TIFF PROSPECTUS
INVESTMENT
PROGRAM, INC. March 28, 1996
Including These Funds: Available through:
TIFF Multi-Asset Fund Foundation Advisers, Inc.
TIFF Global Equity Fund (not yet operating) 2405 Ivy Road
TIFF International Equity Fund Charlottesville, VA 22903
TIFF Emerging Markets Fund
TIFF U.S. Equity Fund phone (804) 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 INVESTORS).
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 International Equity Fund ("International Equity Fund");
(3) TIFF Emerging Markets Fund ("Emerging Markets Fund"); (4) TIFF U.S.
Equity Fund ("U.S. Equity Fund"); (5) TIFF Bond Fund ("Bond Fund"); and
(6) TIFF Short-Term Fund ("Short-Term Fund"). The TIFF Global Equity Fund
("Global Equity Fund") has not yet commenced operations. 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 March 28, 1996, 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 3
FEES AND ANNUAL FUND OPERATING EXPENSES 5
FINANCIAL HIGHLIGHTS 6
TIP'S ORIGINS AND MISSION 7
ELIGIBLE INVESTORS 9
MANAGEMENT AND ADMINISTRATION OF THE FUNDS 10
MONEY MANAGERS 14
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS 18
POLICY IMPLEMENTATION AND RISKS 26
RISK FACTORS...SEE POLICY IMPLEMENTATION AND RISKS 26
PURCHASES AND REDEMPTIONS 42
DIVIDENDS AND DISTRIBUTIONS 44
TAX CONSIDERATIONS 46
MEMBER VOTING RIGHTS AND PROCEDURES 48
PERFORMANCE AND EXPENSE INFORMATION 48
MEMBER INQUIRIES 48
MONEY MANAGER PROFILES APPENDIX A
SERVICE PROVIDER PROFILES APPENDIX B
DESCRIPTION OF INDICES APPENDIX C
QUALITY RATINGS APPENDIX D
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 10
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 48
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 42-44
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 44-46
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 18-25
Fund Investment Objective Performance Objective
Multi-Asset Provide a growing stream Outperform the following
of current income and constructed index annually
appreciation of principal over a market cycle net of all
that at least offsets expenses: 25% Wilshire 5000
inflation [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 Equity Provide a growing stream Outperform the MSCI All Country
of current income and World Index (a capitalization-
appreciation of principal weighted index of publicly
that at least offsets traded common stocks) by 1.00%
inflation annualy over a market cycle net
of all expenses
International
Equity Provide a growing stream Outperform the MSCI All Country
of current income and World ex USA Index (a
appreciation of principal capitalization-weighted index
that at least offsets of non-U.S. publicly traded
inflation common stocks) by 1.00% annually
over a market cycle net of all
expenses
Emerging
Markets Provide appreciation of Outperform the MSCI Emerging
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. Equity Provide a growing stream Outperform the Wilshire 5000
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 current index of publicly traded U.S.
income, subject to dollar-denominated fixed income
restrictions designed to securities) by 0.50% annually
ensure liquidity and over a market cycle net of all
control exposure to expenses
interest rate and credit
risk
Short-Term Provide a high rate of Outperform the Merrill Lynch
current income, subject 182-Day Treasury Bill Index net
to restrictions designed 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 Waterhouse LLP serves as the Funds'
independent accountant. PAGES 10-14
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 26-42
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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 Paid
to 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% 0.00%
Money Manager Fees [b] 0.22% 0.50% 0.29% 0.98% 0.31% 0.16% 0.11%
Administration Fees
(Paid to AMT) 0.08% 0.07% 0.08% 0.06% 0.06% 0.07% 0.05%
Custody Fees (Paid to
IBT)[c] 0.23% 0.11% 0.42% 1.03% 0.30% 0.50% 0.16%
Other Expenses [d] 0.07% 0.07% 0.11% 0.13% 0.11% 0.13% 0.10%
Total Operating Expenses
Exc. One-Time
Deferred Expenses [c] 0.80% 0.90% 0.97% 2.18% 0.83% 0.78% 0.35%
Inc. One-Time
Deferred Expenses [c] 0.80% 0.90% 1.05% 2.35% 0.93% 0.96% 0.42%
Estimated Operating
Expenses for Year
Ending Dec 31, 1996 0.95% 0.90% 0.98% 1.76% 0.80% 0.56% 0.35%
</TABLE>
EXAMPLE: EXPENSES PER $1,000 INVESTMENT. The table below 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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Multi- Global International Emerging U.S. Short-
Asset Equity Equity Markets Equity Bond Term
1 Year
With
redemption
at end of
period $24 $17 $18 $34 $12 $10 $4
No redemption
at end of
period 8 9 11 24 10 10 4
3 Years
With redemption
at end of
period $41 $37 $42 $86 $33 $31 $14
No redemption
at end of
period 26 29 34 76 30 31 14
5 Years
With redemption
at end of
period $61 $59 $67 $143 $55 $54 $24
No redemption
at end of
period 45 51 59 133 53 54 24
10 Years
With redemption
at end of
period $119 $124 $143 $313 $122 $124 $54
No redemption
at end of
period 103 116 135 303 120 124 54
</TABLE>
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 and Short-Term 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 and Short-Term) 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. The Fund may also gain access to certain money managers via
other commingled investment vehicles. Investments in other commingled
vehicles may result in the payment of additional fees and expenses.
[c] Custody Fees. The fees paid in 1995 by certain Funds to TIP's custodian
and Transfer Agent, Investors Bank & Trust (IBT), included the amortization of
contractual charges incurred but not paid during such Funds' first seven
months of operations. Each Fund's overall expense ratio was increased in
1995 as follows: Multi-Asset - no deferral; International Equity 0.08%;
Emerging Markets 0.17%; U.S. Equity 0.10%; Bond 0.18%; and Short-Term 0.07%.
[d] Other Expenses. This category includes legal, audit, and other
miscellaneous Fund expenses, as estimated for the current fiscal year.
FINANCIAL HIGHLIGHTS
The following audited financial information is for the periods presented in
the table below. The audited fianacial statements for the periods presented
are incorporated by reference in the Statement of Additional Information,
and are available upon request from Foundation Advisers, Inc. The TIFF
Global Equity Fund has not yet commenced operations.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Multi-Asset International Equity Emerging Markets
For a share
outstanding from 3/31/95* from 1/1/95 from 5/31/94* from 1/1/95
from 5/31/94*
throughout to 12/31/95 to 12/31/95 to 12/31/94 to 12/31/95 to 12/31/94
the period
Per Share
Data
Net asset
value,
beginning of
period $10.00 $9.98 $10.00 $9.24 $10.00
Income from
investment
operations
Investment
income, net+ 0.26 0.15 0.05 0.00 0.01
Net realized
and
unrealized gain
(loss)
on investments,
short sales,
financial futures
and options
contracts, and
foreign currency-
related
transactions 1.14 0.83 0.06 (0.79) (0.71)
Total from
investment
operations 1.40 0.98 0.11 (0.79) (0.70)
Less distributions
from
Investment income,
net 0.24 0.14 0.04 0.00# 0.01
Amounts in
excess of
investment income,
net 0.00 0.00 0.01 0.00# 0.00
Net realized gain
on investments,
short sales,
financial
futures and
options
contracts,
and foreign
currency-related
transactions 0.03 0.00 0.00 0.00 0.00
Amounts in excess
of net realized
gain on
investments,
short sales
financial
futures
and options
contracts, and
foreign currency-
related
transactions 0.00 0.00 0.08 0.00# 0.05
Total
distributions 0.27 0.14 0.13 0.00# 0.06
Net asset value,
end of period $11.13 $10.82 $9.98 $8.45 $9.24
Total return 13.87% [b] 9.85% 0.98%[b,c] -8.39% -6.97% [b,c]
Ratios /
Supplemental
Data
Net assets,
end of
period $92,629,703 $155,421,778 $89,308,767 $59,485,616 $50,032,217
Ratio of
expenses to
average net
assets 0.80% [a] 1.05% 1.08%[a] 2.35% 1.83% [a]
Ratio of
expenses to
average net
assets
before
expense
waivers 0.80% [a] 1.05% 1.27%[a] 2.35% 2.25% [a]
Ratio of net
investment
income to
average net
assets 4.00% [a] 1.48% 0.95%[a] -0.15% 0.40% [a]
Portfolio
turnover 97.35% [b] 32.91% 14.71%[b] 104.30% 26.37%[b]
+ Net of
waivers which
amounted to: NA NA $0.01 NA $0.01
</TABLE>
* Commencement of operations. [a] Annualized. [b] Not annualized.
