying securities.
When investing in foreign securities, all Funds with the exception
of the Emerging Markets Fund will invest primarily in securities
denominated in the currencies of Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Italy,
Japan, the Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, and the United Kingdom, as well as
securities denominated in the European Currency Unit. The
Multi-Asset, Global Equity, International Equity, and U.S. Equity
Funds may also invest selectively in, and the Emerging Markets
Fund will invest primarily in, emerging market securities as
defined below. Under certain adverse conditions, each Fund may
restrict the financial markets or currencies in which its assets are
invested and it may invest its assets solely in one financial market
or in obligations denominated in one currency.
Risks Associated with Foreign Securities Generally. Investing in
a mutual fund that purchases securities of companies and
governments of foreign countries, particularly developing
countries, involves risks that go beyond the usual risks inherent in
a mutual fund limiting its holdings to domestic investments. With
respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, and political or
social instability or diplomatic developments that could affect
investment in those countries. There may be less publicly
available information about a foreign financial instrument than
about a United States instrument and foreign entities may not be
subject to accounting, auditing, and financial reporting standards
and requirements comparable to those of United States entities.
A Fund could encounter difficulties in obtaining or enforcing a
judgment against the issuer in certain foreign countries. In
addition, certain foreign investments may be subject to foreign
withholding or other taxes, although the Fund will seek to
minimize such withholding taxes whenever practical. Members
may be able to deduct such taxes in computing their taxable
income or to use such amounts as credits against their United
States taxes if more than 50% of a Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations (see TAX CONSIDERATIONS).
Risks Associated with Currency Exchange Rate Changes.
Changes in foreign currency exchange rates may affect the value
of investments of a Fund. While a Fund may hedge its assets
against foreign currency risk, no assurance can be given that
currency values will change as predicted, and a Fund may suffer
losses as a result of this investment strategy. As a result of
hedging techniques, the net exposure of each such Fund to any
one currency may be different from that of its total assets
denominated in such currency. The foreign currency markets can
be highly volatile and subject to sharp price fluctuations. Since
each of the Funds may invest in such instruments in an effort to
enhance total return, each such Fund will be subject to additional
risks in connection with the volatile nature of these markets to
which the other Funds are not subject (see also the subsection
above entitled Hedging and Income Enhancement Strategies).
Although denominated in U.S. dollars, ADRs entail essentially the
same foreign currency exchange risks as direct investments in the
underlying foreign common stocks. For example, if the Japanese
yen falls by 5% relative to the U.S. dollar, but the yen price of
shares of Hitachi Ltd. remains unchanged in Tokyo trading, price
arbitraging transactions by global investors will likely cause the
U.S. dollar price of Hitachi Ltd. ADRs to fall by approximately
5% also (albeit perhaps with certain leads and lags).
Emerging Markets Securities. For purposes of their investment
policies, the Funds define an emerging market as any country, the
economy and market of which is generally considered to be
emerging or developing by MSCI or, in the absence of an MSCI
classification, by the World Bank. Under this definition, the
Funds consider emerging markets to include all markets except
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States.
Primary Risks: The risks of investing in foreign securities may be
intensified in the case of investments in issuers domiciled or doing
substantial business in emerging markets or countries with limited
or developing capital markets. Security prices in emerging
markets can be significantly more volatile than in the more
developed nations of the world, reflecting the greater
uncertainties of investing in less established markets and
economies. In particular, countries with emerging markets may
have relatively unstable governments, present the risk of sudden
adverse government action and even nationalization of businesses,
restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than
that provided by more developed countries. The economies of
countries with emerging markets may be based predominantly on
only a few industries, may be highly vulnerable to changes in local
or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets
may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or
impossible at times. Transaction settlement and dividend
collection procedures may be less reliable in emerging markets
than in developed markets. Securities of issuers located in
countries with emerging markets may have limited marketability
and may be subject to more abrupt or erratic price movements.
Illiquid Securities. Under the 1940 Act, each Fund may invest up
to 15% of the value of its assets in illiquid assets. Illiquid assets
are investments that are difficult to sell at the price at which such
assets are valued by the Fund within seven days of the date a
decision to sell them is made. Securities treated as illiquid assets
include: over-the-counter options; repurchase agreements, time
deposits, and dollar roll transactions maturing in more than seven
days; loan participations; securities without readily available
market quotations, including interests in other commingled
investment vehicles in which a Fund might invest; and certain
restricted securities.
Primary Risks: Due to the absence of an organized market for
such securities, interim valuations of the market value of illiquid
securities used in calculating Fund net asset values for purchases
and redemptions can diverge substantially from their true value,
notwithstanding the application of appraisal methods deemed
appropriate and prudent by TIP's Board and the Funds'
independent accountants. Due to possible restrictions on the
transferability of illiquid securities, forced liquidation of such
securities to meet redemption requests could produce large
losses.
Indexed Notes, Currency Exchange-Related Securities, and
Similar Securities. Each Fund may purchase notes, the principal
amount of which and/or the rate of interest payable on which is
determined by reference to an index, which may be: (1) the rate
of exchange between the specified currency for the note and one
or more other currencies or composite currencies; (2) the
difference in the price or prices of one or more specified
commodities on specified dates; or (3) the difference in the level
of one or more specified stock indices on specified dates. Each
Fund may also purchase principal exchange rate-linked securities,
performance-indexed paper and foreign currency warrants. These
instruments and their associated risks are discussed in the section
entitled SUPPLEMENTAL DISCUSSION OF POLICY
IMPLEMENTATION AND RISKS in the Statement of
Additional Information.
Interest Rate and Currency Swaps. An interest rate swap is an
agreement to exchange the interest income generated by one fixed
income instrument for the interest income generated by another
fixed income instrument. The payment streams are calculated by
reference to a specified index and agreed- upon notional amount.
The term Ospecified indexO includes fixed interest rates and
prices, interest rate indices, fixed income indices, stock indices,
and commodity indices (as well as amounts derived from
arithmetic operations on these indices). Swap opportunities are
available only from a limited number of counterparties and
involve counterparty credit risk. A Fund will not engage in
interest rate or currency swaps to the extent that the value of the
positions underlying such transactions represent more than 15%
of the Fund's assets. If a Fund engages in interest rate or
currency swaps it will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each swap
on a daily basis and will segregate an amount of cash or liquid
securities having a value equal to such accrued excess.
Other Registered Investment Companies. Each Fund may invest
in the shares of another registered investment company so long as
the Fund does not acquire more than 3% of the shares of the
acquired registered investment company that are outstanding at
the time such shares are purchased. The Fund will make
purchases of other registered investment companies in the open
market and only under such circumstances where no commission
or profit beyond the customary brokerOs commission results. As
a shareholder in a registered investment company, the Fund
would bear its ratable share of that investment companyOs
expenses, including its advisory and administration fees. The
Fund would continue to pay advisory and money management
fees and other expenses with respect to its investments in shares
of other registered investment companies. The Funds will not
purchase shares of open-end companies without waiving the
applicable management fees.
Investment Companies Investing Primarily in Emerging Market
CountriesO Securities. Due to restrictions on direct investment
by foreign entities in certain emerging market countries,
investment in other investment companies may be the most
practical or only manner in which the Funds can invest in the
securities markets of certain emerging market countries. Such
investments may involve the payment of premiums above the net
asset value of such issuersO portfolio securities, are subject to
limitations under the 1940 Act, and are constrained by market
availability (e.g., these investment companies often are Oclosed
endO companies that do not offer to redeem their shares directly).
The Funds do not intend to invest in such investment companies
unless, in the judgment of FAI, the potential benefits of such
investment justify the payment of any applicable premium or sales
charge.
Securities Denominated in Multi-National Currency Units or
More than One Currency. Each Fund may invest in securities
denominated in a multi-national currency unit, such as the
European Currency Unit, which is a ObasketO consisting of
specified amounts of the currencies of the member states of the
European Community, a Western European economic
cooperative organization. Each Fund may also invest in securities
denominated in the currency of one nation although issued by a
governmental entity, corporation, or financial institution of
another nation.
Special Situations. TIP's and FAI's Directors believe that
carefully selected investments in investment partnerships, private
placements, unlisted securities, and other similar vehicles
(collectively, Ospecial situationsO) could enhance the capital
appreciation potential of the Funds. Investments in special
situations would normally be illiquid. The Funds will invest no
more than 15% of each Fund's assets in all types of illiquid
investments, including special situations.
Non-Diversified Status. Each Fund is classified as a Onon-
diversifiedO investment company under the 1940 Act, which
means the Fund is not limited by the 1940 Act as to the
proportion of its assets that may be invested in the securities of a
single issuer. However, each Fund intends to conduct its
operations so as to qualify as a regulated investment company for
purposes of the Code, which generally will relieve the Fund of
any liability for federal income tax to the extent its earnings are
distributed to Members (see TAX CONSIDERATIONS). To so
qualify, among other requirements, each Fund will limit its
investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's
total assets will be invested in the securities of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, not
more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not
own more than 10% of the outstanding voting securities of a
single issuer. A Fund's investments in U.S. Government
securities and the securities of other regulated investment
companies are not subject to these limitations. Because a Fund,
as a non-diversified investment company, may invest in a smaller
number of individual issuers than a diversified investment
company, an investment in a Fund may present greater risk to an
investor than an investment in a diversified company.
PURCHASES AND REDEMPTIONS
GENERAL INFORMATION. Purchases and redemptions of
shares in the Funds include no sales charges. However, the
Multi-Asset, Global Equity, International Equity, Emerging
Markets, and U.S. Equity Funds assess entry and exit fees
(described immediately below).
ENTRY AND EXIT FEES ON PURCHASES AND REDEMPTIONS OF SHARES IN EQUITY FUNDS.
While there are no sales commissions (loads) or 12b-1 fees, the U.S.
Equity Fund assesses entry and exit fees of 0.25% of capital
invested; the Multi-Asset, Global Equity, and International Equity
Funds assess entry and exit fees of 0.75%; and the Emerging
Markets Fund assesses entry and exit fees of 1.00%. These fees,
which are paid to the Funds directly, not to FAI or other vendors
supplying services to the Funds, are designed to allocate
transactions costs associated with purchases and redemptions to
Members actually making such purchases and redemptions rather
than to the Funds' other Members. These fees are deducted
automatically from the amount invested or redeemed; they cannot
be paid separately. Entry and exit fees may be waived at FAI's
discretion when the purchase or redemption will not result in
significant transaction costs for the affected Fund (e.g., for
transactions involving in-kind purchases and redemptions). The
Funds reserve the right to redeem in-kind in accordance with the
Commission's procedures any redemption request by a Member
if the aggregate market value of the shares being redeemed by
that Member during any 90-day period exceeds the lesser of
$250,000 or 1% of the Fund's net asset value during such
period.
Rationale for Entry and Exit Fees. The entry and exit fees
represent FAI's estimate of the probable average costs over time
to the Funds of portfolio transactions necessitated by purchases
and redemptions. These costs include: (1) brokerage
commissions; (2) market impact costs, i.e., the increase or
decrease in market prices which may result when a Fund
purchases or sells securities; and (3) the effect of the Obid-askO
spread in over-the-counter markets. (Securities in over-the-
counter markets are typically bought at the OaskO or purchase
price, but are valued in each Fund at the mean of the Obid,O or
sale, and OaskO prices; similarly, securities in the over-the-
counter markets are typically sold at the ObidO or sale price, but
are valued in each Fund at the mean of this ObidO price and the
OaskO or purchase price.) Without these fees, the Funds would
incur these costs directly, resulting in reduced investment
performance for all Members. With these fees, the costs of
acquiring or liquidating securities are borne not by all existing
Members, but only by those Members making purchases or
redemptions. Because the costs of acquiring or liquidating debt
securities are generally very small, the Bond and Short-Term
Funds will not assess entry and exit fees.
OFFERING DATES, TIMES AND PRICES. The offering of
shares of TIP is continuous and purchases of shares may be made
on the days when the New York Stock Exchange, the Federal
Reserve Bank of New York, the Distributor, the Administrator,
the Transfer Agent, and the Custodian are all open for business,
which is Monday through Friday, except for holidays (hereinafter,
OBusiness DayO). Shares of each Fund may be purchased at the
net asset value per share of the Fund next determined after an
order and payment are received, the order has been accepted, and
any applicable entry fee has been deducted. Each Fund's net
asset value is determined on the basis of market prices. All
purchases, except in-kind purchases, must be made in U.S.
dollars. The Funds reserve the right to reject any purchase order.
Share purchase orders are deemed accepted when AMT Capital
Services, Inc. receives a completed Account Application (and
other required documents) and funds become available to TIP in
TIP's account with the Custodian as set forth below.
MINIMUMS. The minimum initial investment in each Fund is
$100,000, with the exception of the Short-Term Fund which has a
minimum initial investment of $50,000. Subsequent purchases
and exchanges have a minimum of $5,000. Redemptions may be
made in any amount.
ORDER AND PAYMENT PROCEDURES. Purchases may be
made on any Business Day by wiring federal funds to the Funds'
Custodian and Transfer Agent, Investors Bank & Trust Company,
Boston, Massachusetts. In order to purchase shares on a
particular Business Day, a purchaser must call FAI at 800-984-
0084 prior to 11:00 a.m. Eastern time to inform TIP of the
incoming wire transfer and must clearly indicate which Fund is to
be purchased. If federal funds are received by TIP by 12:00 noon
Eastern time, the order will be effective on that day. If TIP
receives notification after 11:00 a.m. Eastern time, or if federal
funds are not received by the Transfer Agent by 12:00 noon
Eastern time, such purchase order shall be executed as of the date
that federal funds are received by 12:00 noon Eastern time.
Funds transferred by bank wire may or may not be converted into
federal funds the same day, depending on the time the funds are
received and the bank wiring the funds. If funds are not
converted the same day, they will be converted the next business
day.
REDEMPTION PROCEDURES. TIP will redeem all full and
fractional shares of each Fund upon request of Members. The
redemption price is the net asset value per share next determined
after receipt by the Transfer Agent of proper notice of redemption
as defined below. If such notice is received by the Transfer Agent
by 11:00 a.m. Eastern time on any Business Day, the redemption
will be effective and payment, less any applicable exit fee, will be
made within seven calendar days, but generally on the day
following receipt of such notice for the U.S. Equity, Bond, and
Short-Term Funds, and generally on two business days following
receipt of such notice for the Multi-Asset, Global Equity,
International Equity, and Emerging Markets Funds. If the notice
is received on a day that is not a Business Day or after 11:00 a.m.
Eastern time, the redemption notice will be deemed received as of
the next Business Day. Redemptions may be executed in any
amount requested by the Member up to the amount such Member
has invested in TIP. To redeem shares, a Member or any
authorized agent (so designated on the Account Application)
must provide FAI with the dollar or share amount to be
redeemed, the account to which the redemption proceeds should
be wired (which account shall have been previously designated by
the Member on its Account Application), the name of the
Member, and the MemberOs account number.
Telephone Redemption Option. A telephone redemption option
is made available to Members of TIP on the Account Application.
A Member may request redemption by calling FAI at 800-984-
0084. TIP, FAI, AMT Capital Services, or the Transfer Agent
may employ procedures designed to confirm that instructions
communicated by telephone are genuine. If TIP does not employ
such procedures, it may be liable for losses due to unauthorized
or fraudulent instructions. TIP, FAI, AMT Capital Services, or
the Transfer Agent may require personal identification codes and
will only wire funds through pre-existing bank account
instructions. TIP will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be
genuine. No bank instruction changes will be accepted via
telephone.
Potential In-Kind Redemptions. The Funds reserve the right to
redeem in-kind (subject to the CommissionOs procedures) shares
of a Fund redeemed in a single transaction by an individual
Member if the aggregate market value of the shares being
redeemed by that Member during any 90-day period exceeds the
lesser of $250,000 or 1% of the Fund's net asset value during
such period. Redemptions in-kind entail the distribution to a
redeeming Member of readily marketable securities held by the
Fund whose shares it seeks to redeem, selected by FAI in its
discretion, as opposed to the cash distributions normally made to
redeeming Members.
EXCHANGE PRIVILEGE. Shares of a Fund may be exchanged
for shares of any other of TIP's Funds based on the respective
net asset values of the shares involved in the exchange. The
minimum for such an exchange is $5,000. An exchange order is
treated the same as a redemption followed by a purchase for tax
purposes and for purposes of determining whether an entry or
exit fee should be assessed. Investors who wish to make
exchange requests should telephone FAI or the Transfer Agent.
The exchange privilege is available only in states where the
exchange legally may be made.
WIRE TRANSFER INSTRUCTIONS. Wire transfer instructions
are provided in the Account Application that accompanies this
Prospectus or can be obtained by contacting FAI. A MemberOs
bank may impose its own fee for processing either outgoing wires
(in connection with purchases of Fund shares) or incoming wires
(in connection with redemptions of Fund shares). A Member may
change its authorized agent or the account designated to receive
redemption proceeds at any time by writing to FAI, AMT Capital
Services, or the Transfer Agent with an appropriate signature
guarantee. Further documentation may be required when deemed
appropriate by FAI, AMT Capital Services, or the Transfer
Agent.
DIVIDENDS AND DISTRIBUTIONS
INTENDED DISTRIBUTION SCHEDULE. Each Fund intends
to distribute to its Members substantially all of its net investment
income and its net realized long- and short-term capital gains.
Net investment income includes dividends, interest, and other
ordinary income, net of expenses. The intended payment
schedules are summarized in the table on the following page. In
order to satisfy certain distribution requirements, a Fund may
declare special year-end dividends and capital gains distributions,
typically during October, November, or December, to Members
of record in such month. Such distributions, if paid to Members
by January 31 of the following calendar year, are deemed to have
been paid by a Fund and received by Members on December 31
of the year in which they were declared. TIP will seek to provide
to Members as much notice as possible regarding the timing of all
distributions.
Multi- Global Int'l Emerging U.S. Short-
Asset Equity Equity Markets Equity Bond Term
Dividends
Declared Semi- Semi- Semi- Annually Quarterly Daily Daily
Annually Annually Annually
Reinvested Mid- Mid- Mid - Mid- Mid- Last Last
Jul/Dec Jul/Dec Jul/Dec December Apr/Jul/ Buss. Buss.
Day of the month
Capital Gains
Declared Annually Annually Annually Annually Annually Annually Annually
Reinvested Mid- Mid- Mid- Mid- Mid- Mid- Mid-
December December December December December December December
Paid Mid- Mid- Mid- Mid - Mid- Mid- Mid-
December December December December December December December
Distribution Options. Members may elect from among
several options for handling dividends and capital gains paid to
them by each Fund in which they invest:
Option 1 - Reinvest. Dividends and capital gains are
automatically reinvested in additional shares of a Fund at the net
asset value per share according to the schedule listed above.
Option 2 - Receive Cash. Dividends and capital gains are paid in
cash according to the schedule listed above.
Option 3 - Receive Dividends in Cash and Reinvest Capital
Gains. Dividends are paid in cash and capital gains are
automatically reinvested in additional shares of a Fund at the net
asset value per share according to the schedule listed above.
ADDITIONAL REDEMPTION OPTIONS. At the suggestion of
numerous grantmaking officers with which it has consulted, TIP
also offers various redemption options to accommodate
MembersO spending needs. The options are elected while
completing the Account Application. Members can change their
distribution options by contacting FAI or the Transfer Agent in
writing by the record date of the applicable dividend.
Option 4 - Pay Fixed Percentage per Period. Payments represent
a fixed percentage per period of the average value of the
MemberOs holding, regardless of declared distribution. The
Member specifies the percentage, not to exceed 10% per annum,
and the frequency of the payment, which can be no more frequent
than the dividend payment schedule for the relevant Fund (see
table above). The average is computed based on the one-year
period ending the previous month. For investments of less than
one-year in duration, all month-end values through the previous
month are included in the average.
Option 5 - Pay Fixed Dollar Amount. Payments represent a fixed
dollar amount specified in advance by the Member, regardless of
declared distributions. The Member specifies the dollar amount,
not to exceed 10% of the most recent year-end value of the
Member's holdings, and the frequency of the payment, which
can be no more frequent than the dividend payment schedule for
the relevant Fund (see table above).
Option 6 - Pay Variable Percentage or Dollar Amount. Payments
represent a varying percentage or dollar amount per period as
specified by the Member to be paid monthly, quarterly, semi-
annually, or annually. The specified percentage may not exceed
10% per annum of the value of the MemberOs holding and the
specified dollar amount may not exceed 10% of the most recent
year-end value. For example: A Member with a $2 million
investment in TIP expects to make grant payments in June and
December. The Member may request a payment of $5,000 per
month for overhead expenses, except for in June and December
when the payments would be $50,000 to support grant payments.
For Members electing Options 4, 5, and 6, if the amount of the
Fund's declared distribution exceeds the payment amounts
previously specified, the excess is reinvested in the Fund through
the purchase of additional shares. If the distribution is less than
the required payment, shares of the Fund are redeemed to cover
the amount of the payment, and the redemption may be subject to
the applicable exit fee.
Tax-Related Warning to Private Foundations. If a private
foundation subject to excise taxation purchases shares shortly
before a distribution of dividends and capital gains, a portion of
its investment will be classified as a taxable distribution
(regardless of whether it reinvests distributions or takes them in
cash).
TAX CONSIDERATIONS
The following discussion is for general information only.
Members and prospective Members should consult with their own
tax advisers as to the tax consequences of an investment in a
Fund, including the status of distributions from each Fund under
applicable state or local laws.
FEDERAL TAXES. Each Fund intends to qualify annually and
elect to be treated as a regulated investment company ("RIC")
under the Code. To qualify, a Fund must meet certain income,
distribution, and diversification requirements. In any year in
which a Fund qualifies as a RIC and distributes all of its taxable
income on a timely basis, the Fund generally will not pay U.S.
federal income or excise tax. Each Fund intends to distribute all
of its taxable income by automatically reinvesting such amount in
additional shares of the Fund and distributing those shares to its
Members, unless a Member elects, on the Account Application
Form, to receive cash payments for such distributions.
Tax Treatment of Distributions. Dividends paid by a Fund from
its investment company taxable income (including interest and net
short-term capital gains) will be taxable to a U.S. Member as
ordinary income. If a portion of a Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends
paid by the Fund may be eligible for the corporate dividends-
received deduction (assuming that the deduction is otherwise
allowable in computing a MemberOs federal income tax liability).
Any distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated as
capital gain dividends are taxable to Members as long-term capital
gains, regardless of how long they have held their Fund shares.
Dividends are taxable to Members in the same manner whether
received in cash or reinvested in additional Fund shares.
A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October,
November, or December with a record date in any such month
and paid by the Fund during January of the following calendar
year. Such distributions will be taxable to Members in the
calendar year in which the distributions are declared, rather than
the calendar year in which they are received. Each Fund will
inform Members of the amount and tax status of all amounts
treated as distributed to them not later than 60 days after the
close of each calendar year.
Tax Treatment of Capital Transactions. Any gain or loss realized
by a Member upon the sale or other disposition of shares of a
Fund, or upon receipt of a distribution in a complete liquidation
of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the
MemberOs holding period for the shares.
Back-Up Withholding. Each Fund may be required to withhold
U.S. federal income tax at the rate of 31% of all taxable
distributions payable to Members who fail to provide the Fund
with their correct taxpayer identification number or make required
certifications, or who have been notified by the IRS that they are
subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
MemberOs U.S. federal income tax liability. Corporate Members
and certain other Members [including organizations exempt from
federal income taxation under Code section 501(a)] are exempt
from backup withholding.
FOREIGN INCOME TAXES. Income and gains received by the
Funds from sources within foreign countries may be subject to
foreign withholding and other income taxes. Because, with the
possible exception of the International Equity, Global Equity,
Emerging Markets, and Multi-Asset Funds, it is not expected that
more than 50% of the value of a Fund's total assets at the end of
its taxable year will consist of stocks and securities of foreign
corporations, it is not expected that these Funds will be eligible to
elect to Opass throughO to their Members the amount of foreign
income and similar taxes paid by these Funds. In the absence of
such an election, the foreign taxes paid by a Fund will reduce its
investment company taxable income, and distributions of
investment company taxable income received by the Fund will be
treated as U.S. source income.
In the event that a Fund is eligible to and elects to Opass
throughO to its Members the amount of foreign income and
similar taxes paid by the Fund, Members will be required to: (1)
include in gross income, even though not actually received, their
respective pro rata share of such foreign taxes paid by the Fund;
(2) treat their pro rata share of such foreign taxes as paid by
them; and (3) either deduct their pro rata share of such foreign
taxes in computing their taxable income or use it within the
limitations set forth in the Code as a foreign tax credit against
U.S. taxes (but not both). Each Member of a Fund will be
notified within 60 days after the close of each taxable (fiscal) year
of the Fund if the foreign taxes paid by the Fund will Opass
throughO for that year, and, if so, the amount of each MemberOs
pro rata share (by country) of the foreign taxes paid and the
Fund's gross income from foreign sources. Members who are
not liable for federal income taxes other than the excise tax
applicable to the net investment income of private foundations
will not be affected by any such Opass throughO of foreign tax
credits.
STATE AND LOCAL TAXES. A Fund may be subject to state,
local, or foreign taxation in any jurisdiction in which it may be
deemed to be doing business. Fund distributions may be subject
to state and local taxes. Distributions of a Fund which are
derived from interest on obligations of the U.S. Government and
certain of its agencies, authorities, and instrumentalities may be
exempt from state and local taxes in certain states. Members
should consult their own tax advisers regarding the particular tax
consequences of an investment in a Fund.
Further information relating to tax consequences is contained in
the Statement of Additional Information.
MEMBER VOTING RIGHTS AND PROCEDURES
Each Member has one vote in Director elections and on other
matters submitted to Members for their vote for each dollar of net
asset value held by the Member. Matters to be acted upon that
affect a particular Fund, including approval of the advisory and
manager agreements with FAI and the Money Managers,
respectively, and the submission of changes of fundamental
investment policies of a Fund, will require the affirmative vote of
a majority of the Members of such Fund as defined in the 1940
Act. The election of TIP's Board of Directors and the approval
of TIP's independent public accountants are voted upon by
Members on a TIP-wide basis. As a Maryland corporation, TIP
is not required to hold annual Member meetings. Member
approval will be sought only for certain changes in TIP's or a
Fund's operation and for the election of Directors under certain
circumstances. Directors may be removed by Members at a
special meeting. A special meeting of TIP shall be called by the
Directors upon written request of Members owning at least 10%
of TIP's outstanding shares.
PERFORMANCE AND EXPENSE INFORMATION
From time to time TIP may advertise a Fund's "yield," "total
return," and "annualized expense ratio." A Fund's yield for
any 30-day (or one-month) period is computed by dividing the net
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semiannual basis. Advertisements
of a Fund's total return may disclose its average annual
compounded total return for one-, five-, and ten-year periods or
since the Fund's inception. A Fund's total return for such
period is computed by finding, through use of a formula
prescribed by the Commission, the average annual compounded
rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the
period. For purposes of computing total return, dividends and
capital gains distributions paid on shares are assumed to have
been reinvested when received. From time to time, the Funds
may compare their performance to that of the comparative indices
specified in their investment objectives and further described in
Appendix B. Total return and yield figures are based on a
Fund's historical performance and are not intended to indicate
future performance. The value of an investment in a Fund will
fluctuate and the shares in an investorOs account, when
redeemed, may be worth more or less than their original cost. A
Fund's annualized expense ratio is the ratio of its annual
operating expenses for a given time period to its average net
assets for the same time period, stated in percentage terms. From
time to time, the Funds may compare their performance or
expense ratios to those of other investment companies pursuing
similar investment objectives.
MEMBER INQUIRIES
Inquiries concerning TIP may be made by writing to FAI at:
Foundation Advisers, Inc.
P.O. Box 5165
Charlottesville, VA 22905
or by calling FAI at 800-984-0084.
APPEDIX A - MONEY MANAGER PROFILES
ARONSON + FOGLER
ORGANIZATION
230 South Broad Street
Philadelphia, PA 19102
phone: 215-546-7500
fax: 215-546-7506
Independent Investment Counsel
Controlled by Theodore Aronson, Partner
Founded in 1984
Total Assets under Management: $734 mm (3/23/95)
REPRESENTATIVE CLIENTS
Dartmouth College
John D. and Catherine T. MacArthur Foundation
University of Southern California
Spelman College
Virginia Retirement System
William Penn Foundation
PERSONNEL
Key TIP Account Manager
Theodore R. Aronson, CFA, CIC, Partner
MBA/BS, Wharton
1984-present: Aronson + Fogler
previous experience: Addison Capital; Drexel
Burnham Lambert
Other Personnel
Kevin M. Johnson, Partner
PhD, North Carolina; BS, Delaware
DuPont Pension; Vanguard Group
James S. Lobb, Partner
MBA, William & Mary; BS, South Carolina
Miller, Anderson & Sherrerd; Addison Capital
Martha E. Ortiz, CFA, CIC, Partner
MBA, Wharton; BA, Harvard
Wilshire Associates; Continental Grain
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Large Cap Equity
Assets Using This Philosophy: $266 mm (3/23/95)
INVESTMENT APPROACH
The firm focuses on asset-rich companies (stocks with low price-
to-book ratios), selling at relatively low market valuations (stocks
with low price-to-earnings ratios), with proven management
talent (reflected in a quantitative measure of historic corporate
performance, dubbed the management factor). A strict selection
algorithm is applied separately to nine economic sectors that
include the 250 largest stocks in the S&P 500. Risk-adjusted
relative strength tests and an assessment of individual fundamental
characteristics produce final selection adjustments and determine
individual position sizes. Up to 15% of the portfolio is dedicated
to relatively high-growth issues. Economic sector weights are
held to within 5% of their weights in the S&P 500. Portfolio
changes are executed by a number of trading methods, including
electronic crossing and basket trades. The firm measures and
monitors closely its trading costs, including market impact and
opportunity costs. Portfolios contain an average of 40 to 60
stocks, ranging in size from 0.5% to 3.5% of assets. Annual
turnover averages 70%.
MANAGEROS BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ .250 x ( Excess Return - 90 ) ] subject toFloor of 10
bp; Cap of 80 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
ATLANTIC ASSET MANAGEMENT
PARTNERS, INC.
ORGANIZATION
40 Signal Road
Stamford, CT 06902
phone: 203-363-5100
fax: 203-363-5110
Independent Investment Counsel
Controlled by Ronald W. Sellers, President
Founded in 1992
Total Assets under Management: $1.6 bil (2/28/95)
REPRESENTATIVE CLIENTS
Associated Foods
Catholic Foundation
Kansas City Public School Retirement System
Masonic Charity Foundation
Massachusetts General Life
Omaha School EmployeesO Retirement System
Philadelphia Life Insurance
Sharp Healthcare & Grossmont
Southern Companies, Inc.
State of Florida
PERSONNEL
Key TIP Account Managers
Ronald W. Sellers, President
MBA, Oklahoma State; MA, College of Holy Names;
AB, California-Berkeley
1992-present: Atlantic Asset Management
1985-92: Weiss Peck & Greer, Partner,
Co-Director, Fixed Income
Connice A. Bavely, Senior Vice President
MA, Maryland; BA, North Carolina
1992-present: Atlantic Asset Management
1988-92: Weiss Peck & Greer, Special Partner
Other Personnel
Elaine S. Hunt, CFA, Senior Vice President
MBA, Chicago; BA, Beloit College
Weiss, Peck & Greer; William M. Mercer
Janet A. Kappenberg, Senior Vice President
MBA, Columbia; BSFS, Georgetown
Columbus Circle Investors; JP Morgan
Donald W. Trotter, CFA, Senior Vice President
MBA, Missouri; BS/BA, Kansas
DeMarche Associates, Inc.; Phillips Petroleum
Money Manager for the TIFF Bond Fund
INVESTMENT PHILOSOPHY
Philosophy: Constant Duration
Assets Using This Philosophy: $1.1 bil (2/28/95)
INVESTMENT APPROACH
Atlantic Asset Management manages fixed income portfolios
using a proprietary analytic framework that eliminates the need
for economic or interest rate forecasting. Quantitative methods
are used to target and control portfolio risk exposures. Portfolio
duration is held constant, a strategy designed to benefit from
interest rate volatility. This strategy entails the purchase of longer
maturity bonds as interest rates rise (prices fall) and their sale as
rates fall (prices rise) in order to maintain a constant duration for
the total portfolio. The firm's exploitation of yield curve
anomalies is based on statistical analysis of recent past
relationships between the shape of the yield curve and subsequent
returns. In the corporate sector, a well diversified portfolio is
constructed by screening companies to identify issuers with
improving margins and strong cash flows, thereby increasing the
probability of credit upgrades while reducing the possibility of
downgrades. In the mortgage sector, option adjusted valuation
models are used to identify securities that can produce returns
from interest rate movements which are consistent with the
overall duration and yield strategy. The components of the
strategy are combined through the use of optimization programs
to provide the best expected return profile in a unified portfolio.
Portfolio contains an average of 50 to 80 positions. Annual
turnover averages 200%.
MANAGEROS BENCHMARK
Lehman Government/Corporate Bond Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ .200 x ( Excess Return - 65 ) ] subject toFloor of 10
bp; Cap of 60 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
BEA Associates
Organization
153 E. 53rd Street
New York, NY 10022
phone: 212-832-2626
fax: 212-421-0453
Independent Investment Adviser
Controlled by Credit Suisse
Founded in 1968
Total Assets under Management: $21.3 bil (12/31/94)
RESENTATIVE CLIENTS
Cargill, Inc.
City of Boston
Columbia University
State of Arkansas
State of Idaho
Southern Company
Waycrosse, Inc.
PERSONNEL
Key TIP Account Managers
Emilio Bassini, Executive Director, International
Portfolio Manager
MBA/BS, Wharton
1984-present: BEA Associates
Piers Playfair, Managing Director, International
Portfolio Manager
MA, Polytechnic of Central London; BA, University of
London
1990-present: BEA Associates
1985-90: Salomon Brothers
Steven M. Swift, Managing Director, International
Portfolio Manager
BS, University College in London
1995-present: BEA Associates
1992-95: Credit Suisse Asset Management
1977-92: Wardley Investment Services
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
and TIFF Emerging Markets Funds
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets
Assets Using This Philosophy: $3.7 bil (12/31/94)
INVESTMENT APPROACH
BEAOs discipline begins with a top-down analysis of the political,
social, macro- and microeconomic status and outlook for
individual emerging market countries. This analysis emphasizes
the identification of investment opportunities or risks that are
misperceived by other investors. Assessments of other
investorsO misperceptions produce investment OthemesO, which
in turn form the basis for individual country allocations. Having
determined these allocations, the firm then seeks to identify
market sectors and securities within each country that will benefit
from the firm's themes. The firm's stock selection criteria tends
to emphasize high relative growth rates, with particular attention
paid to the quality and depth of a firm's management, its current
and projected free cash flows, and its current and projected
market share. In determining whether the market price of a stock
properly reflects its growth prospects, the firm performs its own
valuation analysis and confers regularly with a wide network of
outside analysts and strategists. Portfolio managers also make
personal visits to each portfolio company. Portfolios contain an
average of 100 to 200 stocks. Annual turnover averages over
100%.
