UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________
FORM N-CSR
________
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-8104
CONSTELLATION FUNDS
(Exact name of registrant as specified in charter)
________
1205 Westlakes Drive Suite 280
Berwyn, PA 19312
(Address of principal executive offices) (Zip code)
Constellation Funds
P.O. Box 219520
Kansas City, MO 64105-9520
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-866-242-5742
DATE OF FISCAL YEAR END: SEPTEMBER 30, 2004
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO OMITTED]
Constellation Funds
Group
ANNUAL REPORT
September 30, 2004
TARGET SELECT EQUITY FUND
Contents
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Page Section
2 Disclosure of Fund Expenses
3 Total Returns and Fund Investment Objective
4 Investment Review
7 Statement of Net Assets
10 Statement of Operations
11 Statement of Changes in Net Assets
12 Financial Highlights
14 Notes to Financial Statements
19 Report of Independent Registered Public Accounting Firm
20 Trustees and Officers of the Trust
24 Notice to Shareholders
Constellation Funds
- --------------------------------------------------------------------------------
The CONSTELLATION FUNDS offer the CONSTELLATION TARGET SELECT EQUITY FUND (THE
"FUND"), a non-diversified mutual fund for individual and institutional
investors with three separate classes of shares: Class A, Class C, and Class I.
The Class I Shares are the only active class of shares as of September 30, 2004.
The minimum initial investment in the Class A and Class C shares is $1,000 ($500
for retirement plans), and the minimum initial investment for Class I Shares is
$2,500. The minimum amount for subsequent investments is $50 for Class A, Class
C, and Class I Shares. The Fund reserves the right to waive the minimum initial
investment, and may do so for financial intermediaries who purchase shares
through a brokerage firm or a mutual fund marketplace.
CONSTELLATION INVESTMENT MANAGEMENT COMPANY, LP ("CIMCO"), located in Berwyn,
Pennsylvania, was formed on May 19, 2000, and serves as the Investment Adviser
to the Fund.
CIMCO has appointed TURNER INVESTMENT PARTNERS, INC. ("TURNER") as sub-adviser
to the Fund. Turner is based in Berwyn, Pennsylvania. The firm, founded in 1990,
invests in equity, fixed-income, and balanced portfolios on behalf of
individuals and institutions. As of September 30, 2004, Turner had over $12
billion in assets under management.
Turner employs a quantitative investment model in its management of the Fund.
The model builds a portfolio of the best-ranked companies that is sector neutral
to the Russell 3000 Index, over-weighting Large/Small companies and Growth/Value
companies based on the forecast of Turners' asset allocation models.
Shareholder Services
- --------------------------------------------------------------------------------
The Constellation Funds' shareholders receive annual and semi-annual reports and
quarterly account statements. Shareholders who have questions about their
accounts may call a toll-free telephone number, 1 (866) 242 5742. Or they may
write to Constellation Funds, P.O. Box 219520, Kansas City, Missouri 64105-9520
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
All mutual funds have operating expenses. As a shareholder of the Fund, your
investment is affected by these ongoing costs, which include (among others)
costs for portfolio management, administrative services, and shareholder reports
like this one. It is important for you to understand the impact of these costs
on your investment returns.
Operating expenses such as these are deducted from the Fund's gross income and
directly reduce your final investment return. These expenses are expressed as a
percentage of the Fund's average net assets; this percentage is known as the
Fund's expense ratio.
The following examples use the expense ratio and are intended to help you
understand the ongoing costs (in dollars) of investing in the Fund and to
compare these costs with those of other mutual funds. The examples are based on
an investment of $1,000 made at the beginning of the period shown and held for
the entire period.
The table below illustrates the Fund's costs in two ways:
ACTUAL FUND RETURN. This section helps you to estimate the actual expenses that
the Fund incurred over the period. The "Expenses Paid During Period" column
shows the actual dollar expense cost incurred by a $1,000 investment in the
Fund, and the "Ending Account Value" number is derived from deducting that
expense cost from the Fund's gross investment return.
You can use this information, together with the actual amount you invested in
the Fund, to estimate the expenses you paid over that period. Simply divide your
actual account value by $1,000 to arrive at a ratio (for example, an $8,600
account value divided by $1000 = $8.6), then multiply that ratio by the number
shown for your Fund under "Expenses Paid During Period."
HYPOTHETICAL 5% RETURN. This section helps you compare the Fund's costs with
those of other mutual funds. It assumes that the Fund had an annual 5% return
before expenses during the year, but that the expense ratio under "Annualized
Expense Ratios" for the period is unchanged. This example is useful in making
comparisons because the Securities and Exchange Commission requires all mutual
funds to make this 5% calculation. You can assess the Fund's comparative cost by
comparing the hypothetical result for the Fund in the "Expense Paid During
Period" column with those that appear in the same charts in the shareholder
reports for other funds.
NOTE: Because the return is set at 5% for comparison purposes - NOT your Fund's
actual return - the account values shown do not apply to your specific
investment.
BEGINNING ENDING EXPENSE
ACCOUNT ACCOUNT ANNUALIZED PAID
VALUE VALUE EXPENSE DURING
03/31/2004 09/30/2004 RATIOS PERIOD*
- ---------------------------------------------------------------------------------------------------------
Constellation Target Select Equity Fund
- ----------------------------------------------------------------------------------------------------------
Actual Fund Return $1,000.00 $977.70 1.21% $5.98
Hypothetical 5% Return $1,000.00 $1,018.95 1.21% $6.11
*Expenses are equal to the Fund's annualized expense ratio multiplied by the
average value over the period, multiplied by 183/366 (to reflect the one-half
year period).
2
CONSTELLATION TARGET SELECT EQUITY FUND
Total Returns*
Through September 30, 2004
Current performance may be lower or higher than the performance data quoted.
Please call (866)242-5742 for most recent month end performance information.
- ------------------------------------------------------------------------------------------------------------------------
1 Year 3 Year 5 Year Inception
Return Return Return to date**
(average annual)
- -------------------------------------------------------------------------------------------------------------------------
CONSTELLATION TARGET SELECT EQUITY FUND 15.17% (3.37)% (7.79)% 3.27%
Russell 3000 Index 14.26 5.31 (0.10) 3.78
S&P 500 Index 13.87 4.05 (1.31) 3.58
Lipper Multi-Cap Growth Funds Classification 9.62 3.94 (3.99) 3.62
The investor should consider the investment objectives, risks, charges and
expenses before investing. This information can be found in the prospectus. A
free prospectus, which contains detailed information, including fees and
expenses, and the risks associated with investing in these funds, can be
obtained by calling (866)242-5742. Read the prospectus carefully before
investing. The performance data quoted represents past performance and the
principal value and investment return will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Returns shown, unless otherwise
indicated, are total returns, with dividends and income reinvested. Returns
spanning more then one year are annualized. Fee waivers are in effect; if they
had not been in effect, performance would have been lower. The indicies
mentioned are unmanaged statistical composites of stock market performance.