[c] Total return would be lower had certain expenses not been waived or
reimbursed. NA Not applicable. # Rounds to less than 0.01.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S Equity Bond Short-Term
For a share from 1/1/95 from 5/31/94* from 1/1/95 from 5/31/94* from 1/1/95 from 5/31/94*
outstanding to 12/31/95 to 12/31/94 to 12/31/95 to 13/31/94 to 12/31/95 to 12/31/94
throughout
period
Per Share
Data
Net asset
value,
beginning
of period $10.02 $10.00 $9.68 $10.00 $10.00 $10.00
Income from
investment
operations
Investment
income, net+ 0.20 0.15 0.67 0.36 0.58 0.28
Net realized
and unrealized
gain (loss)
on
investments,
short sales,
financial
futures and
options
contracts,
and foreign
currency-
related
transactions 3.37 0.19 1.01 (0.32) 0.05 0.02
Total from
investment
operations 3.57 0.34 1.68 0.04 0.63 0.30
Less distributions
from
Investment income,
net 0.22 0.15 0.66 0.36 0.58 0.28
Amounts in
excess of
investment
income,
net 0.00 0.00# 0.01 0.00# 0.00# 0.00#
Net realized gain
on investments,
short sales,
financial
futures and
options
contracts,
and foreign
currency-
related
transactions 1.01 0.01 0.36 0.00 0.04 0.01
Amounts in excess
of net realized
gain on
investments,
short sales
financial
futures and
options
contracts,
and foreign
currency-
related
transactions 0.00 0.16 0.00 0.00 0.00# 0.01
Total
distributions 1.23 0.32 1.03 0.36 0.62 0.30
Net asset value,
end of period $12.36 $10.02 $10.33 $9.68 $10.01 $10.00
Total return 36.02% 3.49% [b,c] 18.07% 0.46% [b,c] 6.43% [c] 3.10% [b,c]
Ratios /
Supplemental Data
Net assets, end of
period $109,900,750 $58,173,066 $91,071,656 $79,671,253 $96,579,919 $34,283,424
Ratio of expenses
to average net
assets 0.93% 0.85% [a] 0.96% 0.62%[a] 0.42% 0.40% [a]
Ratio of expenses
to average net
assets
before expense
waivers 0.93% 1.06% [a] 0.96% 0.94%[a] 0.54% 1.72% [a]
Ratio of net
investment
income to
average net
assets 1.67% 2.52% [a] 6.34% 6.37%[a] 5.67% 4.98% [a]
Portfolio
turnover 109.89% 44.59% [b] 406.24% 162.06%[b] NA NA
+ Net of waivers
which amounted
to: NA $0.01 NA $0.02 $0.01 $0.08
</TABLE>
* Commencement of operations. [a] Annualized. [b] Not annualized.
[c] Total return would be lower had certain expenses not been waived or
reimbursed. NA Not applicable. # Rounds to less than 0.01.
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 50 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. A portion of the costs incurred by TIP in
connection with the organization and initial registration of shares are being
amortized on a straight-line basis over a sixty-month period. The unamortized
balance of organizational expenses at December 31, 1995 was $69,551.
ELIGIBLE INVESTORS
ELIGIBILITY CRITERIA. Investment in TIP 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. Eligible organizations include:
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.
The Funds are also open to: (a) non-U.S.-based charitable organizations that
have received 501(c)(3) equivalency certificates from the Internal Revenue
Service; and (b) so-called planned giving or split interest assets of
eligible organizations. In order to be eligible, at least part of the income
or principal of such assets must be owned irrevocably by an eligible
organization, and the organization must have legal control over the
securities or vehicles in which such assets are invested.
Organizations wishing to confirm their eligibility should contact FAI at
804-984-0084.
ELIGIBILITY CERTIFICATE. An organization interested in investing in TIP must
complete an eligibility certificate (included in the Account Application) and
furnish 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
William F. McCalpin Director
William F. Nichols Chair
Alicia A. Philipp Director
Fred B. Renwick Director
Robert E. Wise Director
John E. Craig* Director
Gregory D. Curtis Director
Alice W. Handy Director
Robert A. Kasdin Director
John G. Mebane Chair
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 Chair of the Board of The Investment Fund for
Foundations.
Gregory D. Curtis is President of Greycourt & Co., 607 College Street,
Pittsburgh, PA, 15232, 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 $800
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 First Union Bank of Virginia.
Robert A. Kasdin is Treasurer and Chief Investment Officer of The
Metropolitan Museum of Art, 1000 Fifth Avenue, New York, NY, 10028, where he
oversees assets exceeding $1 billion. Mr. Kasdin was formerly Vice President
and General Counsel of the Princeton University Investment Company. He is a
member of the Finance Committee of the Rockefeller Brothers Fund and of the
Board of Directors of the Institute for Ecosystem Studies.
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 Chief Investment Officer of The Duke Endowment, 100
North Tryon Street, Charlotte, NC, 28202, a private foundation with assets
exceeding $1.5 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, on the Board of Arthritis Patient Services, as a trustee of the
Mary Duke Biddle Foundation, 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 $7 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
$1.4 billion. He is also Treasurer and a trustee of Channing House 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 $188 million. She previously served as Assistant to the
President of Central Atlanta Progress, and currently serves on the boards of
Georgia State University, the Independent Sector, the Policy Board of The
Atlantic Project, and 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 board of Harbor Branch Institution. He is also
a director of Roadway Express, Wainoco Oil Corporation, and Evans Systems,
Inc.
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 19 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 $3.9
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.
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., 2405 Ivy Road, Charlottesville, VA, 22903, 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., 600 Fifth Avenue, 26th Floor, New York, NY, 10020. 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., 2405 Ivy Road,
Charlottesville, VA, 22903 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 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., 600 Fifth Avenue, 26th Floor, New York, NY, 10020.
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 Malvern, 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., 2405 Ivy Road, Charlottesville, VA, 22903.
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 as ammended January 1, 1995 between TIP and AMT Capital Services, Inc.,
600 Fifth Avenue, 26th Floor, New York, NY, 10020, 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
BEA Associates 0.60 0.95
Bee & Associates 0.15 2.00
Blairlogie Capital Management 0.60* 0.95
Delaware International Advisers Ltd. 0.30* 0.50
Genesis Asset Managers, Ltd. 0.60* 1.10
Harding, Loevner Management, L.P. 0.10 1.50
Investment Research Company 0.10 1.20
Jacobs Levy Equity Management 0.15 1.25
Lazard Freres Asset Management 0.50** 0.50
Mercury Asset Management 0.50** 0.50
Palo Alto Investors 0.10 2.00
A. 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
BEA Associates 0.60* 0.95
Bee & Associates 0.15 2.00
Blairlogie Capital Management 0.60* 0.95
Delaware International Advisers Ltd. 0.30* 0.50
Genesis Asset Managers, Ltd. 0.60* 1.10
Harding, Loevner Management, L.P. 0.10 1.50
Investment Research Company 0.10 1.20
Jacobs Levy Equity Management 0.15 1.25
Lazard Freres Asset Management 0.50** 0.50
Mercury Asset Management 0.50** 0.50
Palo Alto Investors 0.10 2.00
TIFF International Equity Fund
Bee & Associates 0.15 2.00
Blairlogie Capital Management 0.60* 0.95
Delaware International Advisers Ltd. 0.30* 0.50
Harding, Loevner Management, L.P. 0.10 1.50
Lazard Freres Asset Management 0.50** 0.50
Marathon Asset Management Ltd. 0.15 1.60
Mercury Asset Management 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
Lazard Freres Asset Management 0.50** 0.50
TIFF U.S. Equity Fund
Aronson + Partners 0.10 0.80
Eagle Capital Management 0.00 2.00
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
Westport Asset Management, Inc. 0.15 2.00
TIFF Bond Fund
Atlantic Asset Management Partners, L.L.C. 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 Trees & 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 an 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 received an order from the Commission effective August 30,
1995 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 may, 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 followed by written notice to Members,
which must include the information concerning the Money Manager that would
normally be included in a proxy statement.