MANAGER'S BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
0.95% on first $25 million
0.90% on next $15 million
0.85% on next $10 million
0.75% on next $50 million
0.60% thereafter
BEE & ASSOCIATES, INC.
ORGANIZATION
370 Seventeenth Street
Suite 5150
Denver, Colorado 80202
phone: 303-592-5111
fax: 303-592-5120
Independent Investment Counsel
Controlled by Bruce Bee
Founded in 1989
Total Assets under Management: $61 mm (2/28/95)
REPRESENTATIVE CLIENTS
Clark Partners I, LP
Coutts & Company
Denver Botanic Gardens Endowment
International Investment Interests
Johnson Publishing Company
Monroe Medical Associates
Riverside Church of New York
Saunders Construction
Sutherland Lumber Company
PERSONNEL
Key TIP Account Managers
Bruce B. Bee, President and CEO
JD, Georgetown; BA, University of Kansas
1989-present: Bee & Associates, Inc.
Other Personnel
Edward McMillan, Principal
MBA, University of California; BA, University
of Colorado
First Boston Asset Management, President and CEO
Yves Leven, Research Analyst
MBA, Columbia; BA, Tufts
LOAir Liquide, Paris
Money Manager for the TIFF Multi-Asset , TIFF Global Equity,
and TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Global Small Cap
Assets Using This Philosophy: $61 mm (2/28/95)
INVESTMENT APPROACH
The firm has a value-driven, bottom-up approach to stock
selection and portfolio construction. Emphasis is placed on
finding businesses whose stock prices are low relative to their
intrinsic value and have above average growth prospects. In
general, the firm emphasizes companies with market
capitalizations of less than US $750 million. From the firm's
global equity universe, potential investment candidates are
subjected to fundamental analysis including: (1) a review of
annual and interim reports; (2) reconciliation of accounting
practices to US GAAP and other necessary cross-border
analytical checks; and (3) present value analysis. The firm's
ideal candidate has a proprietary product or service; focused and
competent management; and is available at a significant discount
to what the firm believes another company would pay for it.
These companies typically have a history of above average
growth in revenues, earnings, cash flow and return on
shareholdersO equity, and reasonable prospects for continued
superior growth.
MANAGER'S BENCHMARK
MSCI All Country World Index or
MSCI All Country World ex USA Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ 0.270 x ( Excess Return - 115 ) ] subject to
Floor of 15 bp; Cap of 200 bp
Measurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Blairlogie Capital Management
Organization
Portfolio Management:
125 Princes Street, 4th Floor
Edinburgh, Scotland EH2 4AD
U.S. Liaison Office:
Two Ravinia Drive, Suite 1560
Atlanta, GA 30346
phone: 404-390-1799
fax: 404-390-1899
Independent Investment Counsel
Controlled by PIMCO Advisors, L.P.
Founded in 1992
Total Assets under Management: $500 mm (12/31/94)
REPRESENTATIVE CLIENTS
The Baptist Sunday School Board
Commonwealth Funds Management of Australia
Haggar Apparel Company
Illinois State TeachersO Retirement System
The Los Angeles Philharmonic
PERSONNEL
Key TIP Account Managers
James Smith, Chief Investment Officer
MBA, Edinburgh; BS, London University
1992-present: Blairlogie Capital Management Ltd.
1989-92: Murray Johnstone International Ltd., Director
and Vice President
1987-1989: Kemper-Murray Johnstone Ltd.,
Fund Manager
David Carruthers, Portfolio Manager
PhD/MA, Glasgow University
1992-present: Blairlogie Capital Management Ltd.
1986-92: Murray Johnstone International Ltd., Equity
Analyst and Portfolio Manager
Other Personnel
Gavin Dobson, President and CEO
LLB, Edinburgh; MA, Dundee University
Murray Johnstone International Ltd., President and COO
Robert Stephens, Chief Financial Officer
Rosenberg Institutional Equity Management (Europe),
CEO
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
TIFF International Equity , and TIFF Emerging Markets Funds
INVESTMENT PHILOSOPHY
Philosophy: Opportunistic Emerging Markets Mgmt
Assets Using This Philosophy: $220 mm (12/31/94)
INVESTMENT APPROACH
Blairlogie unites traditional Scottish methods of investing with
advanced quantitative analytical tools. The firm employs active
management techniques at both the country allocation and stock
selection level. Country allocation tends to be the major single
influence in risk/reward decisions. BlairlogieOs country
allocation model is multi-variable and analyzes macroeconomic,
monetary, earnings momentum, market valuation, and technical
data. The firm ranks countries relative to each other to identify
opportunities for investment and then allocates appropriately after
considering risk/reward tradeoffs. Once allocations to countries
have been made, attractive sectors and specific stocks for
investment are identified. A combination of growth and value
characteristics are analyzed, typically focusing on faster growing
companies. Currency hedging is difficult in emerging markets.
When currency hedges are established, they tend to be defensive
in nature, not an attempt to enhance relative performance.
Research is conducted almost entirely in-house. Approximately
75% is in-house quantitative analysis; 10% is in-house analyst
reports. The remaining 15% of research emanates from
overseas brokers and contacts. The firm visits directly with
companies in the markets in which it is managing assets and
maintains a regular dialogue with a short list of brokerage firms.
Portfolios contain an approximately 120 stocks. Annual turnover
averages 100%.
MANAGER'S BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
0.95% on first $25 million
0.90% on next $15 million
0.85% on next $10 million
0.75% on next $50 million
0.60% thereafter
DELAWARE INTERNATIONAL ADVISERS LTD.
ORGANIZATION
Portfolio Management:
Veritas House, 125 Finsbury Pavement
London, England EC2A 1NQ
phone: 0171-638-2493
fax: 0171-638-2099
U.S. Liaison Office:
Delaware Management Company, Inc. (Affiliate)
One Commerce Square
Philadelphia, PA 19103
phone: 215-972-2312
fax: 215-972-8849
Independent Investment Counsel
Controlled by Lincoln National
Founded in 1990 (Predecessor firm founded in 1929)
Total Assets under Management: $2.3 bil (2/28/95)
REPRESENTATIVE CLIENTS
Allied-Signal, Inc.
Father FlanaganOs BoyOs Town (DPT)
Illinois State Board of Investment
McDermott International
Sandia National Laboratories
Salvation Army (DPT)
Stanford Management Company
The Amherst H. Wilder Foundation (DPT)
The Richard King Mellon Foundation
Warner Lambert Company
PERSONNEL
Key TIP Account Managers
David G. Tilles, Managing Director, CIO
Sorbonne/Warwick University/Heidelberg
University
1990-present: Delaware International Advisers Ltd.
1974-90: Hill Samuel Investment Advisers, CIO
Hamish O. Parker, Director and Senior Portfolio
Manager
Oxford University
1990-present: Delaware International Advisers Ltd.
1986-90: Hill Samuel Investment Advisers,
Senior Portfolio Manager
Other Personnel
Wayne A. Stork, Chairman, CEO
Graduate work, New York University; BA, Brown Univ.
Irving Trust Company
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
and TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Value-oriented International Equity Mgmt
Assets Using This Philosophy: $1.8 bil (2/28/95)
INVESTMENT APPROACH
Delaware International is a value-oriented defensive manager.
The companyOs senior investment professionals have worked
together for many years. The firm invests in securities where
dividend discount analysis identifies value in terms of the long
term flow of income. The firm uses the same dividend discount
valuation model of future income streams across all countries,
securities, and industries. This distinguishes Delaware
International from many of its competitors that use different
investment criteria in each country and sector. The most
important aspects of the firm's security selection process are
fundamental company analyses and a comprehensive program of
visiting each current and prospective holding. Equity market
valuations are based on inflation-adjusted dividend discount
analysis, coupled with long term purchasing power parity analysis
of currencies. The resulting valuations are then analyzed with the
help of a computer- based optimization program, which produces
a list of attractive portfolio allocations for consideration by
Delaware InternationalOs Investment Committee. As a defensive
measure to protect real returns, Delaware International will hedge
a currency when its inflation-adjusted exchange rate suggests that
it is overvalued. The companyOs portfolios normally exhibit high
income yields and low P/E ratios. Portfolios contain an average
of 35 stocks. Annual turnover generally averages 25%.
MANAGER'S BENCHMARK
MSCI EAFE Index
FEE PAID BY TIP TO THIS MANAGER
0.50% per annum on first $50 million
0.35% per annum on next $50 million
0.30% per annum on remainder
EAGLE CAPITAL MANAGEMENT
ORGANIZATION
530 Fifth Avenue
New York, NY 10036
phone: 212-768-0700
fax: 212-768-0851
Independent Investment Counsel
Controlled by Ravenel B. Curry III, President, CIO, and
Co-Founder; Richard A. Kimball, Co-Founder
Founded in 1988
Total Assets under Management: $465 mm (2/28/95)
REPRESENTATIVE CLIENTS
Archdiocese of Miami
Atlantic Richfield
Carolina Freight
Iona Preparatory School
W. Alton Jones Foundation
John D. and Catherine T. MacArthur Foundation
Maritime Association (ILA Pension)
The Mercersburg Academy
New York Daily News
Saint VladimirOs Orthodox Theological Seminary
James P. Wilmot Foundation (University of
Rochester)
PERSONNEL
Key TIP Account Manager
Ravenel B. Curry III, President and CIO
MBA, University of Virginia; BA, Furman
1988-present: Eagle Capital Management
Other Personnel
Richard A. Kimball, Co-Founder
BA, Yale University
White, Weld, Director
Elizabeth Curry, Senior Research Analyst
MBA/BA, Queens College
Summit Trust Company, Analyst
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Undervalued Growth
Assets Using This Philosophy: $465 mm (2/28/95)
INVESTMENT APPROACH
Eagle Capital emphasizes undervalued growth stocks, focusing on
companies whose earnings it believes will grow at rates well
above those implicit in their current stock price. Particular
attention is given to companies whose managements are
perceived to: (1) invest capital for the long term; (2) have a real-
return orientation; and (3) have a vision to move the company to
a significantly higher level of sales and profitability. Eagle relies
primarily on in-house research to identify companies capable of
generating earnings per share equal to at least 20% of their
current stock price over the next three to five years. Eagle
recognizes that growth in most companies is not consistent, and
that some companies may reach EagleOs growth expectations
through uneven quarterly progression. The firm attempts to
reduce the emotional aspects of investing by employing several
disciplines. For example, the weighted average price-earnings
ratio for the portfolio may not exceed the P/E of the market.
Portfolios contain an average of 25 to 35 high-quality stocks,
characterized by below-market yields and dividend payout ratios,
above-market earnings and dividend growth rates and superior
returns on equity. Annual turnover averages 35%.
MANAGEROS BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ 0.160 x ( Excess Return - 90 ) ] subject to
Floor of 0 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
Emerging Markets Management
Organization
1001 Nineteenth Street North, 16th Floor
Arlington, VA 22209-1722
phone: 703-243-8800
fax: 703-243-2266
Independent Investment Counsel
A General Partnership, the managing partner of which is
Emerging Markets Investors Corporation, a Delaware
corporation controlled by Antoine van Agtmael Founded in 1987
Total Assets under Management: $2.2 bil (12/31/94)
REPRESENTATIVE CLIENTS
Harvard Management Company
The Rockefeller Foundation
Yale University
PERSONNEL
Key TIP Account Manager
Antoine W. van Agtmael, President
MBA, New York University; MA, Yale; BA, Netherlands School of Economics
1987-present: Emerging Markets Management
Other Personnel
Michael Duffy, CFA, Managing Director
PhD/MA,Chicago; BA, Michigan
World Bank Pension Plan, Senior Pension Investment
Officer
Deborah Farrell, Manager-Asian Investments
MBA, University of Pennsylvania; BSBA, Georgetown
International Finance Corporation, Manager of Financial
Sector Investments in Asia
Felicia Morrow, Senior Analyst and Portfolio Manager
MBA, Harvard; BA, Stanford
World Bank, Consultant
John Niepold, Portfolio Manager and Analyst
MBA, UNC-Chapel Hill; BA, Davidson
Crosby Securities, Senior Investment Analyst
Money Manager for the TIFF Emerging Markets Fund
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets
Assets Using This Philosophy: $2.2 bil (12/31/94)
INVESTMENT APPROACH
Emerging Markets Management focuses on both maximizing
long-term capital appreciation and on minimizing volatility
through broad diversification and a systematic, disciplined, and
quantitative investment approach. The firm's top-down
approach is to invest, at any time, in most of the countries that are
part of the emerging markets universe but to vary weights
(relative to market weights) on the basis of Emerging MarketsO
ManagementOs proprietary country allocation model (mean
variance optimizing model with the key inputs being expected
returns, volatilty, and correlations among country indexes).
Limitations are that a country should not be overweighted more
than four times its market weight and that no country should
make up more than 25% of the portfolio. The firm diversifies its
equity investments over geographic sectors and industries and
through bottom-up selection of companies that are characterized
by attractive valuations and favorable return prospects over a
three- to five-year time horizon with market capitalizations
typically at least $15 million and having acceptable trading
volumes for established core positions. Increasingly, less well-
researched (i.e., more neglected) companies are making up the
portfolio. About 50'% of the firm's portfolioOs individual equity
holdings (as opposed to the portfolio valued weighting) are
outside of IFC and MSCI Emerging Markets databases. The firm
actively monitors a universe of approximately 1,000 stocks in
over 34 countries. Portfolios contain an average of 300 stocks.
Annual turnover depends heavily on market conditions, but has
typically averaged 30%.
MANAGER'S BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
1.25% on first $100 million
1.00% thereafter
FIRST QUADRANT
ORGANIZATION
800 E. Colorado Blvd., Suite 900
Pasadena, CA 91101
phone: 818-795-8220
fax: 818-795-8306
Independent Investment Counsel
Wholly owned by Xerox Corporation
Founded in 1985
Total Assets under Management: $17.8 bil (2/28/95)
REPRESENTATIVE CLIENTS
Asea Brown Boveri
BellSouth
Elf Aquitaine
ICI Canada
Loyola University
Shell International
Stanford University
PERSONNEL
Key TIP Account Manager
John Dorian, Managing Director
MBA/MS/BS, Florida State University
1990-present: First Quadrant
1987-90: General Dynamics, Corporate Director of
Equity Investments
Other Personnel
Robert D. Arnott, President, CIO
BA, University of California
TSA Capital Management, President and CIO
Robert M. Lovell, Jr., Chairman of the Board,
Chief Executive Officer
BA, Princeton
Lehman Brothers
New Court Securities
Money Manager for the TIFF Multi-Asset,
TIFF Global Equity , and TIFF U.S. Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Style Management
Assets Using This Philosophy: $1.6 bil (2/28/95)
INVESTMENT APPROACH
First Quadrant employs a quantitative approach that attempts to
predict the performance of investment styles. The firm
complements this process with a discipline that attempts to
forecast the effectiveness of individual stock selection models.
The combination of these disciplines results in a process that
seeks return from both portfolio style and stock selection. The
firm rebalances the portfolios by beginning with a universe of
4000 stocks. These stocks are then screened to ensure that First
Quadrant will own no more than three days dollar volume in any
securities across all client portfolios. Forecasts are then made for
expected returns on 73 individual parameters (such as volatility in
markets, price/book, and size), based on movements in the
macromarket, macroeconomic, and calendar arenas. All stocks
have exposure to these factors, and a total expected return is
calculated for stock. Portfolios contain stocks that have positive
return forecasts. A tentative portfolio is then run through an
optimizer to minimize risk and to neutralize unintended bets. In
addition, industries and sectors are kept within +/- 4% of S&P
weightings. Markets are monitored on a daily basis, and the
firm's models are updated daily to reflect market movements. In
general, rebalancing occurs twice monthly. The firm makes
extensive use of crossing networks and floor traders to minimize
transaction costs. Portfolios contain an average of 100 to 150
stocks. Annual turnover averages 100%.
MANAGEROS BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 45 + [ .135 x ( Excess Return - 120 ) ] subject to
Floor of 15 bp; Cap of 300 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
FISCHER FRANCIS TREES & WATTS, INC.
ORGANIZATION
200 Park Avenue, 46th Floor
New York, NY 10166
phone: 212-681-3000
fax: 212-681-3250
Independent Investment Counsel
Controlled by Charter Atlantic Corporation
Founded in 1972
Total Assets under Management: $18.0 bil (12/31/94)
REPRESENTATIVE CLIENTS
Cornell University
Corning, Inc.
Henry J. Kaiser Family Foundation
Lucille P. Markey Charitable Trust
Monsanto Company
Norfolk Southern Corporation
The World Bank
PERSONNEL
Key TIP Account Managers
Liaquat Ahamed, Managing Director
AM, Harvard; BA, Cambridge
1988-present: Fischer Francis Trees & Watts, Inc.
1978-87: World Bank, Division Chief
Simon Hard, Managing Director
M Phil, Cambridge; MA, Oxford
1989-present: Fischer Francis Trees & Watts, Inc.
1988-89: S.G. Warburg, Senior Portfolio Manager
Other Personnel
Adnan Akant, Managing Director
PhD/MS, MIT
World Bank, Senior Investment Officer
S. Bruce Kauffman, Managing Director
PhD, Chicago; MBA, Wharton; BA, Manchester
Goldman Sachs & Co., Vice President
Philippe Lespinard, Portfolio Manager
MS, ENSIMAG
World Bank, Investment Officer
Money Manager for the TIFF Bond Fund
INVESTMENT PHILOSOPHY
Philosophy: Global Hedged Bond
Assets Using This Philosophy: $2.4 bil (12/31/94)
INVESTMENT APPROACH
FFTW seeks relative value opportunities among fixed income
securities of the worldOs major markets (e.g., Japan, Canada,
Australia, and the various European countries). The same
approach is applied independently to currency selection decisions.
In both cases, an emphasis is placed on maintaining diversified
exposures to reasonably low risk but attractive return
opportunities. Significant security and currency allocations to
less-correlated sectors are also made but less frequently; given the
higher degree of risk, a higher degree of confidence in the
potential for achieving incremental gains is required. In all
instances, emphasis is placed on controlling the aggregate
riskiness of the portfolio relative to that of the benchmark.
Throughout, a number of proprietary computer aids are
employed. These include a portfolio optimization algorithm that
suggests portfolio structures in accord with the investment
scenarios developed by the investment team, incorporating views
on currency and interest rate relationships; a risk-control model to
monitor the multiple exposures of global portfolios; and a
performance attribution system to segregate the various sources
of return. Portfolios contain an average of 20 to 30 positions.
Annual turnover averages 5 to 7 times.
MANAGEROS BENCHMARK
JP Morgan Global Government Bond Index (Hedged)
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .138 x ( Excess Return - 70 ) ] subject toFloor of 10
bp; Cap of 80 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Fischer Francis TreeS & WATTS, INC.
ORGANIZATION
200 Park Avenue, 46th Floor
New York, NY 10166
phone: 212-681-3000
fax: 212-681-3250
Independent Investment Counsel
Controlled by Charter Atlantic Corporation
Founded in 1972
Total Assets under Management: $18.0 bil (12/31/94)
REPRESENTATIVE CLIENTS
Cornell University
Corning, Inc.
Henry J. Kaiser Family Foundation
Lucille P. Markey Charitable Trust
Monsanto Company
Norfolk Southern Corporation
The World Bank
PERSONNEL
Key TIP Account Managers
David J. Marmon, Portfolio Manager
MA, Duke; BA, Alma College
1990-present: Fischer Francis Trees & Watts, Inc.
1988-90: Yamaichi International, Vice President
Stewart M. Russell, Portfolio Manager
MBA, New York University; BA, Cornell
1992-present: Fischer Francis Trees & Watts, Inc.
1987-92: JP Morgan, Vice President
Other Personnel
S. Bruce Kauffman, Managing Director
PhD, Chicago; MBA, Wharton; BA, Manchester
Goldman Sachs & Co., Vice President
O. John Olcay, Managing Director
MBA/MA, Wharton; BA, Robert College
W. Greenwell, Managing Partner
Money Manager for the TIFF Short-Term Fund*
INVESTMENT PHILOSOPHY
Philosophy: Enhanced Cash
Assets Using This Philosophy: $8.0 bil (12/31/94)
INVESTMENT APPROACH
FFTW seeks to outperform its benchmark while simultaneously
limiting risk by making frequent small changes in positions. The
firm focuses on five specific areas (in rough order of potential
return contribution): duration exposure, maturity selection (or
yield curve), sector allocation, credit, and selection of individual
securities. FFTW assesses the possibilities and opportunities in
each of these dimensions and takes exposures away from the
benchmark, relying on technical analysis, historical spread
relationships, economic and portfolio models, and market
convictions. Throughout the process, a number of proprietary
computer models are employed. These include a portfolio
optimization model that suggests portfolio structures in accord
with investment scenarios suggested by the investment team and
an unemployment model that projects forthcoming employment
data and translates portfolio managersO views of rate
relationships into optimal portfolios. Portfolios contain an
average of 20 to 25 positions. Annual turnover averages 20 to
30 times per year.
MANAGEROS BENCHMARK
Merrill Lynch 182-Day Treasury Bill Index
FEE PAID BY TIP TO THIS MANAGER
0.20% on first $100 million
0.15% on remainder
* may also manage that portion of U.S. Equity, International
Equity, and Emerging Markets Funds not yet allocated to equity
managers
GENESIS ASSET MANAGERS LTD.
ORGANIZATION
c/o Genesis Investment Management Ltd.
21 Knightsbridge
London, England SW1X 7LY
phone: 071-235-5090
fax: 071-235-8065
Independent Investment Counsel
Controlled by Genesis Holdings International Ltd.
Founded in 1989
Total Assets under Management: $2.0 bil (2/28/95)
REPRESENTATIVE CLIENTS
The Common Fund
Duke University
Ford Foundation
Frank Russell Trust Company
General Motors Pension Fund
Shell Pension Trust
State of New Hampshire
State of Oregon
State of Wisconsin
University of California
University of Notre Dame
Westinghouse Electric
PERSONNEL
Key TIP Account Manager
Anthony Newsome, Managing Director
Trinity College, Oxford University
1989-93: Genesis Investment Management Ltd.
1980-89: Baring International Investment Management,
Director
Other Personnel
Jeremy Paulson-Ellis, Chairman
Sherborne School; Universite Poitiers
Vickers da Costa, Chairman
Richard Carss, Managing Director
Sherborne School
Templeton Investment Management, Managing Director
Karen Yerburgh, Director
Wycombe Abbey School
Touche Remnant, Senior Investment Manager
Jonathan H. Points, Director
St. JohnOs College, Oxford University
Kuwait Investment Office, Investment Manager
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
and TIFF Emerging Markets Funds
INVESTMENT PHILOSOPHY
Philosophy: Global Emerging Markets
Assets Using This Philosophy: $1.5 bil (2/28/95)
INVESTMENT APPROACH
Genesis believes that structural changes in developing economies
offer companies significant profit opportunities as markets open
and develop. The firm believes further that superior rates of
return can best be achieved by identifying those companies most
able to exploit these opportunities over the long term, rather than
spreading investments broadly across a market, or solely in the
largest capitalization stocks. Drawing on past experience to
focus its search, Genesis investment directors engage in the
identification and assessment of potential existing investments
through an intensive schedule of visits to companies. Emphasis
is placed on assessment of management as well as on financial
analysis. The results of this research are distilled into five-year
projections of corporate earnings, which are then adjusted for
local inflation to enable cross-border comparisons to be made
through the medium of a proprietary data base covering around
300 companies in over 30 countries. Stocks are selected for
investment on the basis of their undervaluation relative to their
real future earnings stream. Asset allocation techniques are not
used, but care is taken to reduce risk through geographical
diversification. A prudential limit of 15% at time of purchase is
placed on exposure to any one country. Portfolios contain an
average of 80-90 stocks, and typically include about 25 countries.
Annual turnover averages 30%.
MANAGEROS BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
1.10% on first $50 million
0.90% on next $50 million
0.75% on next $25 million
0.60% on remainder
HARDING, LOEVNER MANAGEMENT, L.P.
ORGANIZATION
50 Division Street, Suite 401
Somerville, NJ 08876
phone: 908-218-7900
fax: 908-218-1915
Independent Investment Counsel
Controlled by Daniel D. Harding, CIO; David R.
Loevner, CEO
Founded in 1989
Total Assets under Management: $408 mm (3/17/95)
REPRESENTATIVE CLIENTS
Columbia Foundation
Richard and Rhoda Goldman Foundation
Robert Wood Johnson Foundation
Mercersburg Academy
John M. Olin Foundation
Stuart Foundations
U.S. Olympic Foundation
PERSONNEL
Key TIP Account Managers
Simon Hallett, Senior Portfolio Manager
MA, Oxford
1991-present: Harding, Loevner Management
1984-90: Jardine Fleming Investment Management,
Director
Daniel D. Harding, CFA, CIO
BA, Colgate University
1989-present: Harding, Loevner Management
1978-89: Rockefeller & Co., Senior Investment Manager
Other Personnel
David R. Loevner, CEO
MPhil/MSc, Oxford; AB, Princeton
Rockefeller & Co., Ltd., Managing Director
World Bank, Economist
Money Manager for the TIFF Multi-Asset and
TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: International Equity
Assets Using This Philosophy: $194 mm (3/17/95)
INVESTMENT APPROACH
HLMOs investment approach is Obottom up.O Stock selection
criteria include growth, quality, and value considerations. HLM
seeks to identify companies with capital strength, sustainable
internally-generated growth, high financial returns, capable and
forthright management, and enduring competitive advantages. It
invests only in companies that it knows well, generally through
research and visitation conducted over a period of years.
Qualitative judgments formulated through contact with company
management and other global investors is supplemented by
factual information gathered from various sources, including
stockbrokers. Valuation tests, including local market and cross-
border comparisons, help determine when to invest in companies
meeting the firm's growth and quality standards. HLM invests
for the long term, divesting only if a companyOs shares become
greatly overvalued or if its business results, management quality,
or competitive position change for the worse. Portfolios are
broadly diversified by country, industry, and size. Country
weightings reflect the results of stock selection, rather than any
explicit allocation process. However, prospects for its respective
industry, national economy, and stock market are important
factors in HLMOs evaluation of an individual stock and thus
strongly influence portfolio weightings. Foreign currency
exposure is hedged occasionally. Portfolios contain an average of
40 stocks. Annual turnover averages 35%.
MANAGEROS BENCHMARK
MSCI All Country World ex USA Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 30 + [ .185 x ( Excess Return - 130 ) ] subject toFloor of
10 bp; Cap of 150 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Harding, Loevner Management, L.P.Organization50 Division
Street, Suite 401
Somerville, NJ 08876
phone: 908-218-7900
fax: 908-218-1915
Independent Investment Counsel
Controlled by Daniel D. Harding, CIO; David R.
Loevner, CEO
Founded in 1989
Total Assets under Management: $408 mm (3/17/95)
REPRESENTATIVE CLIENTS
Atlantic Foundation
Brady Foundation
The Jewish Guild for the Blind
Ernest C. Klipstein Foundation
Maine Community Foundation
University of Oregon Foundation
University of Rochester
PERSONNEL
Key TIP Account Managers
Simon Hallett, Senior Portfolio Manager
MA, Oxford
1991-present: Harding, Loevner Management
1984-90: Jardine Fleming Investment Management,
Director
Daniel D. Harding, CFA, CIO
BA, Colgate University
1989-present: Harding, Loevner Management
1978-89: Rockefeller & Co., Senior Investment Manager
Other Personnel
David R. Loevner, CEO
MPhil/MSc, Oxford; AB, Princeton
Rockefeller & Co., Ltd., Managing Director
World Bank, Economist
Money Manager for the TIFF Multi-Asset and
TIFF Global Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Global Equity
Assets Using This Philosophy: $109 mm (3/17/95)
INVESTMENT APPROACH
HLMOs investment approach is Obottom up.O Stock selection
criteria include growth, quality, and value considerations. HLM
seeks to identify companies with capital strength, sustainable
internally-generated growth, high financial returns, capable and
forthright management, and enduring competitive advantages. It
invests only in companies that it knows well, generally through
research and visitation conducted over a period of years.
Qualitative judgments formulated through contact with company
management and other global investors is supplemented by
factual information gathered from various sources, including
stockbrokers. Valuation tests, including local market and cross-
border comparisons, help determine when to invest in companies
meeting the firm's growth and quality standards. HLM invests
for the long term, divesting only if a companyOs shares become
greatly overvalued or if its business results, management quality,
or competitive position change for the worse. Portfolios are
broadly diversified by country, industry, and size. Country
weightings reflect the results of stock selection, rather than any
explicit allocation process. However, prospects for its respective
industry, national economy, and stock market are important
factors in HLMOs evaluation of an individual stock and thus
strongly influence portfolio weightings. Foreign currency
exposure is hedged occasionally. Portfolios contain an average of
45 stocks. Annual turnover averages 30%.
MANAGEROS BENCHMARK
MSCI All Country World Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 30 + [ .185 x ( Excess Return - 130 ) ] subject toFloor of
10 bp; Cap of 150 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Investment Research CompanyOrganization111 West Jackson
Boulevard, 15th FloorChicago, IL 60604phone: 312-930-
3944fax: 312-930-8813Independent Investment
CounselControlled by United Asset Management
Founded in 1985
Total Assets under Management: $1.3 bil (2/28/95)
REPRESENTATIVE CLIENTS
AHA Investments
BellSouth Corporation
Chevron Corporation
Lockheed Corporation
Louisiana Municipal Employees Retirement System
Minnesota Mining & Manufacturing
Oregon Retail Pension Trust Fund
Shell Oil Company
United Foods and Commercial Workers
Virginia Retirement System
PERSONNEL
Key TIP Account Managers
F.J. (Jerry) Gould, PhD, CIO and President
PhD, University of Chicago
1985-present: Investment Research Company
previous experience: University of Chicago, Hobart W.
Williams Professor
David H. Zellner, Senior Vice President, Director of
Operations
MBA, University of Houston
1994-present: Investment Research Company
previous experience: Shell Oil Company, Director of
Equities
Other Personnel
C.B. (Tom) Garcia, PhD, Executive Vice President
PhD, Rensselaer Polytechnic Institute
University of Chicago, Professor
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
and TIFF U.S. Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Large Cap Core Equity
Assets Using This Philosophy: $900 mm (2/28/95)
INVESTMENT APPROACH
IRC believes that in order to achieve a competitive advantage in
obtaining above-market compound returns over extended time
horizons, it is necessary to go beyond the traditional playing field
of in-depth analysis of a relatively few groups of stocks. The
firm's investment philosophy is that optimal results are achieved
by strategies and tactics which aim to produce modest but
consistent annual excess returns. At the outset, risk control is
achieved by holding twenty sectors at market weights and by the
application of high P/E and low dividend screens to eliminate
those stocks in each sector that are most vulnerable in market
downslides. Then, in each sector proprietary research is
employed to adjust stock weights to tilt sector characteristics
toward those of the top performing quintile of the overall market.
These characteristics are quantified in terms of many economic
and fundamental parameters. In this way, computer-based
technology is used to process large amounts of data in order to
focus on characteristics of each stock in the benchmark universe
and how those stocks can be most effectively combined to create
the desired total portfolio characteristics. Style characteristics of
the IRC portfolios will vary with time so that excess returns are
independent of dominant market style (value or growth) and
whether the market is in a rising or falling cycle. Portfolios
contain an average of 200 stocks. Annual turnover averages
80%.
MANAGEROS BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .242 x ( Excess Return - 95 ) ] subject toFloor of 10
bp; Cap of 120 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Investment Research CompanyOrganization111 West Jackson
Boulevard, 15th FloorChicago, IL 60604phone: 312-930-
3944fax: 312-930-8813
Independent Investment Counsel
Controlled by United Asset Management
Founded in 1985
Total Assets under Management: $1.3 bil (2/28/95)
REPRESENTATIVE CLIENTS
AHA Investments
BellSouth Corporation
Chevron Corporation
Lockheed Corporation
Louisiana Municipal Employees Retirement System
Minnesota Mining & Manufacturing
Oregon Retail Pension Trust Fund
Shell Oil Company
United Foods and Commercial Workers
Virginia Retirement System
PERSONNEL
Key TIP Account Managers
F.J. (Jerry) Gould, PhD, CIO and President
PhD, University of Chicago
1985-present: Investment Research Company
previous experience: University of Chicago, Hobart W.
Williams Professor
David H. Zellner, Senior Vice President, Director of
Operations
MBA, University of Houston
1994-present: Investment Research Company
previous experience: Shell Oil Company, Director of
Equities
Other Personnel
C.B. (Tom) Garcia, PhD, Executive Vice President
PhD, Rensselaer Polytechnic Institute
University of Chicago, Professor
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Market Neutral Defensive Equity
Assets Using This Philosophy: $225 mm (2/28/95)
INVESTMENT APPROACH
IRCOs Market Neutral Defensive Equity Strategies seeks to
provide absolute returns in excess of those produced by short-
term Treasury bills, regardless of whether the stock market is up
or down. The firm attempts to generate such returns by
combining long positions in stocks it expects will outperform the
average stock with an equal dollar amount of short positions in
stocks it expects will underperform the average stock. Long
positions are selected from a 500 stock universe. Return
expectations for each stock are based on proprietary computer-
based analytical tools that evaluate both fundamental and
technical aspects of company and stock performance. To ensure
that funds allocated by TIP to IRC are fully exposed to general
stock market movements, that portion of IRCOs portfolios not
committed to long stock positions is overlaid with long positions
in stock index futures. Gains or losses on these futures positions
are excluded from IRCOs performance when computing
performance-based fees paid to the firm. Portfolios are dollar
neutral (dollars long = dollars short) in each of 20 industry
sectors. Portfolios contain an average of 200 to 300 stocks.
Annual turnover on both long and short portfolios averages
100%.