Investing in an index is not possible. The holdings and sector weightings of the
Funds are subject to change.
* Past performance cannot guarantee future results. The investment return and
principal value of an investment will fluctuate, so that an investor's shares
when redeemed, may be worth more or less than their original cost. Fee waivers
are in effect; if they had not been in effect, performance would have been
lower.
**The inception date for the Constellation Target Select Equity Fund is December
31, 1997.
Fund Investment Objective
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The CONSTELLATION TARGET SELECT EQUITY FUND seeks long-term capital
appreciation. It invests primarily (at least 80% of its net assets) in U.S. and
foreign common stocks and other equity securities of companies without regard to
their market capitalization. This is a non-fundamental investment policy that
can be changed by the Fund with up to 60 days prior notice to shareholders. The
Fund may invest in securities of companies operating in a broad range of
industries located in the U.S. and overseas.
The Fund may employ a multi-manager approach to take advantage of the best
investment ideas of a number of sub-advisers, each with its own investment
approach. Under a multi-manager approach, each sub-adviser manages a portion of
the Fund's assets, under the general supervision of the Fund's investment
adviser (such sub-adviser and investment adviser together, the "Advisers").
Here, each sub-adviser selects a relatively small number of securities, as few
as 10, for its portion of the Fund's assets. Such a focused security-selection
process permits each sub-adviser to act on only the investment ideas that it
thinks have the greatest return potential.
The Fund's Investment Adviser, Constellation Investment Management Company, LP
("CIMCO"), ensures that the sub-adviser complies with the Fund's investment
policies and guidelines. CIMCO will also recommend the appointment of additional
or replacement sub-advisers to the Board of Trustees (the "Board").
Currently CIMCO employs and oversees one sub-adviser, Turner Investment
Partners, Inc., which currently manages 100% of the Fund's total assets.
3
CONSTELLATION TARGET SELECT EQUITY FUND
Investment Review:
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY & PROCESS
The Constellation Target Select Equity Fund is sub-advised by Turner Investment
Partners, Inc. ("MANAGER"). The Fund invests in securities of companies
operating in a broad range of industries based primarily on quantitative and
fundamental analysis of each company. The manager employs a multi-style, all
capitalization approach, with the ability to overweight the style or
capitalization believed by management to provide the best opportunity for strong
performance and price appreciation. The management team uses quantitative
modeling to assist with asset allocation and security selection decisions. They
also review the fundamentals of each company within the portfolio to ensure that
recent events or news relating to the company that cannot be identified by the
quantitative model are considered and their potential impact on stock
performance is evaluated. This approach has allowed the fund to retain a
well-diversified portfolio, with holdings from a variety of distinct segments of
the market.
FUND PERFORMANCE & POSITIONING
For the year ending September 30, 2004, the portfolio posted a gain of 15.17%
versus a gain of 14.26% for its benchmark, the Russell 3000 Index. Contributing
the most to performance during this time frame were holdings in the health care,
consumer discretionary and financial services sectors. Within the consumer
discretionary sector, Gap and Best Buy contributed to positive performance.
Within the health care sector, hospital care provider, Select Medical, which was
not held in the Russell 3000 Index, posted a very strong relative performance.
Countrywide Financial, in the financial services sector, also contributed to
outperformance of the Index.
Sectors that underperformed the benchmark were technology, autos &
transportation and consumer staples. Positions in the semi-conductor and
components industry, including Cypress Semiconductor and Fairchild Semiconductor
International, detracted from performance. The Fund's position in CSG Systems
International, also in the technology sector, had a negative impact on
performance. Overweighting Exxon Mobil in the international oil industry also
detracted from performance.
There were no significant changes to the strategy of the Fund during the year
ending September 30, 2004.
4
CONSTELLATION TARGET SELECT EQUITY FUND
- ----------------------------------------------------
FUND PROFILE
- ----------------------------------------------------
As of September 30, 2004
CUSIP 02077R302
- ---------------------------------------------------------------------
% of net assets in 10 largest holdings 20.34%
- ---------------------------------------------------------------------
# of holdings 85
- ---------------------------------------------------------------------
Weighted Average Market
Capitalization $53.7 billion
- ---------------------------------------------------------------------
Net assets $532 thousand
- ---------------------------------------------------------------------
Top 10 Holdings
1 Citigroup
2 Exxon Mobil
3 Microsoft
4 International Business Machines
5 ChevronTexaco
6 Verizon Communications
7 AGCO
8 Western Wireless, CI A
9 Navistar International
10 IndyMac Bancorp
- ----------------------------------------------------
SECTOR WEIGHTINGS*
- ----------------------------------------------------
22.7% Financials
14.2% Health Care
14.1% Information Technology
11.9% Consumer Discretionary
9.1% Industrials
7.0% Energy
6.8% Consumer Staples
4.9% Materials
4.2% Telecommunication Services
2.6% Utilities
2.5% Short-Term Investments
0.0% Warrants
*Percentages based on Total Investments.
- ----------------------------------------------------
LIPPER INC. PERFORMANCE RANKING
- ----------------------------------------------------
As of September 30, 2004
LIPPER MULTI-CAP CORE CATEGORY
PERIOD RANK PERCENTILE
5 year (324 of 337 funds) 96%
- ---------------------------------------------------
3 year (491 of 501 funds) 98%
- ---------------------------------------------------
1 year (177 of 684 funds) 26%
- ---------------------------------------------------
5
CONSTELLATION TARGET SELECT EQUITY FUND
GROWTH OF A $10,000 INVESTMENT IN THE CONSTELLATION TARGET SELECT EQUITY FUND:
December 31, 1997 - September 30, 2004*
Target Select Equity S&P 500 Russell 3000 Index
-------------------- ------- ------------------
Dec 31 97 $10,000 $10,000 $10,000
Sep 98 10,350 10,601 10,222
Sep 99 18,634 13,548 12,912
Sep 00 32,507 15,347 15,261
Sep 01 13,770 11,262 11,002
Sep 02 8,712 8,954 8,931
Sep 03 10,788 11,138 11,246
Sep 04 12,424 12,683 12,850
ANNUALIZED TOTAL RETURNS
Past 1 year Past 3 Years Past 5 Years Since Inception
15.17% (3.37%) (7.79%) 3.27%
*These figures represent past performance, which is no guarantee of future
results. The investment return and principal value of an investment will
fluctuate, so that an investor's shares when redeemed, may be worth more or less
than their original cost. The performance graph does not reflect the deduction
of taxes that a shareholder will pay on fund distributions or the redemption of
fund shares. The inception date for the Constellation Target Select Equity Fund
is December 31, 1997.