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 clients' 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 managing a separate account on a Fund's
behalf 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 "majority" 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.) This 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 constructed index ("Constructed MAF Benchmark"), net of all
expenses, on an annualized basis over a market cycle (see table on
following page).
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 C for a description of the components of the
Constructed MAF Benchmark.
Asset Class Weight in
Fund's
Benchmark Asset Class Benchmark
U.S. Common Stocks 25% Wilshire 5000 Stock Index
Foreign Common Stocks 30% MSCI All Country World ex USA Index
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
U.S. Bonds 15% Lehman Aggregate Bond Index
Foreign Bonds 5% Lehman Majors ex US Bond 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,
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 "emerging markets," 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 C).
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. Investing in other commingled funds may result in the payment of
additional fees and expenses.
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
C 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 "emerging markets," 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 "emerging markets."
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
("MSCI") 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 C 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 ("ADRs") and European
Depositary Receipts ("EDRs")], 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 "emerging markets," 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 "emerging
markets."
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 C 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 "emerging stock
market" 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 C 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 IndexTM; (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 C 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 bankers' 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 ("S&P") or Baa by Moody's Investors Service,
Inc. ("Moody's)].
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 bankers'
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 ("current year spending") 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 1996
Holding Periods That One-Month Holding Periods October 1979 -0.15%
Resulted in Negative February 1980 -0.10%
Returns August 1980 -0.03%
April 1981 -0.12%
Two-Month Holding Periods None NA
Arithmetic Average One-Month Holding Periods 254 Observations 0.65%
of All Observations Two-Month Holding Periods 253 Observations 1.30%
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-one years and two months ending February 29, 1996,
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., 1979-81) 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.
8. Invest directly in interests in oil, gas, or other mineral exploration
or development programs or mineral leases.
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 company's 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 more than 15% of the Fund's net assets in illiquid securities.
7. Invest more than 15% of the Fund's total assets in restricted securities.
8. 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. "Strategy" 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. "Tactics" 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 countries' 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.
<TABLE>
<S> <C> <C> <C>
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 10/3/60 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
</TABLE>
* 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
"normal" 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 29, 1996, the approximate duration of
the Lehman Aggregate Bond Index was 4.65 years; the approximate duration of
the Lehman Majors ex US Bond Index was 4.98 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 manager's 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 manager's
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 securities' or
currencies' 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 ("OTC") 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.
Maryland residents should be aware that the Maryland Division of Securities
deems such strategies speculative; the Commission and other states did not
request such disclosure. 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
counterparty's 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 security's 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 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 issuer's 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 portfolios'
(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, bankers'
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 bankers' 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.
"Investment grade" means a rating of "BBB" or better by S&P, "Baa" or
better by Moody's in the case of securities; "B" or better by Thomson
Bankwatch in the case of bank obligations; or "A-1" or better by S&P or
"Prime-1" or better by Moody's in the case of commercial paper; or
similarly rated by IBCA Ltd. ("IBCA") in the case of foreign bank obligations.
Debt securities rated Baa by Moody's 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 "high yield"
or "junk" bonds. See Appendix D 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 ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
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
"AA" by S&P or "Aa" by Moody's, 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
"full faith and credit" 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 "call option" (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 "put option" (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 "futures contract" or "forward contract"
(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
("futures contracts") in accordance with their investment objectives. A
"financial futures contract" 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
s except that there is no transfer of a security upon exercise of the option
and settlement in cash. the Fund may write covered put and call options to
generate additional income through the receipt of premiums, purchase put
options in a 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 ("CEWs") 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.
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 "specified index" 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.
When-lssued and Forward Commitment Securities. Each Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on
a "forward commitment" 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 "synthetic security." To construct a synthetic
security, a Fund will enter into a forward contract for the purchase of a
given currency (the "Purchase Currency") at some future date against
payment in another currency (the "Sale Currency"). 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 corporation's 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 and Restricted 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. Restricted securities, including private placements, are subject
to legal or contractual restrictions on resale. They can be eligible for
purchase without SEC registration by certain instutional investors known
as "qualified institutional buyers."
The Board of Directors of the Fund may cosider certain restricted
securities, including but not limited to Rule 144A and Section 4(2) commercial
paper, liquid if such securities meet specified criteria established by the
Fund's Board of Directors.
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.
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 broker's commission results. As a shareholder in a registered
investment company, the Fund would bear its ratable share of that investment
company's 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 Countries'
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
issuers' portfolio securities, are subject to limitations under the 1940 Act,
and are constrained by market availability (e.g., these investment companies
often are "closed end" 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 "basket"
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, "special situations")
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 "non-diversified"
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 readily marketable securities 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 "bid-ask" spread in over-the-counter
markets. (Securities in over-the-counter markets are typically bought at the
"ask" or purchase price, but are valued in each Fund at the mean of the
"bid," or sale, and "ask" prices; similarly, securities in the over-the-
counter markets are typically sold at the "bid" or sale price, but are
valued in each Fund at the mean of this "bid" price and the "ask" 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, "Business
Day"). 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 Member's 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 Commission's 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 Member's 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
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Multi- Global International 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/ Business Business
Oct/Dec Day of Day of
Month Month
Paid Mid- Mid- Mid- Mid- Mid- First First
Jan/Jul Jan/Jul Jan/Jul January Apr/Jul/ Business Business
Oct/Dec Day of Day of
Month 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
</TABLE>
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 preceding table. 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.
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 Members' 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 Member's 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 Member's 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 Member's 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 Member's 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 Member's
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 "pass through" 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 "pass through" 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
"pass through" for that year, and, if so, the amount of each Member's 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 "pass through" 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 C. 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 investor's 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.
2405 Ivy Road
Charlottesville, VA 22903
or by calling FAI at 804-984-0084.
TIFF INVESTMENT PROGRAM, INC.
TIFF Investment Program, Inc. is a no-load, open-end management investment
company that seeks to improve the net investment returns of its Members by
making available to them a series of commingled investment vehicles, each
with its own investment objective and policies. The Funds are open
exclusively to grantmaking foundations and other 501(c)(3) organizations.
Adviser Foundation Advisers, Inc.
2405 Ivy Road;
Charlottesville, VA 22903
(804) 984-0084
Fund Administrator and Distributor AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor;
New York, NY 10020
Custodian and Transfer Agent Investors Bank & Trust Company
P.O. Box 1537; Boston, MA 02205
Independent Accountant Price Waterhouse LLP
160 Federal Street; Boston, MA 02110
Legal Counsel Dechert Price & Rhoads
1500 K Street, N.W.;
Washington, DC 20005
TIFF TIFF TIFF TIFF TIFF TIFF
Multi- Global Intl Emerging U.S. TIFF Short-
Asset Equity Equity Markets Equity Bond Term
Fund Fund Fund Fund Fund Fund Fund
Aronson + Partners .........................................X.................
Atlantic Asset Management
Partners, L.L.C. ..................................................X.........
BEA Associates ...........X.......X.................X.........................
Bee & Associates, Inc. ...X.......X.........X.................................
Blairlogie Capital
Management ..............X.......X.........X.......X.........................
Delaware International
Advisers, Ltd. ..........X.......X.........X.................................
Eagle Capital Management ...................................X.................
Emerging Markets Management ........................X.........................
Fischer Francis
Trees & Watts, Inc. ...............................................X......X..
Genesis Asset
Managers, Ltd. ..........X.......X.................X.........................
Harding, Loevner
Management, L.P. ........X.......X.........X.................................
Investment Research
Company ................X.......X.........................X.................
Jacobs Levy Equity
Management ..............X.......X.........................X.................
Kayne, Anderson
Investment Management .....................................X................
Lazard Freres Asset
Management ..............X.......X..........X......X........................
Marathon Asset
Management, Ltd. ..........................X...............................
Martingale Asset
Management, L.P. .........................................X................
Mercury Asset
Management .............X.......X..........X...............................
Palo Alto Investors ......X.......X.........................X................
Seix Investment
Advisors, Inc. ....................................................X........
A. Gary Shilling &
Co., Inc. ...............X..................................................
Smith Breeden
Associates, Inc. ..................................................X.....X..
TCW Funds
Management, Inc. ........X..................................................
Wellington Management
Company .................X..................................................
Westport Asset
Management, Inc. ...........................................X...............
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any person
to whom it is unlawful to make such an offer. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implications that there has been no change in the affairs of the Funds or
the Money Managers since the date hereof; however, if any material change
occurs while this Prospectus is required by law to be delivered, this
Prospectus will be amended or supplemented accordingly.