MANAGEROS BENCHMARK
Merrill Lynch 91-Day Treasury Bill Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 30 + [ .098 x ( Excess Return - 105 ) ] subject toFloor of
10 bp; Cap of 200 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Jacobs Levy Equity ManagementOrganization280 Corporate
Center, 3 ADP Blvd.Roseland, NJ 07068phone: 201-716-
0066fax: 201-716-0249Independent Investment
CounselControlled by Bruce Jacobs and Kenneth LevyFounded in
1986Total Assets under Management: $1.9 bil
(2/28/95)Representative ClientsDigital Equipment
Deere & Company
E.I. DuPont De Nemours
Georgia-Pacific
GTE
New York State Common Retirement Fund
PERSONNEL
Key TIP Account Managers
Bruce I. Jacobs, Principal
PhD/MA, Wharton School
MSIA, Carnegie-Mellon University
MS/BA, Columbia University
1986-present: Jacobs Levy Equity Management
Kenneth N. Levy, Principal
MBA/MA, Wharton School
BA, Cornell University
1986-present: Jacobs Levy Equity Management
Money Manager for the TIFF Multi-Asset, TIFF Global Equity,
and TIFF U.S. Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Active Broad Market
Assets Using This Philosophy: $1.1 bil (2/28/95)
INVESTMENT APPROACH
Jacobs Levy has designed a proprietary quantitative system to
identify and exploit numerous stock market inefficiencies. The
system is dynamic and forward-looking, adjusting to the
marketOs changing opportunities. Over the course of the market
cycle, the approach emphasizes a wide variety of different stock
characteristics, including growth, value, capitalization size,
earnings and price momentum, industry affiliations, and many
others. Stock selection derives from daily and weekly ranking of
a universe consisting of the 3000 most liquid U.S. stocks.
Purchase candidates are generally taken from the top 5 to 15% of
the ranking. Attractive stocks will tend to have characteristics
and industry affiliations the system finds favorable given
economic conditions and investor psychology. Portfolio
optimization is utilized for an appropriate blend of risk and return,
sufficient diversification, and risk control relative to the
benchmark. The Core Equity (Broad Market) strategy is
designed to outperform the Wilshire 5000 on a consistent basis,
with a similar risk profile and low tracking error. Industries are
typically over- or underweighted by no more than 5 to 10%
relative to the benchmark. Short selling, options and futures
contracts may also be utilized. Trading is highly systematized,
relying on passive and electronic techniques and networks to
achieve low transactions costs with highly efficient execution.
Portfolios contain an average of 150 or more stocks, with small
individual position sizes. Turnover averages 100% or more
annually.
MANAGEROS BENCHMARK
Wilshire 5000 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .324 x ( Excess Return - 95 ) ] subject toFloor of 15
bp; Cap of 125 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Kayne, Anderson Investment Management, L.P.OrganizatION
1800 Avenue of the Stars, Suite 1425
Los Angeles, CA 90067
phone: 310-556-2721
fax: 310-284-5581
Independent Investment Counsel
Controlled by Kayne Anderson Investment Management,
Inc. and Allan M. Rudnick, CIO
Predecessor founded in 1984
Total Assets under Management: $1.1 bil (2/28/95)
REPRESENTATIVE CLIENTS
Bishop Museum
Fritz B. Burns Foundation
Columbia/HCA Healthcare Corporation
The J. David Gladstone Institutes Foundation
Kansas State University Research Foundation
Los Angeles Museum of Contemporary Art Foundation
Northern New York Community Foundation
Sisters of Charity Health Care System
S.W. Oklahoma State University Foundation, Inc.
U.S. Olympic Swim Team Endowment
PERSONNEL
Key TIP Account Manager
Allan M. Rudnick, Chief Investment Officer
MBA, Harvard; BA, Trinity College
1989-present: Kayne, Anderson
1986-89: Pilgrim Asset Management, President
Other Personnel
Paul Wayne, CFA, Portfolio Manager, Senior Research
Analyst
MA/BS, California State-Long Beach
Crowell, Weedon & Co., Director of Research
Susan B. Frank, CFA, Portfolio Manager, Senior
Research Analyst
BS, San Diego State University
Security Pacific, Equity Analyst
Robert A. Schwarzkopf, CFA, Portfolio Manager,
Senior Research Analyst
MS/BA, University of Miami
Pilgrim Asset Management, Portfolio Manager
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Rising Dividends
Assets Using This Philosophy: $850 mm (2/28/95)
INVESTMENT APPROACH
The firm employs the Rising Dividends Philosophy of equity
management that seeks to identify well-managed growth
companies with defensive characteristics. The firm screens more
than 8,000 publicly traded companies for consistent and
substantial dividend increases, significant reinvestment of cash
flow and low debt. These fundamental criteria reduce the
universe to approximately 350 companies. The firm's next step
is to conduct extensive research aimed at a thorough
understanding of each purchase candidate and to calculate
valuation ranges for each of them. Ten years of historical data is
compiled, analyzed, and continuously updated on each company
followed. The firm utilizes a proprietary valuation program that
ranks the stocks in the universe from the most undervalued to the
most overvalued in order to continually evaluate the
attractiveness of current and potential holdings in a rigorous
manner. The final decision to invest in a stock includes an
analysis of the companyOs position in its industry and the industry
cycle in the economy. A stock will generally be sold when it
reaches the firm's target price, when negative changes occur in
either the company or its industry, or when any of the
fundamental criteria used in the initial screening process are
violated. A 15% price decline in stock, relative to the market,
triggers a reappraisal. Portfolios contain an average of 25 to 30
stocks, with no more than 5% in one security or 15% in one
industry. Annual turnover averages 30%.
MANAGER'S BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 35 + [ 0.500 x ( Excess Return - 110 ) ] subject toFloor of
15 bp; Cap of 65 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Lazard Freres Asset ManagementOrganizationOne Rockefeller
PlazaNew York, NY 10020phone: 212-632-6000fax: 212-
632-6060Independent Investment CounselWholly owned by
Lazard Freres & CompanyFounded in 1848Total Assets under
Management: $22 bil (2/28/95) Closed-End Funds $550 mm
(2/28/95)
REPRESENTATIVE CLIENTS
General American Investors
Glaxo Group Pension Fund
GTE Investment Management
Howard Hughes Medical Institute
ITT Pension Fund
Marathon Oil
Phoenix Mutual
Transco Pension Fund
US Steel & Carnegie
PERSONNEL
Key TIP Account Managers
Alexander Zagoreos, General Partner
MIA/MBA/BA, Columbia University
1977-present: Lazard Freres and Co.
Guy Christie, Senior Vice President
Member of the Institute of Chartered Accountants
in England and Wales
BA, Exeter University
1992-present: Lazard Freres and Co.
1989-92: Lazard Brothers (London)
1985-92: Deloitte Haskins & Sells (London)
Lee Ann Cannon, Assistant Portfolio Manager
BA, University of Delaware
1991-present: Lazard Freres and Co.
1990-91: Mitsubishi Bank
1989-90: Economic Consulting & Planning, Inc.
Money Manager for the TIFF Multi-Asset , TIFF Global Equity ,
and TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: International Active
Assets Using This Philosophy: $350 mm (2/28/95)
INVESTMENT APPROACH
Lazard Freres Asset Management seeks long-term capital
appreciation primarily through investing in an internationally
diversified portfolio of closed-end funds that invest in companies
outside the United States. The closed-end funds in which the
Fund invests will ordinarily be trading at a discount to their
underlying net asset value. The manager uses a top down
approach seeking markets that it deems undervalued on a price to
earnings, price to cash, price to book, and return on asset basis.
Using these parameters, the manager uses closed end funds that
have strong performance records and that trade at steep discounts
to asset value.
MANAGEROS BENCHMARK
MSCI All Country World Index or
MSCI All Country World ex USA Index
(to be determined by FAI prior to account funding)
FEE PAID BY TIP TO THIS MANAGER
0.50% straight asset-based fee
LAZARD FRERES ASSET MANAGEMENT
ORGANIZATION
One Rockefeller Plaza
New York, NY 10020
phone: 212-632-6000
fax: 212-632-6060
Independent Investment Counsel
Wholly owned by Lazard Freres & Company
Founded in 1848
Total Assets under Management: $22 bil (2/28/95)
Closed-End Funds $550 mm (2/28/95)
REPRESENTATIVE CLIENTS
Glaxo Group Pension Fund
ITT Pension Fund
Marathon Oil
Phoenix Mutual
The State Teachers Retirement System of Ohio
US Steel
PERSONNEL
Key TIP Account Managers
Alexander Zagoreos, General Partner
MIA/MBA/BA, Columbia University
1977-present: Lazard Freres and Co.
Guy Christie, Senior Vice President
Member of the Institute of Chartered Accountants
in England and Wales
BA, Exeter University
1992-present: Lazard Freres and Co.
1989-92: Lazard Brothers (London)
1985-92: Deloitte Haskins & Sells (London)
Lee Ann Cannon, Assistant Portfolio Manager
BA, University of Delaware
1991-present: Lazard Freres and Co.
1990-91: Mitsubishi Bank
1989-90: Economic Consulting & Planning, Inc.
Money Manager for the TIFF Multi-Asset , TIFF Global Equity ,
and TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets Portfolio
Assets Using This Philosophy: $200 mm (2/28/95)
INVESTMENT APPROACH
Lazard Freres Asset Management seeks long-term capital
appreciation primarily through investing in an internationally
diversified portfolio of closed-end funds that invest in companies
outside the United States. The closed-end funds in which the
Fund invests will ordinarily be trading at a discount to their
underlying net asset value. The manager uses a top down
approach seeking markets that it deems undervalued on a price to
earnings, price to cash, price to book, and return on asset basis.
Using these parameters, the manager uses closed end funds that
have strong performance records and that trade at steep discounts
to asset value.
MANAGEROS BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
0.50% straight asset-based fee
MARATHON ASSET MANAGEMENT LTD.
ORGANIZATION
115 Shaftesbury Avenue
London, England WC2H 8AD
phone: 071-497-2211
fax: 071-497-2399
Independent Investment Counsel
Controlled by William J. Arah, Jeremy J. Hosking, and
Neil M. Ostrer, Investment Directors
Founded in 1986
Total Assets under Management: $2.4 bil (2/28/95)
REPRESENTATIVE CLIENTS
Asea Brown Boveri Inc.
Allied Signal Corporation
Aluminum Company of America
GTE Corporation
Henry J. Kaiser Family Foundation
Pennsylvania Public School EmployeeOs Retirement
System
US Air, Inc.
PERSONNEL
Key TIP Account Managers
Jeremy J. Hosking, Director
MA, Cambridge University
1986-present: Marathon Asset Management
previous experience: G.T. Management (Asia) Ltd.
William J. Arah, Director
MA, Oxford University
1987-present: Marathon Asset Management
previous experience: Goldman Sachs & Co. (Tokyo)
Neil M. Ostrer, Director
MA, Cambridge University
1986-present: Marathon Asset Management
Carnegie International, Director, Institutional Sales
GT Management, Manager and Director
Money Manager for the TIFF International Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Active International Equities
Assets Using This Philosophy: $2.2 bil (2/28/95)
INVESTMENT APPROACH
The firm believes that above-market returns can be generated
from disciplined stock-picking in global equity markets. Marathon
employs three qualitative disciplines, all of which it believes have
predictive power for shareholder value. The essence of the firm's
approach, which it refers to as Osupply sideO analysis, is to
focus on variables that are under the control of companies, rather
than the economic environment. In particular, Marathon monitors
the competitive environment within industries, focusing on
industries marked by consolidation and a declining number of
competitors, eschewing industries with rising competition. Levels
of capital spending are also monitored closely. At the company
level, Marathon visits company managements and evaluates
specific reinvestment strategies within an industry context. In
country selection, priority is given to top down monetary
conditions rather than economic growth. Portfolios typically
represent a hybrid of value, growth and economic themes whose
attributes would be difficult to replicate using quantitative
techniques. Portfolios contain an average of 120 to 140 stocks.
Annual turnover averages 50%.
MANAGER'S BENCHMARK
MSCI All Country World ex USA Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 40 + [ .167 x ( Excess Return - 140 ) ] subject toFloor of
15 bp; Cap of 160 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Martingale Asset ManagemenT, L.P.
ORGANIZATION
222 Berkeley Street
Boston, MA 02116
phone: 617-424-4700
fax: 617-424-4747
Independent Investment Counsel
Controlled by Arnold S. Wood, President, CEO;
William E. Jacques, Executive Vice President, CIO
Founded in 1987
Total Assets under Management: $376 mm (12/31/94)
REPRESENTATIVE CLIENTS
Amoco Corporation
Asea Brown Boveri, Inc.
Nikko Securities
Saint-Gobain Corporation
State of Connecticut
UFCW International Union
PERSONNEL
Key TIP Account Managers
Oliver E. Buckley, Vice President
MBA, University of California-Berkley; MSBS, Stanford
1994-present: Martingale Asset Management
1993-94: CS First Boston Investment Management,
Vice President
1989-93: BARRA, Manager of Equity Consulting
John D. Freeman, Vice President
MA, University of Michigan; BA, University of Vermont
1992-present: Martingale Asset Management
1985-92: BARRA, Manager of Consulting Services
William E. Jacques, CFA, Executive Vice President,
Chief Investment Officer
MBA, Wharton School; BA, Lafayette College
1987-present: Martingale Asset Management
previous experience: Batterymarch Financial
Management, Vice President, Trustee
Other Personnel
Patricia J. OOConnor, Sr. Vice President, Treasurer
University of Massachusetts, Boston College
Batterymarch Financial Management
Arnold S. Wood, President, CEO
BA, Trinity College
Batterymarch Financial Management
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Active Completeness Manager
Assets Using This Philosophy: $210 mm (12/31/94)
INVESTMENT APPROACH
The functions of the Martingale active completeness portfolio are,
stated in order of importance: (1) to ensure that the U.S. Equity
Fund is not overly under- or overweighted in important market
sectors; (2) to minimize the undesirable Omisfit riskO
characteristic of most multi-manager fund structures, thereby
limiting the Fund's exposure to uncompensated volatility of its
returns relative to returns on the Wilshire 5000; and (3) in
attempting to perform the two preceding functions, to add value
where possible through the selection of fundamentally
underpriced stocks. It is reasonable to think of the active
completeness portfolio as customized diversification. Many
institutional funds experience risk from chronic underexposure to
the electric utility and telephone industries. Commonly used asset
weighting policies of active managers systematically
underrepresent large capitalization stocks. Overweighted
positions in higher volatility stocks, notably health care and drug
companies, add uncompensated risk. In performing its assigned
duties, Martingale employs a variety of computer-based analytical
tools, including stock valuation techniques that emphasize heavily
an assessment of perceived investor preferences. The firm uses a
variety of sector-specific models (e.g., cyclical stocks are
analyzed differently than utilities) to analyze the prices investors
currently pay for earnings, assets, growth, and risk . Differences
between the perceived Ofair market valueO of issues and their
market prices represent opportunities for Martingale to generate
incremental returns while also ensuring that the Fund's holdings
are properly diversified. Martingale puts all trades out for
competitive bid among several brokers and attempts to keep
trading costs well below instituitonal norms. Portfolios contain
an average of 200 to 300 stocks. Annual turnover ranges from
60% to 100%.
MANAGER'S BENCHMARK
Customized for TIFF U.S. Equity Fund
FEE PAID BY TIP TO THIS MANAGER
0.10% on first $100 million
0.08% on next $200 million
0.07% on next $200 million
0.05% on excess over $500 million
Percentages apply to total U.S. Equity Fund assets (reflecting
MartingaleOs unique role as active completeness manager)
PALO ALTO INVESTORS
ORGANIZATION
431 Florence Street, Suite 200
Palo Alto, CA 94301
phone: 415-325-0772
fax: 415-325-5028
Independent Investment Counsel
Controlled by William L. Edwards, President
Founded in 1989
Total Assets under Management: $26 mm (2/28/95)
REPRESENTATIVE CLIENTS
Undisclosed private clients
PERSONNEL
Key TIP Account Manager
William L. Edwards, President
MS/BS, Stanford
1989-present: Palo Alto Investors
1987-89: Volpe & Covington, Partner
1982-87: T. Rowe Price, Vice President
Money Manager for the TIFF Multi-Asset , TIFF Global Equity ,
and TIFF U.S. Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Micro-Cap Opportunistic Small Cap Value
Assets Using This Philosophy: $26 mm (2/28/95)
INVESTMENT APPROACH
Palo Alto Investors specializes in very small, publicly-traded
equities. The firm concentrates on companies with market values
under $150 million; its median capitalization is typically between
$60 and $90 million. These securities tend to have a very low
correlation to the market and are less efficiently priced than larger
capitalization stocks. Palo Alto does its own extensive, original
research. This work is designed to enable the firm to look beyond
past earnings difficulties or product transitions to find companies
with limited downside risk and excellent upside potential. The
firm believes that quality management is extremely important,
particularly in small companies. It visits every company in which
it invests, looking for high inside ownership and competent and
motivated management teams. In doing so, the firm seeks
demonstrable proof that managementOs goals are aligned with
shareholder goals, which is often a reliable predictor of above-
average stock market performance. Portfolios are highly
concentrated and have low (30-40%) annual turnover.
MANAGER'S BENCHMARK
Russell 2000 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .198 x ( Excess Return - 95 ) ] subject toFloor of 10
bp; Cap of 200 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Seix Investment Advisors, Inc.Organization300 Tice
BoulevardWoodcliff Lake, NJ 07675-7633phone: 201-391-
0300fax: 201-391-0303Independent Investment
CounselControlled by Christina Seix, Chairman and CIO
Founded in 1992
Total Assets under Management: $280.5 mm (12/31/94)
REPRESENTATIVE CLIENTS
Argyros Foundation
City of Providence
Pacific Telesis
Rockefeller Foundation
Town of Fairfield (CT)
University of Pittsburgh Medical Center Systems
ICMA Retirement Corporation
Middlesex County Retirement System (MA)
Moran Towing Corporation
New Mexico Physicians Mutual Liability Company
PERSONNEL
Key TIP Account Managers
Christina Seix, CFA, Chairman and CIO
MA, State University of New York; BA, Fordham
1992-present: Seix Investment Advisors
1987-92: MacKay-Shields, Chairman and CEO
John Talty, CFA, Director of Fixed Income
BA, Connecticut College
1992-present: Seix Investment Advisors
1991-92: JP Morgan Securities, Senior Fixed Income
Strategist
1988-91: Morgan Stanley & Co., Portfolio Strategist
Barbara Hoffman, Managing Director
1994-present: Seix Investment Advisors
1993-94: MetLife Investment Management Corp., Senior
Bond Portfolio Manager
1991-93: Capital Growth Management, Senior Bond
Portfolio Manager
Money Manager for the TIFF Bond Fund
INVESTMENT PHILOSOPHY
Philosophy: Full Market Bond
Assets Using This Philosophy: $148.4 mm (12/31/94)
INVESTMENT APPROACH
The firm's fixed income investment approach is founded on four
cornerstones: (1) Targeted Duration; (2) Yield Tilt; (3)
Comprehensive Sector Construction; and (4) the use of
Proprietary Analytics. Targeted Duration: Portfolios are
managed with a duration that is close to the duration of their
benchmark. Value is added through sector, security, and yield
curve decisions rather than maturity management. Yield Tilt:
Although portfolios are managed on a total return basis, a
premium is placed on yield. Income is considered the most
powerful contributor to fixed income returns. Non-Treasury
sectors generally play a dominant role in the portfolio. The yield
of the benchmark is used as a performance goal in addition to its
total return. Comprehensive Sector Construction: Sector
commitments are made based on the duration contribution of each
sector to the overall duration of the portfolio rather than the
sector weighting. Proprietary Analytics: Because of the growing
complexity of the bond market, the firm believes that the use of
proprietary techniques is key to identifying value and to
adequately controlling risk. Portfolios contain an average of 20
to 40 positions. Annual turnover averages 150% to 250%.
MANAGER'S BENCHMARK
Lehman Government/Corporate Bond Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ .231 x ( Excess Return - 65 ) ] subject toFloor of 10
bp; Cap of 80 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
A. Gary Shilling & Co., Inc.Organization500 Morris
AvenueSpringfield, New Jersey 07081phone: 201-467-
0070fax: 201-467-1943Independent Investment
CounselControlled by A. Gary Shilling, PhDFounded in
1978Total Assets under Management: $72 mm
(2/28/95)Representative ClientsAnesthesiology Pension
PlanChandler Regional Hospital
International Family Entertainment, Inc.
Thematic Investment Partners, L.P.
Zorb Trust
PERSONNEL
Key TIP Account Managers
A. Gary Shilling, President
PhD, MA, Stanford; BA, Amherst College
1978-present: A. Gary Shilling & Co., Inc.
John B. Trammell, Senior Portfolio Manager
BA, DePauw University
1990-present: A. Gary Shilling & Co., Inc.
1984-90: Securities Research, Inc., Managing Partner
Peter Farmer, Vice President
BA, Lehigh University
1990-present: A. Gary Shilling & Co., Inc.
Money Manager for the TIFF Multi-Asset Fund
INVESTMENT PHILOSOPHY
Philosophy: Thematic Economic Analysis
Assets Using This Philosophy: $72 mm (2/28/95)
INVESTMENT APPROACH
The firm employs a Otop downO investment philosophy that
focuses rigorously on forecasted changes in global economies not
yet fully reflected in securities prices. The firm's forecasting
time horizon varies greatly: some trades are premised on
developments expected to materialize over the short-term, while
other trades are premised on much longer-term forecasts. The
firm's ongoing assessment of both the real economy and financial
markets is rooted in the belief that economic and market activity
is the product of concerted human action D not always rational D
and human nature changes only slowly over time, if at all. History
is thus highly relevant to forecasting, which the firm views as both
an art and a science: its most challenging aspect is to identify the
relevant chapter in history from which one can usefully draw
parallels to the present. Sometimes, there is no relevant
precedent. The firm employs a wide variety of securities to
implement its evolving strategies, including equities, bonds and
cash equivalents, as well as equity, bond and currency derivatives.
Portfolio diversification tends to vary widely over time: accounts
are well diversified when the firm perceives that securities are
approximately fairly priced in relation to its forecasts, but can be
quite concentrated when it perceives that prices are very
inconsistent with the firm's forecasts. Because the firm's
willingness to take risks relative to each accountOs benchmark is
so sensitive to opportunities presented by the markets, the
number of securities in each portfolio as well as average annual
turnover varies widely over time.
MANAGER'S BENCHMARK
80% MSCI All Country World Index
15% Lehman Aggregate Bond Index
5% Lehman Majors ex US Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 15 + [ 0.270 x ( Excess Return - 115 ) ] subject toFloor of
15 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
SMITH BREEDEN ASSOCIATES, INC.
ORGANIZATION
100 Europa Drive, Suite 200
Chapel Hill, NC 27514
phone: 919-967-7221
fax: 919-933-3157
Independent Investment Counsel
Controlled by Douglas T. Breeden, President and
Chairman of the Board
Founded in 1982
Total Assets under Management: $1.7 bil (2/28/94)
REPRESENTATIVE CLIENTS
Eastman Kodak Company
State of Florida, Division of Treasury
State of New Mexico Public Employees
Retirement Association
The Rockefeller Foundation
Unisys Corporation
PERSONNEL
Key TIP Account Managers
Daniel C. Dektar, Principal, Director
MBA, Stanford; BS, California-Berkeley
1986-present: Smith Breeden Associates
Lawrence E. Golaszewski, Principal
MBA, Chicago; BS, State University of New York
1987-present: Smith Breeden Associates
William F. Quinn, Principal
MS/BS, MIT
1986-present: Smith Breeden Associates
Key TIP Contact
Stephen A. Eason, CFA, Principal, Director
MBA, Wharton; BS, Arkansas
Salomon Brothers, Vice President
Chase Manhattan Bank, Assistant Treasurer
Other Personnel
Douglas T. Breeden, President, Chairman of the Board
PhD, Stanford; BS, MIT
Stanford/Chicago/Duke, Professor of Finance
The Journal of Fixed Income, Editor
Michael J. Giarla, Executive Vice President, COO
MBA, Stanford; BA, Harvard
Goldman Sachs & Company, Associate
Money Manager for the TIFF Bond Fund
INVESTMENT PHILOSOPHY
Philosophy: Bond
Assets Using This Philosophy: $1.1 bil (2/28/95)
INVESTMENT APPROACH
Smith Breeden believes that in-depth research can provide a
superior understanding of fixed income security relative value,
and the goal of its research effort is to identify investments that
generate risk-adjusted returns in excess of the market return. By
constructing a portfolio of such securities and matching the
portfolioOs effective duration to the benchmark duration the firm
seeks to produce a total return in excess of the benchmark return
without incremental interest rate risk. Smith BreedenOs research
seeks to identify attractive investment opportunities in the Agency
mortgage-backed security market, and the firm's portfolios are
typically concentrated in this high credit quality sector. The
firm's prepayment forecasting and mortgage option-adjusted
pricing techniques are the outgrowth of more than ten years of
proprietary research and development. This technology has
enabled Smith Breeden portfolio managers to detect and measure
differences in prepayment forecasts among different sets of
investors, and in turn to construct portfolios that seek to exploit
these market inefficiencies. Smith Breeden believes that the
incremental return available from relative value analysis and
research is significantly greater and more consistent than the
incremental return from predicting the direction of interest rates;
therefore, its professionals do not incorporate any interest rate
forecasts into their investment decisions. Portfolios contain an
average of 30 to 50 positions. Annual turnover averages between
200% and 300%.
MANAGER'S BENCHMARK
Lehman Mortgage Backed Securities Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .315 x ( Excess Return - 70 ) ] subject toFloor of 10
bp; Cap of 85 bpMeasurement Period = Trailing 12
MonthsExcess Return = Manager's Return - Benchmark Return
Smith Breeden Associates, Inc.Organization100 Europa Drive,
Suite 200Chapel Hill, NC 27514phone: 919-967-7221fax:
919-933-3157Independent Investment Counsel
Controlled by Douglas T. Breeden, President and
Chairman of the Board
Founded in 1982
Total Assets under Management: $1.7 bil (2/28/94)
REPRESENTATIVE CLIENTS
Eastman Kodak Company
State of Florida, Division of Treasury
State of New Mexico Public Employees
Retirement Association
The Rockefeller Foundation
Unisys Corporation
PERSONNEL
Key TIP Account Managers
Daniel C. Dektar, Principal, Director
MBA, Stanford; BS, California-Berkeley
1986-present: Smith Breeden Associates
Lawrence E. Golaszewski, Principal
MBA, Chicago; BS, State University of New York
1987-present: Smith Breeden Associates
William F. Quinn, Principal
MS/BS, MIT
1986-present: Smith Breeden Associates
Key TIP Contact
Stephen A. Eason, CFA, Principal, Director
MBA, Wharton; BS, Arkansas
Salomon Brothers, Vice President
Chase Manhattan Bank, Assistant Treasurer
Other Personnel
Douglas T. Breeden, President, Chairman of the Board
PhD, Stanford; BS, MIT
Stanford/Chicago/Duke, Professor of Finance
The Journal of Fixed Income, Editor
Michael J. Giarla, Executive Vice President, COO
MBA, Stanford; BA, Harvard
Goldman Sachs & Company, Associate
Money Manager for the TIFF Short-Term Fund*
INVESTMENT PHILOSOPHY
Philosophy: Custom 6-month
Assets Using This Philosophy: $456 mm (2/28/95)
INVESTMENT APPROACH
Smith Breeden believes that in-depth research can provide a
superior understanding of fixed income security relative value,
and the goal of its research effort is to identify investments that
generate risk-adjusted returns in excess of the market return. By
constructing a portfolio of such securities and matching the
portfolioOs effective duration to the benchmark duration, the firm
seeks to produce a total return in excess of the benchmark return
without incremental interest rate risk. Smith BreedenOs research
seeks to identify attractive investment opportunities in the Agency
mortgage-backed security market, and the firm's portfolios are
typically concentrated in this high credit quality sector. The
firm's prepayment forecasting and mortgage option-adjusted
pricing techniques are the outgrowth of more than ten years of
proprietary research and development. This technology has
enabled Smith Breeden portfolio managers to detect and measure
differences in prepayment forecasts among different sets of
investors, and in turn to construct portfolios that seek to exploit
these market inefficiencies. Smith Breeden believes that the
incremental return available from relative value analysis and
research is significantly greater and more consistent than the
incremental return from predicting the direction of interest rates;
therefore, its professionals do not incorporate any interest rate
forecasts into their investment decisions. Portfolios contain an
average of 30 to 50 positions. Annual turnover averages between
200% and 300%.
MANAGER'S BENCHMARK
Merrill Lynch 182-Day Treasury Bill Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 10 + [ .400 x ( Excess Return - 20 ) ] subject toFloor of 5
bp; Cap of 75 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
* may also manage that portion of U.S. Equity, International
Equity, and Emerging Markets Funds not yet allocated to equity
managers
TCW FUNDS MANAGEMENT, INC.
A member of the TCW Group
ORGANIZATION
865 South Figueroa
Los Angeles, California 90017
phone: 213-244-0000
fax: 213-244-0654
TCW London International, Ltd.
Birkett House, 27 Albemarle Street
London, England W1X 3FA
phone: 071-495-0511
fax: 071-491-9433
TCW Asia, Ltd.
Suite 1308, One Pacific Place
88 Queensway
Hong Kong
phone: 852-810-1421
fax: 852-869-4642
Independent Investment Counsel
May be deemed to be controlled by Robert A. Day, Chairman
of the Board of Directors of the Money Manager, by virtue
of the aggregate ownership of Mr. Day and his family of
more than 25% of the outstanding voting stock of The TCW
Group, Inc.
Founded in 1971
Total Assets under Management: $48 bil (8/31/94)
REPRESENTATIVE CLIENTS
American Baptist Churches Retirement Plan
The Duke Endowment
Princeton University
PERSONNEL
Key TIP Account Managers
Stefan D. Abrams, CFA, Managing Director and
Director of Equity Strategy and Asset Allocation
MBA, AB, Harvard University
1992 to present: TCW Funds Management, Inc. and Trust
Company of the West
1989-92: Kidder, Peabody, Managing Director
1973-89: Oppenheimer & Co., General Partner
Edward C. Franks, Senior Vice President, Asset
Allocation
PhD, RAND Graduate School for Public Policy Analysis;
MS, MIT; BA, University of California at San Diego
1993-present: TCW Funds Management, Inc. and Trust
Company of the West
1991-93: TSA Capital Management, Senior Vice President
1988-91: Huntington Advisors, CIO
Money Manager for the TIFF Multi-Asset Fund
INVESTMENT PHILOSOPHY
Philosophy: Comprehensive Asset Allocation
Assets Using This Philosophy: $1 bil (8/31/94)
INVESTMENT APPROACH
TCW's Comprehensive Asset Allocation effort is aimed at
uncovering either new, unexploited asset classes or overweighting
those established classes that TCW believes are underpriced
intrinsically or relative to other asset classes. The firm's intent is
not to take large risks but instead to blend and periodically adjust
the portfolioOs mix of asset classes in a proactive manner in order
to achieve long-term objectives. The essence of the process is to
reallocate assets proactively from one sector or asset class to
another based on value, always attempting to maximize risk-
adjusted returns within the framework of the portfolioOs
objectives. In most cases these changes involve strategic moves,
which are likely to remain in place a few years or more. In other
instances, particularly in fixed income areas, there may be
numerous tactical shifts of shorter duration. Value is added
through the proactive reallocation of funds among sectors and
successful management within each sector. There are regular
caucuses, one for equity managers and another for fixed income
managers, in which relevant factors are discussed and evaluated,
enabling TCW to implement a seamless, proactive reallocation of
assets when circumstances warrant. The firm's quantitative staff
also monitors the mix of each portfolio in light of current
performance relative to its benchmark. The entire process is
overseen by the firm's Investment Policy Committee, which
reviews the portfolioOs asset allocation regularly.
MANAGER'S BENCHMARK
50% MSCI USA Index
15% MSCI All Country World ex USA Index
30% Lehman Aggregate Bond Index
5% Lehman Majors ex US Bond Index
FEE PAID BY TIP TO THIS MANAGER
0.75% on first $250 million
0.70% on next $250 million
0.65% on next $250 million
0.60% on next $250 million
0.50% on remainder (over $1 billion)
TURNER INVESTMENT PARTNERS, INC.
ORGANIZATION
1235 Westlakes Drive, Suite 350
Berwyn, PA 19312
phone: 610-251-0268
fax: 610-251-0731
Independent Investment Counsel
Controlled by Robert E. Turner, Jr., Chairman and CIO
Founded in 1990
Total Assets under Management: $2.4 bil (12/31/94)
REPRESENTATIVE CLIENTS
Bosack and Kruger Foundation
Cleveland Clinic Foundation
Curtiss-Wright Corporation
Data General Corporation
Davidson College
Georgia Baptist Foundation
Morgan, Lewis & Bockius
Oxford Foundation
Paul, Weiss, Rifkind et al
Perot Systems Corporation
St. Louis University Endowment Fund
University of Alabama at Birmingham
PERSONNEL
Key TIP Account Manager
Robert E. Turner, CFA, Chairman and CIO
MBA, Bradley University
1990-present: Turner Investment Partners
1985-90: Meridian Investment Company
John Hammerschmidt, Senior Portfolio Manager/
Director Equity Trading
MBA, Duke University
1992-present: Turner Investment Partners
1990-92: Chesapeake Capital Corporation
1988-90: S. G. Warburg
William Chenoweth, CFA, Senior Equity Portfolio
Manager
MBA, Emory University
1993-present: Turner Investment Partners
1983-93: Jefferson Pilot Life Insurance
Tinkham Veale III, Senior Equity Portfolio Manager
BA, Washington and Lee University
1992-present: Turner Investment Partners
1972-92: Alco Standard Corporation
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Long/Short Expectations-Based Arbitrage
Assets Using This Philosophy: $24 mm (12/31/94)
INVESTMENT APPROACH
Based on the assumption that earnings expectations drive stock
prices, the firm buys companies that it expects to report
unexpectedly high earnings growth and liquidates or sells short
stocks of companies that it expects to report unexpectedly weak
earnings. A multi-factored model screens a 3,500 stock universe,
evaluating each security for earnings estimates, estimate revision,
earnings surprise, P/E to growth rate as well as traditional
valuation measures. The universe is ranked based upon this
analysis; stocks in the top-third qualify for purchase while those in
the bottom-half must be sold or sold short. Securities are then
subject to fundamental and technical analyses. Those stocks that
screen favorably, have earnings power that could exceed
expectations, and exhibit a favorable technical pattern are
included in the long portfolio while those that screen poorly, have
deteriorating earnings, or exhibit a breakdown in technical
support are sold/sold short. Portfolios have sector allocations
equal to the S&P. In addition to being equal in dollar value and
nearly identical in sector allocation to the long portfolio, the short
portfolio is also constructed to OneutralizeO the systematic risk
exposure of the aggregate portfolio. To ensure that funds
allocated by TIP to Turner are fully exposed to general stock
market movements, that portion of TurnerOs portfolios not
committed to long stock positions is overlaid with long positions
in stock index futures. Gains or losses on these futures positions
are excluded from TurnerOs performance when computing
performance-based fees. Portfolios contain an average of 260
stocks (130 long and 130 short) with annual turnover averaging
approximately 300%.
MANAGER'S BENCHMARK
Merrill Lynch 91-Day Treasury Bill Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 20 + [ .144 x ( Excess Return - 95 ) ] subject to
Floor of 15 bp; Cap of 150 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
WARBURG INVESTMENT MANAGEMENT
INTERNATIONAL LTD.