6
FINANCIAL STATEMENTS
STATEMENT OF NET ASSETS
CONSTELLATION TARGET SELECT EQUITY FUND
September 30, 2004
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
COMMON STOCK -- 99.9%
- ------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--12.2%
- ------------------------------------------------------------------------------
American Greetings* 290 $ 7,285
AnnTaylor Stores* 230 5,382
ArvinMeritor 280 5,250
Barnes & Noble* 170 6,290
Boyd Gaming 240 6,756
CBRL Group 160 5,773
Foot Locker 290 6,873
Home Depot 130 5,096
RadioShack 220 6,301
Toll Brothers* 120 5,559
Walt Disney 190 4,284
-------
Total Consumer Discretionary 64,849
- ------------------------------------------------------------------------------
CONSUMER STAPLES--7.0%
- ------------------------------------------------------------------------------
Altria Group 110 5,174
Anheuser-Busch 50 2,498
Archer-Daniels-Midland 450 7,641
Coca-Cola 120 4,806
PepsiCo 120 5,838
Procter & Gamble 90 4,871
Reynolds American 60 4,082
Wal-Mart Stores 40 2,128
-------
Total Consumer Staples 37,038
- ------------------------------------------------------------------------------
ENERGY--7.2%
- ------------------------------------------------------------------------------
ChevronTexaco 190 10,192
ConocoPhillips 70 5,799
Exxon Mobil 300 14,499
Kerr-McGee 50 2,863
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
Range Resources 290 $ 5,072
--------
Total Energy 38,425
- ------------------------------------------------------------------------------
FINANCIALS--23.4%
- ------------------------------------------------------------------------------
American Financial Realty Trust 370 5,221
AmeriCredit* 240 5,011
Bank of America 190 8,233
Citigroup 350 15,442
Commercial Capital Bancorp* 330 7,488
Doral Financial Corp 150 6,220
Downey Financial 150 8,244
Fannie Mae 90 5,706
Freddie Mac 40 2,610
IndyMac Bancorp 240 8,688
JPMorgan Chase 160 6,357
Merrill Lynch 90 4,475
Morgan Stanley 50 2,465
Ohio Casualty* 410 8,581
Phoenix 550 5,731
ProAssurance* 200 7,004
Providian Financial* 410 6,371
Prudential Financial 120 5,645
Wells Fargo 80 4,770
--------
Total Financials 124,262
- ------------------------------------------------------------------------------
HEALTH CARE--14.4%
- ------------------------------------------------------------------------------
Andrx* 190 4,249
Bristol-Myers Squibb 180 4,261
Caremark Rx* 170 5,452
Cephalon* 180 8,622
Express Scripts* 80 5,227
Invacare 160 7,360
Johnson & Johnson 140 7,886
7
FINANCIAL STATEMENTS
STATEMENT OF NET ASSETS
Constellation Target Select Equity Fund
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
Molina Healthcare* 220 $ 7,810
Pacificare Health Systems* 190 6,973
PerkinElmer 320 5,510
Pfizer 210 6,426
UnitedHealth Group 100 7,374
-------
Total Health Care 77,150
- ------------------------------------------------------------------------------
INDUSTRIALS--9.3%
- ------------------------------------------------------------------------------
AGCO* 420 9,500
Manpower 150 6,673
Navistar International* 240 8,926
RR Donnelley & Sons 150 4,698
Sirva* 230 5,267
Terex* 160 6,944
WCI Communities* 320 7,456
-------
Total Industrials 49,464
- ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--14.4%
- ------------------------------------------------------------------------------
Cisco Systems* 190 3,439
Dell* 230 8,188
Earthlink (A)* 770 7,931
Fairchild Semiconductor International* 210 2,976
Freescale Semiconductor* 180 2,574
Intel 290 5,817
International Business Machines 120 10,289
Microsoft 420 11,613
Qualcomm 150 5,856
Semtech* 310 5,943
Take-Two Interactive Software* 150 4,927
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
Tech Data* 190 $ 7,325
--------
Total Information Technology 76,878
- ------------------------------------------------------------------------------
MATERIALS--5.0%
- ------------------------------------------------------------------------------
Commercial Metals 210 8,341
Georgia Gulf 120 5,351
Greif 130 5,479
RPM International 420 7,413
--------
Total Materials 26,584
- ------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--4.3%
- ------------------------------------------------------------------------------
Golden Telecom 130 3,709
Verizon Communications 250 9,845
Western Wireless, Cl A* 360 9,256
--------
Total Telecommunication Services 22,810
- ------------------------------------------------------------------------------
UTILITIES--2.7%
- ------------------------------------------------------------------------------
Sierra Pacific Resources (A)* 620 5,549
TXU 180 8,626
--------
Total Utilities 14,175
- ------------------------------------------------------------------------------
TOTAL COMMON STOCK
(COST $525,241) 531,635
==============================================================================
- ------------------------------------------------------------------------------
WARRANTS--0.0%
- ------------------------------------------------------------------------------
Microstrategy, Expires
06/24/07* 3 --
Washington Mutual,
Expires 11/22/05* 300 42
- ------------------------------------------------------------------------------
TOTAL WARRANTS
(COST $0) 42
==============================================================================
8
FINANCIAL STATEMENTS
STATEMENT OF NET ASSETS
Constellation Target Select Equity Fund
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENT HELD AS COLLATERAL
FOR LOANED SECURITIES--2.4%
- ------------------------------------------------------------------------------
Boston Global Investment Trust -- Quality Portfolio 12,700 $ 12,700
- ------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENT
HELD AS COLLATERAL FOR
LOANED SECURITIES
(COST $12,700) 12,700
==============================================================================
CASH EQUIVALENT--0.1%
- ------------------------------------------------------------------------------
BlackRock TempCash
Fund, Institutional Shares 784 784
- ------------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(COST $784) 784
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS--102.4%
(COST $538,725) 545,161
==============================================================================
OTHER ASSETS AND LIABILITIES--(2.4)%
- ------------------------------------------------------------------------------
Obligation to Return
Securities Lending Collateral (12,700)
Investment Advisory Fees Payable (394)
Administration Fees Payable (64)
VALUE
- ------------------------------------------------------------------------------
Trustees' Fees Payable $ (4)
Other Assets and Liabilities, Net 163
- ------------------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES (12,999)
- ------------------------------------------------------------------------------
NET ASSETS--100.0% $ 532,162
==============================================================================
- ------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------
Portfolio Capital (unlimited
authorization--no par value)
based on 93,507 of outstanding
shares of beneficial interest $ 2,445,244
Undistributed net investment income 1,033
Accumulated net realized loss on investments (1,920,551)
Net unrealized appreciation on investments 6,436
- ------------------------------------------------------------------------------
NET ASSETS--100.0% $ 532,162
==============================================================================
Net Asset Value, Offering and
Redemption Price Per Share $5.69
==============================================================================
* Non-income producing security.