APPENDIX A
MONEY MANAGER PROFILES
The following Profiles include a summary of the investment approach utilized
by each Money Manager based on materials provided by each Money Manager to TIP
and FAI. The summaries are furnished as a means of assisting Members and
prospective Members in understanding how each Money Manager describes its own
approach.
Each profile also includes a description of fees to be paid by TIP to each
Money Manager. Performance-based fees are presented in the form of graphs and
formulas. For a detailed description of the performance-based fee structure and
the reasons underlying it, see PERFORMANCE-BASED FEES FOR MONEY MANAGERS in the
Statement of Additional Information.
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: $682 mm (2/29/96)
REPRESENTATIVE CLIENTS
John D. and Catherine T. MacArthur
Foundation
Spelman College
State of Florida
Virginia Retirement System
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: $469 mm (2/29/96)
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 350 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 90%.
MANAGER'S BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 15 + [ .250 x ( Excess Return - 90 ) ] subject to
Floor of 10 bp; Cap of 80 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
ATLANTIC ASSET MANAGEMENTPARTNERS, L.L.C.
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: $3.1 bil (2/29/96)
REPRESENTATIVE CLIENTS
Catholic Foundation
Kansas City Public School Retirement
System
Illinois State Teachers
Masonic Charity Foundation
Massachusetts General Life
Omaha School Employees' Retirement
System
Philadelphia Life Insurance
Sharp Healthcare & Grossmont
Southern Companies, Inc.
State of Florida
Texas Children's Hospital
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
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: $1.0 bil (2/29/96)
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%.
MANAGER'S BENCHMARK
Lehman Government/Corporate Bond Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 15 + [ .200 x ( Excess Return - 65 ) ] subject to Floor of 10 bp;
Cap of 60 bp
Measurement Period = Trailing 12 Months
Excess 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: $28.0 bil (12/31/95)
REPRESENTATIVE 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
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
Richard Watt, Senior Vice President, International Portfolio Manager
MA, University of Edinburgh; Diploma in Management Studies, Napier College
1995-present: BEA Associates
1992-1995: Gartmore Investment Ltd.
Money Manager for the TIFF Multi-Asset, TIFF Global Equity, and TIFF Emerging
Markets Funds
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets
Assets Using This Philosophy: $4.2 bil (12/31/95)
INVESTMENT APPROACH
BEA's 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 investors' misperceptions produce investment
"themes", 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: 303-572-5090
fax: 303-572-5099
Independent Investment Counsel
Controlled by Bruce Bee and Edward McMillan
Founded in 1989
Total Assets under Management: $210 mm (2/29/96)
REPRESENTATIVE CLIENTS
Brown & Williamson
Coutts & Company
Dartmouth College
Gates Family Foundation
Phelps-Tointon
Pfizer, Inc.
Riverside Church of New York
Scripps College
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
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: $165 mm (2/29/96)
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 shareholders' 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 15 + [ 0.270 x ( Excess Return - 115 ) ] subject to Floor of 15 bp;
Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess 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:
2874 Johnson Ferry Road, Suite 200
Marietta, GA 30062
phone: 770-992-5993
fax: 770-643-9658
Independent Investment Counsel
Controlled by PIMCO Advisors, L.P.
Founded in 1992
Total Assets under Management: $644 mm (2/29/96)
REPRESENTATIVE CLIENTS
The Baptist Sunday School Board
Commonwealth Funds Management of
Australia
Haggar Apparel Company
Illinois State Teachers' 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
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
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: $157 mm (2/29/96)
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. Blairlogie's 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
approximately 150 stocks. Annual turnover averages 100% (purchases and
sales).
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: $3.1 bil (2/29/96)
REPRESENTATIVE CLIENTS
Allied-Signal, Inc.
Father Flanagan's Boy's 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: $2.2 bil (2/29/96)
INVESTMENT APPROACH
Delaware International is a value-oriented defensive manager. The
company's 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
International's 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 company's
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
323 Main Street
Chatham, NJ 07928
phone: 800-977-3245
fax: 201-701-9232
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: $530 mm (2/29/96)
REPRESENTATIVE CLIENTS
Atlantic Richfield
Colgate University
University of Delaware
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
University of Oregon
Salvation Army
University of Vermont
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: $530 mm (2/29/96)
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 Eagle's 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%.
MANAGER'S BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
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: $3.2 bil (12/31/95)
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, GeorgetownInternational 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
Dobrinka Cidrof, CoPortfolio Manager and Analyst
MBA, George Washington Univ; BA, Bosphorous Univ
TEB Investment Bank
Martin Horn, Portfolio Manager
Education in Germany
Citibank Global Asset Management London
Money Manager for the TIFF Emerging Markets Fund
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets
Assets Using This Philosophy: $3.2 bil (12/31/95)
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 Markets' Management's 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 portfolio's
individual equity holdings (as opposed to the portfolio valued weighting) are
outside of IFC and MSCI Emerging Markets indices. The firm actively monitors a
universe of approximately 1,800 stocks in over 52 countries. Portfolios
contain an average of 300 stocks. Annual turnover depends heavily on
market conditions, but has typically averaged 35%.
MANAGER'S BENCHMARK
MSCI Emerging Markets Free Index
FEE PAID BY TIP TO THIS MANAGER
1.25% on first $100 million
1.00% thereafter
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: $21.4 bil (12/31/95)
REPRESENTATIVE CLIENTS
Ameritech Corporation
BankAmerica
BASF Corporation
Campbell Soup Company
Monsanto Company
Railways Pension Trustee Company Ltd.
(British Rail)
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
Karen McKeel Calby, Director, Client Service
MBA, Wharton; AB, Dartmouth College
Oliver, Wyman & Company, Partner
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: $4.9 bil (12/31/95)
INVESTMENT APPROACH
FFTW seeks relative value opportunities among fixed income securities of the
world's 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.
MANAGER'S BENCHMARK
JP Morgan Global Government Bond Index (Hedged)
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 20 + [ .138 x ( Excess Return - 70 ) ] subject to Floor of 10 bp;
Cap of 80 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: $21.4 bil (12/31/95)
REPRESENTATIVE CLIENTS
American Brands
Dow Chemical Company
Genentech, Inc.
Lucille P. Markey Charitable Trust
Monsanto Company
Sprint 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
Karen McKeel Calby, Director, Client Service
MBA, Wharton; AB, Dartmouth College
Oliver, Wyman & Company, Partner
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: $9.1 bil (12/31/95)
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
managers' 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.
MANAGER'S 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 other TIFF 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: 071-235-5040
fax: 071-235-8065
Independent Investment Counsel
Controlled by Genesis Holdings
International Ltd.
Founded in 1989
Total Assets under Management: $3.0 bil (12/31/95)
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
Paul Greatbatch, Director
Clare College, Cambridge
Prudential Securities, Senior Vice President
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: $2.3 bil (12/31/95)
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%.
MANAGER'S 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: $692 mm (2/29/96)
REPRESENTATIVE CLIENTS
Columbia Foundation
Gerbode Foundation
Richard and Rhoda Goldman Foundation
Robert Wood Johnson Foundation
Johns Hopkins University
Mercersburg Academy
John M. Olin Foundation
Public Welfare 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: $399 mm (2/29/96)
INVESTMENT APPROACH
HLM's investment approach is "bottom up." 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 company's
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 HLM's 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%.
MANAGER'S BENCHMARK
MSCI All Country World ex USA Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 30 + [ .185 x ( Excess Return - 130 ) ] subject to Floor of 10 bp;
Cap of 150 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
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: $692 mm (2/29/96)
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
Randolph 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 Global Equity Funds
INVESTMENT PHILOSOPHY
Philosophy: Global Equity
Assets Using This Philosophy: $153 mm (2/29/96)
INVESTMENT APPROACH
HLM's investment approach is "bottom up." 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 company's 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 HLM's 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%.