ORGANIZATION
33 King William Street
London, England EC4R9AS
phone: 071-280-2800
fax: 071-280-2820
780 Third Avenue
New York, NY 10017
phone: 212-751-8340
fax: 212-751-8553
Independent Investment Counsel
Controlled by S. G. Warburg Group
Founded in 1975
Total Assets under Management: $3.3 bil (2/28/95)
REPRESENTATIVE CLIENTS
Asea Brown Boveri Inc.
Federal Express Corporation
General Motors Corporation
RCB International
United Nations Joint Staff Pension Fund
PERSONNEL
Key TIP Account Manager
C. Consuelo Brooke, Director
BS, Southampton University
1987-present: Warburg Investment Management
Other Personnel
James P. Hordern, Assistant Portfolio Manager
BA, Durham University
Deutsche Bank, Analyst
Money Manager for the TIFF Multi-Asset , TIFF Global Equity ,
and TIFF International Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: European Small Cap Equity
Assets Using This Philosophy: $511 mm (2/28/95)
INVESTMENT APPROACH
European specialist management is a bottom-up stock picking
approach that focuses on small-capitalization companies. The
firm's style has no allocation restraints among the European
markets, and its country weightings are determined solely based
on stock selection. The majority of the firm's holdings are in
smaller-capitalization issues with a market value under $500
million, and two-thirds of its holdings are not represented in the
MSCI European Index. Warburg International invests in stocks
in 17 European countries and the number of countries represented
in a portfolio will generally range from ten to fourteen. Stock
selection emphasizes individual security selection based on
fundamental analysis. Investment ideas are generated by the
firm's internal European research team and its extensive network
of contacts. Portfolios contain an average of 75 stocks, with no
position representing more than 4%. Annual turnover averages
40%.
MANAGER'S BENCHMARK
FTA European Smaller Companies Stock Index
FEE PAID BY TIP TO THIS MANAGER
0.50% straight asset-based fee
WELLINGTON MANAGEMENT COMPANY
ORGANIZATION
75 State Street
Boston, Massachusetts 02109
phone: 617-951-5000
fax: 617-263-4022
Independent Investment Counsel
Controlled by Robert W. Doran, Duncan M. McFarland,
and John B. Neff
Founded in 1933
Total Assets under Management: $87.2 bil (2/28/95)
REPRESENTATIVE CLIENTS
AT&T Company
The Dow Chemical Company
Philip Morris
US West
Colonial Williamsburg Foundation
J. Paul Getty Trust
Massachusetts Institute of Technology
ITT Hartford Life Insurance Company
SunAmerical Inc.
The Vanguard Group
PERSONNEL
Key TIP Account Manager
Ernst H. von Metzsch, Portfolio Manager
PhD, Harvard; MSC, University of Leiden
1973-present: Wellington Management Co.
Karl E. Bandtel, Analyst
MS, University of Wisconsin
1990-present: Wellington Management Co.
Paul M. Mecray, III, Analyst
MBA, Wharton
1968-present: Wellington Management Co.
Nilesh Undavia, Analyst
MBA, Dartmouth (1993)
1993-present: Wellington Management Co.
Kim Williams, Analyst
MSC, University of London
1986-present: Wellington Management Co.
Money Manager for the TIFF Multi-Asset Fund
INVESTMENT PHILOSOPHY
Philosophy: Natural Resource-Related Stocks
Assets Using This Philosophy: $637 mm (2/28/95)
INVESTMENT APPROACH
Fundamental research is central to the investment process of
Wellington Management Company. The firm's proprietary
research efforts allow for an independent evaluation of market
opportunities. The firm expects to outperform the market over
time primarily through superior bottom-up security selection.
Value added decisions are typically accomplished through analysis
of the quality of companiesO assets and internal reinvestment
opportunities, combined with the analysis of how companies
formulate their investment plans and react to changes in the
environment. WellingtonOs research-oriented approach to the
natural resource sector specifically draws upon investment
professionals who are highly specialized. The companies in which
the firm invests vary widely with respect to factors such as
leverage, growth, yield, and risk. Companies within the natural
resource-related industries are subject to long cycles, the length
of which are determined by industry factors (the petroleum
industry), and others by general economic conditions (metals
producers). These industries also have cycles which are generally
self-correcting; consequently, the best prospective returns are
typically in currently out-of-favor securities. Identifying quality
management teams is crucial to determining which firm can
capitalize on opportunities for increased shareholder value.
MANAGER'S BENCHMARK
70% Energy sector of MSCI World Index
20% Gold Mines sector of MSCI World Index
10% Non-Ferrous Metals; Forest Products and Paper;
Misc. Materials and Commodities sectors of MSCI
World Index
FEE PAID BY TIP TO THIS MANAGER
0.45% on first $50 million
0.40% on next $50 million
0.35% on remainder (over $100 million)
WESTPORT ASSET MANAGEMENT, INC.
ORGANIZATION
253 Riverside Avenue
Westport, CT 06880
phone: 203-227-3601
fax: 203-226-6306
Independent Investment Counsel
Controlled by Andrew J. Knuth, Chairman; Ronald H.
Oliver, President
Founded in 1983
Total Assets under Management: $415 mm (2/28/95)
REPRESENTATIVE CLIENTS
Army & Air Force Exchange Service Trust
Cray Research
Danbury Hospital Endowment
Harvard University
McGraw-Hill Master Trust
Rockefeller Brothers Fund
Yale University
PERSONNEL
Key TIP Account Manager
Andrew J. Knuth, CFA, Chairman
MBA, New York University; BA, Dickinson
1983-present: Westport Asset Management
previous experience: Lazard Freres & Co., Founder,
Institutional Equity Group
Ronald H. Oliver, President
BS, San Jose State University
1981-present: Westport Asset Management
previous experience: Starwood Corporation, President
Other Personnel
Albert H. Cohn
BS, Northwestern University
David J. Greene & Co., Sr. Partner, Portfolio
Manager
Paine Webber, Portfolio Manager
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Small Cap Value
Assets Using This Philosophy: $360 mm (2/28/95)
INVESTMENT APPROACH
Westport Asset Management emphasizes "small cap" low
price/earnings stocks. The firm seeks to generate superior
investment returns without assuming the risks generally
associated with an Oaggressive managementO style. The firm
believes stock selection and adherence to relative valuation
analysis are the principal factors in superior long-term
performance. Its investment approach seeks to identify
companies whose future earnings, cash flow, or return on equity
are expected to improve materially. To be considered as
investments, the firm must see compelling evidence that a stock
can appreciate a minimum of 50% over a 18 to 24 month period.
These stocks must sell at or below market valuations or below
valuations of peer groups. The firm's portfolios emphasize but
are not limited to companies with capitalizations under $400
million. Westport works to achieve 5% positions on each of its
core holdings, however, it will exceed that percentage if a
companyOs fundamental outlook is sufficiently attractive.
Portfolios contain an average of 20 to 50 stocks depending on the
asset size of the portfolio. Annual turnover averages 20%.
MANAGER'S BENCHMARK
Russell 2000 Stock Index
FEE PAID BY TIP TO THIS MANAGER
Fee = 25 + [ .250 x ( Excess Return - 100 ) ] subject to
Floor of 15 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
APPENDIX B
DESCRIPTION OF INDICES
DESCRIPTION OF INDICES
OVERVIEW. This Appendix describes the various indices
referenced in this Prospectus and Statement of Additional
Information. The indices described below will be used to gauge
the performance of individual Funds and individual Money
Managers, with certain Money Managers' fees tied directly to
the Money Managers' returns relative to the returns produced by
their respective indices (hereinafter referred to as
ObenchmarksO). The following information with respect to each
index has been supplied by the respective preparer of the index or
has been obtained from other publicly available information.
EXPLANATION OF HOW INDICES WILL BE USED. The
table below denotes the indices relevant to each Fund and to
those Money Managers whose compensation will be tied to their
relative performance. As shown, in some cases the Money
Managers have comparative indices different than the overall
benchmark of the Funds that employ them. In all such cases,
however, the securities included in the Money Managers'
benchmarks are subsets of the securities included in the relevant
Fund's performance benchmark. For example, the Lehman
Government/Corporate Bond Index is a subset of the Lehman
Aggregate Bond Index.
Fund / Money Manager Index
TIFF Multi-Asset Fund Constructed Index (described on page B-3)
Bee & Associates, Inc. MSCI All Country World/All Country World ex USA
Lazard Freres Asset Management MSCI Emerging Markets Free Index or MSCI
All Country World Index
A. Gary Shilling & Co., Inc. 80% MSCI All Country World Index; 15% Lehman
Aggregate Bond Index; 5% Lehman Majors ex US
Bond Index
TCW Funds Management, Inc. 50% MSCI USA Index; 15% MSCI All Country World
ex USA Index; 30% Lehman Aggregate Bond Index;
5% Lehman Majors ex US Bond Index
Wellington Management Company 70% Energy sector of MSCI World Stock Index; 20%
Gold Mines sector of MSCI World Stock Index; 10%
Commodities sector of MSCI World Stock Index
TIFF Global Equity Fund MSCI All Country World Index
Bee & Associates, Inc. MSCI All Country World/All Country World ex USA
Blairlogie Capital Management MSCI Emerging Markets Free Index
Delaware Int'l Advisers Ltd. MSCI EAFE Index
First Quadrant S&P 500 Stock Index
Harding, Loevner Management, L.P. MSCI All Country World Index
Lazard Freres Asset Management MSCI Emerging Markets Free Index or MSCI All
Country World Index
TIFF International Equity Fund MSCI All Country World ex USA Index
Blairlogie Capital Management MSCI Emerging Markets Free Index
Delaware Int'l Advisers Ltd. MSCI EAFE Index
Harding, Loevner Management, L.P.MSCI All Country World ex USA Index
Marathon Asset Management Ltd. MSCI All Country World ex USA Index
Warburg Investment Management
Int'l Ltd. FTA European Smaller Companies Stock Index
TIFF Emerging Markets Fund MSCI Emerging Markets Free Index
BEA Associates MSCI Emerging Markets Free Index
Blairlogie Capital Management MSCI Emerging Markets Free Index
Emerging Markets Management MSCI Emerging Markets Free Index
Genesis Asset Managers Ltd. MSCI Emerging Markets Free Index
TIFF U.S. Equity Fund Wilshire 5000 Stock Index
Aronson + Fogler Investment
Management S&P 500 Stock Index
Eagle Capital Management S&P 500 Stock Index
First Quadrant S&P 500 Stock Index
Investment Research Co. -
Large Cap S&P 500 Stock Index
Investment Research Co. -
Market Neutral* Merrill Lynch 91-Day Treasury Bill Index
Jacobs Levy Equity Management Wilshire 5000 Stock Index
Kayne, Anderson Investment
Management, L.P. S&P 500 Stock Index
Martingale Asset Management,
L.P. Customized for TIFF U.S. Equity Fund
Palo Alto Investors Russell 2000 Stock Index
Turner Investment Partners,
Inc.* Merrill Lynch 91-Day Treasury Bill Index
Westport Asset Management, Inc. Russell 2000 Stock Index
TIFF Bond Fund Lehman Brothers Aggregate Bond
Atlantic Asset Management
Partners, Inc. Lehman Government/Corporate Bond Index
Fischer Francis Trees &
Watts, Inc. JP Morgan Global Government Bond Index (Hedged)
Seix Investment Advisors, Inc. Lehman Government/Corporate Bond Index
Smith Breeden Associates, Inc. Lehman Mortgage Backed Securities Index
TIFF Short-Term Fund Merrill Lynch 182-Day Treasury Bill Index
Fischer Francis Trees &
Watts, Inc. Merrill Lynch 182-Day Treasury Bill Index
Smith Breeden Associates, Inc. Merrill Lynch 182-Day Treasury Bill Index
*TIP employs stock index futures to ensure
that assets allocated to this Money Manager's Omarket neutralO
portfolio will participate fully in general stock market
movements.
The intent of performance-based fee arrangements
entailing benchmarks that are narrower than the overall
benchmark for the Fund employing such arrangements is to
compensate managers fairly based on their performance relative
to benchmarks that reflect adequately their particular focus and
investment disciplines. For example, although the Bond Fund's
overall benchmark is the Lehman Aggregate Bond Index, the
Fund's mortgage-backed securities specialist may invest
substantially all of its segment of the Fund in such securities, and
it is both fairer to this Money Manager and in the Fund's best
interests to tie this Money Manager's fees to its performance
relative to the mortgage-backed securities component of the
Lehman Aggregate Bond Index, rather than to the entire Index.
Although compensating managers based on their performance
relative to performance benchmarks that are narrower than those
of the Funds that employ them may mean that some managers will
receive relatively high fees even if the Funds that employ them
underperform their overall benchmarks, careful structuring of fee
arrangements and careful allocation of assets among money
managers can reduce the probabilities that a given Fund will fail
to meet its performance objective. As noted in the section of this
Prospectus entitled INVESTMENT OBJECTIVES, POLICIES
AND RESTRICTIONS, each Fund seeks to produce total returns
net of all expenses that exceed those of its performance
benchmark.
EXPLANATION OF "CAPITALIZATION WEIGHTING."
Several of the indices described below are "capitalization
weighted." Capitalization weighting is a method of weighting
each component security in an index by its market value (also
commonly referred to as OcapitalizationO) so that it will influence
the index in proportion to its respective size. The price of any
stock multiplied by the number of shares outstanding gives the
current market value for that particular issue. This market value
determines the relative importance of the security. Market values
for individual stocks are added together to obtain their group
market value. With respect to fixed income indices, the term
"capitalization weighting" is seldom used, but the method used
to prepare such indices resembles capitalization weighting in the
sense that each issueOs weighting in the index reflects the total
outstanding market value of that issue as of the measurement
date. This method is sometimes referred to as "market value
weighting."
TIFF MULTI-ASSET FUND BENCHMARK. The Multi-Asset
Fund's benchmark is a constructed index comprising 25%
Wilshire 5000; 30% MSCI All Country World ex USA; 15% 3-
Month Treasury Bill plus 5% per annum; 10% inflation-hedging
index; 15% Lehman Aggregate Bond Index; and 5% Lehman
Majors ex US Bond Index. The inflation-hedging index
comprises 70% MSCI Energy Sources plus Energy Equipment &
Services; 20% MSCI Gold Mines; and 10% MSCI Non-Ferrous
Metals plus Forest Products & Paper plus Miscellaneous
Materials & Commodities.
U.S. COMMON STOCK INDICES
Russell 2000 Stock Index. The Russell 2000 Stock Index is a
capitalization-weighted index that consists of the smallest 2,000
companies in the Russell 3000 Index, which is composed of 3,000
large U.S. companies, as determined by market capitalization.
The Russell 3000 Index represents approximately 98% of the
investable U.S. equity market. The companies in the Russell
2000 Index represent approximately 10% of the Russell 3000
Index total market capitalization, with an average capitalization of
$220 million as of February 1995. The largest company in the
index has an approximate market capitalization of $1.1 billion.
The market capitalization of each security is adjusted for private
holdings and cross-ownership to determine its weight in the
Index. This method counts only the OinvestableO portion of the
universe, i.e., that segment in which investors can freely transact
shares. Only common stocks belonging to corporations domiciled
in the U.S. and its territories are eligible for inclusion in the
Russell indices.
S&P 500 Stock Index. The S&P 500 Stock Index is a
capitalization-weighted index intended to portray the total return
produced by a representative group of U.S. common stocks.
Construction of the index proceeds from industry groups to the
whole. Currently there are four groups: 400 Industrials, 40
Utilities, 20 Transportation, and 40 Financial. Since some
industries are characterized by companies of relatively small stock
capitalization, the index does not comprise the 500 largest U.S.
publicly traded companies. Component stocks are chosen solely
with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in
the New York Stock Exchange common stock population, taken
as the assumed model for the composition of the total market.
Each stock added to the index must represent a viable enterprise
and must be representative of the industry group to which it is
assigned. lts market price movements must, in general, be
responsive to changes in industry affairs. The formula adopted by
Standard & Poors is generally defined as a Obase-weighted
aggregateO expressed in relatives with the average value for the
base period (1941D43) equal to 10. These group values are
expressed as a relative, or index number, to the base period
(1941D43) market value.
Wilshire 5000 Stock Index. The Wilshire 5000 Stock Index is a
capitalization-weighted index which consists of all U.S. common
stocks that trade on a regular basis on either the New York or
American Stock Exchange or on the NASDAQ over-the-counter
market. More than 6,000 stocks are included in the Wilshire
5000 Index. These stocks include the large-capitalization stocks
that comprise the S&P 500 Index, (with the exception of Royal
Dutch and Unilever, N.V., which trade on the New York Stock
Exchange as ADRs), as well as the medium- and small-
capitalization companies that comprise the Wilshire 4500 Index.
The Wilshire 5000 is used as the performance benchmark for the
U.S. Equity Fund because, in the opinion of TIP's Directors, it
represents the universe of stocks in which most active domestic
equity managers invest and is representative of the performance
of publicly traded domestic equities most institutional investors
purchase. The capitalization of the Index is approximately 85%
NYSE, 2% AMEX, and 13% OTC.
FOREIGN COMMON STOCK INDICES
Financial Times Actuaries European Smaller Companies Index.
The FTA European Smaller Companies Index comprises the
bottom 10% by market capitalization of each country in the
European sector of the FTA Indices. The Index consists of
approximately 350 stocks traded in 14 countries. Using the
bottom 10% of each country rather than of the entire universe
ensures that each country has roughly the same weighting as
within the full FTA World Indices. Because most of the markets
are very top heavy, the bottom 10% by market capitalization may
represent up to 50% of the number of stocks in a given country.
The Smaller Companies Index is rebalanced semi-annually to
reflect new stocks that have been added to the FTA World
Indices. Stocks that are eliminated from the FTA World Indices
are also eliminated from the Smaller Companies Index at the same
time (usually 3 to 4 times per year).
Morgan Stanley Capital International All Country World Stock
Index. The MSCI All Country World Index is a capitalization-
weighted index intended to portray the total return produced by a
representative group of all domestically listed stocks in each
component country. As of February 28, 1995 the MSCI All
Country World Index consisted of approximately 2,465
companies traded on stock markets in over 40 countries. The
weighting of the Index by country is indicated in the exhibit
entitled MSCI Country Weightings. Unlike certain other broad-
based indices, the number of stocks included in the MSCI All
Country World Index is not fixed and may vary to enable the
Index to continue to reflect the primary home markets of the
constituent countries. Changes in the Index will be announced
when made. The MSCI All Country World Stock Index is used
as the performance benchmark for the Global Equity Fund
because, in the opinion of TIP's Directors, it represents the
universe of stocks in which a properly diversified group of active
global equity managers of the type FAI seeks to assemble invest.
Morgan Stanley Capital International All Country World
ex USA Stock Index. Similar to the MSCI All Country World
Stock Index, the MSCI All Country World ex USA Stock Index
is a capitalization-weighted index intended to portray the total
return produced by a representative group of all domestically
listed stocks in each component country. As of February 28,
1995, the MSCI All Country World ex USA Index consisted of
approximately 2,080 companies traded on stock markets in over
40 countries. The MSCI All Country World ex USA is used as
the performance benchmark for the International Equity Fund
because, in the opinion of TIP's Directors, it represents the
universe of non-U.S. stocks in which a properly diversified group
of active international equity managers of the type FAI seeks to
assemble invest.
MSCI Europe, Australia and Far East Index (EAFE). The
MSCI EAFE Index is composed of a sample of companies
representative of the market structure of 20 European and Pacific
Basin countries and 38 industries worldwide. As of February 28,
1995, the EAFE Index comprised more than 1,100 companies,
and represented approximately 83% of the MSCI All Country
World ex USA Index.
MSCI Emerging Markets Free Index. The MSCI
Emerging Markets Free Index is a market capitalization weighted
stock index composed of a sample of companies representative of
the market structure of Asian, Latin American, and European
emerging markets which are open to foreign investment. The
Index commenced on January 1, 1988, and includes 19 countries,
representing approximately 60% of the capitalization of each
underlying market. As of February 28, 1995, the Index
comprised approximately 768 companies, and represented
approximately 14% of the MSCI All Country World ex USA
Index.
BOND INDICES
Lehman Brothers Aggregate Bond Index. This Index measures
the total investment return (capital change plus income) provided
by a universe of fixed income securities, weighted by the market
value outstanding of each security. The Index encompasses four
classes of investment grade fixed income securities in the United
States: U.S. Treasury and agency securities, corporate debt
obligations, mortgage-backed securities, and asset-backed
securities. As of February 28, 1995, these three classes
represented the following proportions of the IndexOs total market
value:
U.S. Treasury and Agency Securities 54%
Corporate Debt Securities 16%
Mortgage-Backed Securities 29%
Asset-Backed Securities 1%
As of February 28, 1995, approximately 4,900 issues (including
bonds, notes, debentures, and mortgage issues) were included in
the Index, representing more than $4.1 trillion in market value.
The securities included in the Index generally meet the following
criteria, as defined by Lehman Brothers: an effective maturity of
not less than one year; an outstanding market value of at least
$100 million for U.S. Government issues and $25 million for all
other issues; and investment grade quality - i.e., rated a minimum
of Baa by MoodyOs Investors Service, Inc. or rated a minimum
BBB by Standard & Poors Corporation. Price, coupon, and total
return are reported for all sectors on a month-end to month-end
basis. All returns are market value weighted inclusive of accrued
interest.
On February 28, 1995, the IndexOs effective weighted average
maturity and duration were 8.83 years and 4.76 years,
respectively, and the weighted average quality of issues
comprising the Index was Aaa1 (using credit ratings of MoodyOs
Investor Service, Inc.).
Lehman Brothers Government/Corporate Index. This
Index, a subset representing approximately 70% of the Lehman
Brothers Aggregate Bond Index (as of February 28, 1995),
comprises the Government and Corporate Bond Indices. The
Government Bond Index comprises: (1) all public obligations of
the U.S. Treasury, excluding flower bonds and foreign targeted
issues; (2) all publicly issued debt of U.S. Government agencies
and quasi-federal corporations; and (3) corporate debt guaranteed
by the U.S. Government. The Corporate Bond Index includes:
(1) all publicly issued, fixed-rate, non-convertible investment
grade domestic corporate debt; and (2) Yankee bonds, which are
dollar-denominated SEC registered public, non-convertible debt
issued or guaranteed by foreign sovereign governments,
municipalities or governmental agencies, or international
agencies.
Lehman Brothers Mortgage-Backed Securities Index.
This Index is also a subset of the Lehman Brothers Aggregate
Bond Index, representing the residual 29% of the Index not
included in the Government/Corporate subset. This Index
comprises all fixed-rate securities backed by mortgage pools of
the GNMA, FHLMC, and FNMA. Graduated Payment
Mortgages (GPMs) are included, but Graduated Equity
Mortgages (GEMs) are not included.
J.P. Morgan Global Government Bond Index. The J.P. Morgan
Government Bond Index, calculated daily, tracks traded, fixed-
rate domestic government bonds from thirteen countries. The
Index measures the total, principal, and interest returns of the
markets of these countries. The countries included in the Index
are: Australia, Belgium, Canada, Denmark, France Germany,
Italy, Japan, the Netherlands, Spain, Sweden, the United
Kingdom, and the United States. The weightings of each market
are determined by the individual security weighting on a gross
market value basis, and on a net market value for the principal
return. The Index tracks only issues that are readily available for
purchase at actively quoted prices. All instruments included in
the Index must be tradable and redeemable for cash, and they
must not appeal exclusively to domestic investors for local tax or
regulatory reasons. Of the total non-U.S. fixed income domestic
government bonds in the world, approximately 60% are
considered to be Oinvestable.O The Index tracks only issues
within this traded universe. Security types included in the Index
are straight, put, call, sinking fund, purchase fund, extendible,
conversion and double-dated. All bonds have maturities of
greater than one year.
Lehman Brothers Majors ex US Bond Index. The Lehman
Brothers Majors ex US Bond Index measures the total investment
return of the 12 largest global government bond markets,
excluding the US. These markets include Australia, Belgium,
Canada, Denmark, France, Germany, Italy, Japan, the
Netherlands, Spain, Sweden, and the United Kingdom. All
country components are weighted according to market
capitalization except Japan, which is weighted according to the
market capitalization of the 40 largest Japanese government
bonds.
SHORT-TERM INDICES
Merrill Lynch 91-Day Treasury Bill Index. The Merrill Lynch
91-Day Treasury Bill Index is a 3-month constant maturity total
rate of return index. This calculation includes a daily mark-to-
market of the portfolio, and upon the issuance of a OnewO
Treasury Bill, the OoldO Treasury Bill is sold and the gain or loss
is included in the portfolio return.
Merrill Lynch 182-Day Treasury Bill Index. The Merrill Lynch
182-Day Treasury Bill Index is a 6-month constant maturity total
rate of return index. This calculation includes a daily mark-to-
market of the portfolio, and upon the issuance of a OnewO
Treasury Bill, the OoldO Treasury Bill is sold and the gain or loss
is included in the portfolio return.
MSCI Country Weightings
As of February 28, 1995
MSCI MSCI MSCI
All Country All Country MSCI Emerging
Index: World World ex USA EAFE Markets Free
Benchmark for: TIFF Global TIFF Int'l Certain Int'l TIFF Emerging
Equity Fund Equity Fund Equity Managers Markets Fund
Europe 25.7% 40.2% 47.3%
Austria 0.2% 0.3% 0.4%
Belgium 0.6% 1.0% 1.1%
Denmark 0.4% 0.7% 0.8%
Finland 0.3% 0.5% 0.6%
France 3.2% 5.0% 5.9%
Germany 3.9% 6.0% 7.1%
Ireland 0.2% 0.2% 0.3%
Italy 1.3% 2.0% 2.3%
Netherlands 2.1% 3.3% 3.9%
Norway 0.2% 0.4% 0.4%
Spain 0.9% 1.4% 1.7%
Sweden 0.9% 1.5% 1.7%
Switzerland 2.7% 4.3% 5.0%
United Kingdom 8.7% 13.6% 16.1%
Pacific 27.3% 42.6% 50.3%
Australia 1.5% 2.3% 2.7%
Hong Kong 1.7% 2.6% 3.1%
Japan 23.3% 36.4% 42.9%
New Zealand 0.2% 0.3% 0.4%
Singapore 0.7% 1.0% 1.2%
North America 38.0% 3.2%
Canada 2.1% 3.2%
United States 35.9%
Emerging Markets 9.0% 14.0% 2.4% 100.0%
Argentina 0.2% 0.3% 3.6%
Brazil 0.9% 1.4% 14.9%
Chile 0.4% 0.7% 7.0%
Colombia 0.1% 0.1% 1.5%
Greece 0.1% 0.1% 1.5%
India 0.6% 0.9% 9.2%
Indonesia 0.3% 0.5% 5.5%
Israel 0.1% 0.2%
Jordan 0.0% 0.0% 0.2%
Korea* 1.2% 1.9% 4.0%
Malaysia 1.3% 2.0% 2.4% 21.4%
Mexico 0.5% 0.8%
Mexico Free 7.6%
Pakistan 0.1% 0.1% 1.2%
Peru 0.1% 0.1% 1.0%
Philippines 0.3% 0.5%
Philippines Free 3.8%
Portugal 0.1% 0.2% 1.6%
Sri Lanka 0.0% 0.0% 0.2%
Taiwan 1.6% 2.5%
Thailand 0.8% 1.3% 13.4%
Turkey 0.1% 0.2% 1.6%
Venezuela 0.0% 0.1%
Venezuela Free 0.5%
Total 100.0% 100.0% 100.0% 100.0%
* Korea is included at 20% of its market capitalization in the
Emerging Markets Free Index.
Source Morgan Stanley Capital International Perspective, March 1995.
Note: Numbers may not add to totals due to rounding.
APPPENDIX C - SERVICE PROVIDER PROFILES
AMT CAPITAL SERVICES, INC.
ORGANIZATION
430 Park Avenue
New York, NY 10022
phone: 212-308-4848
fax: 212-308-5190
Mutual Fund Administrator and Distributor
Founded in 1992
CLIENTS SERVED
AMT Capital Fund, Inc.
Sponsored by AMT Capital Services, Inc.
Deutsche Bank Securities Corporation
FFTW Funds, Inc.
Sponsored by Fischer Francis Trees & Watts, Inc.
TIFF Investment Program, Inc.
Sponsored by Foundation Advisers, Inc.
KEY PERSONNEL
Alan M. Trager, President
MPA, John F. Kennedy School of Government,
Harvard University
BA, Syracuse University
Morgan Stanley & Co., Managing Director
Carla E. Dearing, Managing Director, Principal,
Director
MBA, University of Chicago
BA, University of Michigan
Morgan Stanley & Co., Vice President
William E. Vastardis, Senior Vice President, Fund
Administration
BS, Villanova University
The Vanguard Group, Vice President and head of
Private Label Administration Group
Jaclin G. Singer, Vice President, Institutional Client
Service
MBA, New York University
MSEd, Brooklyn College
BA, Brooklyn College
Equitable Capital Management, Vice President
Fund Administrator and Distributor
for TIFF Investment Program
DESCRIPTION OF SERVICES
AMT Capital Services, Inc. is a mutual fund administration and
distribution company. An affiliate of AMT Capital Advisers, Inc.,
a private investment and advisory firm specializing in the
financial services industry, AMT Capital Services was formed to
fulfill the needs of the smaller institutional investor. The firm
leverages its distribution and marketing expertise and experience
with economies of scale in administration to provide mutual funds
with the means to fulfill shareholders' needs in an efficient, cost-
effective manner.
The firm was organized in early 1992 and was granted its
broker/dealer license by the NASD to administer and market
mutual funds in July 1992. Its owners are former officers of
Morgan Stanley, who helped develop and market The Pierpont
Funds, a $5 billion fund complex owned by J.P. Morgan. The
head of fund administration is the former head of The Vanguard
Group's Private Label Administration Group which provided full-
service administration to more than 45 mutual funds with
aggregate assets of approximately $10 billion prior to its sale to
the Mutual Fund Service Company in Boston.
As Fund Administrator, AMT Capital Services is responsible for
supervising all aspects of a funds' operations, including oversight
of other fund service providers, with the exception of investment
advisers or subadvisers. The firm seeks to lower each fund's
administrative cost structure through its application of
technology, experience in managing complex operations in the
mutual fund industry, and through the economies of scale of
working with more than one fund group.
INVESTORS BANK & TRUST COMPANY
ORGANIZATION
89 South Street
Boston, MA 02111
phone: 617-330-6020
fax: 617-330-6033
Providing securities processing services since 1962
SERVICES
Global Custody
Multi-Currency Fund Accounting
Fund Administration
Transfer Agency
Offshore Processing
Securities Lending
Hub & Spoke Processing
DIMENSIONS
$75 billion in Custody Assets
275 Mutual Funds
600 Unit Investment Trusts
Global Network in 54 Countries
750 Employees
CUSTODIAL OR
TRANSFER AGENCY CLIENTS
Aetna Capital Markets
AMT Capital Fund, Inc.
Anchor Funds
Asia House Funds
Bear Stearns
Bull & Bear Funds
Deutsche Bank
Diversified Investment Advisors
Eaton Vance
FFTW Funds, Inc.
Global Consortium, Inc. (The Common Fund/Harvard)
Govett Funds, Inc.
Grantham, Mayo, Van Otterloo & Co. (GMO) Funds
Homestead Funds
John Hancock Funds and Separate Accounts
Lincoln Advisor Funds
Mass Financial Services
MassMutual Institutional Funds
MBIA
Merrill Lynch
Mutual of Omaha Funds
Northeast Investors Funds
PaineWebber
Rochester Fund
Salomon Brothers Asset Management
Signature Financial Group
Standish, Ayer & Wood Funds
Thomas Herzfeld Advisers Funds
Wright Funds
Custodian and Transfer Agent
for TIFF Investment Program
SERVICE APPROACH
Investors Bank focuses its resources on developing the people,
systems, and technology to support the ever-changing financial
services industry. The Bank is committed to tailored, responsive
service built on a conscious strategy of employing professional
personnel at all levels and supporting them with extensive training
and sophisticated technology. The Bank's structure is designed to
facilitate quick, accurate responses by expert professionals who
are dedicated to individual clients.
In order to provide clients with the best service at a competitive
price, Investors Bank relies on fully integrated, state-of-the-art
systems. For example, the high level of automation with the
Investors Bank Fund Accounting and Custody Tracking System
(FACTS) has elevated the typical fund accountant's role away
from mundane tasks like data entry to more analytical and
control-oriented tasks. The benefits to clients are increased
control, improved accuracy, and ultimately, superior service.
Investors Bank's client base is global in scope and includes some
of the most recognized institutions in the business.
Responsiveness and attention to detail are the foundation for the
long-term partnerships between the Bank and its clients.
The Transfer Agency operations of Investors Bank focus on the
institutional investor. Highly trained shareholder servicing
personnel are dedicated to each client and become intimately
familiar with that client's products. The result is a satisfied
investor whose inquiries are addressed by a shareholder
representative who knows both the investor's account history and
the product options available.
KEY PERSONNEL
Kevin Sheehan, President
BA, Accounting, University of Massachusetts
Bank of New England, Senior Vice President
Michael Rogers, Executive Managing Director,
Custody and Fund Accounting
MBA, College of William and Mary
BA, Economics, Boston College
Carol Lowd, Director, Transfer Agency
BA, Journalism, University of Maine at Orono
Scudder, Stevens & Clark, Vice President of Operations
Bradford Trust Company of Boston, Fund Management
TIFF STATEMENT OF
INVESTMENT ADDITIONAL INFORMATION
PROGRAM, INC. April 26, 1995
Including These Funds: Available through:
TIFF Multi-Asset Fund Foundation Advisers, Inc.
TIFF Global Equity Fund P.O. Box 5165
TIFF International Equity Fund Charlottesville, VA 22905
TIFF Emerging Markets Fund
TIFF U.S. Equity Fund phone (800) 984-0084
TIFF Bond Fund Fund fax (804) 977-4479
TIFF Short-Term Fund
TIFF Investment Program, Inc. ("TIP") is a no-load, open-end
management investment company that seeks to improve the net
investment returns of its shareholders ("Members") by making
available to them a series of investment vehicles (the "Funds"),
each with its own investment objective and policies. The Funds
are available exclusively to grantmaking foundations and
501(c)(3) organizations (see ELIGIBLE INVESTORS). The
Funds and their investment adviser, Foundation Advisers, Inc.
("FAI") have been organized by a nationwide network of private
and community foundations. FAI is a non-stock corporation no
part of the earnings of which may inure to any private shareholder
or individual. FAI is responsible for selecting Money Managers
for each Fund and for allocating Fund assets among these Money
Managers, subject to the approval of TIP's Board of Directors.
With the exception of FAI's President, all FAI and TIP Directors
serve as unpaid volunteers.