(A) Security fully or partially on loan at September 30, 2004 (see Note 9 in
Notes to Financial Statements). The total value of securities on loan at
September 30, 2004 was $11,685.
Cl -- Class
Amounts designated as "--" are either $0 or rounded to $0.
The accompanying notes are an integral part of the financial statements
9
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2004
Constellation
Target Select
Equity Fund
- --------------------------------------------------------------------------------
Investment Income:
Dividend $ 7,240
Interest 20
Securities Lending 1,002
Less: Foreign Taxes Withheld (6)
- ------------------------------------------------------------------------------
Total Investment Income 8,256
- ------------------------------------------------------------------------------
Expenses:
Trustees' Fees 18,480
Investment Advisory Fees 5,542
Administration Fees 764
Transfer Agent Fees 38,783
Registration Fees 20,219
Professional Fees 19,569
Custodian Fees 13,479
Printing Fees 6,982
Insurance and Other Fees 522
- ------------------------------------------------------------------------------
Total Expenses 124,340
Less: Investment Advisory Fees Waived (5,542)
Reimbursements by Adviser (112,414)
- ------------------------------------------------------------------------------
Net Expenses 6,384
- ------------------------------------------------------------------------------
Net Investment Income 1,872
- ------------------------------------------------------------------------------
Net Realized Gain From Securities Sold 69,236
Net Change in Unrealized Appreciation of Investment Securities 6,368
- ------------------------------------------------------------------------------
Net Realized and Unrealized Gain on Investments 75,604
- ------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations $ 77,476
==============================================================================
The accompanying notes are an integral part of the financial statements.
10
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended September 30,
Constellation
Target Select
Equity Fund
--------------------
2004 2003
- -------------------------------------------------------------------------------
Investment Activities:
Net Investment Income $ 1,872 $ 4,391
Net Realized Gain From Securities Sold 69,236 76,763
Net Realized Gain on Foreign Currency Transactions -- 48
Net Change in Unrealized Appreciation of Investment
Securities 6,368 9,346
Net Change in Unrealized Depreciation of Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- (24)
- -------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations 77,476 90,524
- -------------------------------------------------------------------------------
Dividends to Shareholders:
Net Investment Income (5,216) --
- -------------------------------------------------------------------------------
Total Dividends (5,216) --
- -------------------------------------------------------------------------------
Capital Share Transactions:
Proceeds From Shares Issued 112,125 232,684
Proceeds From Shares Issued in Lieu of Cash
Distributions 5,091 --
Cost of Shares Redeemed (199,844) (73,239)
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Capital Share
Transactions (82,628) 159,445
- -------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (10,368) 249,969
- -------------------------------------------------------------------------------
Net Assets:
Beginning of Year 542,530 292,561
- -------------------------------------------------------------------------------
End of Year $ 532,162 $542,530
===============================================================================
Undistributed Net Investment Income $ 1,033 $ 4,329
===============================================================================
Shares Issued and Redeemed:
Issued 19,831 51,360
Issued in Lieu of Cash Distributions 927 --
Redeemed (35,909) (15,282)
- -------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Shares (15,151) 36,078
===============================================================================
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
11
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
Net asset Net Realized and Dividends Distributions
value, investment unrealized Total from from net from Total
beginning income gains on investment investment capital dividends and
of year (loss) investments activities income gains distributions
- ------------------------------------------------------------------------------------------------------------------------------------
Constellation Target Select Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
2004(1) $ 4.99 $ 0.03 $ 0.73 $ 0.76 $(0.06) $ -- $(0.06)
2003 4.03 0.05 0.91 0.96 -- -- --
2002 6.37 (0.09) (2.25) (2.34) -- -- --
2001(3) 21.84 (0.02) (10.32) (10.34) -- (5.13) (5.13)
2000 17.17 (0.06) 10.74 10.68 -- (6.01) (6.01)
* Returns are for the period indicated and have not been annualized.
+ Inclusive of directed brokerage arrangements, waivers and/or reimbursements.
(1) On March 4, 2004 shareholders of the Fund approved a change in adviser from
Concentrated Capital Management, LP to Constellation Investment Management
Company, LP, with Turner Investment Partners, Inc. becoming the Fund's sub-
adviser.
(2) Effective May 20, 2003 the maximum expense cap changed from 1.22% to 1.50%.
(3) On October 19, 2000 shareholders of the TIP Target Select Equity Fund (the
"Fund") approved a tax-free reorganization under which all assets and
liabilities of the Fund were transferred to the Alpha Select Funds Target
Select Equity Fund. In connection with the reorganization, shareholders
approved a change in the adviser from Turner Investment Partners, Inc. to
Concentrated Capital Management, LP.
(4) On November 1, 2000 the maximum expense cap changed from 1.30% to 1.22%.
Amounts designated as "-" are either $0 or have been rounded to $0.
12
Net Net Ratio of net
asset assets Ratio of Ratio of total investment
value, end net expenses expenses income (loss) Portfolio
end Total of year to average to average to average turnover
of year return* (000) net assets+ net assets net assets+ rate
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5.69 15.17% $ 532 1.16% 22.65% 0.34% 822.87%
4.99 23.82 543 0.49(2) 37.26 1.02 837.39
4.03 (36.73) 293 1.10 26.94 (0.80) 984.03
6.37 (57.64) 1,759 1.23(4) 10.29 (0.26) 681.78
21.84 74.45 4,506 1.30 6.06 (0.55) 1,081.55
13
NOTES OF FINANCIAL STATEMENTS CONSTELLATION FUNDS
September 30, 2004
1. ORGANIZATION:
CONSTELLATION FUNDS (the "Trust"), a Delaware business trust, is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company with twenty-three active portfolios. The financial statements
herein are those of the Constellation Target Select Equity Fund (the "Fund").
The financial statements of the remaining funds are not presented herein, but
are presented separately. The assets of each Fund are segregated, and a
shareholders interest is limited to the Fund in which shares are held. The Fund
is registered to offer three separate classes of shares: Class A Shares, Class C
Shares and Class I Shares. The Class I Shares are the only active class of
shares as of September 30, 2004. The Fund is non-diversified, and may therefore
be invested in equity securities of a limited number of issuers. The Fund's
prospectus provides a description of the Fund's investment objectives, policies,
and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Fund:
Use of Estimates- The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of income and expenses during
the reported period. Actual results could differ from those estimates.