MANAGER'S BENCHMARK
MSCI All Country World Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 30 + [ .185 x ( Excess Return - 130 ) ] subject to
Floor of 10 bp; Cap of 150 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
INVESTMENT RESEARCH COMPANY
ORGANIZATION
111 West Jackson Boulevard, 15th Floor
Chicago, IL 60604
phone: 312-930-3944
fax: 312-930-8813
Independent Investment Counsel
Controlled by United Asset Management
Founded in 1985
Total Assets under Management: $1.9 bil (2/29/96)
REPRESENTATIVE CLIENTS
AHA Investments
Ameritech Corporation
Lockheed Corporation
Louisiana Municipal Employees
Retirement System
Minnesota Mining & Manufacturing
Oregon Retail Pension Trust Fund
Shell Oil Company
Virginia Retirement System
Western States OPEIU
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: $1.1 bil (2/29/96)
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%.
MANAGER'S BENCHMARK
S&P 500 Stock Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 20 + [ .242 x ( Excess Return - 95 ) ] subject to
Floor of 10 bp; Cap of 120 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
INVESTMENT RESEARCH COMPANY
ORGANIZATION
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
111 West Jackson Boulevard, 15th Floor
Chicago, IL 60604
phone: 312-930-3944
fax: 312-930-8813
Independent Investment Counsel
Controlled by United Asset Management
Founded in 1985
Total Assets under Management: $1.9 bil (2/29/96)
REPRESENTATIVE CLIENTS
AHA Investments
Ameritech Corporation
Lockheed Corporation
Louisiana Municipal Employees
Retirement System
Minnesota Mining & Manufacturing
Oregon Retail Pension Trust Fund
Shell Oil Company
Virginia Retirement System
Western States OPEIU
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: $139 mm (2/29/96)
INVESTMENT APPROACH
IRC's 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 IRC's 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 IRC's 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%.
MANAGER'S BENCHMARK
Merrill Lynch 91-Day Treasury Bill Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 30 + [ .098 x ( Excess Return - 105 ) ] subject to
Floor of 10 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
JACOBS LEVY EQUITY MANAGEMENT
ORGANIZATION
280 Corporate Center, 3 ADP Blvd.
Roseland, NJ 07068
phone: 201-716-0066
fax: 201-716-0249
Independent Investment Counsel
Controlled by Bruce Jacobs and Kenneth Levy
Founded in 1986
Total Assets under Management: $3.5 bil (2/29/96)
REPRESENTATIVE CLIENTS
Digital 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: $1.8 bil (2/29/96)
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 market's 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.
MANAGER'S BENCHMARK
Wilshire 5000 Stock Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 20 + [ .324 x ( Excess Return - 95 ) ] subject to
Floor of 15 bp; Cap of 125 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
KAYNE, ANDERSON INVESTMENT MANAGEMENT, L.P.
ORGANIZATION
1800 Avenue of the Stars, Suite 200
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: $1.8 bil (2/29/96)
REPRESENTATIVE CLIENTS
Bishop Museum
Blind Childrens Center
Fritz B. Burns Foundation
California Society of CPA's Foundation
Endowment Foundation of the Jewish Federation
The J. David Gladstone Institutes Foundation
Los Angeles Museum of Contemporary Art Foundation
Northern New York Community Foundation
U.S. Olympic Swim Team Endowment
PERSONNEL
Key TIP Account Managers
Allan M. Rudnick, Chief Investment Officer
MBA, Harvard; BA, Trinity College
1989-present: Kayne, Anderson
1986-89: Pilgrim Asset Management, President
Jean-Baptiste Nadal, CFA, International Portfolio Manager and Equity Analyst
Finance and Business Administration, Sup De Co.
The Bearbull Group
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: $1.2 bil (2/29/96)
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 13,000 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 company's position in its industry and the industry cycle in
the economy. The individual security selection is overlaid with a sector
allocation discipline to avoid overconcentration in any single sector. 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 a stock, relative to the market, triggers a
reappraisal. Portfolios contain an average of 25 to 35 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 35 + [ 0.500 x ( Excess Return - 110 ) ] subject to
Floor of 15 bp; Cap of 65 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
LAZARD FRERES ASSET MANAGEMENT
ORGANIZATION
30 Rockefeller Plaza
New York, NY 10020
phone: 212-632-6000
fax: 212-332-5913
Independent Investment Counsel
Wholly owned by Lazard Freres & Company
Founded in 1848
Total Assets under Management: $30 bil (2/29/96)
Closed-End Funds $632 mm (2/29/96)
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, Managing Director
MIA/MBA/BA, Columbia University
1977-present: Lazard Freres and Co LLC
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: $373 mm (2/29/96)
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.
MANAGER'S 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
30 Rockefeller Plaza
New York, NY 10020
phone: 212-632-6000
fax: 212-332-5913
Independent Investment Counsel
Wholly owned by Lazard Freres & Company
Founded in 1848
Total Assets under Management: $30 bil (2/29/96)
Closed-End Funds $632 mm (2/29/96)
REPRESENTATIVE CLIENTS
Glaxo Group Pension Fund
ITT Pension Fund
Marathon Oil
Phoenix Mutual
The State Teachers Retirement System of Ohio
US Steel
Yale University
PERSONNEL
Key TIP Account Managers
Alexander Zagoreos, Managing Director
MIA/MBA/BA, Columbia University
1977-present: Lazard Freres and Co. LLC
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, TIFF International
Equity and TIFF Emerging Markets Funds
INVESTMENT PHILOSOPHY
Philosophy: Emerging Markets Portfolio
Assets Using This Philosophy: $259 mm (2/29/96)
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.
MANAGER'S 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: $4.5 bil (2/29/96)
REPRESENTATIVE CLIENTS
Asea Brown Boveri Inc.
Allied Signal Corporation
Aluminum Company of America
GTE Corporation
Henry J. Kaiser Family Foundation
Pennsylvania Public School Employee's 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: $3.4 bil (2/29/96)
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
"supply side" 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
GRAPH: The garph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 40 + [ .167 x ( Excess Return - 140 ) ] subject to
Floor of 15 bp; Cap of 160 bp
Measurement Period = Trailing 12 Months
Excess 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 Commerz International Capital Management
Founded in 1987
Total Assets under Management: $454 mm (12/31/95)
REPRESENTATIVE CLIENTS
Amoco Corporation
Nikko Securities
Saint-Gobain Corporation
UFCW International Union
PERSONNEL
Key TIP Account Managers
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. O'Connor, Sr. Vice President, Treasurer
University of Massachusetts, Boston College
Batterymarch Financial Management
Arnold S. Wood, President, CEO
BA, Trinity College
Batterymarch Financial Management
Mr. James X. Wilson, Sr. Vice President, Director of Marketing
MBA, Boston College; BA, Merrimack College
The Boston Company
Money Manager for the TIFF U.S. Equity Fund
INVESTMENT PHILOSOPHY
Philosophy: Active Completeness Manager
Assets Using This Philosophy: $123 mm (12/31/95)
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 "misfit risk" 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 "fair market value" 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 Martingale's
unique role as active completeness manager)
MERCURY ASSET MANAGEMENT
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
Founded in 1975
Total Assets under Management: $5.3 bil (2/29/96)
REPRESENTATIVE CLIENTS
Asea Brown Boveri Inc.
Federal Express Corporation
General Motors Corporation
International Monetary Fund
United Nations Joint Staff Pension Fund
Washington State Investment Board
The World Bank
PERSONNEL
Key TIP Account Manager
C. Consuelo Brooke, Director
BS, Southampton University
1987-present: Mercury Asset Management (formerly Warburg Investment Management)
Other Personnel
James P. Hordern, Portfolio Manager
BA, Durham University
Deutsche Bank, Analyst
1990-present: Mercury Asset Management (formerly Warburg Investment Management)
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: $1.2 bil (2/29/96)
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 $1 billion, and three-quarters of its holdings are not
represented in the MSCI European Index. Mercury invests in stocks in 18
European countries and the number of countries represented in a portfolio
will generally range from twelve 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
NWS (FT) European Smaller Companies Stock Index
FEE PAID BY TIP TO THIS MANAGER
0.50% straight asset-based fee
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: $45 mm (12/31/95)
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: $45 mm (12/31/95)
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
management's 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 20 + [ .198 x ( Excess Return - 95 ) ] subject to
Floor of 10 bp; Cap of 200 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
SEIX INVESTMENT ADVISORS, INC.