The Funds currently available in the TIP series are: (1) TIFF
Multi-Asset Fund (OMulti-Asset FundO); (2) TIFF Global Equity
Fund (OGlobal Equity FundO); (3) TIFF International Equity
Fund (OInternational Equity FundO); (4) TIFF Emerging Markets
Fund (OEmerging Markets FundO); (5) TIFF U.S. Equity Fund
(OU.S. Equity FundO); (6) TIFF Bond Fund (OBond FundO);
and (7) TIFF Short-Term Fund (OShort-Term FundO). With the
exception of the Short-Term Fund, which is designed primarily as
a vehicle for investment of funds that members intend to spend or
distribute within one year, the Funds are intended as vehicles for
the implementation of long-term asset allocation policies.
This Statement of Additional Information is not a Prospectus and
should be read in conjunction with the Prospectus of TIP, dated
April 26, 1995 (the "Prospectus"), which has been filed with the
Securities and Exchange Commission (the "Commission") and
which is incorporated herein by reference. The Prospectus can be
obtained without charge by writing to or calling FAI at the
address and telephone number provided above.
CONTENTS
ORGANIZATION OF TIP ..........................................3
SUPPLEMENTAL DISCUSSION OF TIP'S ORIGIN ......................3
SUITABILITY OF TIPOS FUNDS ...................................5
SUPPLEMENTAL DISCUSSION OF FUND MANAGEMENT
AND ADMINISTRATION ...........................................9
PERFORMANCE-BASED FEES FOR MONEY MANAGERS.....................13
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES ..........18
DISTRIBUTION OF FUND SHARES ..................................19
SUPPLEMENTAL DISCUSSION OF INVESTMENT
OBJECTIVES, POLICIES, AND RESTRICTIONS .......................19
SUPPLEMENTAL DISCUSSION OF POLICY
IMPLEMENTATION AND RISKS .....................................20
FUND TRANSACTIONS ............................................40
TAX CONSIDERATIONS ...........................................42
MEMBER INFORMATION ...........................................46
CALCULATION OF PERFORMANCE DATA ..............................48
DETERMINATION OF NET ASSET VALUE .............................49
ADDITIONAL SERVICE PROVIDERS .................................50
QUALITY RATING DESCRIPTIONS APPENDIX A
ORGANIZATION OF TIP
TIP was incorporated on December 23, 1993. The authorized
capital stock of TIP consists of 3,500,000,000 shares with $.001
par value, allocated in increments of 500,000,000 shares to each
of the Multi-Asset, Global Equity, International Equity, Emerging
Markets, U.S. Equity, Bond, and Short-Term Funds. Each share
of each Fund has an equal voting right as to each share of such
Fund. Members have one vote for each dollar of net asset value
they hold. All shares issued and outstanding are fully paid and
non-assessable, transferable, and redeemable at net asset value at
the option of the member. Shares have no preemptive or
conversion rights.
The shares of TIP have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they
choose to do so, and, in such event, the holders of the remaining
less than 50% of the shares voting for the election of Directors
will not be able to elect any person or persons to the Board of
Directors.
No Fund of TIP shall be liable for the obligations of any other
Fund.
SUPPLEMENTAL DISCUSSION OF TIPOS ORIGIN
RESOURCES NEEDED TO INVEST EFFECTIVELY. TIP is
the outgrowth of several years of research into the need for a
foundation investment cooperative, including extensive studies on
foundation investment practices by The Investment Fund for
Foundations (OTIFFO). These studies suggest that many of
AmericaOs approximately 34,000 private and community
foundations lack the resources needed to earn superior net
investment returns. The necessary resources include: an asset
base sufficient to diversify across asset classes and investment
styles in an economic manner; staff and trustees with the time and
expertise needed to select outstanding Money Managers and
monitor and adjust manager and asset class weightings; and the
bargaining power and skills needed to strike attractive fee
arrangements with money managers, custodians, accountants,
lawyers, and other vendors.
REORIENTING TRUSTEE TIME ALLOCATION. Another
large-scale survey of foundation investment practices conducted
by Salomon and Voytek (Managing Foundation Assets, 1988)
revealed that Oless than a quarter of the foundations surveyed
have a formal guideline spelling out the maximum portion of their
assets that could be held in common stock, perhaps the most basic
kind of guideline that might be expected.O Investing through TIP
enables governing boards to delegate responsibility for time-
intensive tasks (e.g., vendor selection and evaluation and fee
negotiations), thus providing them with more time to devote to
the sensitive and supremely important task of formulating
appropriate asset allocation guidelines.
SUITABILITY OF TIP'S FUNDS
INVESTING THROUGH A NEWLY ESTABLISHED
ORGANIZATION. Some investors may question whether it is
prudent to invest through a newly established organization. This
is an important issue that relates not only to TIP but also to some
of the outside vendors it employs. In the opinion of TIP's and
FAI's Directors, the number of years that an investment
management organization has been functioning is only one of
many variables that fiduciaries must assess in determining whether
to entrust the assets they supervise to it. Variables of greater
importance are the expertise of the individuals who comprise the
organizationOs governing board and staff, the resources the
organization commands (both internally and via relationships with
outside vendors), and the extent to which its goals and interests
are congruent with those of its clients or members. The money
managers selected by FAI on behalf of TIP are all experienced
investment professionals with verifiable performance records that
FAI's Directors have reviewed as part of the manager selection
process described in the Prospectus. These Directors (and the
FAI staff that supports them) have extensive experience
performing their assigned functions, as do the principals and
supporting staff of all outside vendors employed by TIP.
When evaluating persons who might potentially manage money
for TIP, FAI's Directors consider carefully the financial viability
and stability of the firms with which they are associated, but they
do not assume that the age (or size) of an investment management
organization and the quality of its services are always positively
correlated. Indeed, if properly structured and managed, a newly
established investment management organization - be it a mutual
fund family such as TIP or a money manager - has the potential
to deliver superior services to its clients or members at a lower
cost than competing suppliers precisely because its human and
technological resources have been assembled recently:
technology is evolving so rapidly that organizations structured
and equipped specifically to compete under current as distinct
from past market conditions often have a discernible edge -
provided, of course, that the persons leading them are sufficiently
skilled and experienced.
CHANGING EXISTING INVESTMENT MANAGEMENT
ARRANGEMENTS. Changing investment management
practices is almost always costly. It can also be time-consuming
and painful, especially when long-standing relationships must be
disrupted. For these reasons, change for its own sake should be
avoided. At the same time, foundation fiduciaries should
recognize that investment markets and the vast universe of
vendors that furnish investment-related services to foundations
are highly dynamic - so dynamic that the uncertain but very real
costs of not changing settled practices sometimes can exceed the
known costs of steering a different course. This is especially true
with respect to the difficult and time-consuming task of selecting
superior money managers: due to the very powerful mean-
reverting tendencies of investment markets - the tendency for the
performance of a manager (or investment style) generating
superior returns over a given time period to regress to the mean
or average of all managers over future time periods - sticking
with a proven winner can, paradoxically, be very perilous, unless
the winning organization is itself committed to the task of
continuously reviewing and revising its own working
assumptions, strategies, and tactics. One of the chief reasons TIP
was created was to permit foundation trustees who themselves
lack the time or expertise to monitor continuously the rapid
evolution of markets and managers to delegate this task to a
group of investment professionals (the Directors of TIP and FAI)
who have significant experience investing foundation assets.
ACTIVE INVESTMENT APPROACHES. While conceding that
few professional Money Managers can accurately and consistently
forecast major highs or lows in financial markets, the Directors of
TIP and FAI believe that some Money Managers are indeed able
to pursue superior returns within selected asset classes and
investment sectors. By combining in a prudent manner
investment approaches appropriate to a given asset class, and then
selecting Money Managers based on their proven ability to
implement successfully such approaches, a foundation potentially
can enhance its long-term investment returns.
MULTI-ASSET FUND. The TIFF Multi-Asset Fund is TIP's
response to requests from many foundations throughout the U.S.
for assistance with asset allocation. Asset allocation is critically
important because the longer money is put to work the wider the
gap grows between returns on individual asset classes. For truly
long-term investors, these differences between asset class returns
dwarf differences in returns attributable to manager selection, fee
negotiations, or other investment-related tasks that TIP performs
on behalf of its Members. All of TIP's Funds enable Members to
delegate to TIP responsibility for the time-intensive tasks of
selecting and monitoring money managers and other vendors.
The Multi-Asset Fund goes beyond this by providing governing
boards with an opportunity also to delegate to TIP responsibility
for determining which asset classes to hold and in what
proportions to hold them. Consistent with its view that strategic
and tactical (as distinct from policy) decisions are best made by
full-time investment professionals, TIP in turn delegates
responsibility for strategic and tactical shifting of the Multi-Asset
Fund's invested capital to outside Money Managers
recommended by FAI.
Return Objective that Reflects FoundationsO Spending Rates.
The Fund's return objective is to provide a solution to the
principal investment problem confronting most grantmaking
foundations: how to preserve the purchasing power of their
endowments while simultaneously distributing about five percent
of their assets annually. While CongressO decision (in 1969) to
compel private foundations to distribute annually at least five
percent of their assets was not rooted in the same studies of
capital market history that underlay the spending rates of
eleemosynary funds that are free to adopt their own spending
rates (e.g., community foundations or university endowments),
these studies confirm that the goal of preserving fund purchasing
power while simultaneously withdrawing five percent per annum
is ambitious indeed. For example, to earn a five percent real
return over the time period 1926-1993, a foundation investing
solely in domestic stocks and bonds on a buy-and-hold basis
would have had to maintain at least an 80% commitment to
stocks. Foundations that distribute more than five percent of
their assets annually must recognize that even highly aggressive
investment programs are unlikely to produce real or inflation-
adjusted returns sufficient to maintain fund purchasing power in
the face of such high withdrawal rates, unless new gifts flow into
the fund.
Based on their own study of capital market history, TIP's
Directors have concluded that the achievement of five percent or
higher real returns presupposes a willingness to invest in risky
(i.e., volatile) assets. The TIFF Multi-Asset Fund's return
objective is to produce an adequate (i.e., five percent or higher)
real return for participating foundations in as consistent a manner
as possible - not every quarter or even every year; capital markets
are seldom so accommodating - but with sufficient consistency
over multi-year time periods to induce member foundations to
Ostay the courseO: to adhere to asset allocation policies that
comport better with their long-term goal of preserving fund
purchasing power than do policies that place more emphasis on
controlling short-term price fluctuations.
Difficulty of Maintaining All-Equity Portfolios. TIP's Directors
recognized that an all-equity portfolio would not fulfill the asset
allocation needs of grantmaking foundations in at least two
important respects. First, many governing boards cannot
withstand the downside risks inherent in all-equity portfolios,
even those that are invested on a truly global basis. Second, even
if trustees have the discipline needed to maintain all-equity
portfolios during periods when stock prices are falling sharply,
spending needs may leave them with no choice but to sell equities
at very depressed prices. It is for these two reasons that TIP's
Directors elected to include in the Fund's asset mix securities
that have the potential to cushion price declines in economic
environments that are especially inhospitable to equity investors:
deflation, or very high rates of unanticipated inflation. These
securities are held primarily in the Ovolatility controlO segment of
the Fund and include specialized equities, bonds, and cash
equivalents. It is important to note that securities held in the
volatility control segment of the Fund can themselves be quite
volatile: the term Ovolatility controlO denotes such securitiesO
potential to cushion losses experienced in the Ototal returnO
segment of the Fund.
Unique Deflation-Hedging Role of Bonds. The Fund's 20%
OnormalO allocation to bonds reflects the DirectorsO judgment
that such bond holdings could prove uniquely useful in a
deflationary environment like the 1930s, when trustees would
otherwise be forced to sell stocks at depressed prices to meet
annual spending needs. To provide adequate deflation-hedging
protection, a bond portfolio must emphasize intermediate or
longer maturity, high quality, non-callable bonds - an imperative
that is reflected in the benchmarks against which the Fund's
bond commitments will be measured.
The Need for a Hedge against High Rates of Unanticipated
Inflation. Similarly, the Fund's 10% OnormalO allocation to a
OSpecialized EquitiesO portfolio emphasizing natural resource-
related equities reflects the DirectorsO judgment that such stock
holdings could prove uniquely useful in a highly inflationary
environment like the 1970s, when many stocks of companies
engaged in industries other than those in which the Fund's
specialized equity portfolio invests produced sharply negative
inflation-adjusted returns. There is no assurance that the
OSpecialized EquitiesO portfolio will produce satisfactory real
returns in an environment of rapidly rising inflation, but TIP's
Directors believe that it has the potential to serve as a more
reliable hedge than alternate Oinflation hedgesO that regulated
investment companies are permitted to own (e.g., shares of real
estate investment trusts).
The Fund does not hold direct investments in real estate because
SEC regulations prohibit regulated investment companies from
doing so. While the Fund does not hold real estate-related
equities on a permanent basis [e.g., shares of publicly traded real
estate investment trusts (OREITsO)], the guidelines set forth for
several of the Fund's Money Managers permit them to hold such
securities on an opportunistic basis. The reason that TIP's
Directors rejected a permanent allocation to real-estate-related
equities such as REIT shares is because the Directors believe that
returns on such securities have a disturbingly high correlation
with stock market indices when inflation is spiraling upward, i.e.,
they provide unreliable inflation-hedging protection. Although
there is no assurance that the natural resource-related securities in
which the Fund's OSpecialized EquitiesO portfolio will invest
will produce satisfactory real returns in environments of
unexpectedly high inflation, TIP's Directors believe that such
securities constitute more reliable inflation hedges than real
estate-related equities. The DirectorsO experience suggests that
firms engaged in producing or distributing natural resources can
more readily pass through inflation-induced cost increases to their
customers than can landlords, who must wait for leases to expire
to negotiate price increases. This constraint also undermines the
inflation-hedging protection of direct real estate investments,
which several institutional funds represented on TIP and FAI's
Boards hold but which are not necessarily expected to provide
high real returns when inflation is high and accelerating.
Potential Value-Added from Active Management. In determining
which asset classes and strategies the Fund should employ for
total return - as distinct from hedging - purposes, TIP's
Directors sought to avoid a mistake common to many investment
programs: in allocating assets among asset classes, many
investors use expected returns, which assume that all assets will
be managed passively (i.e., indexed), even though they themselves
intend to rely heavily on active managers. Mindful that all TIP
Funds employ primarily active management techniques (passive
approaches already being available to eligible foundations at a
lower cost than TIP could ever offer them), TIP's Directors
considered carefully the extent to which active managers could
potentially add value (net of fees) to each asset class that the
Multi-Asset Fund might hold. This consideration is the chief
reason that the Fund's guidelines emphasize: (1) foreign (and
especially emerging) stock markets to a greater extent than do the
guidelines employed by most U.S.-based institutions at present;
and (2) opportunistic total return strategies such as global risk
arbitrage and distressed securities investing.
Perceived Inefficiency of Foreign Stock Markets. TIP's
Directors believe that foreign stock markets are less efficient than
the U.S. stock market in a valuation sense, and are likely to
remain so for some time. This perception creates a presumption
on their part that carefully selected active managers can produce
higher excess returns investing in foreign stocks than they can
investing in U.S. stocks. Unless one believes that U.S. stocks
generally are attractively priced relative to foreign stocks, the
assumption that active management will produce higher excess
returns (net of fees and trading costs) in foreign markets justifies
a heavier commitment to foreign stocks than the modest
allocations maintained by many U.S.-based investors.
Potential Risk Reduction from Investing in Assets with Low
Return Correlations. Although their perceived potential for
attractive returns through active management is the chief reason
that TIP's Directors endorse the use of such Onon-traditionalO
or OalternativeO assets such as foreign stocks and opportunistic
total return portfolios, the case for including these allocations is
reinforced by the tendency of returns on these non-traditional
investments to be imperfectly (or, in some cases, negatively)
correlated with returns on domestic stocks. To be sure, there
have been and will no doubt continue to be occasions when
foreign stocks (whether traded in developed or emerging
markets), global risk arbitrage portfolios, distressed securities,
and other investments that the Fund might hold strictly for total
return purposes will join domestic stocks in producing negative
returns, but this unfortunate fact does not undermine the
fundamental soundness of a diversified approach to long-term
asset allocation. So long as investments held by the Fund as
domestic equity substitutes generate long-term returns at least
equal to those expected from domestic stocks, the general
tendency of such investments to rise and fall at different times
than domestic stocks creates opportunities to enhance the Fund's
long-term returns through periodic rebalancing of the Fund's
asset class weightings back to more normal percentages. The
supposition here is that market movements will periodically cause
such weightings to differ from whatever initial OnormsO TIP's
Directors might establish: through a combination of manager-
induced and Board-induced rebalancing moves, the Fund can
potentially benefit from the inherent volatility of the assets and
strategies it employs. As perhaps the most comprehensive study
of this phenomenon concludes, Odisciplined rebalancing can
boost returns as much as a fairly large shift in the policy mix
itselfO (Arnott and Lovell, 1992).
Determining Asset Class Ranges. The Multi-Asset Fund's asset
class ranges were arrived at using a combination of resources:
computer simulations quantifying the damage to long-term
returns of forced sales of stocks at depressed prices under both of
the disaster scenarios described above (deflation and very high
rates of unanticipated inflation); plus other qualitatively driven
analyses of the risk tolerance of foundation governing boards and
their capacity to reduce budgeted grant outlays (consistent with
legally mandated payout requirements) during periods when
common stock prices are falling sharply. While appreciative of
the advantages of purely statistical approaches to asset allocation,
TIP's Directors also recognize that such approaches can and
often do attempt to achieve a false precision, and the Fund's
asset allocation guidelines therefore reflect qualitative as well as
quantitative judgments about asset class weightings best suited to
the long-term needs of the many foundations that have turned to
TIP for help with investment-related tasks.
Statistical Justification of Fund's Guidelines. TIP and FAI do
not provide such statistics for several reasons. First, even very
long-term studies of the risk and return characteristics of asset
classes and investment strategies are highly sensitive to starting
and ending dates. An attempt to depict how a hypothetical
portfolio managed in accordance with the Fund's guidelines
would have performed over time could prove misleading.
Second, some of the asset classes and strategies that the Fund will
employ have relatively short histories (e.g., emerging market
stocks, for which reliable return series extend back less than a
decade at present). This compounds the problem of time-period
sensitivity just mentioned, especially with respect to that portion
of the Fund to be allocated to opportunistic equity strategies such
as global risk arbitrage that seek to outperform absolute return
benchmarks (Treasury bills plus five percent). While TIP's
decision to employ such strategies bespeaks its Directors'
judgment that capital markets will continue to provide
opportunities for the Money Managers within such segments to
generate satisfactory absolute returns, there is no assurance that
they will do so and it would be unwise for prospective investors
to extrapolate past results into the future.
Third, it is precisely their concern that they lack the time or
expertise to assess intelligently statistics-laden studies that has
induced many governing boards to seek TIP's assistance in
formulating asset allocation guidelines. Burdening such trustee
groups with quantitative justifications of the Fund's guidelines
would contravene their stated wishes and could also provide a
false sense of security that the Fund will produce superior risk-
adjusted returns relative to more conventional asset mixes
comprising only domestic stocks and bonds. The Fund has the
potential to do so, but there is no assurance that it will do so, and
the Fund could potentially underperform more conventional asset
mixes in certain market environments (e.g., when foreign stocks
and bonds are performing materially worse than their domestic
equivalents).
Fund's Suitability for Foundations with OConservativeO Boards.
Whether the Fund is suitable for a foundation that favors
conservative investment policies depends on oneOs definition of
Oconservative.O Many investors who describe themselves as
OconservativeO pursue strategies that in fact entail the risk of
large losses, especially to the ravages of inflation. Examples
include: (1) investors willing to own only short-term Treasury
bills, which provide safety of principal but which have historically
generated less than one-fifth of the real returns needed to
preserve the long-term purchasing power of funds with
withdrawal rates of five percent per annum; (2) investors willing
to own only very high grade bonds, which provide safety of
principal if held to maturity but can produce large interim losses if
interest rates spike upward; or (3) investors willing to own only
the highest quality (i.e., OsafestO) stocks, such as IBM in 1987
($175 per share on its way to less than $50 per share just five
years later) or Philip Morris in 1992 ($86 per share on its way to
$49 per share less than one year later). When scrutinized
carefully, the investment policies of many investors who consider
themselves OconservativeO are in fact not conducive to wealth
preservation - certainly not after adjusting for inflation. A more
apt label for such policies would be Oconventional.O
TIP's Directors believe that the most relevant measure of
conservatism for foundation investors is not how closely their
investment policies comport with traditional norms - norms that
as recently as the 1950s dictated a strong bias in favor of long-
term and hence highly risky bonds - but how effective such
policies are in maintaining fund purchasing power within
acceptable volatility constraints. Diversifying among many asset
classes, strategies and money managers can be a powerful means
of improving the return-to-risk ratio of an investment program,
and it is for this reason that most of the institutional funds
represented on the TIP and FAI Boards make extensive use of
assets other than domestic stocks and bonds and strategies other
than conventional long-only approaches. While still the norm for
most institutional portfolios, long-only approaches preclude
money managers from acting upon much of their research. For
example, the typical 40-60 stock portfolios maintained by many
active U.S. equity managers are actually the economic equivalent
of an index fund (all stocks in the S&P 500, held in accordance
with their weightings in that index) combined with a long-short
portfolio: the latter portfolio comprises long positions in the 40-
60 stocks the manager deems most attractive, plus short positions
in all stocks in the S&P 500 not held in the overall portfolio.
SUPPLEMENTAL DISCUSSION OF
FUND MANAGEMENT AND ADMINISTRATION
TIP AND FAI BOARDS. There is considerable overlap among
the Boards of TIP and FAI, but not complete overlap, for two
reasons. First, given the highly dynamic character of financial
markets, it is important that decision-making at all levels of the
proposed cooperative be as streamlined as possible an
imperative that is best fulfilled by keeping the number of
individuals responsible for a given task (e.g., selecting and
monitoring of money managers) to a reasonable minimum.
Second, there are securities law conditions which preclude
complete overlap between the Boards of TIP and FAI.
Specifically, to ensure that the cooperative complies with laws
discouraging direct control of the affairs of regulated investment
companies by the entities that sponsor them, persons serving on
FAI's Board cannot occupy more than 49% of the seats on
TIP's Board of Directors. For this reason, and also because the
duties of TIP's Board presuppose extensive audit and operations
experience, a majority of TIP's Board of Directors are persons
who serve or have served on the Audit and Operations
Committee of The Investment Fund for Foundations, the not-for-
profit organization that coordinated TIP's establishment. In
contrast, most of the members of FAI's Board are persons who
serve or have served on TIFFOs Investment Committee. FAI's
Board is chaired by John Craig, Executive Vice President and
Treasurer of The Commonwealth Fund (New York, NY). Mr.
Craig is a founding member of the Board of Trustees of The
Investment Fund for Foundations and chairman of its Investment
Committee. A complete list of the Directors of TIP and FAI is
provided in the section of the Prospectus entitled
MANAGEMENT AND ADMINISTRATION OF THE FUNDS.
ADVISORY AGREEMENT. Pursuant to its Advisory
Agreement with TIP (the OAdvisory AgreementO), FAI provides
the following services to TIP and the TIP Funds: (1) provides or
oversees the provision of all general management, investment
advisory, and portfolio management services; (2) provides TIP
with office space, equipment, and personnel; and (3) develops the
investment programs, selects the Money Managers from a broad
universe of investment managers, negotiates agreements with
Money Managers on behalf of the Board of Directors of TIP
(which has final authority for the approval or disapproval of such
agreements), allocates and reallocates assets among Money
Managers, and monitors the Money Managers' investment
activities and results. As compensation for services rendered by
FAI under the Advisory Agreement, each Fund pays FAI a
maximum monthly fee calculated by applying the following annual
basis point rates to such Fund's average daily net assets for the
month (100 bp equals 1.00%):
Multi- Global International Emerging U.S Short-
Assets Asset Equity Equity Markets Equity Bond Term
On first $500
million 20 bp 15 bp 15 bp 15 bp 15 bp 10 bp 3 bp
On next $500
million 18 bp 13 bp 13 bp 13 bp 13 bp 8 bp 3 bp
On next $500
million 15 bp 11 bp 11 bp 11 bp 11 bp 6 bp 2 bp
On next $500
million 13 bp 9 bp 9 bp 9 bp 9 bp 5 bp 2 bp
On next $500
million 11 bp 7 bp 7 bp 7 bp 7 bp 4 bp 1 bp
On remainder
(>$2.5 billion)9 bp 5 bp 5 bp 5 bp 5 bp 3 bp 1 bp
Because FAI does not seek to earn a profit, it may waive a portion of its fees
from time to time.
The Advisory Agreement will remain in effect for two years following
its date of execution and thereafter will automatically continue for
successive annual periods so long as such continuance is
specifically approved at least annually by (a) the Board of
Directors or (b) the vote of a OmajorityO [as defined in the
Investment Company Act of 1940 (the O1940 ActO)] of a
Fund's outstanding shares voting as a single class; provided that
in either event the continuance is also approved by at least a
majority of the Board of Directors of TIP who are not
Ointerested personsO (as defined in the 1940 Act) of TIP or FAI
by vote cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement was approved
by the initial members of each Fund on March 29, 1994. The
Advisory Agreement is terminable without penalty on not less
than 60 days' notice by the Board of Directors of TIP or by a
vote of the holders of a majority of the relevant Fund's
outstanding shares voting as a single class, or upon not less than
60 days' notice by FAI. The Advisory Agreement will terminate
automatically in the event of its OassignmentO (as defined in the
1940 Act).
PAYMENT OF FAIOS EXPENSES. FAI pays all of its
expenses arising from the performance of its obligations under the
Advisory Agreement, including all executive salaries and expenses
of the Directors and Officers of TIP who are employees of FAI
and office rent of TIP. Subject to the expense reimbursement
provisions described in the Prospectus, other expenses incurred in
the operation of TIP are borne by the Funds themselves,
including, without limitation: Money Manager fees; brokerage
commissions; interest; fees and expenses of administrators,
independent attorneys, auditors, custodians, accounting agents,
and transfer agents; taxes; cost of stock certificates; expenses
(including clerical expenses) of issue, sale, repurchase or
redemption of shares; expenses of registering and qualifying
shares of TIP under federal and state laws and regulations;
expenses of printing and distributing reports, notices and proxy
materials to existing members; expenses of printing and filing
reports and other documents filed with governmental agencies;
expenses of annual and special membersO meetings; expenses of
directors of TIP who are not employees of FAI; membership dues
in the Investment Company Institute; insurance premiums; and
extraordinary expenses such as litigation expenses. Fund
expenses directly attributable to a Fund are charged to that Fund;
other expenses are allocated proportionately among all of the
Funds in relation to the net assets of each Fund.
FUND ADMINISTRATOR. Consistent with their Mission of
helping foundations exploit the economies of scale inherent in
many aspects of investing, TIP and FAI rely heavily on outside
vendors to perform most functions that their Directors deem
delegable, including what is known in the mutual fund industry as
Ofund administration.O A mutual fundOs administrator oversees
its day-to-day operations, typically by performing certain tasks
itself (e.g., preparing regulatory filings) while supervising closely
the work of other vendors employed by the fund (e.g., its
custodian, transfer agent, dividend disbursing agent, accountant,
etc.) Because it specializes in such work, AMT Capital Services,
Inc. can perform these important functions better and at a lower
cost than can FAI.
ADMINISTRATION AGREEMENT. As Administrator for the
TIP Funds, AMT Capital receives a monthly fee at an annual rate
of: (a) 0.07% of the average daily net assets of TIP for the first
$300 million; (b) 0.05% for the next $2.7 billion; (c) 0.04% for
the next $2.0 billion; and (d) 0.03% over $5.0 billion of assets
under management. TIP also reimburses AMT Capital for certain
costs. In addition, TIP has agreed to pay AMT Capital an
incentive fee not to exceed 0.02% for reducing the expense ratio
of one or more Funds of TIP below certain levels specified for
such Funds. A profile of AMT Capital is provided in Appendix C
of the Prospectus.
MONEY MANAGER AGREEMENTS. The Money Manager
agreements between TIP and the Money Managers (the OMoney
Manager AgreementsO) will remain in effect for two years
following their dates of execution and thereafter will
automatically continue for successive annual periods, so long as
such continuance is specifically approved at least annually by (a)
the Board of Directors or (b) the vote of a OmajorityO (as
defined in the 1940 Act) of a Fund's outstanding shares voting
as a single class, provided that in either event the continuance is
also approved by at least a majority of the Board of Directors
who are not Ointerested personsO (as defined in the 1940 Act) of
TIP or FAI by vote cast in person at a meeting called for the
purpose of voting on such approval.
In negotiating Money Manager fee agreements, FAI's staff
analyzes a number of variables, including: (1) the proposed size of
a managerOs account; (2) the managerOs historical and expected
future performance against relevant benchmarks; (3) the historical
and expected future volatility of the managerOs relative returns;
(4) the managerOs assets under management; (5) the impact (if
any) that linking a managerOs compensation to its performance
might have on its decision-making process; and (6) other
organizational attributes. Many of the Funds' Money Manager
Agreements entail performance-based fees, which are discussed in
detail in the section entitled PERFORMANCE-BASED FEES
FOR MONEY MANAGERS.
Not all of the Money Managers profiled in the Prospectus are
employed by the Funds at all times. Whether a particular Money
Manager selected by FAI, approved by TIP's Directors, and
hence profiled in the TIP Prospectus is actually employed by TIP
at a given point in time depends on a Fund's size, its projected
growth rate, and FAI's perception of the relative attractiveness
of the Money Manager's approach in light of prevailing market
conditions. Foundations seeking to know the actual allocation of
each Fund's assets across Money Managers at a given time can
obtain this information by contacting FAI.
Termination of Money Manager Agreements. The Money
Manager Agreements are terminable without penalty on not less
than 60 days' notice by the Board of Directors of TIP or by a
vote of the holders of a majority of the relevant Fund's
outstanding shares voting as a single class, or upon not less than
60 days' notice by the Money Manager. A Money Manager
Agreement will terminate automatically in the event of its
OassignmentO (as defined in the 1940 Act).
Arms-Length Relationships between Money Managers and TIP.
The Money Managers have no affiliations or relationships with
TIP or FAI other than as discretionary investment managers for
all or a portion of a Fund's assets.
TARGET EXPENSE RATIOS. The target expense ratios for the
TIP Funds are: 1.00% for the Multi-Asset Fund; 1.00% for the
Global Equity Fund; 1.00% for the International Equity Fund;
1.50% for the Emerging Markets Fund; 0.65% for the U.S.
Equity Fund; 0.50% for the Bond Fund; and 0.35% for the Short-
Term Fund. These target expense ratios reflect informed
estimates by the Directors of TIP and FAI of the costs that
foundations must be prepared to incur to realize the performance
objectives that TIP's Directors have articulated for each Fund.
For example, the performance objective of the U.S. Equity Fund
is to outperform the Wilshire 5000 Stock Index by 0.75% per
annum net of fees and the Fund's target expense ratio is 0.65%.
Accordingly, FAI will seek to allocate the Fund's assets across
the Money Managers employed by it in a manner that will cause
its expense ratio to approximate 0.65% when the Fund's assets
themselves generate an incremental return over the Wilshire 5000
Stock Index of 1.40% (i.e., the 0.65% in fees incurred in pursuit
of the Fund's objective plus the 0.75% margin by which the
Fund seeks to outperform the Index net of fees would equal the
Fund's incremental return over the Wilshire 5000 Stock Index).
Because the fees each Fund will pay to its Money Managers are
(in most cases) tied to performance, it is possible that a Fund
which outperforms its benchmark by a material margin could
display an expense ratio considerably in excess of its target
expense ratio. The target expense ratios are just that: targets.
They are based on the assumption that FAI will allocate assets
among Money Managers in a manner that is sensitive to the
expressed aim of TIP's Board to keep each Fund's expense
ratio at or below such targets, except under circumstances where
the Fund outperforms its performance benchmark by a margin
greater than that reflected in its stated performance objective.
Because some Money Managers have benchmarks different from
the overall benchmark for the TIP Fund employing them, it is
possible that a Fund's expense ratio in any given time period
could exceed the Fund's target expense ratio even if the Fund
fails to achieve its return objective.
With respect to the TIP Funds that employ performance-based
fees for Money Managers, each Fund's actual expense ratio
could exceed its target expense ratio if the performance of one or
more Money Managers employed by it causes the average fees
paid to all of the Fund's Money Managers to exceed the
difference between (a) its target expense ratio and (b) all fees and
expenses paid by it other than Money Manager fees. For
example, the U.S. Equity Fund's target expense ratio is 0.65%
per annum. As indicated in the TIP Prospectus, all fees and
expenses other than Money Manager fees to be paid by the U.S.
Equity Fund are not likely to exceed 0.32% per annum. In
allocating the Fund's assets among Money Managers, FAI will
attempt to ensure that the average fees paid by the Fund to its
Money Managers only exceed 0.32% per annum (i.e., its target
expense ratio of 0.65% minus the 0.33% in other expenses) if the
Fund surpasses its performance objective. As noted in the table in
the Prospectus, the U.S. Equity Fund's performance objective is
to outperform the Wilshire 5000 Stock Index by 0.75% per
annum net of fees. If the condition just described is fulfilled
that the Fund's total expenses may exceed 0.65% only if it
surpasses its performance objective then its expense ratio will
not exceed 0.65% unless its assets produce a gross return that
exceeds the return produced by the Wilshire 5000 Stock index by
at least 1.40% (0.75% net excess return goal plus 0.65% fees).
FAI's failure to achieve this goal over a one-year holding period
or longer would cause the Fund to fail to achieve its performance
objective of outperforming the Wilshire 5000 Stock Index by
0.75% per annum.
Because the Emerging Markets Fund does not employ
performance-based fees for Money Manager fees, fluctuating
Money Manager fees cannot cause its actual expense ratio to
exceed its target expense ratio of 1.50% per annum. Its actual
expense ratio could exceed 1.50% per annum due to other factors
(e.g., unexpectedly high custody charges caused by very high
portfolio turnover rates).
PERFORMANCE-BASED FEES FOR MONEY MANAGERS
OVERVIEW. The following discussion outlines the principles
that FAI follows in negotiating Money Manager fees and
describes the performance-based fee structure that the Funds have
entered into with many (but not all) of the Money Managers
employed by them. These principles are the product of both the
combined investment experience of members of its Board and
TIP's Board and policy choices made by TIP's Board in its
formulation of objectives and guidelines for each Fund.