Security Valuation- Securities listed on a securities exchange, market or
automated quotation system for which quotations are readily available (except
for securities traded on NASDAQ) are valued at the last quoted sale price on the
primary exchange or market (foreign or domestic) on which they are traded, or,
if there is no such reported sale, at the most recent quoted bid price. For
securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. The
prices for foreign securities are reported in local currency and converted to
U.S. dollars using currency exchange rates. Prices for most securities held in
the Funds are provided daily by recognized independent pricing agents. If a
security price cannot be obtained from an independent, third-party pricing
agent, the Funds seek to obtain and use the average of the bid and ask price
from at least two independent brokers.
Securities for which market prices are not "readily available" are valued in
accordance with Fair Value Procedures established by the Funds' Board of
Trustees. The Funds' Fair Value Procedures are implemented through a Fair Value
Committee (the "Committee") designated by the Funds' Board of Trustees. Some of
the more common reasons that may necessitate that a security be valued using
Fair Value Procedures include: the security's trading has been halted or
suspended; the security has been de-listed from a national exchange; the
security's primary trading market is temporarily closed at a time when under
normal conditions it would be open; the security's primary pricing source is not
able or willing to provide a price or a significant event with respect to a
security has occurred. When a security is valued in accordance with the Fair
Value Procedures, the Committee will determine the value after taking into
consideration relevant information reasonably available to the Committee.
14
NOTES OF FINANCIAL STATEMENTS (Continued) CONSTELLATION FUNDS
September 30, 2004
Security Transactions and Related Income- Security transactions are accounted
for on the date the security is purchased or sold (trade date). Dividend income
is recognized on the ex-dividend date, and interest income is recognized on the
accrual basis. Costs used in determining realized gains and losses on the sales
of investment securities are those of the specific securities sold during the
respective holding period.
Foreign Currency Translation- The books and records of the Fund are maintained
in U.S. dollars on the following basis: (I) market value of investment
securities, assets and liabilities at the current rate of exchange on the
valuation date; and (II) purchases and sales of investment securities, income
and expenses at the relevant rates of exchange prevailing on the respective date
of such transaction.
For foreign equity securities, the Fund does not isolate that portion of gains
and losses on investment securities that is due to changes in the foreign
exchange rates from that which is due to changes in market prices of equity
securities.
The Fund reports certain foreign currency related transactions as components of
realized and unrealized gains and losses for financial reporting purposes,
whereas such components are treated as ordinary income for Federal income tax
purposes.
Expenses- Expenses that are specifically attributed to one of the Funds are
charged to that Fund. Certain other expenses of the Funds are prorated among the
Trust on the basis of relative daily net assets. Other common expenses of the
Trust are allocated among the Funds on the basis of relative daily net assets.
Repurchase Agreements- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market value of
the collateral, including accrued interest thereon, is not less than 100%. In
the event of default of the counterparty and the value of the collateral
declines or if the counterparty enters an insolvency proceeding, realization of
the collateral by the Fund may be delayed or limited.
Dividends and Distributions to Shareholders- Dividends from net investment
income are declared and paid to shareholders annually. Any net realized capital
gains on sales of securities are distributed to shareholders at least annually.
3. TRANSACTIONS WITH AFFILIATES:
Certain officers of the Trust are also officers of Constellation Investment
Management Company, LP ("CIMCO") (the Adviser and Administrator), Turner
Investment Partners, Inc. (the Sub-Adviser) and SEI Investments Global Funds
Services (the Sub-Administrator) and/or SEI Investments Distribution Co. Such
officers are paid no fees by the Trust for serving as officers and trustees of
the Trust.
The Fund did effect trades through Constellation Investment Distribution
Company, Inc. ("CIDCO") when CIDCO was acting as Turner Investment Distributors,
Inc., for security purchases and sales transactions. Commissions paid on those
trades for the Fund for the year ended September 30, 2004 were $115.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund engages in a "Manager-of-Managers" platform.
15
NOTES OF FINANCIAL STATEMENTS (Continued) CONSTELLATION FUNDS
September 30, 2004
4. ADMINISTRATION, SHAREHOLDER SERVICING AND DISTRIBUTION AGREEMENTS:
CIMCO provides administrative services to the Fund under an Administration
Agreement with the Trust. For its services, CIMCO receives an annual fee of
0.15% of the aggregate average daily net assets of the Trust up to $2 billion,
and 0.12% on such assets in excess of $2 billion (subject to applicable
waivers). The fee is then allocated among the Funds on the basis of relative
daily net assets. Prior to March 4, 2004, Turner provided administrative
services to the Fund. Under a separate Sub-Administration Agreement between
CIMCO and the Sub-Administrator, the Sub-Administrator provides accounting and
other administrative services to the Fund. For the year ended September 30,
2004, the Sub-Administrator was paid $356 by CIMCO.
CIDCO, a broker dealer subsidiary of CIMCO, provides distribution services and
shareholder servicing to the Fund under separate Distribution and Shareholder
Servicing Agreements. Prior to March 4, 2004, Turner provided distribution
services and shareholder servicing to the Fund.
DST Systems, Inc. serves as the transfer agent and dividend disbursing agent for
the Fund under a transfer agency agreement with the Trust. The Fund reimburses
CIMCO for amounts paid to third parties that provide sub-transfer agency and
other administrative services to the Fund.
5. INVESTMENT ADVISORY AGREEMENT:
The Trust and CIMCO are parties to an Investment Advisory Agreement dated March
4, 2004, under which the Adviser receives an annual fee base equal to 1.0625% of
the average daily net assets of the Fund. Prior to March 4, 2004, Concentrated
Capital Management, LP served as investment adviser to the Fund. The Fund has
one Sub-Adviser, Turner Investment Partners, Inc. For its services, the
Sub-Adviser is entitled to receive a fee payable by the Adviser.
The Adviser has contractually agreed to waive all or a portion of its fees and
to reimburse expenses of the Fund in order to limit its total operating expenses
(as a percentage of average daily net assets on an annualized basis) to not more
than 1.50% and to voluntarily keep the Fund's "other expenses" (as a percentage
of average daily net assets on an annualized basis) from exceeding 0.1575%.
The advisory fee is comprised of a base fee and a performance adjustment that
increases or decreases the total fee depending upon the performance of the Fund
relative to the Fund's performance benchmark. Effective May 10, 2004, the Fund's
base fee is accrued daily and paid monthly, based on the Fund's average net
assets during the current month. Prior to May 10, 2004, the Fund's base fee is
accrued daily and paid monthly, based on average net assets during the
performance period, which was then multiplied by a fraction, the numerator of
which was the number of days in the month and denominator of which was 365 (366
in leap years). The performance period consists of the current month plus the
previous 11 months.