ORGANIZATION
300 Tice Boulevard
Woodcliff Lake, NJ 07675-7633
phone: 201-391-0300
fax: 201-391-0303
Independent Investment Counsel
Controlled by Christina Seix, Chairman and CIO
Founded in 1992
Total Assets under Management: $596.0 mm (2/29/96)
REPRESENTATIVE CLIENTS
Denver Employees
ICMA Retirement Corporation
Moran Towing Corporation
New Mexico Physicians Mutual Liability
Company
Pacific Gas & Electric
Pacific Telesis
San Diego Gas & Electric
Sisters of Mercy
SUNY Research Foundation
Town of Fairfield (CT)
United Methodist Church
University of Pittsburgh Medical Center
Systems
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, Managing Director - Fixed Income
BA, Connecticut College
1993-present: Seix Investment Advisors
1991-92: JP Morgan Securities, Senior
Fixed Income Strategist
1988-91: Morgan Stanley & Co., Portfolio Strategist
Barbara Hoffman, Managing Director - Fixed Income
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: $425.8 mm (2/29/96)
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 40 to 50 positions. Annual turnover averages
200% to 250%.
MANAGER'S BENCHMARK
Lehman Government/Corporate Bond Index
FEE PAID BY TIP TO THIS MANAGER
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 15 + [ .231 x ( Excess Return - 65 ) ] subject to
Floor of 10 bp; Cap of 80 bp
Measurement Period = Trailing 12 Months
Excess Return = Manager's Return - Benchmark Return
A. GARY SHILLING & CO., INC.
ORGANIZATION
500 Morris Avenue
Springfield, New Jersey 07081
phone: 201-467-0070
fax: 201-467-1943
Independent Investment Counsel
Controlled by A. Gary Shilling, PhD
Founded in 1978
Total Assets under Management: $70 mm (2/29/96)
REPRESENTATIVE CLIENTS
Anesthesiology Pension Plan
Chandler 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
Money Manager for the TIFF Multi-Asset Fund
INVESTMENT PHILOSOPHY
Philosophy: Thematic Economic Analysis
Assets Using This Philosophy: $70 mm (2/29/96)
INVESTMENT APPROACH
The firm employs a "top down" 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 - not always rational -
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 account's 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 15 + [ 0.270 x ( Excess Return - 115 ) ] subject to
Floor 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: $2.4 bil (2/29/96)
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
Timothy D. Rowe, Principal
MBA, Chicago; BA, Duke University
1988-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: $1.5 bil (2/29/96)
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 portfolio's 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 Breeden"s 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement
Fee = 20 + [ .315 x ( Excess Return - 70 ) ] subject to
Floor of 10 bp; Cap of 85 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: $2.4 bil (2/29/96)
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
Timothy D. Rowe, Principal
MBA, Chicago; BA, Duke University
1988-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: $781 mm (2/29/96)
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 portfolio's 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 Breeden's 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
Fee = 10 + [ .400 x ( Excess Return - 20 ) ] subject to
Floor 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 TIFF 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: $53 bil (12/31/95)
REPRESENTATIVE CLIENTS
American Baptist Churches Retirement
Plan
The Duke Endowment
Freedom Communications Retirement Plan
Princeton University
PERSONNEL
Key TIP Account Managers
Stefan D. Abrams, CFA, Managing Director and Chief Investment Officer for 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, Managing Director - 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 (12/31/95)
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 portfolio's 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 portfolio's 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
portfolio's 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)
WELLINGTON MANAGEMENT COMPANY
ORGANIZATION
75 State Street
Boston, Massachusetts 02109
phone: 617-951-5000
fax: 617-263-4022
Independent Investment Counsel
Controlled by Managing Partners: Robert W. Doran,
Duncan M. McFarland and John R. Ryan
Founded in 1933
Total Assets under Management: $102.4 bil (12/31/95)
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: $651.3 mm (12/31/95)
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 companies' assets and internal
reinvestment opportunities, combined with the analysis of how companies
formulate their investment plans and react to changes in the environment.
Wellington's 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: $620 mm (2/29/96)
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: $550 mm (2/29/96)
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 "aggressive management"
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 company's 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
GRAPH: The graph represents the minimum and maximum number of basis points that
a performance-fee based Money Manager can receive under its current
agreement.
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
SERVICE PROVIDER PROFILES
AMT CAPITAL SERVICES, INC.
ORGANIZATION
600 Fifth Avenue, 26th Floor
New York, NY 10020
phone: 212-332-5211
fax: 212-332-5190
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
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
$103 billion in Custody Assets
1,270 Daily Priced Funds
60 Unit Investment Trusts
Global Network in 68 Countries
680 Employees
CUSTODIAL OR
TRANSFER AGENCY CLIENTS
AMT Capital Advisers, Inc.
Asia House Funds
Atlas Funds
Brandes Investment Partners
Deutsche Bank
Diversified Investment Advisors (AEGON)
Eaton Vance Corp.
FFTW Funds, Inc.
Govett Funds, Inc.
Grantham, Mayo, Van Otterloo & Co.
(GMO) Funds
John Hancock Funds and Separate
Accounts
Harvard Endowment Funds
Holland Series Fund, Inc.
Lincoln National Corporation
Mass Financial Services
MassMutual Institutional Funds
Northeast Investors Funds
PaineWebber, Inc.
Palladian
RREEF
Salomon Brothers Asset Management
Signature Financial Group
Standish, Ayer & Wood Funds
Thomas J. Herzfeld Advisers Funds
Touchstone Family of Funds
Wright Investors Services
Custodian and Transfer Agentfor 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 i
ts 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 & CEO
BA, Accounting, University of Massachusetts
Bank of New England, Senior Vice President
Michael Rogers, Executive Managing Director, Custody/Fund Accounting
MBA, College of William and Mary
BA, Economics, Boston College
Bank of New England, Manager
Robert Mancuso, Marketing/Client Management
MBA, Boston College
BA, Finance, Boston College
APPENDIX C
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 "benchmarks"). 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 C-3)
BEA Associates MSCI Emerging Markets Free Index
Bee & Associates, Inc. MSCI All Country World or All Country
World ex USA
Delaware International Advisers Ltd. MSCI EAFE Index
Genesis Asset Managers Ltd. MSCI Emerging Markets Free Index
Harding, Loevner Management, L.P. MSCI All Country World or All Country
World ex USA
Investment Research Company S&P 500 Stock Index
Jacobs Levy Equity Management Wilshire 5000 Stock Index
Lazard Freres Asset Management MSCI Emerging Markets Free Index or MSCI
All Country World Index
Mercury Asset Management FTA European Smaller Companies Stock Index
Palo Alto Investors Russell 2000 Stock 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
BEA Associates MSCI Emerging Markets Free Index
Bee & Associates, Inc. MSCI All Country World or All Country
World ex USA
Blairlogie Capital Management MSCI Emerging Markets Free Index
Delaware International Advisers Ltd. MSCI EAFE Index
Genesis Asset Managers Ltd. MSCI Emerging Markets Free Index
Harding, Loevner Management, L.P. MSCI All Country World Index
Investment Research Company S&P 500 Stock Index
Jacobs Levy Equity Management Wilshire 5000 Stock Index
Lazard Freres Asset Management MSCI Emerging Markets Free Index or MSCI
All Country World Index
Mercury Asset Management FTA European Smaller Companies Stock Index
Palo Alto Investors Russell 2000 Stock Index
TIFF International Equity Fund MSCI All Country World ex USA Index
Bee & Associates, Inc. MSCI All Country World ex USA Index
Blairlogie Capital Management MSCI Emerging Markets Free Index
Delaware International Advisers Ltd. MSCI EAFE Index
Harding, Loevner Management, L.P. MSCI All Country World ex USA Index
Lazard Freres Asset Management MSCI Emerging Markets Free Index or MSCI
All Country World Index
Marathon Asset Management Ltd. MSCI All Country World ex USA Index
Mercury Asset Management 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
Lazard Freres Asset Management MSCI Emerging Markets Free Index
TIFF U.S. Equity Fund Wilshire 5000 Stock Index
Aronson + Partners S&P 500 Stock Index
Eagle Capital Management 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
Westport Asset Management, Inc. Russell 2000 Stock Index
TIFF Bond Fund Lehman Brothers Aggregate Bond Index
Atlantic Asset Management
Partners, L.L.C. 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 "market neutral" 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 "capitalization") 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 issue's 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.
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 29,
1996 the MSCI All Country World Index consisted of approximately 2,477
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 29,
1996, the MSCI All Country World ex USA Index consisted of approximately
2,097 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 29, 1996, the EAFE Index comprised more than 1,100 companies, and
represented approximately 82% 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 20 countries, representing
approximately 60% of the capitalization of each underlying market. As of
February 29, 1996, the Index comprised approximately 889 companies, and
represented approximately 15% of the MSCI All Country World ex USA Index.