Optimizing versus Minimizing Expenses. Given the profound
impact that even modest differences in annual investment-related
costs can have on a foundationOs cumulative returns when
compounded over long time periods, it is proper for foundation
trustees to consider carefully the costs of alternative investment
vehicles. There is a crucial difference, however, between
minimizing the amount that a foundation spends to invests its
capital and optimizing these outlays. TIP aims to help member
foundations do the latter, not the former. To be sure, by pooling
the investable assets of numerous foundations, TIP can and does
seek to minimize how much participating foundations must spend
on such investment-related services as custody and portfolio
accounting. But with respect to Money Manager fees, which
typically constitute the lionOs share of investment-related
expenses, the Directors of TIP and FAI believe that a strategy
aimed at optimizing these outlays is potentially more profitable
than a strategy aimed merely at minimizing them. For this reason,
TIP relies primarily on active (as distinct from passive) money
management techniques, and makes extensive use of
performance-based fees in compensating Money Managers for
services rendered to TIP.
Except in the case of TIP's Emerging Markets Fund, which does
not employ performance-based fees for Money Managers, the fact
that the exact costs of investing through each TIP Fund are
unknowable in advance is undeniably off-putting to some
foundation investors. While understandable, this reluctance to
invest through vehicles whose exact costs are unknowable in
advance is somewhat ironic in light of another fact: the annual
standard deviations of the asset classes in which the TIP equity
and bond funds that utilize performance-based fees primarily
invest i.e., the non-diversifiable or systemic risks of each asset
class greatly exceed the economic uncertainty associated with
fluctuating manager fees, even under worst case conditions.
OWorst caseO as used here means the increase in a Fund's
expense ratio associated with an instantaneous shift from paying
all Money Managers employed by it their minimum fees to paying
all of them their maximum fees. The largest differences between
the minimum and maximum fees payable to any Money Manager
employed by the Funds are: Multi-Asset Fund - 1.85% per
annum; Global Equity Fund - 2.85% per annum; International
Equity Fund - 1.45% per annum; U.S. Equity Fund - 2.85% per
annum; and Bond Fund - 0.75% per annum. The average
differences between the minimum and maximum fees payable to
all Money Managers profiled in the TIP Prospectus are: Multi-
Asset Fund 1.72% (3 managers); Global Equity Fund 1.89%
(4 managers); International Equity Fund 1.43% (2 managers);
U.S. Equity Fund 1.56% (9 managers to whom performance-
based fees are paid); and Bond Fund 0.66% (4 managers).
Averages assume equal manager allocations. The annual standard
deviations of returns on the asset classes in which TIP's Equity
and Bond Funds primarily invest are: international equities -
20.1% (1970-92); U.S. equities - 20.6% (1926-92); and domestic
bonds - 8.5% (1926-92).
Based on their considerable investment experience, the Directors
of TIP and FAI believe that, over the long term, TIP's member
foundations are likely to realize a net benefit for bearing the
uncertainties associated with performance-based fees.
Link between Funds' Objectives and Performance-Based Fee
Structures. As noted in the Prospectus, the performance
objective of each Fund is to outperform a relevant market
benchmark by a modest increment net of fees. FAI's chief aim in
negotiating Money Manager fees is to ensure that such fees are
relatively low compared to institutional norms when each Money
Manager's performance is approximately equal to the level that
is required to enable the Fund that employs it to achieve its
performance objective. A related aim of FAI when negotiating
Money Manager fees is to tie manager compensation as closely as
possible to manager performance. FAI's intent in linking Money
Manager fees to performance is discussed in detail below.
Money Manager Evaluation Criteria Seek to Discourage Undue
Risk-Taking. TIP does not employ performance-based fees as a
means of inducing its Money Managers to perform better than
they would if they received straight asset-based fees. Rather, it
employs performance-based fees as one means among many of
seeking to achieve its aim of optimizing participating
foundationsO investment-related expenses. Although not
explicitly referred to in the Agreements between the Funds and
each Money Manager, a Money Manager's proven capacity to
deliver uniform results to all accounts managed in accordance
with the philosophy marketed to TIP is one of the essential
criteria that FAI screens for in recommending Money Managers
for the Funds. (See the section of the Prospectus entitled
MONEY MANAGERS - Manager Selection Criteria.) Because
the Money Managers know that the criteria FAI employs in
selecting Money Managers initially are the same it employs in its
ongoing evaluation of Money Managers employed by TIP, they
also know that portfolio decisions that cause the performance of
TIP's account to differ materially from the performance of
accounts that are purportedly managed similarly - whether
motivated by the desire to earn higher fees from TIP or not -
could trigger their dismissal by FAI.
On an ongoing basis, FAI compares the results each Money
Manager produces for TIP to the results it produces for its other
clients. A Money Manager's unwillingness to share these other
results with FAI or its failure to manage TIP's account in a
manner that is as similar as possible to the manner in which other
accounts with the same mandate are managed also constitute
grounds for dismissal.
PREFERRED PERFORMANCE-BASED FEE STRUCTURE.
While mindful that no fee structure can possibly prove suitable to
all Money Managers - even as a starting point for discussion - in
an effort to streamline the negotiation process as much as
possible, FAI has formulated a preferred performance-based fee
model. The graph below illustrates the application of this model
to one particular Money Manager. Herewith a summary of the
modelOs chief attributes:
Common Characteristics. All agreements between the Funds and
Money Managers entailing performance-based fees have certain
common characteristics, including: (1) minimum fees (OfloorsO);
(2) maximum fees (OcapsO) ; and (3) fee formulae that, in the
judgment of members of TIP's and FAI's Boards, produce fees
that are reasonable in relation to the margin of outperformance
that a Money Manager must achieve to earn a given level of fees.
In each case, the formula embodies the concept of a Ofulcrum
fee,O i.e., an equation (disclosed in the profile of each Money
Manager contained in the TIP Prospectus) under which the actual
fees paid to a Money Manager are always proportionately related
to performance above or below a given fulcrum point. In each
case, the formula is designed to augment a mutually agreed-upon
basic fee if the excess return on the portfolio managed by the
Money Manager for TIP (Actual Gross Total Return less
Benchmark Total Return) exceeds a specified level, and to reduce
this basic fee if the excess return falls below this level. As the
graph illustrates, in each case the slope of the fee line between the
floor and the cap is uniform throughout.
Definition of Total Return. OTotal ReturnO as used here means
the change in the market value of the Money Manager's
portfolio, or the Benchmark Index, as the case may be, over one
month measurement periods, adjusted on a time-weighted basis
for any assets added to or withdrawn from the Money Manager's
portfolio. The total returns of portfolios or benchmark indexes
over the rolling twelve-month time periods used in computing
performance-based bonuses/penalties are, therefore, the sum of
each of the monthly returns in the applicable rolling twelve month
period.
Manager-Specific Benchmark Indices. Importantly, the
benchmark index used in computing the Money Manager's
excess return is the index deemed most relevant for that Money
Manager. In many cases, this benchmark index is the same as the
overall performance benchmark for the Fund retaining the Money
Manager. In some cases, however, FAI's objective of melding
Money Managers espousing different philosophies into an
integrated manager structure that is both effective and efficient
dictates that a Money Manager's benchmark index be different
from the benchmark for the Fund that retains it.
Fee Function Tied to Fund's Overall Objective. One virtue of
the performance-based fee structure is that it permits FAI to craft
manager-specific fee agreements that link compensation to the
return objectives of the Fund in question. In crafting fee
proposals, FAI and the Directors of TIP will ask a number of
questions, including those discussed below. Answers to all will
be considered when evaluating fee arrangements.
1. What is a reasonable fee for this Money Manager if it
outperforms its benchmark by the same margin that the Fund
employing it aims to outperform its benchmark? For example, the
TIFF U.S. Equity Fund seeks to outperform its benchmark
(Wilshire 5000) by 75 basis points net of fees. If analysis of all
relevant factors (including but not limited to: the proposed size
of a Money Manager's account, the Money Manager's
historical deviations from the benchmark, the volatility of such
deviations, the Money Manager's assets under management, and
other organizational attributes) suggests that it is reasonable to
pay Manager A 40 basis points for outperforming its benchmark
by 75 basis points net of fees, then FAI has defined one point on
the fee line for Manager A: 115 basis points of excess return on
the x-axis, 40 basis points of fees on the y-axis.
2. What is a reasonable fee for this Money Manager if it
performs as expected? As a practical matter, most Money
Managers screened by FAI for retention by TIP expect to
outperform their agreed-upon benchmark by a margin greater
than that reflected in the targeted excess return of the TIP Fund
that they seek to serve. For example, most U.S. equity managers
screened by FAI seek to outperform a relevant benchmark of U.S.
equities by more than the 0.75% (75 basis points) that the TIFF
U.S. Equity Fund seeks to outperform its performance benchmark
(the Wilshire 5000) net of all fees. The Money Managers
establish their fee-negotiating position with a view to what they
would expect to earn under a normal asset-based fee
arrangement; they can be expected to seek a performance-based
fee schedule that will give them reasonable assurance of payment
comparable to their asset-based fee expectations. Particularly
where the Money Manager has an asset-based fee schedule in
place for other clients, FAI will begin negotiation on the premise
that the Money Manager should be paid an amount comparable to
a reasonable asset-based fee if the Money Manager performs in
accordance with reasonable expectations.
3. What is the appropriate Fulcrum Point for this Money
Manager? The Fulcrum Point - the midpoint between the highest
fee payable and the lowest fee payable - is set to establish a fee
structure in which the financial incentives of the Money Manager
are aligned with those of the Fund. The Fulcrum Point is set at a
performance level that the Money Manager can reasonably expect
to achieve with an investment approach that entails an acceptable
level of risk for the Fund. FAI and TIP will seek agreements in
which the Money Manager will have as much to lose as it has to
gain if the Money Manager chooses to increase the risk it takes
with the Fund's account. The table below identifies Money
Managers that provide services to the Funds with performance-
based fees, the Fulcrum Fee under the Agreement between the
Money Manager and TIP, and the return that must be achieved by
the Money Manager in order to earn the Fulcrum Fee (100 bp
equals 1.00%). See Appendix A to the Prospectus for additional
information about the Money Managers and the Agreements.
4. What is a reasonable fee "floor" for this Money
Manager? As with the determination of all model inputs, FAI's
choice of an appropriate OfloorO for each Money Manager is
based on an analysis of both the Money Manager's idiosyncratic
attributes and the perceived availability of qualified alternate
Money Managers. Having identified an appropriate minimum fee
for each Money Manager, FAI then identifies the level of return at
which the fee "bottoms out."
5. What is a reasonable fee "cap" for this Money Manager?
Having identified an appropriate floor, FAI then identifies, for
each Money Manager, the reciprocal fee "cap." In all cases, the
cap and the level of excess return at which it is reached are
selected in accordance with criteria that aim to reward the Money
Manager adequately for superior performance without creating
incentives for either undue risk-taking or undue risk aversion (i.e.,
"closet indexing" of portfolio assets to the agreed-upon
benchmark).
Excess Return over
Manager's Benchmark
Required to Receive
Money Manager Fulcrum Fee Fulcrum Fee
Aronson + Fogler Investment Management 45 bp 210 bp
Atlantic Asset Management Partners, Inc. 35 bp 165 bp
Bee & Associates 107 bp 458 bp
Eagle Capital Management 100 bp 621 bp
First Quadrant 158 bp 953 bp
Fischer Francis Trees & Watts, Inc.
(Bond Fund) 45 bp 251 bp
Harding, Loevner Management, L.P. 80 bp 400 bp
Investment Research Company (Hi Cap) 65 bp 281 bp
Investment Research Company
(Long/Short Equity) 105 bp 870 bp
Jacobs Levy Equity Management 70 bp 249 bp
Kayne, Anderson Investment Management, Inc.40 bp 120 bp
Marathon Asset Management Ltd. 88 bp 424 bp
Palo Alto Investors 105 bp 524 bp
Seix Investment Advisors, Inc. 45 bp 195 bp
A. Gary Shilling & Co., Inc. 107 bp 458 bp
Smith Breeden Associates, Inc. (Bond Fund) 48 bp 157 bp
Smith Breeden Associates, Inc.
(Short-Term Fund) 40 bp 95 bp
Turner Investment Partners, Inc. 83 bp 529 bp
Westport Asset Management, Inc. 108 bp 430 bp
Computing and Remitting Fees. The computation and remittance procedures that
the Funds will employ are described immediately below. All fee schedules are
applied to the average daily net assets in each Money Manager's
account for the time period in question. For purposes of
computing the Funds' daily net asset values, however,
performance-based fees are accrued based on investment returns
achieved during the current performance fee period.
Computing Fees. For the first two months following the
inception of their accounts, Money Managers will receive a
straight asset-based fee equal to 150% of the minimum (floor)
rate, regardless of performance. Thereafter, they will be
compensated in accordance with the performance-based fee
function negotiated with each Money Manager (depicted in its
Money Manager profile in Appendix A), with the fee for a given
month (e.g., February 1998) based on the Money Manager's
performance for the twelve months ending two months prior to
that month (December 1997 in our example). Why a two-month
time lag? Because, while TIP's Directors would prefer that fees
paid by members in a given month reflect the returns they actually
earn in that month, two facts preclude perfect linkage: (1) the
law requires a minimum 12-month measurement period for
performance-based fees; and (2) the returns on some managersO
benchmarks (e.g., certain foreign stock indices) are not available
until several days after month-end. This means that the closest
TIP can come to accruing fees that reflect how a Money Manager
did for shareholders of, for example, its International Equity Fund
in February 1998 is to base them on each Money Manager's
performance for the twelve months ending December 31, 1997.
Theoretically, the lag could be reduced to one month plus the
number of days following month-end that it takes vendors (e.g.,
Morgan Stanley Capital International) to distribute benchmark
returns, but the practical difficulties of making intra-month
adjustments in accrual rates outweigh the advantages of achieving
such precision. Of course, TIP could voluntarily adopt a
measurement period longer than one year, and TIP would do so
were it not for the fact that the longer the measurement period,
the looser the linkage between the level of performance-based
fees paid by the Funds and the gross returns they actually earn for
their Members.
Remitting Fees. In order to comply with the legal requirement
that there be a minimum one-year measurement period for
performance-based portfolio management fees, in the third
through fourteenth calendar month of their employment by a
Fund, Money Managers agreeing to performance-based fee
arrangements may receive only a portion of the fees accrued by a
Fund with respect to segments of the Fund managed by them.
Specifically, during this twelve month time period, the Money
Managers will receive only the minimum (floor) fee to which they
are entitled. Upon determination (on or about the tenth day of
the fifteenth calendar month of its employment by the Fund) of
the precise amount of fees to which such Money Manager is
entitled for services rendered during the third through fourteenth
months of its employment by a Fund, any fees accrued by the
Fund that are owed to the Money Manager in light of its
performance will be disbursed. The reason for commencing
accrual of performance-based fees in the third calendar month of
investment operations for each Fund rather than at an earlier date
is that, as noted, the indices with reference to which the Money
Managers' performance is computed are typically not available
until five or more business days after the close of each month.
Since it is impractical to adjust fee accrual rates intra-month (e.g.,
during the second calendar month of investment operations based
on performance achieved during the first month), the earliest that
such accruals can reflect Money Managers' actual performance
is the third calendar month that a Money Manager agreeing to
performance-based fee arrangements is employed by a Fund.
Advantages and Disadvantages of Accrual and Remittance
Procedures. TIP's Board of Directors recognizes that the
procedure described above could give rise to inequities among
members, but such inequities are likely to be less acute than those
produced by performance-based fee arrangements entailing
measurement periods longer than one year. For example, some
regulated investment companies have performance-based
portfolio management fee arrangements entailing rolling 36-
month performance measurement periods. Under such
arrangements, shareholders entering the Fund in, for example,
month 72 may be forced to pay the maximum fees to which a
Money Manager is entitled for several months following their
initial purchase if the Money Manager's performance was
sufficiently good during months 36 through 71. This could occur
even though the managerOs performance is not as good in the
months immediately following the new shareholderOs entry (e.g.,
months 72 through 84), because the fees for these months will
reflect the Money Manager's performance during prior time
periods. The one-year measurement period that TIP will employ
under performance-based fee arrangements does not eliminate
these intergenerational inequities among changing shareholder
populations, but it can help to minimize them, and it is because
TIP's Board seeks to tie the portfolio management fees paid by
individual members as closely as possible to the gross investment
returns such members actually realize that the Board has
approved performance-based fee arrangements with certain
Money Managers entailing the minimum one-year measurement
period permitted by law.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1995, there were no Ocontrol personsO (as such
term is defined in the 1940 Act) of TIP. All shares of each Fund
listed in this section are Common Stock, $.001 per Share, and are
directly held. As of March 31, 1995, the following Members held
five percent or more of the outstanding shares of each Fund as
indicated:
Multi-Asset Fund
The Greater New Orleans Foundation; 2515 Canal St., Ste. 401;
New Orleans, LA 70119 34.2%
The Vasser Woolley Foundation, Inc.; 1201 W. Peachtree St.,
Ste. 4200; Atlanta, GA 30309 18.8%
Bridgeport Area Foundation, Inc.; 280 State St.; Bridgeport, CT
06604 11.1%
The William H. Harris Foundation, c/o Mass. General Hosp.; 15
Parkman St.; Boston, MA 02114 10.5%
International Equity Fund
The Rockefeller Foundation; 420 Fifth Avenue; New York, NY
10018 34.2%
Houston Endowment Inc.; 600 Travis, Suite 6400; Houston, TX
77002 21.6%
California Community Foundation; 606 S. Olive St., Suite 2400;
Los Angeles, CA 90014 5.4%
Emerging Markets Fund
John D. & Catherine T. MacArthur Foundation; 140 South
Dearborn, Suite 1100; Chicago, IL 60603 29.7%
Pew Memorial Trust, c/c Glenmede Trust Co.; One Liberty
Plaza, Suite 1200; Philadelphia, PA 19103 26.5%
The Commonwealth Fund; 1 East 75th Street; New York, NY
10021 13.4%
ACF/CRF Joint Fund; 3773 Cherry Creek North Drive #955;
Denver, CO 80209 9.0%
Carnegie Corporation of New York; 437 Madison Avenue; New
York, NY 10022 9.0%
U.S. Equity Fund
William & Flora Hewlett Foundation; 525 Middlefield Road
#200; Menlo Park, CA 94025 34.2%
BellSouth Foundation, Inc.; 1155 Peachtree Street; Atlanta; GA
30309 18.2%
East Tennessee Foundation; 550 West Main Street; 360
Nationsbank Center; Knoxville, TN 37902 6.1%
Benton Foundation; 1634 Eye Street NW, Washington, D.C.
20006 5.4%
Bond Fund
The Duke Endowment; 100 North Tryon Street, Suite 3500;
Charlotte, NC 28202 39.9%
Meadows Foundation Inc.; 3003 Swiss Avenue; Dallas, TX
75204 8.4%
Benton Foundation; 1634 Eye Street NW, Washington, D.C.
20006 6.6%
The Teagle Foundation Inc.; 10 Rockefeller Plaza, Room 920;
New York, NY 10020 6.3%
Lingnan Foundation; 809 UN Plaza; New York, NY 10017 6.1%
Short-Term Fund
Public Policy Institute of California; 388 Market Street, Suite
400; San Francisco, CA 94111 85.9%
DISTRIBUTION OF FUND SHARES
Shares of TIP are distributed by Foundation Advisers, Inc. as a
registered branch office of AMT Capital Services, Inc., pursuant
to a Distribution Agreement (the ODistribution AgreementO)
dated as of January 1, 1995 between TIP and AMT Capital
Services. The Distribution Agreement requires FAI and AMT
Capital Services to use their best efforts on a continuing basis to
solicit purchases of shares of TIP. No fees are payable by TIP
pursuant to the Distribution Agreement, and FAI and AMT
Capital Services bear the expense of their distribution activities.
TIP, FAI, and AMT Capital Services have agreed to indemnify
one another against certain liabilities.
PURCHASES. TIP reserves the right in its sole discretion to:
(1) suspend the offering of shares of any Fund; (2) reject purchase
orders when in the judgment of management such rejection is in
the best interests of TIP; and (3) reduce or waive the minimum
for initial investments.
REDEMPTIONS. Each Fund may suspend redemption privileges
or postpone the date of payment: (1) during any period that the
New York Stock exchange is closed, or trading on the exchange
is restricted as determined by the Commission; (2) 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 a Fund to dispose of securities owned by it, or fairly to
determine the value of its assets; and (3) for such other periods as
the Commission may permit.
Potential In-Kind Redemptions. TIP reserves the right, if
conditions exist which make cash payments undesirable, to honor
any request for redemption of a Fund by making payment in
whole or in part in readily marketable securities chosen by TIP
which are valued in the same manner as they are for purposes of
computing the Fund's net asset value (redemption-in-kind). If
payment is made in securities, a member may incur transaction
expenses in converting these securities to cash. TIP has elected,
however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which TIP is obligated to redeem shares, with respect to
any one member during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of a Fund at
the beginning of the period, and is permitted to borrow to finance
such redemptions without regard to restrictions that might
otherwise apply under the 1940 Act.
SUPPLEMENTAL DISCUSSION OF
INVESTMENT OBJECTIVES, POLICIES, AND
RESTRICTIONS
POTENTIAL BENEFITS AND COSTS OF INVESTING IN
FOREIGN SECURITIES. Many investors believe that foreign
securities are riskier than domestic securities. In some respects,
they are right, especially when foreign securities are viewed as
stand-alone investments. However, many institutional investors
have made major commitments to foreign securities, typically for
two reasons: (1) to reduce the volatility of their overall returns
(foreign markets and domestic markets tend to rise and fall at
different times); and (2) to enhance these returns over the long
term. A long-term investment horizon is appropriate because it
is dangerous to assume that foundation governing boards, which
typically meet on a part-time basis in an environment where
consensus comes first, can shift funds profitably between
domestic and foreign markets in anticipation of short-term market
movements. The safer assumption is that shifts of this sort will
not produce profits net of trading costs. In the opinion of TIP's
Directors, the opportunity to enhance long-term returns by
investing in foreign markets lies chiefly in their relative
inefficiency: because international money managers have far
more companies (and countries) to choose from than do
managers investing solely in domestic securities, the potential
added value from active portfolio management is higher for
international stock portfolios than it is for purely domestic ones.
The costs are higher also, not only because management fees and
custody costs tend to be higher on international portfolios, but
also because foreign governments withhold a portion of the
income that foundations earn when investing abroad. Despite
these higher costs, the dual benefits of investing in foreign
securities - increased diversification and the opportunity to earn
higher returns by exploiting valuation inefficiencies in foreign
markets - makes a substantial allocation to them worthy of
serious consideration by most foundation boards.
PERFORMANCE OBJECTIVES. The TIP Funds seek to
outperform their performance benchmarks by different margins
(see the table in the section of the Prospectus entitled
HIGHLIGHTS). There are two reasons why these margins differ.
First, the costs of implementing each Fund's investment policies
differs. Second, the efficiency of the markets in which each Fund
will primarily invest differs, with the U.S. stock and fixed income
markets arguably being the most efficient (in a valuation sense) of
all markets in which the Funds will invest. The margin by which
each Fund seeks to outperform its performance benchmark thus
reflects judgments by TIP's Directors of the excess return that a
properly diversified, actively managed fund might realistically
seek to earn net of the costs that must be incurred in producing
this excess return. OExcess returnO as used here means the
difference between a Fund's total return and the total return of
its performance benchmark.
SUPPLEMENTAL DISCUSSION OF POLICY
IMPLEMENTATION AND RISKS
INVESTMENT STRATEGIES
Borrowing. Each Fund may borrow money temporarily from
banks when: (1) it is advantageous to do so in order to meet
redemption requests; (2) a Fund fails to receive transmitted funds
from a member on a timely basis; (3) the custodian of TIP fails to
complete delivery of securities sold; or (4) a Fund needs cash to
facilitate the settlement of trades made by the Fund. In addition,
each Fund may make securities loans or lend securities by
engaging in reverse repurchase agreements and/or dollar roll
transactions. By engaging in such transactions, a Fund may, in
effect, borrow money. Securities may be borrowed under
repurchase agreements.
Opportunistic Equity Substitutes. The Multi-Asset Fund may
allocate a portion of its assets to Money Managers or securities
issued by investment vehicles that the TIP Directors would
describe as equity substitutes. Some of these managers may not
be specifically profiled in Appendix A of the Prospectus because
their services are available only indirectly through commingled
investment vehicles (e.g., limited partnerships) - not through
separate accounts with TIP-specific fees and guidelines. FAI has
identified several such managers, including: (1) Farallon
Associates, a San Francisco-based firm that employs a changing
variety of securities and strategies in pursuit of high absolute
returns for its limited partners, including risk arbitrage and
distressed securities; (2) Whippoorwill Associates, a New York-
based firm that specializes in securities of firms experiencing
acute financial pressures; and (3) Wyser-Pratte Management Co.
Inc., a New York-based firm that specializes in global risk
arbitrage. There is no assurance that these or other firms that
FAI might recommend for use within the Fund's Opportunistic
Equity Substitutes segment will have partnerships available for
the Fund's use at all times, and TIP's Directors believe that it
would be misleading to include Profiles of such managers in the
TIP Prospectus and have been advised by counsel that such
Profiles are not required to be included in the Prospectus. The
fees to be paid by the Fund to managers of other commingled
vehicles in which the Fund might invest will be identical to those
paid by all other holders of such funds.
Foreign Currency Exposure. TIP's Directors have studied
carefully the impact of exchange rate changes on the U.S. dollar
value of foreign securities portfolios, and have concluded that the
impact of such changes declines dramatically as oneOs investment
time horizon lengthens. This is especially true with respect to
foreign stock portfolios, for this reason: global investors
routinely adjust the prices they are willing to pay for shares of a
given firm in response to changes in the foreign exchange value of
the currencies in which its products (and costs) are denominated.
For example, while it is likely that a sudden 10% decline in the
Japanese yenOs value in U.S. dollar terms will produce short-
term losses in the dollar value of shares of Japanese exporters, the
increased competitiveness of such firms typically will cause global
investors to mark upwards such firmsO relative price/earnings or
price/book value multiples, albeit with a lag.
Exchange rate movements can produce large losses over short-
and even medium-term time horizons, but TIP's Directors
strongly discourage foundations from investing in foreign
securities in pursuit of short-term gains, and they believe that
exchange rate movements are essentially a wash over the longer-
term time horizons which most global investors properly employ.
The logic of this position can be assessed by pondering the
implications of the opposite belief: that investors can earn an
economic return over the very long term merely by holding
certain currencies (i.e., continually rolling over long positions in a
given currency or basket of currencies in the spot or futures
markets). While there have undeniably been short-term periods
when currency exposure per se produced positive real returns
(e.g., holding Japanese yen during the five years ending December
1993), global trade and capital flows make it very difficult for the
disequilibrium created by massive changes (up or down) in the
foreign exchange value of a given currency to persist. Countries
whose currencies plummet in value can suffer enormous
hardships, as can holders of shares of firms denominated in such
currencies, but devaluations ultimately enhance the
competitiveness of such countries' private sectors, thereby
inducing global investors to sell shares of firms domiciled in
countries with revalued currencies in order to fund purchases of
shares of firms domiciled in countries with devalued ones.
Foreign Currency Hedging. Each of the Funds may enter into
forward foreign currency contracts (a "forward contract") and
may purchase and write (on a covered basis) exchange-traded or
over-the-counter ("OTC") options on currencies, foreign
currency futures contracts, and options on foreign currency
futures contracts primarily to protect against a decrease in the
U.S. Dollar equivalent value of its foreign currency portfolio
securities or the payments thereon that may result from an
adverse change in foreign currency exchange rates. Each of the
Funds may at times hedge all or some portion of its currency
exchange risk. Conditions in the securities, futures, options, and
foreign currency markets will determine whether and under what
circumstances TIP will employ any of the techniques or strategies
described below and in the section of the Prospectus entitled
POLICY IMPLEMENTATION AND RISKS. TIP's ability to
pursue certain of these strategies may be limited by applicable
regulations of the Commodity Futures Trading Commission
(OCFTCO) and the federal tax requirements applicable to
regulated investment companies (see TAX
CONSIDERATIONS).
Forward Contracts. Sale of currency for dollars under such a
contract establishes a price for the currency in dollars. Such a
sale insulates returns from securities denominated in that currency
from exchange rate fluctuations to the extent of the contract while
the contract is in effect. A sale contract will be advantageous if
the currency falls in value against the dollar and disadvantageous
if it increases in value against the dollar. A purchase contract will
be advantageous if the currency increases in value against the
dollar and disadvantageous if it falls in value against the dollar.
Funds may use forward contracts to insulate existing security
positions against exchange rate movement (Oposition hedgesO)
or to insulate proposed transactions against such movement
(Otransaction hedgesO). For example, to establish a position
hedge, a forward contract on a foreign currency might be sold to
protect the gain from a decline in the value of that currency
against the dollar. To establish a transaction hedge, a foreign
currency might be purchased on a forward basis to protect against
an anticipated increase in the value of that currency against the
dollar.
Primary Risks: The success of currency hedging will depend on
the ability of Money Managers to predict exchange rate
fluctuations. Predicting such fluctuations is extremely difficult
and thus the successful execution of a hedging strategy is highly
uncertain. An incorrect prediction will cause poorer Fund
performance than would otherwise be the case. Forward
contracts that protect against anticipated losses have the
corresponding effect of canceling possible gains if the currency
movement prediction is incorrect.
Precise matching of forward contract amounts and the value of
portfolio securities is generally not possible because the market
value of the protected securities will fluctuate while forward
contracts are in effect. Adjustment transactions are theoretically
possible but time consuming and expensive, so contract positions
are likely to be approximate hedges, not perfect.
The cost to a Fund of engaging in forward contracts will vary
with factors such as the foreign currency involved, the length of
the contract period, and the market conditions then prevailing,
including general market expectations as to the direction of the
movement of various foreign currencies against the U.S. dollar.
Furthermore, neither FAI nor the Money Managers may be able
to purchase forward contracts with respect to all of the foreign
currencies in which the Fund's portfolio securities may be
denominated. In those circumstances the correlation between the
movements in the exchange rates of the subject currency and the
currency in which the portfolio security is denominated may not
be precise. Moreover, if the forward contract is entered into in an
over-the-counter transaction, as will usually be the case, the Fund
generally will be exposed to the credit risk of its counterparty. If
a Fund enters into such contracts on a foreign exchange, the
contract will be subject to the rules of that foreign exchange.
Foreign exchanges may impose significant restrictions on the
purchase, sale, or trading of such contracts, including the
imposition of limits on price moves. Such limits may significantly
affect the ability to trade such a contract or otherwise to close out
the position and could create potentially significant discrepancies
between the cash and market value of the position in the forward
contract. Finally, the cost of purchasing forward contracts in a
particular currency will reflect, in part, the rate of return available
on instruments denominated in that currency. The cost of
purchasing forward contracts to hedge portfolio securities that
are denominated in currencies that in general yield high rates of
return may thus tend to reduce that rate of return toward the rate
of return that would be earned on assets denominated in U.S.
dollars.
Other Hedging Strategies and Tactics. Among the other hedging
strategies and tactics that a Fund may employ are interest rate,
currency and index swaps, and the purchase or sale of related
caps, floors, and collars. Each Fund may enter into these
transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against
currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. Each Fund intends to use
these transactions as hedges and not as speculative investments
and will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the
exchange by a Fund with another party their respective
commitments to pay or receive interest, for example, an exchange
of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to
exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and
an index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the referenced indices.
The purchase of a cap entitles the purchaser to receive payments
on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest
rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. With respect to
swaps, a Fund will accrue the net amount of the excess, if any, of
its obligations over its entitlements with respect to each swap on
a daily basis and will segregate an amount of cash or liquid
securities having a value equal to the accrued excess. Caps,
floors and collars require segregation of assets with a value equal
to the Fund's net obligation, if any.
Long/Short Strategies. In the opinion of TIP's and FAI's
Directors, the U.S. stock market is highly efficient in the
valuation sense, and becoming more so at a rapid rate due to the
combined impact of falling computing costs, globalization of
financial markets, and regulatory changes. In short, with so many
powerful computers and skilled professionals attempting to
exploit valuation anomalies among U.S. stocks, it is becoming
increasingly difficult to outperform market averages. This is one
reason why the U.S. Equity Fund seeks to outperform its
performance benchmark by a narrower margin than TIP's
international equity funds seek to outperform theirs. It is also the
reason that TIP's Directors have authorized the U.S. Equity
Fund to employ so-called long/short investment strategies:
strategies entailing the construction of a portfolio comprising long
positions in stocks which the Money Manager supervising it
perceives as undervalued, offset by an equivalent dollar amount of
short positions in stocks that the Money Manager perceives as
overvalued. Because the long and short subportfolios offset or
neutralize each other, long/short strategies are sometimes referred
to as Omarket neutralO strategies.
Long versus Short Positions. As noted in The New Stock
Market, an excellent treatise on stock investing co-authored by
one of TIP's Money Managers (Russell Fogler of Aronson +
Fogler):
There are two ways to make money [in the stock market]: buy
low and sell high, or sell high and buy low. A short sale is the
latter. Suppose you forecast that a stockOs price will drop. If
you do not own any of it, you can profit from your forecast by
borrowing some shares, selling them, and buying them back later
at the lower price. Your broker helps you by borrowing stock
from an investor who owns the stock and giving them your IOU.
The borrowed stock is sold, and you are given the proceeds.
Later, when you sell the stock, the transaction is reversed. In the
meantime, you must pay any dividends declared by the company
plus a fee for borrowing the stock.
Rationale for Strategy. From a foundation investorOs viewpoint,
the rationale for using long/short strategies is simply stated: if
you believe that skilled active managers can identify stocks that
are likely to outperform market averages (undervalued issues),
then is it not also logical to assume that skilled active managers
can also identify stocks that are likely to underperform market
averages (overvalued issues)? It is precisely this assumption -
that skilled money managers can indeed identify overvalued
stocks - that animates a major trend in institutional investing in
the 1990s: the tendency of sophisticated institutional investors
(including several of the foundation and endowment officers who
serve on the TIP or FAI Boards) to permit the money managers
they employ to OshortO stocks on a highly selective, carefully
controlled basis. In an increasingly efficient market, OshortO sale
techniques are appealing because they exploit a structural
inefficiency in capital markets: the tendency of most investors to
focus on the identification of undervalued, as distinct from
overvalued, securities. Indeed, one of the chief reasons why it is
becoming increasingly difficult to outperform the U.S. stock
market is that long/short strategies, while still unconventional, are
becoming increasingly popular among the large institutions that
dominate the U.S. stock market. Outperforming broad market
averages without using long/short strategies remains feasible, of
course, but in the opinion of TIP's Directors the advantages of
allocating a defined portion (zero to 30%) of the U.S. Equity
Fund to such strategies outweigh the risks (discussed immediately
below). TIP's other Funds do not currently employ long/short
or pure short-selling strategies, but are authorized to do so by the
TIP Prospectus.