The performance adjustment is calculated and paid monthly by comparing the
Fund's performance to that of the Fund's performance benchmark (the Russell 3000
Index) over the 12-month period. The annual performance adjustment is multiplied
by the average net assets of the Fund over the entire performance period, which
is then multiplied by a fraction, the numerator of which is the number of days
in the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance) or subtracted
from (in the case of underperformance) the base fee. The base advisory fee,
annual adjustment rate and over/under performance relative to the benchmark
threshold is as follows:
16
NOTES OF FINANCIAL STATEMENTS (Continued) CONSTELLATION FUNDS
SEPTEMBER 30, 2004
BASE ADVISORY ANNUAL ADJUSTMENT BENCHMARK
FEE RATE THRESHOLD
------------- ----------------- ---------
1.0625% +/-0.15% +/-3.01%
During the year ended September 30, 2004, the Fund's Advisory Fees were adjusted
in accordance with the policy described above as follows:
NET ADVISOR
BASE ADVISER PERFORMANCE FEES BEFORE
FEE ADJUSTMENT WAIVERS
------------ ---------- -----------
$5,988 $(446) $5,542
6. INVESTMENT TRANSACTIONS:
The total cost of security purchases and the proceeds from security sales, other
than short-term investments, for the year ended September 30, 2004, were as
follows: Purchases $4,589,883 Sales 4,657,147
7. FEDERAL TAX POLICIES INFORMATION:
The Fund is classified as a separate taxable entity for Federal income tax
purposes. The Fund intends to continue to qualify as a separate "regulated
investment company" under the Internal Revenue Code and make the requisite
distributions to shareholders that will be sufficient to relieve it from Federal
income tax and Federal excise tax. Therefore, no Federal tax provision is
required. To the extent that distributions from net investment income and net
realized capital gains exceed amounts reported in the financial statements, such
amounts are reported separately.
The amounts of distributions from net investment income and net realized capital
gains are determined in accordance with Federal income tax regulations, which
may differ from those amounts determined under U.S. generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature. These book/tax differences are primarily due to wash sales.
The character of distributions made during the year from net investment income
or net realized gains, and the timing of distributions where the fiscal year in
which the amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund. To the extent these
differences are permanent, adjustments are made to the appropriate equity
accounts in the period that the differences arise.
The tax characteristic of dividends declared during the year ended September 30,
2004 were all attributable to ordinary income.
As of September 30, 2004, the components of Accumulated Losses on a tax basis
for the Fund were as follows:
AMOUNT
-----------
Capital loss carryforwards ................................. $(1,903,226)
Undistributed ordinary income .............................. 1,036
Unrealized depreciation .................................... (10,892)
-----------
Total accumulated losses ................................... $(1,913,082)
===========
The Fund had capital loss carryforwards available to offset future realized
capital gains through the indicated expiration dates:
YEAR LOSS EXPIRES AMOUNT
-----------
2011 ....................................................... $ 218,751
2010 ....................................................... 1,649,644
2009 ....................................................... 34,831
17
NOTES OF FINANCIAL STATEMENTS (Concluded) CONSTELLATION FUNDS
September 30, 2004
During the year ended September 30, 2004, the Fund utilized capital loss
carryforwards of $86,563 to offset capital gains.
At September 30, 2004, the total cost of securities for Federal income tax
purposes and the aggregate gross unrealized appreciation and depreciation for
the securities held by the Fund were as follows:
Federal tax cost ........................................... $ 556,053
---------
Aggregate gross unrealized
appreciation ............................................ 18,419
Aggregate gross unrealized
depreciation ............................................ (29,311)
---------
Net unrealized depreciation ................................ $ (10,892)
=========
8. CREDIT RISKS:
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
9. LOANS OF PORTFOLIO SECURITIES:
The Trust may lend securities in its portfolio pursuant to a securities lending
agreement ("Lending Agreement") with Goldman Sachs & Co. Unless otherwise
agreed, security loans made pursuant to the Lending Agreement are required at
all times to be secured by collateral equal to at least 100% of the market value
of the securities loaned. Cash collateral received is invested pursuant to the
terms approved by the Board. All such investments are made at the risk of the
Fund and, as such, the Fund is liable for investment losses. The Fund is
receiving an annual fee for its participation in the Lending Agreement which is
allocated among participating funds based on estimated lending activity. In the
event of bankruptcy of the borrower, realization/retention of the collateral may
be subject to legal proceedings.
Cash collateral received in connection with securities lending is invested in
Boston Global Investment Trust--Quality Portfolio. The Quality Portfolio is
exempt from registration under Section 3(c)(7) of the Investment Company Act of
1940 and is managed by Goldman Sachs Asset Management ("GSAM"), for which GSAM
receives an investment advisory fee. The Quality Portfolio invests in high
quality money market instruments. The Fund bears the risk of incurring a loss
from the investment of cash collateral due to either credit or market factors.
10. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
On June 14, 2004, Ernst & Young LLP (E&Y) was dismissed as independent
registered public accounting firm for the Fund. KPMG LLP (KPMG) was selected as
the Fund's independent registered public accounting firm. The Fund's selection
of KPMG as its independent registered public accounting firm was recommended by
the Fund's audit committee and was approved by the Fund's Board of Trustees.
The reports of the financial statements audited by E&Y for the Fund and its
predecessor entities for each of the years in the five-year period ended
September 30, 2003 did not contain an adverse opinion or disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements between the Fund and E&Y on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of E&Y would have caused it to make reference to the subject matter
of the disagreements in connection with its reports on the financial statements
of such years.
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of the Constellation Funds:
We have audited the accompanying statement of net assets of the Constellation
Target Select Equity Fund, one of the Funds constituting the Constellation Funds
(the "Fund"), as of September 30, 2004, and the related statement of operations,
statement of changes in net assets and the financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial statements and financial highlights of the Fund for periods
prior to September 30, 2004 were audited by other auditors. Those auditors
expressed an unqualified opinion on those financial statements and financial
highlights in their report dated November 13, 2003.
We conducted our audit in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Constellation Target Select Equity Fund as of September 30, 2004, and the
results of its operations, the changes in its net assets and its financial
highlights for the year ended September 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Philadelphia, Pennsylvania
November 19, 2004
19
TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
INTERESTED TRUSTEE
John H. Grady, Jr.