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 "investable" 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 "base-weighted
aggregate" expressed in relatives with the average value for the base period
(1941-43) equal to 10. These group values are expressed as a relative, or
index number, to the base period (1941-43) 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.
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 29, 1996, these four classes represented the
following proportions of the Index's total market value:
U.S. Treasury and Agency Securities 53%
Corporate Debt Securities 17%
Mortgage-Backed Securities 29%
Asset-Backed Securities 1%
As of February 29, 1996, approximately 5,395 issues (including bonds, notes,
debentures, and mortgage issues) were included in the Index, representing
more than $4.5 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
Moody's 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 Index's effective weighted average maturity and
duration were 8.64 years and 4.65 years, respectively, and the weighted
average quality of issues comprising the Index was Aaa1 (using credit ratings
of Moody's Investor Service, Inc.).
Lehman Brothers Government/Corporate Index. This Index, a subset
representing approximately 70% of the Lehman Brothers Aggregate Bond Index,
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.
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.
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 "investable." 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.
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 "new" Treasury Bill, the "old" 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 "new" Treasury Bill, the "old" Treasury Bill is
sold and the gain or loss is included in the portfolio return.
MSCI Country Weightings
As of February 29, 1996
MSCI MSCI MSCI
All Country All Country EAFEE MSCI Emerging
Index: World World ex USA Markets Free
Benchmark for: TIFF Global TIFF International Certain Int- TIFF Emerging
Equity Fund Equity Fund ernational Markets Fund
Equity
Managers
Europe 26.1% 42.4% 50.4%
Austria 0.2% 0.4% 0.5%
Belgium 0.6% 1.0% 1.1%
Denmark 0.4% 0.7% 0.8%
Finland 0.3% 0.4% 0.5%
France 3.4% 5.5% 6.5%
Germany 3.7% 6.0% 7.2%
Ireland 0.1% 0.2% 0.3%
Italy 1.2% 1.9% 2.3%
Netherlands 2.1% 3.4% 4.1%
Norway 0.2% 0.4% 0.5%
Spain 1.0% 1.6% 1.9%
Sweden 1.1% 1.8% 2.2%
Switzerland 3.0% 4.9% 5.8%
United Kingdom 8.7% 14.1% 16.8%
Pacific 24.4% 39.7% 47.2%
Australia 1.4% 2.3% 2.7%
Hong Kong 1.8% 2.9% 3.4%
Japan 20.4% 33.1% 39.4%
New Zealand 0.2% 0.3% 0.4%
Singapore 0.6% 1.0% 1.2%
North America 40.7% 3.3%
Canada 2.0% 3.3%
United States 38.4%
Emerging Markets 9.0% 14.7% 2.4% 100.0%
Argentina 0.2% 0.4% 3.4%
Brazil 0.8% 1.4% 11.8%
Chile 0.3% 0.6% 4.8%
Colombia 0.1% 0.1% 0.8%
Greece 0.1% 0.2% 1.3%
India 0.4% 0.7% 6.1%
Indonesia 0.4% 0.7% 5.9%
Israel 0.2% 0.3% 2.7%
Jordan 0.0% 0.0% 0.2%
Korea* 1.1% 1.8% 3.0%
Malaysia 1.2% 2.0% 2.4% 17.1%
Mexico 0.6% 1.0%
Mexico Free 8.0%
Pakistan 0.0% 0.1% 0.6%
Peru 0.1% 0.1% 1.2%
Phi Pakistan 0.0% 0.1% 0.6%
Peru 0.1% 0.1% 1.2%
Philippines 0.3% 0.5%
Philippines Free
3.1%
Poland 0.0% 0.0% 0.3%
Portugal 0.2% 0.2% 2.1%
South Africa 1.1% 1.8% 15.6%
Sri Lanka 0.0% 0.0% 0.1%
Taiwan 1.0% 1.6%
Thailand 0.7% 1.1% 9.6%
Turkey 0.1% 0.2% 1.6%
Venezuela 0.0% 0.0% 0.3%
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 1996.
Note: Numbers may not add to totals due to rounding.
APPENDIX D
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 "SP-1,"
"SP-2," or "SP-3." 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 Moody's 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 Moody's 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 "Prime-
1" or "P-1" 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
company's 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.
TIFF STATEMENT OF
INVESTMENT ADDITIONAL INFORMATION
PROGRAM, INC. March 28, 1996
Including These Funds: Available through:
TIFF Multi-Asset Fund Foundation Advisers, Inc.
TIFF Global Equity Fund (not yet operating) 2405 Ivy Road
TIFF International Equity Fund Charlottesville, VA 22903
TIFF Emerging Markets Fund
TIFF U.S. Equity Fund phone (804) 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 ("Multi-Asset Fund"); (2) TIFF International Equity Fund
("International Equity Fund"); (3) TIFF Emerging Markets Fund ("Emerging
Markets Fund"); (4) TIFF U.S. Equity Fund ("U.S. Equity Fund"); (5) TIFF
Bond Fund ("Bond Fund"); and (6) TIFF Short-Term Fund ("Short-Term Fund").
The TIFF Global Equity Fund ("Global Equity Fund") has not yet commenced
operations. 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 March 28, 1996 (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 TIP'S FUNDS 3
SUPPLEMENTAL DISCUSSION OF FUND MANAGEMENT AND ADMINISTRATION
8
PERFORMANCE-BASED FEES FOR MONEY MANAGERS 11
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 16
DISTRIBUTION OF FUND SHARES 17
SUPPLEMENTAL DISCUSSION OF INVESTMENT OBJECTIVES, POLICIES,
AND RESTRICTIONS 18
SUPPLEMENTAL DISCUSSION OF POLICY IMPLEMENTATION AND RISKS 18
FUND TRANSACTIONS 36
TAX CONSIDERATIONS 37
MEMBER INFORMATION 42
CALCULATION OF PERFORMANCE DATA 43
DETERMINATION OF NET ASSET VALUE 44
ADDITIONAL SERVICE PROVIDERS 45
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 TIP'S 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 ("TIFF"). These studies suggest that many of America's
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 "less 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." 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
organization's 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 Foundations' 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 Congress' 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
"stay the course": 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 "volatility control" 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 "volatility control"
denotes such securities' potential to cushion losses experienced in the
"total return" segment of the Fund.
Unique Deflation-Hedging Role of Bonds. The Fund's 20% "normal" allocation
to bonds reflects the Directors' 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% "normal" allocation to a "Specialized Equities"
portfolio emphasizing natural resource-related equities reflects the
Directors' 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 "Specialized Equities" 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 "inflation hedges" 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 ("REITs")], 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 "Specialized Equities"
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 Directors' 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 "non-traditional" or "alternative" 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 "norms" 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, "disciplined
rebalancing can boost returns as much as a fairly large shift in the policy
mix itself" (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 "Conservative" Boards. Whether the
Fund is suitable for a foundation that favors conservative investment
policies depends on one's definition of "conservative." Many investors who
describe themselves as "conservative" 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.,
"safest") 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 "conservative" are in fact not conducive to wealth preservation
- - certainly not after adjusting for inflation. A more apt label for such
policies would be "conventional."
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 TIFF's Investment Committee. FAI's Board is
chaired by John Mebane, Senior Investment Officer of The Duke Endowment
(Charlotte, NC). Mr. Mebane is a 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 "Advisory
Agreement"), 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%):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 "majority" [as
defined in the Investment Company Act of 1940 (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 of TIP who are not "interested persons" (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 the International Equity, emerging Markets, U.S. Equity,
Bond, and Short-Term Funds on March 29, 1994, and by the initial members of the
Multi-Asset Fund on September 13, 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 "assignment" (as defined in the 1940 Act).
PAYMENT OF FAI'S 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 members' 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 "fund administration." A mutual fund's 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 B of the Prospectus.
MONEY MANAGER AGREEMENTS. The Money Manager agreements between TIP and the
Money Managers (the "Money Manager Agreements") 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 "majority" (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 "interested persons" (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 manager's account; (2) the
manager's historical and expected future performance against relevant
benchmarks; (3) the historical and expected future volatility of the
manager's relative returns; (4) the manager's assets under management; (5)
the impact (if any) that linking a manager's 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
on not less than 60 days' notice by the Money Manager. A Money Manager
Agreement will terminate automatically in the event of its "assignment" (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:
0.95% for the Multi-Asset Fund; 1.00% fpr 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
foundation's 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 lion's 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.