Primary Risks: As discussed in detail in the TIP Prospectus, the
risks of shorting securities are distinctly different from the risks of
holding only long positions. Given the restrictions to which
managers employing long/short strategies on behalf of TIP are
subject, however, foundations investing in TIP's U.S. Equity
Fund are not exposed to the type of risk typically associated with
short sales techniques - the risk of losing all of the capital they
have invested as a result of a stratospheric increase in the value of
a single security (or indeed the stock market generally). As is
true of the other institutions employing long/short strategies with
which the TIP and FAI Directors are associated, TIP employs
several safeguards to control the risks of such strategies: (1) any
long/short portfolios constructed on the Fund's behalf must
comprise an approximately equivalent dollar amount of long and
short positions in a diversified list of issues, and must be overlaid
with long positions in stock index futures contracts, thus limiting
potential losses on the short positions caused by a rise in stock
prices generally; and (2) the TIP Prospectus states that the dollar
size of a short position in a single stock may not represent more
than 3% of the U.S. Equity Fund's net assets.
Securities Lending. As part of its continuing effort to make
available to all eligible foundations investment strategies and
tactics to which they might otherwise lack access, TIP avails itself
of an opportunity created by the increasingly widespread use of
the same short-selling techniques that TIP itself employs: lending
portfolio securities to investors who need to borrow them in
order to implement long/short (or pure short) strategies. While
most large foundations have active securities lending programs in
place, many foundations do not. According to the 1993
Community Foundation Investment Report (published jointly by
the Council on Foundations and the Community Foundation
Fiscal and Administrative OfficerOs Group), less than 2% of
community foundations engage in securities lending.
Through its custodial bank, and subject to strict guidelines
summarized below and in the TIP Prospectus, TIP actively lends
the securities held in all of its Funds. The incremental income
from such lending activities varies from Fund to Fund, with U.S.
securities typically commanding much narrower lending
OspreadsO (according to Kohlberg and Associates, average
lending income might approximate 0.02% to 0.05% per annum)
than foreign securities (0.15% to 0.75% per annum). These
differences stem primarily from the far greater availability of
lendable U.S. securities in relation to borrowing demand than
exists in non-U.S. markets.
Each Fund is authorized to lend securities from its investment
portfolios, with a value not exceeding 331/3% of its total assets,
to banks, brokers, and other financial institutions if it receives
collateral in cash, U.S. Government securities, or irrevocable
bank stand-by letters of credit maintained at all times in an
amount equal to at least 100% of the current market value of the
loaned securities. The loans will be terminable at any time by TIP
and the relevant Fund will then receive the loaned securities
within five days. During the period of such a loan, the Fund
receives the income on the loaned securities and a loan fee and
may thereby increase its total return. 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 companyOs Board of
Directors. In addition, voting rights may pass with the loaned
securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities
voted.
INVESTMENT TACTICS
Dollar Roll Transactions. ODollar rollO transactions consist of
the sale by a Fund to a bank or broker-dealer (the
OcounterpartyO) of GNMA certificates or other mortgage-
backed securities together with a commitment to purchase from
the counterparty GNMA certificates or other mortgage-backed
securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including
prepayments, made on the security while it is the holder. The
Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be
renewed with a new purchase and repurchase price fixed and a
cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm
commitment agreement pursuant to which the Fund agrees to buy
a security on a future date. A Fund will not use such transactions
for leverage purposes and, accordingly, will segregate cash, U.S.
Government securities or other high grade debt obligations in an
amount sufficient to meet its purchase obligations under the
transactions.
Dollar rolls are similar to reverse repurchase agreements because
they involve the sale of a security coupled with an agreement to
repurchase. Like borrowings, a dollar roll involves costs to a
Fund. For example, while a Fund receives a fee as consideration
for agreeing to repurchase the security, the Fund may forego the
right to receive all principal and interest payments while the
counterparty holds the security. These payments to the
counterparty may exceed the fee received by the Fund, thereby
effectively charging the Fund interest on its borrowing. Further,
although the Fund can estimate the amount of expected principal
prepayment over the term of the dollar roll, a variation in the
actual amount of prepayment could increase or decrease the cost
of the Fund's entry into the dollar roll.
Primary Risks: The entry into dollar rolls involves potential risks
of loss which are different from those related to the securities
underlying the transactions. For example, if the counterparty
becomes insolvent, a Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to
repurchase them. Similarly, a Fund may be required to purchase
securities in connection with a dollar roll at a higher price than
may otherwise be available on the open market. Since the
counterparty is not required to deliver an identical security to a
Fund, the security that the Fund is required to buy under the
dollar roll may be worth less than an identical security. Finally,
there can be no assurance that a Fund's use of cash that it
receives from a dollar roll will provide a return that exceeds
borrowing costs.
Repurchase and Reverse Repurchase Agreements. When
participating in repurchase agreements, a Fund buys securities
from a vendor (e.g., a bank or securities firm) with the agreement
that the vendor will repurchase the securities at the same price
plus interest at a later date. Repurchase agreements may be
characterized as loans secured by the underlying securities. Such
transactions afford an opportunity for the Fund to earn a return
on available cash at minimal market risk, although the Fund may
be subject to various delays and risks of loss if the vendor
becomes subject to a proceeding under the U.S. Bankruptcy Code
or is otherwise unable to meet its obligation to repurchase. The
securities underlying a repurchase agreement will be marked to
market every business day so that the value of such securities is at
least equal to the value of the repurchase price thereof, including
the accrued interest thereon.
When participating in reverse repurchase agreements, a Fund sells
U.S. Government securities and simultaneously agrees to
repurchase them at an agreed-upon price and date. The
difference between the amount the Fund receives for the
securities and the additional amount it pays on repurchase is
deemed to be a payment of interest. TIP will maintain for each
Fund a segregated custodial account containing cash, U.S.
Government securities, or other appropriate assets having an
aggregate value at least equal to the amount of such commitments
to repurchase, including accrued interest, until payment is made.
Reverse repurchase agreements create leverage, a speculative
factor, but will not be considered borrowings for the purposes of
limitations on borrowings.
In addition, repurchase and reverse repurchase agreements may
also involve the securities of certain foreign governments in which
there is an active repurchase market. FAI and the Money
Managers expect that such repurchase and reverse repurchase
agreements will primarily involve government securities of
countries belonging to the Organization for Economic
Cooperation and Development (OOECDO). Transactions in
foreign repurchase and reverse repurchase agreements may
involve additional risks.
Primary Risks: The use of repurchase agreements
involves certain risks. For example, if the seller in the agreements
defaults on its obligation to repurchase the underlying securities
at a time when the value of these securities has declined, a Fund
may incur a loss upon their disposition. If the seller in the
agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a
bankruptcy court may determine that the underlying securities are
collateral not within the control of the Fund and are therefore
subject to sale by the trustee in bankruptcy. Finally, it is possible
that the Fund may not be able to substantiate its interest in the
underlying securities. While TIP's management acknowledges
these risks, it is expected that they can be mitigated through
stringent security selection criteria and careful monitoring
procedures.
TYPES OF INVESTMENTS. The different types of securities in
which the Funds may invest, subject to their respective investment
objectives, policies and restrictions, are described in the section of
the Prospectus entitled POLICY IMPLEMENTATION AND
RISKS - Types of Investments. Additional information
concerning the characteristics and risks of certain of the Funds'
investments are set forth below.
Debt Securities
Bank Obligations. TIP limits its investments in U.S. bank
obligations to obligations of U.S. banks that in FAI's or the
Money Managers' opinions meet sufficient creditworthiness
criteria. TIP limits its investments in foreign bank obligations to
obligations of foreign banks (including U.S. branches of foreign
banks) that, in the opinion of FAI or the Money Managers, are of
an investment quality comparable to obligations of U.S. banks in
which each Fund may invest.
Corporate Debt Securities. Corporate debt securities of domestic
and foreign issuers include such instruments as corporate bonds,
debentures, notes, commercial paper, medium-term notes,
variable rate notes, and other similar corporate debt instruments.
As described in TIP's Prospectus, the Funds will invest only in
those securities that are rated at least OBBBO by S&P or OBaaO
by MoodyOs or determined by FAI or the Money Managers to be
of similar creditworthiness. Bonds rated in these categories are
generally described as investment-grade debt obligations with a
very strong capacity to pay principal and interest on a timely
basis.
Currency-Indexed Notes. Each Fund may purchase a currency-
indexed obligation using the currency in which it is denominated
and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the
issuer at maturity, however, will vary (i.e., increase or decrease)
in response to the change (if any) in the exchange rate between
the two specified currencies during the period from the date the
instrument is issued to its maturity date. The potential for
realizing gains as a result of changes in foreign currency exchange
rates may enable a Fund to hedge the currency in which the
obligation is denominated (or to effect cross-hedges against other
currencies) against a decline in the U.S. dollar value of
investments denominated in foreign currencies while providing an
attractive market rate of return. Each Fund will purchase such
indexed obligations to generate current income or for hedging
purposes and will not speculate in such obligations.
Foreign Government and International and Supranational Agency
Debt Securities. Obligations of foreign governmental entities
have various kinds of government support and include obligations
issued or guaranteed by foreign governmental entities with taxing
powers and those issued or guaranteed by international or
supranational entities. These obligations may or may not be
supported by the full faith and credit of a foreign government or
several foreign governments. Examples of international and
supranational entities include the International Bank for
Reconstruction and Development (OWorld BankO), the
European Steel and Coal Community, the Asian Development
Bank, the European Bank for Reconstruction and Development,
and the Inter-American Development Bank. The governmental
shareholders usually make initial capital contributions to the
supranational entity and in many cases are committed to make
additional capital contributions if the supranational entity is
unable to repay its borrowings.
Loan Participations. A loan participation is an interest in a loan
to a U.S. corporation (the Ocorporate borrowerO) which is
administered and sold by an intermediary bank. The borrower in
the underlying loan will be deemed to be the issuer of the
participation interest except to the extent the Fund derives its
rights from the intermediary bank which sold the loan
participation. Such loans must be to issuers in whose obligations
a Fund may invest. Any participation purchased by a Fund must
be sold by an intermediary bank in the United States with assets
exceeding $1 billion.
Primary Risks: Because the bank issuing a loan participation
does not guarantee the participation in any way, the participation
is subject to the credit risks generally associated with the
underlying corporate borrower. In addition, because it may be
necessary under the terms of the loan participation for a Fund to
assert through the issuing bank such rights as may exist against
the underlying corporate borrower, in the event that the
underlying corporate borrower should fail to pay principal and
interest when due, the Fund could be subject to delays, expenses,
and risks which are greater than those which would have been
involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Moreover, under the terms
of the loan participation, the purchasing Fund may be regarded as
a creditor of the issuing bank (rather than of the underlying
corporate borrower), so that the Fund also may be subject to the
risk that the issuing bank may become insolvent. Further, in the
event of the bankruptcy or insolvency of the corporate borrower,
the loan participation might be subject to certain defenses that can
be asserted by a borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan
participation interests is limited, and any such participation
purchased by a Fund will be treated as illiquid, until the Board of
Directors determines that a liquid market exists for such
participations. Loan participations will be valued at their fair
market value, as determined by procedures approved by the
Board of Directors.
Mortgage-Backed Debt Securities. Mortgage-backed securities
are securities which represent ownership interests in, or are debt
obligations secured entirely or primarily by, OpoolsO of
residential or commercial mortgage loans or other mortgage-
backed securities (the OUnderlying AssetsO). In the case of
mortgage-backed securities representing ownership interests in
the Underlying Assets, the principal and interest payments on the
underlying mortgage loans are distributed monthly to the holders
of the mortgage-backed securities. In the case of mortgage-
backed securities representing debt obligations secured by the
Underlying Assets, the principal and interest payments on the
underlying mortgage loans, and any reinvestment income thereon,
provide the funds to pay debt service on such mortgage-backed
securities. Mortgage-backed securities may take a variety of
forms, but the two most common are mortgage pass-through
securities, which represent ownership interests in the Underlying
Assets, and collateralized mortgage obligations (OCMOsO),
which are debt obligations collateralized by the Underlying
Assets.
Certain mortgaged-backed securities are issued that represent an
undivided fractional interest in the entirety of the Underlying
Assets (or in a substantial portion of the Underlying Assets, with
additional interests junior to that of the mortgage-backed
security), and thus have payment terms that closely resemble the
payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in
multiple classes. Each class of such multi-class mortgage-backed
securities (OMBSO), often referred to as a Otranche,O is issued
at a specific fixed or floating coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the
Underlying Assets may cause the MBS to be retired substantially
earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all or most classes of the MBS on a
periodic basis, typically monthly or quarterly. The principal of
and interest on the Underlying Assets may be allocated among the
several classes of a series of an MBS in many different ways. In a
relatively common structure, payments of principal (including any
principal prepayments) on the Underlying Assets are applied to
the classes of a series of an MBS in the order of their respective
stated maturities so that no payment of principal will be made on
any class of the MBS until all other classes having an earlier
stated maturity have been paid in full.
Mortgage-backed securities are often backed by a pool of
Underlying Assets representing the obligations of a number of
different parties. To lessen the effect of failures by obligors on
Underlying Assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two
categories: (1) liquidity protection; and (2) protection against
losses resulting from ultimate default by an obligor on the
Underlying Assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting
from ultimate default ensures ultimate payment of obligations on
at least a portion of the assets in the pool. Such protection may
be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a
combination of such approaches. A Fund will not pay any
additional fees for such credit support, although the existence of
credit support may increase the price of a security.
Governmental, government-related, and private entities may
create new types of mortgage-backed securities offering asset
pass-through and asset-collateralized investments in addition to
those described above. As such new types of mortgage-related
securities are developed and offered to investors, each Fund will,
consistent with its investment objectives, policies, and quality
standards, consider whether such investments would be
appropriate.
The duration of a mortgage-backed security, for purposes of a
Fund's average duration restrictions, will be computed based
upon the expected average life of that security.
Primary Risks: Prepayments on securitized assets such as
mortgages, automobile loans, and credit card receivables
(OSecuritized AssetsO) generally increase with falling interest
rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and
social factors. In general, the collateral supporting non-mortgage
asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. In
addition to prepayment risk, borrowers on the underlying
Securitized Assets may default in their payments creating delays
or loss of principal.
Non-mortgage asset-backed securities involve certain risks that
are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of a security interest in assets
underlying the related mortgage collateral. Credit card
receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of automobile receivables permit the servicers
to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the
holders of the related automobile receivables. In addition,
because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee
for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such
receivables. Therefore, there is a possibility that recoveries on
repossessed collateral may not, in some cases, be available to
support payments on these securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although each Fund will only invest in asset-backed
securities believed to be liquid, because the market experience in
certain of these securities is limited, the marketOs ability to
sustain liquidity through all phases of a market cycle may not
have been tested.
Municipal Debt Securities. Municipal debt securities may include
such instruments as tax anticipation notes, revenue anticipation
notes, and bond anticipation notes. Municipal notes are issued by
state and local governments and public authorities as interim
financing in anticipation of tax collections, revenue receipts or
bond sales. Municipal bonds, which may be issued to raise money
for various public purposes, include general obligation bonds and
revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality and are considered the
safest type of bonds. Revenue bonds are backed by the revenues
of a project or facility such as the tolls from a toll bridge.
Industrial development revenue bonds are a specific type of
revenue bond backed by the credit and security of a private user.
Revenue bonds are generally considered to have more potential
risk than general obligation bonds.
Municipal obligations can have floating, variable, or fixed rates.
The value of floating and variable rate obligations generally is
more stable than that of fixed rate obligations in response to
changes in interest rate levels. Variable and floating rate
obligations usually carry rights that permit a Fund to sell them at
par value plus accrued interest upon short notice. The issuers or
financial intermediaries providing rights to sell may support their
ability to purchase the obligations by obtaining credit with
liquidity supports. These may include lines of credit, which are
conditional commitments to lend, and letters of credit, which will
ordinarily be irrevocable, both of which are issued by domestic
banks or foreign banks which have a branch, agency or subsidiary
in the United States. When considering whether an obligation
meets a Fund's quality standards, FAI and the Money Managers
will look at the creditworthiness of the party providing the right
to sell and will consider the quality of the obligation itself.
Municipal securities may be issued to finance private activities,
the interest from which is an item of tax preference for purposes
of the federal alternative minimum tax. Such Oprivate activityO
bonds might include industrial development revenue bonds, and
bonds issued to finance such projects as solid waste disposal
facilities, student loans or water and sewage projects.
Distributions of a Fund which are derived from interest on
municipal securities will be taxable to Members in the same
manner as distributions derived from interest on taxable debt
securities.
Other Foreign Currency Exchange-Related Securities. Securities
may be denominated in the currency of one nation although issued
by a governmental entity, corporation, or financial institution of
another nation. For example, a Fund may invest in a British
pound sterling-denominated obligation issued by a United States
corporation. Such investments involve credit risks associated
with the issuer and currency risks associated with the currency in
which the obligation is denominated. FAI or the Money
Managers base their decisions for a Fund to invest in any foreign
currency exchange-related securities that may be offered in the
future on the same general criteria applicable to the AdviserOs or
Money Manager's decision for such Fund to invest in any debt
security, including the Fund's minimum ratings and investment
quality criteria, with the additional element of foreign currency
exchange rate exposure added to FAI's or the Money
Manager's analysis of interest rates, issuer risk and other factors.
Securities Denominated in Multi-National Currency Units or
More than One Currency. An illustration of a multi-national
currency unit is the European Currency Unit (the OECUO), the
value of which is based on a ObasketO consisting of specified
amounts of the currencies of the member states of the European
Community, a Western European economic cooperative
organization. The specific amounts of currencies comprising the
ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the
underlying currencies. FAI and the Money Managers do not
believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of such
securities. European supranational entities, in particular, issue
ECU-denominated obligations.
U.S. Treasury and U.S. Government Agency Securities. U.S.
Government securities include instruments issued by the U.S.
Treasury, including bills, notes, and bonds. These instruments are
direct obligations of the U.S. Government and, as such, are
backed by the full faith and credit of the United States. They
differ primarily in their interest rates, the lengths of their
maturities, and the dates of their issuance. In addition, U.S.
Government securities include securities issued by
instrumentalities of the U.S. Government, such as the
Government National Mortgage Association (OGNMAO), which
are also backed by the full faith and credit of the United States.
U.S. Government Agency Securities are instruments issued by
instrumentalities established or sponsored by the U.S.
Government, such as the Student Loan Marketing Association
(OSLMAO), the Federal National Mortgage Association
(OFNMAO) and the Federal Home Loan Mortgage Corporation
(OFHLMCO). While these securities are issued, in general, under
the authority of an Act of Congress, the U.S. Government is not
obligated to provide financial support to the issuing
instrumentalities
Variable Amount Master Demand Notes. Variable amount
master demand notes permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct
arrangements between a Fund (as lender) and the borrower.
These notes are direct lending arrangements between lenders and
borrowers, and generally are not transferable, nor are they rated
ordinarily by either MoodyOs or S&P.
Zero Coupon Securities and Custodial Receipts. Zero coupon
securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest
coupons and the receipts for their underlying principal (the
"coupons") which have been separated by their holder, typically
a custodian bank or investment brokerage firm. A holder will
separate the interest coupons from the underlying principal (the
OcorpusO) of the U.S. Treasury security. A number of securities
firms and banks have stripped the interest coupons and receipts
and then resold them in custodial receipt programs with a number
of different names, including OTreasury Income Growth
ReceiptsO (OTIGRSO) and OCertificate of Accrual on
TreasuriesO (OCATSO). The underlying U.S. Treasury bonds
and notes themselves are held in book-entry form at the Federal
Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are owned ostensibly by the bearer
or holder thereof), in trust on behalf of the owners thereof.
Counsels to the underwriters of these certificates or other
evidences of ownership of the U.S. Treasury securities have
stated that for Federal tax and securities law purposes, in their
opinion, purchasers of such certificates, such as a Fund, most
likely will be deemed the beneficial holders of the underlying U.S.
Treasury securities.
Recently, the U.S. Treasury has facilitated transfer of ownership
of zero coupon securities by accounting separately for the
beneficial ownership of particular interest coupon and corpus
payments on Treasury securities through the Federal Reserve
book-entry recordkeeping system. The Federal Reserve program
as established by the Treasury Department is known as OSeparate
Trading of Registered Interest and Principal of SecuritiesO
(OSTRIPSO). Under the STRIPS program, a Fund is able to
have its beneficial ownership of zero coupon securities recorded
directly in the book-entry recordkeeping system in lieu of holding
certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their
unmatured interest coupons by the holder, the principal or corpus
is sold at a deep discount because the buyer receives only the
right to receive a future fixed payment on the security and does
not receive any rights to periodic interest (cash) payments. Once
stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped
with other coupons with like maturity dates and sold in a bundled
form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero
coupon securities that the Treasury sells itself.
Derivative Securities
Futures Contracts. Each Fund may enter into contracts for the
purchase or sale for future delivery (a Ofutures contractO) of
fixed income securities or foreign currencies, or based on financial
indices including any index of common stocks, U.S. Government
securities, foreign government securities, or corporate debt
securities. U.S. futures contracts have been designed by
exchanges which have been designated as Ocontracts marketsO
by the CFTC, and must be executed through a futures
commission merchant or brokerage firm which is a member of the
relevant contract market. Futures contracts trade on a number of
exchange markets and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange. A Fund will enter into futures
contracts that are based on debt securities that are backed by the
full faith and credit of the U.S. Government, such as long-term
U.S. Treasury Bonds, Treasury Notes, GNMA-modified pass-
through mortgage-backed securities, and three-month U.S.
Treasury Bills. Each Fund also may enter into futures contracts
based on securities that would be eligible investments for such
Fund and denominated in currencies other than the U.S. dollar.
Futures contracts may be used in a number of different contexts.
For example, futures contracts on the S&P 500 might be sold by a
Money Manager holding a portfolio of equity securities which
anticipates a near-term market decline and wishes to obtain
prompt protection pending an orderly portfolio liquidation. In the
event that the decline occurs, gains on the futures contract will
tend to offset the loss on the portfolio; if the Money Manager is
wrong and the market rises, the loss on the futures contract will
tend to offset gains the portfolio would otherwise earn.
Although futures contracts by their terms call for the actual
delivery or acquisition of securities or currency, in most cases the
contractual obligation is fulfilled before the date of the contract
without having to make or take delivery of the securities or
currency. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make
or take delivery of the securities or currency. Since all
transactions in the futures market are made, offset, or fulfilled
through a clearinghouse associated with the exchange on which
the contracts are traded, a Fund will incur brokerage fees when it
purchases or sells futures contracts.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment (Oinitial
marginO). It is expected that the initial margin on U.S. exchanges
may range from approximately 3% to approximately 15% of the
value of the securities or commodities underlying the contract.
Under certain circumstances, however, such as periods of high
volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Additionally, initial margin
requirements may be increased in the future by regulatory action.
An outstanding futures contract is valued daily and the payment in
cash of Ovariation marginO generally will be required, a process
known as Omarking to the market.O Each day the Fund will be
required to provide (or will be entitled to receive) variation
margin in an amount equal to any decline (in the case of a long
futures position) or increase (in the case of a short futures
position) in the contractOs value since the preceding day.
Primary Risks: Futures contracts entail special risks. Among
other things, the ordinary spreads between values in the cash and
futures markets, due to differences in the character of these
markets, are subject to distortions relating to: (1) investorsO
obligations to meet additional variation margin requirements; (2)
decisions to make or take delivery, rather than to enter into
offsetting transactions; and (3) the difference between margin
requirements in the securities markets and margin deposit
requirements in the futures market. The possibility of such
distortions means that a correct forecast of general market,
foreign exchange rate or interest rate trends still may not result in
a successful transaction.
Although TIP believes that use of such contracts and options
thereon will benefit the Funds, if predictions about the general
direction of securities market movements, foreign exchange rates
or interest rates is incorrect, a Fund's overall performance would
be poorer than if it had not entered into any such contracts or
purchased or written options thereon. For example, if a Fund had
hedged against the possibility of an increase in interest rates that
would adversely affect the price of debt securities held in its
portfolio and interest rates decreased instead, the Fund would
lose part or all of the benefit of the increased value of its assets
that it had hedged because it would have offsetting losses in its
futures positions. In addition, particularly in such situations, if
the Fund has insufficient cash, it may have to sell assets from its
portfolio to meet daily variation margin requirements. Any such
sale of assets may or may not be at increased prices reflecting the
rising market. Consequently, the Fund may have to sell assets at
a time when it may be disadvantageous to do so.
A Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although a
Fund generally will purchase or sell only those futures contracts
and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any
particular time. Where it is not possible to effect a closing
transaction in a contract at a satisfactory price, the Fund would
have to make or take delivery under the futures contract or, in the
case of a purchased option, exercise the option. In the case of a
futures contract that a Fund has sold and is unable to close out,
the Fund would be required to maintain margin deposits on the
futures contract and to make variation margin payments until the
contract is closed.
Under certain circumstances, exchanges may establish daily limits
in the amount that the price of a futures contract or related option
contract may vary up or down from the previous dayOs
settlement price. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures or options contract prices could
move to the daily limit for several consecutive trading days with
little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the use of futures generally.
In addition, there are risks associated with foreign currency
futures contracts and their use as hedging devices similar to those
associated with forward contracts on foreign currencies. Further,
settlement of a foreign currency futures contract must occur
within the country issuing the underlying currency. Thus, a Fund
must accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by
U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery which are assessed in the
country of the underlying currency.
Options on Foreign Currencies. Each Fund may purchase and sell
(or write) put and call options on foreign currencies to protect
against a decline in the U.S. dollar-equivalent value of its
portfolio securities or payments due thereon or a rise in the U.S.
dollar-equivalent cost of securities that it intends to purchase. A
foreign currency put option grants the holder the right, but not
the obligation, to sell at a future date a specified amount of a
foreign currency to its counterparty at a predetermined price.
Conversely, a foreign currency call option grants the holder the
right, but not the obligation, to purchase at a future date a
specified amount of a foreign currency at a predetermined price.
Primary Risks: As in the case of other types of options, the
benefit to a Fund from the purchase of foreign currency options
will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do
not move in the direction or to the extent anticipated, the Fund
could sustain losses on transactions in foreign currency options
that would require them to forego a portion or all of the benefits
of advantageous changes in such rates.
Each Fund may write options on foreign currencies for hedging
purposes. For example, where a Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates, instead of purchasing a put
option, it could write a call option on the relevant currency. If
the expected decline occurs, it is likely that the option will not be
exercised, and the decrease in value of portfolio securities will be
offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar costs of securities to be
acquired, a Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will expire
unexercised and allow the Fund to hedge such increased costs up
to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium,
and only if rates move in the expected direction. If this
movement does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of
the premium. Through the writing of options on foreign
currencies, a Fund also may be required to forego all or a portion
of the benefits that might otherwise have been obtained from
favorable movements in exchange rates.
Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a
call option on an individual security or currency. Depending on
the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the
underlying securities or currency, it may or may not be less risky
than ownership of the futures contract or the underlying securities
or currency. As with the purchase of futures contracts, when a
Fund is not fully invested it may purchase a call option on a
futures contract to hedge against a market advance due to
declining interest rates or a change in foreign exchange rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign
currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is below
the exercise price, a Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings. The writing
of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures
price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of
securities which a Fund intends to purchase. If a put or call
option a Fund has written is exercised, the Fund will incur a loss
that will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of its
futures positions, a Fund's losses from existing options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.
The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on
portfolio securities. For example, a Fund may purchase a put
option on a U.S. Treasury Bond futures contract to hedge its
portfolio against the risk of rising interest rates.
Restrictions on the Use of Futures Contracts and Options on
Futures Contracts. Regulations of the CFTC applicable to the
Funds require that all of a Fund's futures and options on futures
transactions constitute bona fide hedging transactions, except that
a transaction need not constitute a bona fide hedging transaction
and may be entered into for other purposes if, immediately
thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures positions and premiums paid for related
options would not exceed 5% of the value of the Fund's total
assets.
Primary Risks: The amount of risk a Fund assumes when it
purchases an option on a futures contract is the premium paid for
the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also
entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option
purchased. Options on foreign currency futures contracts may
involve certain additional risks. Trading options on foreign
currency futures contracts is relatively new. The ability to
establish and close out positions in such options is subject to the
maintenance of a liquid secondary market. To mitigate this
problem, a Fund will not purchase or write options on foreign
currency futures contracts unless and until, in FAI's or the
Money Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with
transactions in the underlying foreign currency futures contracts.
Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options thereon involves less
potential risk to the Fund because the maximum amount at risk is
the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of a call
or put option on a foreign currency futures contract would result
in a loss, such as when there is no movement in the price of the
underlying currency or futures contract, when use of the
underlying futures contract would not result in a loss.
Options on Securities. Each Fund also may enter into closing sale
transactions with respect to options it has purchased. A put
option on a security grants the holder the right, but not the
obligation, at a future date to sell the security to its counterparty
at a predetermined price. Conversely, a call option on a security
grants the holder the right, but not the obligation, to purchase at a
future date the security underlying the option at a predetermined
price. A Fund would normally purchase put options in
anticipation of a decline in the market value of securities in its
portfolio or securities it intends to purchase. If such Fund
purchased a put option and the value of the security in fact
declined below the strike price of the option, such Fund would
have the right to sell that security to its counterparty for the strike
price (or realize the value of the option by entering into a closing
transaction), and consequently would protect itself against any
further decrease in the value of the security during the term of the
option.
Conversely, if FAI or a Money Manager anticipates that a
security it intends to acquire will increase in value, it might cause
a Fund to purchase a call option on that security or securities
similar to that security. If the value of the security does rise, the
call option may wholly or partially offset the increased price of
the security. As in the case of other types of options, however,
the benefit to the Fund will be reduced by the amount of the
premium paid to purchase the option and any related transaction
costs. If, however, the value of the security fell instead of rose,
the Fund would have foregone a portion of the benefit of the
decreased price of the security in the amount of the option
premium and the related transaction costs. A Fund would
purchase put and call options on securities indices for the same
purposes as it would purchase options on securities. Options on
securities indices are similar to options on securities except that
the options reflect the change in price of a group of securities
rather than that of an individual security and the exercise of
options on securities indices is settled in cash rather than by
delivery of the securities comprising the index underlying the
option. Transactions by a Fund in options on securities and
securities indices will be governed by the rules and regulations of
the respective exchanges, boards of trade, or other trading
facilities on which the options are traded.
The Funds will write only OcoveredO options. An option is
covered if, so long as a Fund is obligated under the option, it
owns an offsetting position in the underlying security or maintains
cash, U.S. Government securities or other liquid high-grade debt
obligations with a value sufficient at all times to cover its
obligations.
Primary Risks: The writer of an option receives a premium that it
retains regardless of whether the option is exercised. The
purchaser of a call option has the right, for a specified period of
time, to purchase the securities or currency subject to the option
at a specified price (the Oexercise priceO). By writing a call
option, the writer becomes obligated during the term of the
option, upon exercise of the option, to sell the underlying
securities or currency to the purchaser against receipt of the
exercise price. The writer of a call option also loses the potential
for gain on the underlying securities or currency in excess of the
exercise price of the option during the period that the option is
open.
Conversely, the purchaser of a put option has the right, for a
specified period of time, to sell the securities or currency subject
to the option to the writer of the put at the specified exercise
price. The writer of a put option is obligated during the term of
the option, upon exercise of the option, to purchase securities or
currency underlying the option at the exercise price. A writer
might, therefore, be obligated to purchase the underlying
securities or currency for more than their current market price or
U.S. dollar value.
Each Fund may purchase and sell both exchange-traded and OTC
options. Currently, although many options on equity securities
and options on currencies are exchange-traded, options on debt
securities are primarily traded in the over-the-counter market.
The writer of an exchange-traded option that wishes to terminate
its obligation may effect a Oclosing purchase transaction.O This
is accomplished by buying an option of the same series as the
option previously written. Options of the same series are options
with respect to the same underlying security or currency, having
the same expiration date and the same exercise price. Likewise,
an investor who is the holder of an option may liquidate a position
by effecting a Oclosing sale transaction.O This is accomplished
by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase
or a closing sale transaction can be effected.
An exchange-traded option position may be closed out only
where a secondary market exists for an option of the same series.
For a number of reasons, a secondary market may not exist for
options held by a Fund, or trading in such options might be
limited or halted by the exchange on which the option is trading,
in which case it might not be possible to effect closing
transactions in particular options the Fund has purchased with the
result that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market in an option which the
Fund has written, it will not be able to sell the underlying security
or currency until the option expires or deliver the underlying
security or currency upon exercise or otherwise cover its position.
Exchange-traded options in the United States are issued by a
clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees every exchange-traded
option transaction. In contrast, over-the-counter options are
contracts between a Fund and its counterparty with no clearing
organization guarantee. Thus, when the Fund purchases OTC
options, it relies on the dealer from which it purchased the OTC
option to make or take delivery of the securities underlying the
option. Failure by the dealer to do so would result in the loss of
the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. The Funds will only purchase options
from dealers determined to be creditworthy.
Exchange-traded options generally have a continuous liquid
market whereas OTC options may not have one. Consequently, a
Fund generally will be able to realize the value of an OTC option
it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes an OTC option, it
generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction
with the dealer to which the Fund originally wrote the OTC
option. Although a Fund will enter into OTC options only with
dealers who agree to enter into, and who are expected to be
capable of entering into, closing transactions with the Fund, there
can be no assurance that the Fund will be able to liquidate an
OTC option at a favorable price at any time prior to expiration.
Until the Fund is able to effect a closing purchase transaction in a
covered OTC call option the Fund has written, it will not be able
to liquidate securities used as cover until the option expires or is
exercised or different cover is substituted. In the event of
insolvency of the counterparty, the Fund may be unable to
liquidate an OTC option. In the case of options written by a
Fund, the inability to enter into a closing purchase transaction
may result in material losses to the Fund. For example, since the
Fund must maintain a covered position with respect to any call
option on a security it has written, the Fund may be limited in its
ability to sell the underlying security while the option is
outstanding. This may impair the Fund's ability to sell a
portfolio security at a time when such a sale might be
advantageous.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or
revised on a timely basis. Quotation information available
generally is representative of very large transactions in the
interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options
markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may
take place in the underlying markets which cannot be reflected in
the options market until they reopen. Because foreign currency
transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in
the use of foreign currency options, investors may be at a
disadvantage by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than
for round lots.
As described above, a Fund may, among other things, purchase
call options on securities it intends to acquire in order to hedge
against anticipated market appreciation in the price of the
underlying security or currency. If the market price does increase
as anticipated, the Fund will benefit from that increase but only to
the extent that the increase exceeds the premium paid plus related
transaction costs. If the anticipated rise does not occur or if it
does not exceed the amount of the premium plus related
transaction costs, the Fund will bear the expense of purchasing
the options without gaining an offsetting benefit. If the market
price of the underlying currency or securities should fall instead of
rise, the benefit the Fund obtains from purchasing the currency or
securities at a lower price will be reduced by the amount of the
premium paid for the call options plus transaction costs.