ADDRESS Constellation Investment Management Company, LP, Berywn, PA 19312
DATE OF BIRTH 6/1/61
POSITION HELD
WITH FUND Trustee and President; Chairman of the Board
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
President and CEO of CIMCO since 2003. Executive Vice President & Secretary from
2001 to 2003 - General Counsel, Chief Legal Officer of Turner from 2001 to 2003.
CID President, Chief Operating Officer since September 2001. Partner, Morgan,
Lewis & Bockius LLP (law firm) (October 1995- January 2001).
NON-INTERESTED TRUSTEES
Ronald Filante
ADDRESS 51 Verdum Avenue, New Rochelle, NY 10804
DATE OF BIRTH 11/19/45
POSITION HELD
WITH FUND Trustee
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Associate Professor of Finance, Pace University, since 1987.
Alfred C. Salvato
ADDRESS 13 Fountain Court, Cherry Hill. NJ 08034
DATE OF BIRTH 1/9/58
POSITION HELD
WITH FUND Trustee
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Treasurer, Thomas Jefferson University, since 1995, and Assistant Treasurer,
1988-1995.
Janet F. Sansone
ADDRESS 1023 North Pitt Street, Alexandria, VA 22314-1525
DATE OF BIRTH 8/11/45
POSITION HELD
WITH FUND Trustee since 2004
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Executive Director, JFS Consulting. Consultant since 1999. Senior Vice President
of Human Resources of Frontier Corporation (telecommunications company),
(1993-1999).
20
TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
EXECUTIVE OFFICERS
Peter Golden
ADDRESS SEI Investments, Oaks PA, 19456
DATE OF BIRTH 6/27/64
POSITIONS HELD
WITH FUND Controller and Chief Financial Officer since 2001
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Director of Funds Accounting of SEI Investments (investment management company)
since June 2001; Previously, Vice President of Fund Administration, J.P. Morgan
Chase & Co. (investment bank), March 2000 to April 2001; Vice President, Fund
and Pension Accounting, Chase Manhattan Bank (investment bank), June 1997 to
March 2000.
Lydia A. Gavalis
ADDRESS SEI Investments, Oaks PA, 19456
DATE OF BIRTH 6/5/64
POSITIONS HELD
WITH FUND Vice President and Assistant Secretary since 1999
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Vice President and Assistant Secretary of SEI Investments (investment management
company) since 1998.
Timothy D. Barto
ADDRESS SEI Investments, Oaks PA, 19456
DATE OF BIRTH 3/28/68
POSITIONS HELD
WITH FUND Vice President and Assistant Secretary since 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by SEI Investments since October 1999. Vice President and Assistant
Secretary of SEI Investments (investment management company) since December
1999. Associate at Dechert Price & Rhoads (law firm) (1997-1999).
21
TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
Christine M. McCullough
ADDRESS SEI Investments, Oaks PA, 19456
DATE OF BIRTH 12/2/60
POSITIONS HELD
WITH FUND Vice President and Assistant Secretary since 2000
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by SEI Investments (investment management company) since November 1,
1999. Vice President and Assistant Secretary of SEI Investments since December
1999. Associate at White and Williams LLP (law firm) (1991-1999).
Antoinette C. Robbins
ADDRESS Constellation Investment Management Company, LP, Berywn, PA 19312
DATE OF BIRTH 3/23/63
POSITION HELD
WITH FUND Vice President since 2004
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by CIMCO as Vice President and Director of Compliance since 2004.
Previously, Vice President and Director of Compliance of Turner Investment
Partners, Inc. (investment management company) (2002-2004). Senior Gift Planning
Officer, American Civil Liberties Union (2001-2002). Assistant Vice President
and Counsel, Equitable Life Assurance Society of the United States (insurance
company) (1996-2002).
John J. Canning
ADDRESS Constellation Investment Management Company, LP, Berywn, PA 19312
DATE OF BIRTH 11/15/70
POSITIONS HELD
WITH FUND Vice President and Chief Compliance Officer since 2004
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by CIMCO as Vice President and Director of Mutual Fund Administration
and Operations since 2004. Previously, Assistant Director of Mutual Fund
Administration and Operations, Sub-Advisory Institutional Service Product
Manager for Turner Investment Partners, Inc. (investment management company)
(2000-2004). Portfolio Implementation Analyst, SEI Investments (investment
management company) (1998-2000).
22
TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)
Rami Livelsberger
ADDRESS Constellation Investment Management Company, LP, Berywn, PA 19312
DATE OF BIRTH 11/14/74
POSITIONS HELD
WITH FUND Vice President and Assistant Secretary since 2004
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by CIMCO as Vice President, Fund Governance since 2004. Previously,
Compliance Officer, Legal Assistant for Turner Investment Partners, Inc.
(investment management company) (2001-2004). Legal Assistant, Morgan Lewis &
Bockius LLP (law firm) (1999-2001).
Saeed A. Franklin
ADDRESS Constellation Investment Management Company, LP, Berywn, PA 19312
DATE OF BIRTH 8/1/75
POSITION HELD
WITH FUND Vice President since 2004
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Employed by CIMCO as Vice President, Fund Administration; previously, Broker
Dealer Coordinator, Turner Investment Partners, Inc. (investment management
company) (2003-2004). Performance Analyst, ING Variable Annuities (an insurance
company) (2001-2003). Senior Fund Accountant, Bank of New York (investment bank)
(1999-2001). Fund Accountant, PFPC Inc. (investment management company)
(1997-1999).
The Trust's Statement of Additional Information ("SAI") includes additional
information about the Trustees and Officers. The SAI may be obtained without
charge by calling 1-866-242-5742.
23
NOTICE TO SHAREHOLDERS (UNAUDITED)
For Shareholders that do not have a September 30, 2004 tax year end, this notice
is for informational purposes only. For shareholders with a September 30, 2004,
please consult your tax advisor as to the pertinence of this notice. For the
fiscal year ended September 30, 2004, the Fund is designating the following
items with regard to distributions paid during the year.
Long Term Ordinary
Capital Gain Income Tax Exempt
Portfolio Distributions Distributions Interest
--------- ------------- ------------- ----------
Constellation Target Select Equity Fund 0% 100% 0%
Dividends
Qualifying
for Corporate
Ordinary Qualifying
Total Income Dividends
Portfolio Distributions Distributions (1) Income (2)
--------- ------------- ----------------- -----------
Constellation Target Select Equity Fund 100% 16% 18%
- -------------------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction and is reflected as a percentage of "Ordinary
Income Distributions"
(2) The percentage in this column represents the amount of "Qualifying Dividend
Income" as created by the Jobs and growth Tax Relief Reconciliation Act of
2003 and is reflected as a percentage of "Ordinary Income Distributions". It
is the intention of the aforementioned fund to designate the maximum amount
permitted by law.