"Worst case" 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 - 1.90% per
annum; Global Equity Fund - 1.90% per annum; International Equity Fund -
1.85% per annum; U.S. Equity Fund - 2.00% per annum; Bond Fund - 0.75% per
annum; and Short-Term Fund - 0.70%. The average differences between the
minimum and maximum fees payable to all Money Managers profiled in the TIP
Prospectus are: Multi-Asset Fund - 1.36% (7 managers); Global Equity Fund -
1.47% (5 managers); International Equity Fund - 1.57% (3 managers); U.S.
Equity Fund - 1.42% (7 managers to whom performance-based fees are paid);
Bond Fund - 0.66% (4 managers); and Short-Term Fund - 0.70% (1 manager).
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 foundations'
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.
GRAPH: This is an example of a performance-based fee for a Money Manager. It
provides an example of the fulcrum fee.
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 model's chief attributes:
Common Characteristics. All agreements between the Funds and Money Managers
entailing performance-based fees have certain common characteristics,
including: (1) minimum fees ("floors"); (2) maximum fees ("caps") ; 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 "fulcrum fee," 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. "Total Return" 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 "floor" 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).
Money Manager Fulcrum Fee Excess Return over
Manager's Benchmark
Required to Receive
Fulcrum Fee
Aronson + Partners 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
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
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 managers' 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 manager's performance is not as good in the
months immediately following the new shareholder's 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 February 29, 1996, there were no "control persons" (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
February 29, 1996, 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 18.3%
Benton Foundation; 1634 Eye St. N.W., 12th Fl.;
Washington, DC 20006 12.9%
The Vasser Woolley Foundation, Inc.; 1201 W.
Peachtree St., Ste. 4200; Atlanta, GA 30309 7.3%
International Equity Fund
The Rockefeller Foundation; 420 Fifth Avenue;
New York, NY 10018 25.4%
Houston Endowment Inc.; 600 Travis, Suite 6400;
Houston, TX 77002 16.0%
California Community Foundation; 606 S. Olive St.,
Suite 2400; Los Angeles, CA 90014 5.1%
Emerging Markets Fund
John D. & Catherine T. MacArthur Foundation;
140 South Dearborn, Suite 1100; Chicago, IL 60603 27.9%
Pew Memorial Trust, c/c Glenmede Trust Co.;
One Liberty Plaza, Suite 1200; Philadelphia, PA 19103 20.4%
The Commonwealth Fund; 1 East 75th Street;
New York, NY 10021 9.9%
ACF/CRF Joint Fund; 3773 Cherry Creek North
Drive #955; Denver, CO 80209 7.0%
Carnegie Corporation of New York; 437 Madison
Avenue; New York, NY 10022 6.9%
U.S. Equity Fund
William & Flora Hewlett Foundation; 525 Middlefield
Road #200; Menlo Park, CA 94025 22.6%
BellSouth Foundation, Inc.; 1155 Peachtree
Street; Atlanta, GA 30309 18.6%
Jacksonville Community Foundation; 112 W. Adams St.,
#144; Jacksonville, FL 32202 9.4%
Bond Fund
The Duke Endowment; 100 North Tryon Street,
Suite 3500; Charlotte, NC 28202 26.5%
Triangle Community Foundation; P.O. Box 12834;
Research Triangle Park, NC 27709 9.2%
Jacksonville Community Foundation; 112 W. Adams St.,
#144; Jacksonville, FL 32202 8.0%
Meadows Foundation Inc.; 3003 Swiss Avenue;
Dallas, TX 75204 5.9%
Short-Term Fund
Public Policy Institute of California;
388 Market Street, Suite 400; San Francisco, CA 94111 75.9%
Houston Endowment Inc.; 600 Travis, Suite 6400;
Houston, TX 77002 7.3%
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 "Distribution Agreement") 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. "Excess return" 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 one's 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 yen's 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 firms' 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 ("CFTC") 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 ("position hedges") or to insulate proposed
transactions against such movement ("transaction hedges"). 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 "market
neutral" 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 stock's 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 investor's 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 "short" stocks on a
highly selective, carefully controlled basis. In an increasingly efficient
market, "short" 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 Officer's 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
"spreads" (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 company's 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. "Dollar roll" transactions consist of the sale
by a Fund to a bank or broker-dealer (the "counterparty") 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 ("OECD"). 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 "BBB" by S&P or
"Baa" by Moody's 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 ("World
Bank"), 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 "corporate borrower") 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, "pools" of residential or commercial mortgage
loans or other mortgage-backed securities (the "Underlying Assets"). 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 ("CMOs"), 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 ("MBS"), often
referred to as a "tranche," 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 ("Securitized Assets")
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 market's 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 "private activity" 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 Adviser's 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 "ECU"), the value of which is based on a "basket"
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
("GNMA"), 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 ("SLMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). 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
Moody's 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
"corpus") 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
"Treasury Income Growth Receipts" ("TIGRS") and "Certificate of Accrual
on Treasuries" ("CATS"). 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 "Separate
Trading of Registered Interest and Principal of Securities" ("STRIPS").
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 "futures contract") 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 "contracts markets" 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 ("initial margin"). 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 "variation margin"
generally will be required, a process known as "marking to the market."
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 contract's 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) investors' 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 day's 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 "covered" 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 "exercise price"). 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 "closing purchase transaction." 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 "closing sale
transaction." 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
currency's or security's market price below the exercise price. This
right limits the Fund's losses from the currency's or security's
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 "brokerage and research
services" [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.
For the fiscal year ended December 31, 1995, the Funds paid brokerage
commissions of: International Equity $416,390; Emerging Markets $370,320;
and U.S. Equity $148,197. For the period March 31, 1995 (inception of the
Fund) through December 31, 1995, Multi-Asset paid brokerage commissions of
$168,881. For the period ended December 31, 1994, the Funds paid brokerage
commissions of: International Equity $109,064; Emerging Markets $221,955;
and U.S. Equity $45,042.
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 ("RIC")
under the Internal Revenue Code of 1986, as amended (the "Code"). 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 "Qualifying Income
Requirement"); (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 "30% Limitation"); (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 RIC's 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 Member's 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 "original
issue discount") 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 "section 1256 contracts." Gains and losses on section 1256 contracts
are generally treated as 60% long-term and 40% short-term capital gains or
losses ("60/40 treatment"), 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 ("mark to market treatment"), 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 "straddles" 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 "section 988" 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 Member's 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 ("IBT"), 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
foundation's 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 ("net investment income"), 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 - b) / (c x d)) + 1]^6 - 1 }
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of Shares 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, 1995 were as follows:
U.S. Equity Fund 1.81%
Bond Fund 6.50%
Short-Term Fund 5.79%
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 calculations as defined above for the Funds for the year
ended December 31, 1995 are as follows:
12 Months Ended Annualized
12/31/95 since Inception Inception
Multi-Asset Fund 13.9%* 13.9%* 3/31/95
International Equity Fund 9.8% 6.8% 5/31/94
Emerging Markets Fund -8.4% -9.6% 5/31/94
U.S. Equity Fund 36.0% 24.0% 5/31/94
Bond Fund 18.1% 11.4% 5/31/94
Short-Term Fund 6.4% 6.0% 5/31/94
* Not annualized; figures represent cumulative return since the Fund's
incepton on 3/31/95.
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 foundation's
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 day's close)
reflects the foundation's 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 Year's Day, Martin Luther King's Birthday,
Presidents' Day, Patriot's Day, Good Friday, Memorial Day, Fourth of July,
Labor Day, Columbus Day, Veterans' 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 SECURITIES' 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 calculating net asset value per
share, all assets and liabilities initially expressed in foreign currencies
(except for the Royal currencies of the United Kingdom, Ireland, European
Currency Units, Australia, and New Zealand) are converted into U.S. dollars
at the bid price of such currencies against U.S. dollars as provided by an
independent pricing vendor. The Royal currencies are converted at the ask
price. 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
B 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 Waterhouse 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 Waterhouse LLP.
Members may also receive additional reports concerning the Funds or their
Money Managers from FAI. Price Waterhouse LLP also renders accounting
services to FAI and certain Money Managers employed by the Funds.