Each Fund also may purchase put options on currencies or
portfolio securities when it believes a defensive posture is
warranted. Protection is provided during the life of a put option
because the put gives the Fund the right to sell the underlying
currency or security at the put exercise price, regardless of a
decline in the underlying currencyOs or securityOs market price
below the exercise price. This right limits the Fund's losses from
the currencyOs or securityOs possible decline in value below the
exercise price of the option to the premium paid for the option
plus related transaction costs. If the market price of the currency
or the Fund's securities should increase, however, the profit that
the Fund might otherwise have realized will be reduced by the
amount of the premium paid for the put option plus transaction
costs.
The value of an option position will reflect, among other things,
the current market price of the underlying currency or security,
the time remaining until expiration, the relationship of the exercise
price to the market price, the historical price volatility of the
underlying currency or security and general market conditions.
For this reason, the successful use of options as a hedging
strategy depends upon the ability of FAI or the Money Managers
to forecast the direction of price fluctuations in the underlying
currency or securities market.
Options normally have expiration dates of up to nine months.
The exercise price of the options may be below, equal to or above
the current market values of the underlying securities or currency
at the time the options are written. Options purchased by a Fund
that expire unexercised have no value, and therefore a loss will be
realized in the amount of the premium paid plus related
transaction costs. If an option purchased by any Fund is in-the-
money prior to its expiration date, unless the Fund exercises the
option or enters into a closing transaction with respect to that
position, the Fund will not realize any gain on its option position.
A Fund's activities in the options market may result in higher
portfolio turnover rates and additional brokerage costs.
Nevertheless, the Fund also may save on commissions and
transaction costs by hedging through such activities rather than by
buying or selling securities or foreign currencies in anticipation of
market moves or foreign exchange rate fluctuations.
Other Investments
Foreign Securities. Foreign financial markets, while growing in
volume, have, for the most part, substantially less volume than
have United States markets, and securities of many foreign
companies are less liquid and their prices are more volatile than
securities of comparable domestic companies. The foreign
markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements
have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment
in some foreign markets. Delays in settlement could result in
temporary periods when a portion of the assets of a Fund is
uninvested and no return is earned thereon. The inability of a
Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to
settlement problems could result in losses to a Fund due to
subsequent declines in value of the portfolio security or, if the
Fund has entered into a contract to sell the security, could result
in possible liability to the purchaser.
As foreign companies generally are not 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. Generally
there is less government supervision and regulation of exchanges,
financial institutions and issuers in foreign countries than there is
in the United States. A foreign government may impose
exchange control regulations which may have an impact on
currency exchange rates, and there are possibilities of
expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect U.S.
investments in those countries.
Although the Funds will endeavor to achieve most favorable
execution costs in its portfolio transactions, fixed commissions on
many foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges. Certain foreign
governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding
taxes will reduce the income received by the Funds on these
investments. However, these foreign withholding taxes are not
expected to have a significant impact on the Funds, since the
Funds' investment objectives are to seek long-term capital
appreciation and any income should be considered incidental.
Foreign Bank Obligations. Obligations of foreign banks involve
somewhat different investment risks than those affecting
obligations of United States banks, including the possibilities that
their liquidity could be impaired because of future political and
economic developments, that their obligations may be less
marketable than comparable obligations of United States banks,
that a foreign jurisdiction might impose withholding taxes on
interest income payable on those obligations, that foreign deposits
may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted that might
adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be
more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing
and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks generally are not subject to
examination by any United States government agency or
instrumentality. Also, investments in commercial banks located in
several foreign countries are subject to additional risks due to the
combination in such banks of commercial banking and diversified
securities activities.
Illiquid Securities. The staff of the Commission has taken the
position that purchased OTC options and the assets used as cover
for written OTC options are illiquid securities. Therefore, each
Fund has adopted an investment policy pursuant to which it
generally will not purchase or sell OTC options if, as a result of
such transaction, the sum of the market value of OTC options
currently outstanding that are held by such Fund, the market
value of the underlying securities covered by OTC call options
currently outstanding that have been sold by such Fund, and
margin deposits on such Fund's existing OTC options on futures
contracts exceed 15% of the net assets of such Fund, taken at
market value, together with all other assets of the Fund that are
illiquid or are not otherwise readily marketable. This policy as to
OTC options is not a fundamental policy of the Funds and may be
amended by the Directors of TIP without the approval of TIP's
or a Fund's members. However, TIP will not change or modify
this policy prior to a change or modification by the Commission
staff of its position.
Warrants. So long as it remains a policy of the State of Texas, a
Fund's investment in warrants, taken at the lower of cost or
market value, may not exceed 5% of the Fund's net assets. Not
more than 2% of a Fund's net assets may be invested in warrants
not listed on the New York or American Stock Exchange.
FUND TRANSACTIONS
The debt securities in which TIP invests are traded primarily in
the over-the-counter market by dealers who usually are acting as
principals for their own accounts. On occasion, securities may be
purchased directly from the issuer. The cost of securities
purchased from underwriters includes an underwriting
commission or concession. Debt securities generally are traded
on a net basis and normally do not involve either brokerage
commissions or transfer taxes. The cost of executing transactions
will consist primarily of dealer spreads. In the markets in which a
Fund buys and sells its assets and depending upon the size of the
transactions it will execute, the spread between the bid and asked
price of a security is typically below 1/32 of 1% of the value of
the transaction, and often is much less. The spread is not
included in the expenses of a Fund and therefore is not subject to
the expenses cap; nevertheless, the incurrence of this spread,
ignoring the other intended positive effects of each such
transaction, will decrease the total return of the Fund. However,
a Fund will buy one asset and sell another only if FAI or the
Money Managers believe it is advantageous to do so after
considering the effects of the additional custodial charges and the
spread on the Fund's total return.
Since costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in
domestic securities, the operating expense ratios of these Funds
can be expected to be higher than that of an investment company
investing exclusively in domestic securities.
The selection of a broker or dealer to execute portfolio
transactions is usually made by a Money Manager. Subject to
specific directions from TIP or FAI, in executing portfolio
transactions and selecting brokers or dealers the principal
objective is to seek the best overall terms available to the Fund.
Securities ordinarily will be purchased in their primary markets,
and a Money Manager will consider all factors it deems relevant
in assessing the best overall terms available for any transaction,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any
(for the specific transaction and on a continuing basis).
In addition, in selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, FAI
and the Money Managers are authorized to consider the
Obrokerage and research servicesO [as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934] provided
to the Funds, FAI, or to the Money Manager. FAI and the
Money Managers are authorized to cause the Funds to pay a
commission to a broker or dealer who provides such brokerage
and research services for executing a portfolio transaction which
is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction. TIP, FAI, or
the Money Manager, as appropriate, must determine in good faith
that such commission was reasonable in relation to the value of
the brokerage and research services provided, viewed in terms of
that particular transaction or in terms of all the accounts over
which FAI or the Money Manager exercises investment
discretion.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not
purport to be complete, is based on U.S. federal tax laws and
regulations in effect on the date of this Statement of Additional
Information, which are subject to change by legislative or
administrative action.
QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. Each Fund intends to qualify for annually and elect
to be treated as a regulated investment company (ORICO) under
the Internal Revenue Code of 1986, as amended (the OCodeO).
To qualify as a RIC, a Fund must, among other things: (1) derive
at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures, or forward
contracts) derived from its business of investing in securities or
foreign currencies (the OQualifying Income RequirementO); (2)
derive less than 30% of its gross income each taxable year from
sales or other dispositions of certain assets, namely: (a)
securities; (b) options, futures, and forward contracts (other than
those on foreign currencies); and (c) foreign currencies (including
options, futures, and forward contracts on such currencies) not
directly related to the Fund's principal business of investing in
stocks or securities (or options and futures with respect to stocks
or securities), held less than three months (the O30%
LimitationO); (3) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year: (a) at least 50% of the
market value of the Fund's assets is represented by cash and cash
items (including receivables), U.S. Government securities,
securities of other RICs, and other securities, with such other
securities of any one issuer limited to an amount not greater than
5% of the value of the Fund's total assets and not greater than
10% of the outstanding voting securities of such issuer and (b)
not more than 25% of the value of the Fund's total assets is
invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other RICs); and (4)
distribute at least 90% of its investment company taxable income
(which includes, among other items, interest and net short-term
capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any. The U.S. Treasury
Department has authority to promulgate regulations pursuant to
which gains from foreign currency (and options, futures, and
forward contracts on foreign currency) not directly related to a
RICOs principal business of investing in stocks and securities
would not be treated as qualifying income for purposes of the
Qualifying Income Requirement. To date, such regulations have
not been promulgated.
If for any taxable year a Fund does not qualify as a RIC, all of its
taxable income will be taxed to the Fund at corporate rates. For
each taxable year that the Fund qualifies as a RIC, it generally will
not be subject to federal income tax on that part of its investment
company taxable income and net capital gains (the excess of net
long-term capital gain over net short-term capital loss) it
distributes to its Members. In addition, to avoid a nondeductible
4% federal excise tax, the Fund must distribute during each
calendar year at least 98% of its ordinary income (not taking into
account any capital gains or losses), determined on a calendar
year basis, at least 98% of its capital gains in excess of capital
losses, determined in general on an October 31 year-end basis,
and any undistributed amounts from previous years. Each Fund
intends to distribute all of its net income and gains by
automatically reinvesting such income and gains in additional
shares of the Fund unless a Member requests such distributions to
be paid in cash. The 30% Limitation may require that a Fund
defer closing out certain positions beyond the time when it
otherwise would be advantageous to do so, in order not to be
disqualified as a RIC. Each Fund will monitor its compliance
with all of the rules set forth in the preceding paragraph.
TAX TREATMENT OF DISTRIBUTIONS. Dividends paid out
of the Fund's investment company taxable income will be taxable
to the Fund's Members as ordinary income. If a portion of a
Fund's income consists of dividends paid by U.S. corporations, a
portion of the dividends paid by the Fund may be eligible for the
corporate dividends-received deduction (assuming that the
deduction is otherwise allowable in computing a Member's federal
income tax liability). Distributions of any net capital gains
designated by the Fund as capital gain dividends will be taxable to
the Members as long-term capital gains, regardless of how long
they have held their Fund shares, and are not eligible for the
corporate dividends-received deduction. Members receiving
distributions in the form of additional shares, rather than cash,
generally will have a cash basis in each such share equal to the net
asset value of a share of the Fund on the reinvestment date. A
distribution of an amount in excess of a Fund's current and
accumulated earnings and profits will be treated by a Member as a
return of capital which is applied against and reduces the
Member's basis in its Fund shares. To the extent that the amount
of any such distribution exceeds the Member's basis in its Fund
shares, the excess will be treated as gain from a sale or exchange
of the shares. A distribution will be treated as paid on December
31 of the current calendar year if it is declared by a Fund in
October, November, or December with a record date in such a
month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to Members in
the calendar year in which the distributions are declared, rather
than in the calendar year in which the distributions are received.
Each Fund will inform Members of the amount and tax status of
all amounts treated as distributed to them not later than 60 days
after the close of each calendar year.
TAX TREATMENT OF SHARE SALES. Upon the sale or
other disposition of shares of a Fund, or upon receipt of a
distribution in complete liquidation of a Fund, a Member
generally will realize a capital gain or loss which will be long-term
or short-term, generally depending upon the MemberOs holding
period for the shares. Any loss realized on the sale or exchange
will be disallowed to the extent the shares disposed of are
replaced (including shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days beginning 30 days
before and ending 30 days after disposition of the shares. In such
a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss. Any loss realized by the Member on a
disposition of Fund shares held by the Member for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gains deemed received by the Member
with respect to such shares.
TAX TREATMENT OF ZERO COUPON SECURITIES.
Investments by a Fund in zero coupon securities will result in
income to the Fund equal to a portion of the excess of the face
value of the securities over their issue price (the Ooriginal issue
discountO) each year that the securities are held, even though the
Fund receives no cash interest payments. This income is included
in determining the amount of income which the Fund must
distribute to maintain its status as a RIC and to avoid the payment
of federal income tax and the 4% excise tax.
TAX TREATMENT OF HEDGING TRANSACTIONS. The
taxation of equity options and over-the-counter options on debt
securities is governed by the Code section 1234. Pursuant to that
Code section, the premium received by a Fund for selling a put or
call option is not included in income at the time of receipt. If the
option expires, the premium is short-term capital gain to the
Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the
premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund
to sell the underlying security, the premium will increase the
amount realized upon the sale of such security and any resulting
gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security.
With respect to a put or call option purchased by a Fund, if the
option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the
holding period of the option. If the option expires, the resulting
loss is a capital loss and is long-term or short-term, depending
upon the holding period of the option. If the option is exercised,
the cost of the option, in the case of a call option, is added to the
basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in
determining gain or loss.
Certain options, futures, and forward contracts in which a Fund
may invest are Osection 1256 contracts.O Gains and losses on
section 1256 contracts are generally treated as 60% long-term
and 40% short-term capital gains or losses (O60/40 treatmentO),
regardless of the Fund's actual holding period for the contract.
Also, a section 1256 contract held by a Fund at the end of each
taxable year (and generally, for the purposes of the 4% excise tax,
on October 31 of each year) must be treated as if the contract had
been sold at its fair market value on that day (Omark to market
treatmentO), and any deemed gain or loss on the contract is
subject to 60/40 treatment. Foreign currency gains or losses
(discussed below) arising from section 1256 contracts may,
however, be treated as ordinary income or loss.
The hedging transactions undertaken by a Fund may result in
OstraddlesO for federal income tax purposes. The straddle rules
may affect the character of gains or losses realized by the Fund.
In addition, losses realized by a Fund on positions that are part of
a straddle may be deferred under the straddle rules rather than
being taken into account in calculating the taxable income for the
tax year in which such losses are realized. Further, a Fund may
be required to capitalize, rather than deduct currently, any interest
expense on indebtedness incurred to purchase or carry any
positions that are part of a straddle. Because only a few
regulations pertaining to the straddle rules have been
implemented, the tax consequences to the Funds for engaging in
hedging transactions are not entirely clear. Hedging transactions
may increase the amount of short-term capital gain realized by the
Funds which is taxed as ordinary income when distributed to
Members.
A Fund may make one or more of the elections available under
the Code that are applicable to straddles. If a Fund makes any of
the elections, the amount, character, and timing of the recognition
of gains or losses from the affected straddle positions will be
determined under rules that vary according to the election(s)
made. The rules applicable under some of the elections may
accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the amount, character, and
timing of gains or losses from the positions that are part of a
straddle, the amount of Fund income distributed to Members and
taxed to them as ordinary income or long-term capital gains may
be greater or lesser as compared to the amount distributed by a
fund that did not engage in such hedging transactions.
TAX TREATMENT OF SHORT SALES. A Fund will not
realize gain or loss on the short sale of a security until it closes
the transaction by delivering the borrowed security to the lender.
Pursuant to Code section 1233, all or a portion of any gain arising
from a short sale may be treated as short-term capital gain,
regardless of the period for which the Fund held the security used
to close the short sale. In addition, a Fund's holding period for
any security which is substantially identical to that which is sold
short may be reduced or eliminated as a result of the short sale.
The 30% limitation and the distribution requirements applicable
to each Fund's assets may limit the extent to which each Fund
will be able to engage in short sales and transactions in options,
futures and forward contracts.
TAX TREATMENT OF PARTNERSHIP INVESTMENTS.
The current position of the Internal Revenue Service generally is
to treat a RIC, i.e., each Fund, as owning its proportionate share
of the income and assets of any partnership in which it is a partner
in applying the Qualifying Income Requirement, the 30%
Limitation, and the asset diversification requirements which, as
described above, each Fund must satisfy to qualify as a RIC.
These requirements may limit the extent to which the Funds may
invest in partnerships, especially in the case of partnerships which
do not primarily invest in a diversified portfolio of stocks and
securities.
TAX TREATMENT OF FOREIGN CURRENCY-RELATED
TRANSACTIONS. Gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues
receivables or payables denominated in a foreign currency and the
time the Fund actually collects such receivables, or pays such
payables, generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of certain options, futures, and
forward contracts and on disposition of debt securities
denominated in a foreign currency, gains or losses attributable to
fluctuations in the value of the foreign currency between the date
of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as Osection 988O gains or
losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to Members
as ordinary income.
TAX TREATMENT OF PASSIVE FOREIGN INVESTMENT
COMPANIES. If a Fund invests in stock of certain foreign
investment companies, the Fund may be subject to U.S. federal
income taxation on a portion of any "excess distribution" with
respect to, or gain from the disposition of, such stock. The tax
would be determined by allocating on a pro rata basis such
distribution or gain to each day of the Fund's holding period for
the stock. The distribution or gain so allocated to any tax year of
the Fund, other than the tax year of the excess distribution or
disposition, would be taxed to the Fund at the highest ordinary
income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax
deferral deemed to have resulted from the ownership of the
foreign company's stock. Any amount of distribution or gain
allocated to the tax year of the distribution or disposition would
be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent
distributed by the Fund as a dividend to its Members.
Each Fund may be able to make an election, in lieu of being
taxable in the manner described above, to include annually in
income its pro rata share of the ordinary earnings and net capital
gain of any foreign investment company in which it invests,
regardless of whether it actually received any distributions from
the foreign company. These amounts would be included in the
Fund's investment company taxable income and net capital gain
which, to the extent distributed by the Fund as ordinary or capital
gain dividends, as the case may be, would not be taxable to the
Fund. In order to make this election, a Fund would be required
to obtain certain annual information from the foreign investment
companies in which it invests, which in many cases may be
difficult to obtain. Other elections may become available to the
Funds that would provide alternative tax treatment for
investments in foreign investment companies.
FOREIGN WITHHOLDING TAXES. Income received by a
Fund from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. If more
than 50% of the value of a Fund's total assets at the close of its
tax year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass through" to the Fund's
Members the amount of foreign taxes paid by the Fund. Pursuant
to this election, a Member will be required to include in gross
income (in addition to dividends actually received) its pro rata
share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in
computing its taxable income or to use the amount as a foreign
tax credit against its U.S. federal income tax liability, subject to
limitations. Each Member will be notified within 60 days after the
close of the Fund's tax year whether the foreign taxes paid by the
Fund will "pass through" for that year. With the possible
exceptions of the International Equity, Global Equity, Emerging
Markets, and Multi-Asset Funds, it is not anticipated that the
Funds will be eligible to make this "pass-through" election. If a
Fund is not eligible to make the election to "pass through" to its
Members its foreign taxes, the foreign taxes it pays will reduce its
investment company taxable income and distributions by the Fund
will be treated as U.S. source income.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the Member's U.S. tax attributable to its
foreign source taxable income. For this purpose, if the pass-
through election is made, the source of the Fund's income flows
through to its Members. With respect to the Funds, gains from
the sale of securities will be treated as derived from U.S. sources
and certain currency fluctuation gains, including fluctuation gains
from foreign currency-denominated debt securities, receivables
and payables, will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source
passive income passed through by the Funds. Members who are
not liable for federal income taxes other than the excise tax
applicable to the net investment income of private foundations
will not be affected by any such "pass through" of foreign tax
credits.
DEBT-FINANCED SHARES. If a Member that generally is
exempt from federal income taxation under Code section 501(a)
incurs indebtedness in connection with, or as a result of, its
acquisition of Fund shares, the shares may be treated as "debt-
financed property" under the Code. In such event, part of all of
any income or gain derived from the Member's investment in
those shares could constitute "unrelated business taxable income."
Unrelated business taxable income in excess of $1000 in any year
is taxable and will require a Member to file a federal income tax
return on Form 990-T.
BACKUP WITHHOLDING. A Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all
amounts distributed, or deemed to be distributed as a result of the
automatic reinvestment by the Fund of its income and gains in
additional shares of the Fund, and all redemption payments made
to Members who fail to provide the Fund with their correct
taxpayer identification numbers or to make required certifications,
or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is
not an additional tax. Any amounts withheld will be credited
against a MemberOs U.S. federal income tax liability. Corporate
Members and certain other Members (including organizations
exempt from federal income taxation under Code section 501(a))
are exempt from such backup withholding.
OTHER TAX CONSIDERATIONS. A Fund may be subject to
state, local, or foreign taxes in any jurisdiction in which the Fund
may be deemed to be doing business. In addition, Members of a
Fund may be subject to state, local, or foreign taxes on
distributions from the Fund. In many states, Fund distributions
which are derived from interest on certain U.S. Government
obligations may be exempt from taxation. Members should
consult their own tax advisers concerning the particular tax
consequences to them of an investment in the Funds.
MEMBER INFORMATION
MEMBER ACCOUNT RECORDS. Investors Bank & Trust
Company (OIBTO), TIP's Transfer Agent, maintains an account
for each member upon which the registration and transfer of
shares are recorded, and any transfers are reflected by
bookkeeping entry, without physical delivery. Certificates
representing shares of a particular Fund normally will not be
issued to Members. Written confirmations of purchases or
redemptions are mailed to each Member. Members also receive
via mail monthly statements of account, which reflect shares
purchased as a result of a reinvestment of Fund distributions.
REQUESTS THAT MUST BE IN WRITING. The Transfer
Agent will require that a Member provide requests in writing,
accompanied by a valid signature guarantee form, when changing
certain information in an account such as wiring instructions,
telephone privileges, etc. TIP, FAI, AMT Capital Services, and
the Transfer Agent will not be responsible for confirming the
validity of written or telephonic requests.
EXCHANGE PRIVILEGE. Shares of each Fund may be
exchanged for shares of any other Fund. Because an exchange is a
redemption out of one Fund and a purchase into another, the
applicable entry and exit fees for purchases and redemptions will
apply to exchanges. Any such exchange will be based on the
respective net asset values of the shares involved as of the date of
the exchange. There is not a sales commission or charge of any
kind. Before making an exchange, a Member should consider the
investment objectives of the Fund to be purchased.
Exchange Procedures. Exchange requests may be made either by
mail or telephone and should be directed to FAI or the Transfer
Agent. Telephone exchanges will be accepted only if the shares
to be exchanged are held by the Fund for the account of the
shareholder and the registrations of the two accounts are
identical. Telephone requests for exchanges received prior to
4:00 p.m. (Eastern time) will be processed as of the close of
business on the same day. Requests received after these times
will be processed on the next business day. Telephone exchanges
may also be subject to limitations as to amounts or frequency and
to other restrictions established by the Board of Directors to
ensure that such exchanges do not disadvantage TIP and its
Members.
Tax Treatment of Exchanges. For federal income tax purposes an
exchange between Funds is a taxable event and, accordingly, a
capital gain or loss may be realized. Members may want to
consult their tax advisers for further information in this regard.
The exchange privilege may be modified or terminated at any
time.
PROCEDURES FOR INVESTING THROUGH TIP. TIP has
been designed so that foundations may contact FAI with all
questions and requests regarding their membership and
investment in TIP.
Initial Investment. Foundations seeking to invest through TIP are
asked to complete an Account Application. The completed
Application is submitted to FAI and AMT Capital Services for
review (so that FAI may verify the foundationOs eligibility for
membership). FAI will contact the foundation immediately if
there is a question about eligibility, if the application is
incomplete, or if for any other reason the account cannot be
established by the initial investment date specified by the
foundation on the Application. Funds should be wired by the
foundation and received by Investors Bank & Trust Company on
the specified initial investment date. Detailed wiring instructions
are provided on the Account Application.
Subsequent Investments. In many cases, foundations may make
additional purchases in existing TIP accounts or increase the
number of TIP Funds in which they invest by contacting FAI by
phone. To ensure that the transaction can occur on the date
preferred by the foundation, FAI should be provided with as
much advance notice as possible. Under certain circumstances,
FAI or AMT Capital Services may ask a member foundation to
verify or supplement the information in the Account Application
that is on file.
In-Kind Purchases. Shares of the TIP Funds are normally issued
for cash only. In-kind purchases are accepted only when the
securities being acquired meet the following criteria: (1) are
consistent with the investment objectives and policies of the
acquiring TIP Fund; (2) are acquired for investment purposes (not
for resale); (3) are not restricted as to transfer either by law or
market liquidity; and (4) can be readily valued (e.g., listed on a
recognized exchange).
CALCULATION OF PERFORMANCE DATA
TIP may, from time to time, include the yield and total return of a
Fund in reports to members or prospective investors. Quotations
of yield for a Fund of TIP will be based on all investment income
per share during a particular 30-day (or one month) period
(including dividends and interest), less expenses accrued during
the period (Onet investment incomeO), and are computed by
dividing net investment income by the maximum offering price
per share on the last day of the period, according to the following
formula which is prescribed by the Commission:
YIELD = 2 x { [ ((a D b) / (c x d)) + 1]6 D 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 of a Fund outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
The yield as defined above for the Funds for the 30-day period
ended December 31, 1994 were as follows:
Bond Fund 7.70%
Short-Term Fund 5.68%
Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a
hypothetical investment in a Fund of TIP over periods of 1, 5, and
10 years (up to the life of the Fund), calculated pursuant to the
following formula which is prescribed by the Commission:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period.
All total return figures assume that all dividends are reinvested
when paid.
The total return as defined above for the Funds for the period
from May 31, 1994 (commencement of operations) to December
31, 1994 are as follows:
International Equity Fund 0.98%
Emerging Markets Fund (6.97%)
U.S. Equity Fund 3.49%
Bond Fund 0.46%
Short-Term Fund 3.10%
TIP may also, from time to time, compare its Funds' returns and
expense ratios to relevant market indices and manager or mutual
fund averages, such as those reported by Morningstar, Lipper
Analytical Services, Valueline, or other similar services.
When comparing the costs of investing through TIP to the costs
of investing elsewhere, foundations should consider the total
costs of investing elsewhere - not merely a subset thereof. For
example, when comparing the costs of investing through TIP to
the costs of investing the same dollar amount through a Money
Manager via a separate account, it is important to add to that
Money Manager's fees all costs of maintaining the separate
account, including relevant custody, accounting, and audit fees.
Indeed, even though their large asset bases enable them to employ
Money Managers with high separate account minimums, many
large institutions (including several foundations represented on
the Boards of TIP and FAI) voluntarily elect to invest through
funds managed by these same advisors in order to reduce their
custody, accounting, and audit costs. With respect to accounting
costs in particular, through the use of statements and reports
geared specifically to the needs of its member foundations, TIP
seeks to reduce both the complexity and the costs of complying
with relevant state and federal reporting requirements. In
addition, foundations investing through TIP benefit from a feature
common to all mutual funds: complete automation of the process
by which the Money Managers, custodians, and other vendors
employed by TIP are compensated for services rendered to TIP's
Members. Pursuant to procedures mandated by either
governmental authorities or the Funds' independent accountant,
the Funds' Custodian incorporates into its daily calculation of
the net asset value per share of each TIP Fund estimated fees paid
or owed (i.e., accrued) to vendors employed by the Fund. Thus,
on any given day, the reported market value of a participating
foundationOs shares in a given TIP Fund (i.e., the number of
shares the foundation owns times the net asset value per share
computed as of the prior dayOs close) reflects the foundationOs
costs of investing in that Fund. As a corollary, the performance
of each TIP Fund (as reported in the monthly statements each
member foundation receives and in TIP's quarterly updates) also
reflects the costs of investing in it.
DETERMINATION OF NET ASSET VALUE
BUSINESS DAYS. Currently, there are twelve holidays during
the year which are not Business Days: New YearOs Day, Martin
Luther King's Birthday, PresidentsO Day, Patriot's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Columbus
Day, VeteransO Day, Thanksgiving, and Christmas. TIP will not
accept purchase or redemption orders on these holidays.
EQUITY FUNDS. The net asset value per share is determined by
dividing the total market value of each Fund's investments and
other assets, less any liabilities, by the total outstanding shares of
the Fund. Net asset value per share is determined as of the
normal close of the New York Stock Exchange (currently 4:00
p.m. Eastern time) on each day that the NYSE is open for
business.
BOND AND SHORT-TERM FUNDS. The net asset value per
share of each Fund is determined by adding the market values of
all the assets of the Fund, subtracting all of the Fund's liabilities,
dividing by the number of shares outstanding, and adjusting to the
nearest cent. The net asset value is calculated by TIP's
Accounting Agent as of 4:00 p.m. Eastern time on each Business
Day.
METHODS USED TO CALCULATE INDIVIDUAL
SECURITIESO VALUE. Securities listed on a U.S. securities
exchange for which market quotations are available are valued at
the last quoted sale price on the day the valuation is made. Price
information on listed securities is taken from the exchange where
the securities are primarily traded. Securities listed on a foreign
exchange are valued at the latest quoted sales price available
before the time at which such securities are valued. For purposes
of net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at
the bid price of such currencies against U.S. dollars last quoted by
any major bank. All Fund securities for which over-the-counter
market quotations are readily available (including asset-backed
securities) are valued at the latest bid price. Deposits and
repurchase agreements are valued at their cost plus accrued
interest unless FAI or the Money Manager whose segment of a
Fund owns them determines in good faith, under procedures
established by and under the general supervision of TIP's Board
of Directors, that such value does not approximate the fair value
of such assets. Positions (e.g., futures and options) listed or
traded on an exchange are valued at their last sale price on that
exchange or, if there were no sales that day for a particular
position, that position is valued at the closing bid price. Unlisted
securities and listed U.S. securities not traded on the valuation
date for which market quotations are readily available are valued
not exceeding the asked prices nor less than the bid prices. The
value of other assets will be determined in good faith by FAI (or
the Money Manager whose segment of the Fund owns them) at
fair value under procedures established by and under the general
supervision of TIP's Board of Directors.
ADDITIONAL SERVICE PROVIDERS
SERVICE PROVIDER SELECTION CRITERIA. Consistent
with their Mission of helping foundations exploit the economies
of scale inherent in many aspects of investing, TIP and FAI rely
heavily on outside vendors to perform most functions that their
Directors deem delegable. TIP's fund administrator, custodian,
transfer agent, independent accountant, and legal counsel were
selected by TIP's Board of Directors from a nationwide pool of
qualified candidates based on the following criteria: (1) corporate
goals and cultures that are consistent with TIP's Mission and
Credo; (2) qualified, well-trained, motivated personnel at all
levels of the organization; (3) a demonstrated commitment to
providing high quality services at competitive prices; and (4) a
demonstrated mastery of the regulatory environment in which
they and their clients are operating.
CUSTODIAN, FUND ACCOUNTING AGENT, TRANSFER
AGENT, REGISTRAR, AND DISTRIBUTION DISBURSING
AGENT. Investors Bank & Trust Company, P.O. Box 1537,
Boston, MA 02205-1537, serves as custodian of the Funds'
assets, fund accounting agent, transfer agent, registrar, and
dividend disbursing agent for the Funds. As custodian, IBT may
employ sub-custodians outside the United States which are
approved by TIP's Board of Directors. A profile of IBT is
provided in Appendix C of the Prospectus.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street,
N.W., Washington, DC 20005, is legal counsel to TIP, for which
it is compensated directly by TIP.
INDEPENDENT ACCOUNTANTS. Price Water House LLP
LLP, 160 Federal Street, Boston, MA, 02110, serves as
independent auditor for TIP and the TIP Funds. Members receive
unaudited semi-annual financial statements; the annual financial
statements which Members receive are audited by Price Water
House LLP. Members may also receive additional reports
concerning the Funds or their Money Managers from FAI. Price
Water House LLP also renders accounting services to FAI and
certain Money Managers employed by the Funds.
APPENDIX A
QUALITY RATING DESCRIPTIONS
QUALITY RATING DESCRIPTIONS
STANDARD & POORS CORPORATION
AAA Bonds rated AAA are highest grade debt obligations.
This rating indicates an extremely strong capacity to pay principal
and interest.
AA Bonds rated AA also qualify as high-quality obligations.
Their capacity to pay principal and interest is very strong, and in
the majority of instances they differ from AAA issues only by a
small degree.
A Bonds rated A have a strong capacity to pay principal and
interest, although they are more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB Bonds rated BBB are regarded as having adequate
capacity to pay interest or principal. Although these bonds
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and principal.
BB and
Lower Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominately speculative with respect to the issuer's
capacity to pay interest and principal in accordance with the terms
of the obligation. BB indicates the lowest degree of speculation
and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
The ratings AA to C may be modified by the addition of a
plus or minus sign to show relative standing within the major
rating categories.
Municipal notes issued since July 29, 1984 are designated
OSP-1,O OSP-2,O or OSP-3.O The designation SP-1 indicates a
very strong capacity to pay principal and interest. A plus sign is
added to those issues determined to possess overwhelming safety
characteristics.
A-1 Standard & Poors Commercial Paper ratings are current
assessments of the likelihood of timely payments of debts having
original maturity of no more than 365 days. The A-1 designation
indicates that the degree of safety regarding timely payment is
very strong.
A-2 The capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1.
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to
change, foreseeable changes are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities, or because fluctuations of protective
elements may be of greater amplitude, or because there may be
other elements present that make the long-term risks appear
somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment
attributes and may be considered as upper-medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa Baa rated bonds are considered medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this class,
because the protection of interest and principal payments may be
very moderate and not well safeguarded.
B and
Lower Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the security over
any long period of time may be small. Bonds which are rated Caa
are of poor standing. Such securities may be in default of there
may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in default
or have other marked shortcomings. Bonds which are rated C are
the lowest rated class of bonds and issues so rated can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies the numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through C in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state, municipal and other short-term
obligations are designated MoodyOs Investment Grade
("MIG"). This distinction is in recognition of the differences
between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of
great importance in long-term borrowing risk are of lesser
importance in the short run.
MIG-1 Notes bearing this designation are of the best quality,
enjoying strong protection, whether from established cash flows
of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2 Notes bearing this designation are of favorable quality,
with all security elements accounted for, but lacking the
undeniable strength of the previous grade. Market access for
refinancing, in particular, is likely to be less well established.
P-1 MoodyOs Commercial Paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not
having an original maturity in excess of nine months. The
designation OPrime-1O or OP-1O indicates the highest quality
repayment capacity of the rated issue.
P-2 Issuers have a strong capacity for repayment of short-term
promissory obligations.
THOMSON BANKWATCH, INC.
A The company issuing the debt obligation possesses an
exceptionally strong balance sheet and earnings record, translating
into an excellent reputation and unquestioned access to its natural
money markets. If weakness or vulnerability exists in any aspect
of the companyOs business, it is entirely mitigated by the
strengths of the organization.
A/B The company issuing the debt obligation is very solid
financially with a favorable track record and no readily apparent
weakness. Its overall risk profile, while low, is not quite as
favorable as that of companies in the highest rating category.
IBCA LIMITED
A1 Short-term obligations rated A1 are supported by a very
strong capacity for timely repayment. A plus sign is added to
those issues determined to possess the highest capacity for timely
payment.