The Information reported herein may differ from the information and
distributions taxable to the shareholders for the calendar year ending December
31, 2004. Complete information will be computed and reported in conjunction with
your 2004 Form 1099-Div.
24
The Board of Trustees of the Trust has delegated responsibility for decisions
regarding proxy voting for securities held by each Fund to Constellation
Investment Management Company, LP and each of the underlying sub-advisers
(Clover Capital, Chartwell Investment Partners, Hilliard Lyons Asset Management
and Turner Investment Partners, Inc with respect to each other Fund).
Constellation and the sub-advisers will vote such proxies in accordance with
their respective proxy policies and procedures, which are included in Appendix B
to the SAI. The Board of Trustees will periodically review each Fund's proxy
voting record.
Beginning on the fiscal quarter ended December 31, 2004, the Trust will file its
complete schedule of portfolio holdings with the Securities and Exchange
Commission for the first and third quarters of each fiscal year on Form N-Q
within sixty days after the end of the period. The Fund's Forms N-Q will be
available on the Commission's web site at http://www.sec.gov, and may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
Beginning in 2004, the Trust is required to disclose annually each Fund's
complete proxy voting record on new Form N-PX. The first filing of Form N-PX
covers the period from July 1, 2003 through June 30, 2004, and was filed no
later than August 31, 2004. Once filed, Form N-PX for each Fund will be
available via the Funds' website, www.constellationfundsgroup.com. Each Fund's
Form N-PX will also be available on the SEC's website at http://www.sec.gov.
25
CONSTELLATION FUNDS
TRUST
Constellation Funds
P.O. Box 219520
Kansas City, MO 64105-9520
INVESTMENT ADVISER
Constellation Investment Management Company, LP
SUB-ADVISER
Turner Investment Partners, Inc.
DISTRIBUTOR
Constellation Investment Distribution Company, Inc.
ADMINISTRATOR
Constellation Investment Management Company, LP
LEGAL COUNSEL
Morgan, Lewis & Bockius, LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
To open an account, receive account information, make inquiries, or request
literature:
1 (866) 242 5742
This report was prepared for shareholders of the Constellation Target Select
Equity Fund. It may be distributed to others only if preceded or accompanied by
a current Prospectus, which contains detailed information.
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer and principal
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Constellation Funds has determined that the Board's
Audit Committee does not have an "audit committee financial expert," as the
Securities and Exchange Commission has defined that term. After carefully
considering all of the factors involved in the definition of "audit committee
financial expert," the Board determined that none of the members of the audit
committee met all five qualifications in the definition, although some members
of the Audit Committees met many of the qualifications. The Board also
determined that, given the size and type of the Constellation Funds and of the
nature of the accounting and valuation issues they have presented, it did not
appear that the Audit Committee members lacked any necessary skills, and
concluded that it was not necessary to appoint an audit committee financial
expert to the Audit Committee. Finally, the Board of Trustees indicated that
whether a candidate for a new or replacement Trustee position qualified as an
audit committee financial expert would be given due consideration by the Board
in determining whether to nominate and/or select such candidate..
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Effective April 9, 2004, the Board of Trustees of the Alpha Select Funds
approved a change in the name of the Trust to the Constellation Funds. On June
14, 2004 the Funds' Board of Trustees dismissed Ernst & Young LLP as independent
auditor for the Funds and selected KPMG LLP as independent auditors to the
Funds. For the fiscal year ended September 30, 2004, the aggregate Audit Fees
billed by KPMG LLP for professional services rendered for the audits of the
financial statements, or services that are normally provided in connection with
statutory and regulatory filings or engagements for the fiscal year for the
Constellation Funds are shown in the table below.
- ------------------ -----------------------------------------------------
2004(1)
- ------------------ -----------------------------------------------------
All fees and All fees and All other fees
services to the services to and services to
Trust that were service service
pre-approved affiliates that affiliates that
were pre- did not require
approved pre-approval
- ------- ---------- ----------------- ----------------- -----------------
(a) Audit $347,000 $0 $0
Fees(2)
- ------- ---------- ----------------- ----------------- -----------------
(b) Audit-Related $0 $0 $0
Fees
- ------- ---------- ----------------- ----------------- -----------------
(c) Tax Fees $40,000 $0 $0
- ------- ---------- ----------------- ----------------- -----------------
(d) All $0 $0 $0
Other
Fees
- ------- ---------- ----------------- ----------------- -----------------
Notes:
(1) Prior to April 9, 2004, the Constellation Funds (the "Trust") operated
as the Alpha Select Funds and consisted of only one mutual fund, the
Target Select Equity Fund. The name change was approved by the Trust's
Board of Trustees on January 26, 2004. As of September 30, 2004, the
Trust consisted of 24 mutual funds and generated higher audit costs in
2004 than were generated in 2003.
(2) Audit fees include amounts related to the audit of the registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
Ernst & Young LLP did not serve as the Constellation Funds auditor for the
fiscal year 2004. For the fiscal year ended September 30, 2003, the audit fees
billed by Ernst & Young LLP for professional services rendered for the audits of
the financial statements, or services that are normally provided in connection
with statutory and regulatory filings or engagements for the Alpha Select Funds
are as follows:
Audit Fees (4a)
Audit fees for the Alpha Select Funds totaled $16,000 in 2003, including fees
associated with the annual audit and filing of the Trust's N-1A.
Audit Related Fees (4b)
None
Tax Fees (4c)
None
Other Fees (4d)
None
(e)(1) The trust's Audit Committee has adopted policies and procedures to, among
other purposes, provide a framework for the Audit Committee's consideration of
non-audit services by the Registrant's audit firms. The policies and procedures
require pre-approving all audit and permitted non-audit services the independent
auditor provides to the Fund, and all services that the independent auditor
provides to the Fund's investment adviser(s) and advisory affiliates (whether or
not directly related to the Fund's operations and financial reporting); except
that (a) services provided to a sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser, and
(b) de minimis non-audit services, shall not require pre-approval. A non-audit
service is de minimis if: (a) the total amount of the non-audit service is not
more than 5% percent of the total amount of revenues paid to the auditor by the
Fund, its investment adviser, and advisory affiliates that provide ongoing
services to the Trust for services otherwise requiring audit committee
pre-approval during the fiscal year in which the non-audit service was provided;
(b) the Trust did not recognize these services as non-audit services at the time
they were provided; and (c) these services are promptly brought to the attention
of the Committee and the Committee approves them before the audit is complete.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
---------------------------- ----------------- ----------------
2004 2003
---------------------------- ----------------- ----------------
Audit-Related Fees 0% 0%
---------------------------- ----------------- ----------------
Tax Fees 0% 0%
---------------------------- ----------------- ----------------
(f) Not applicable
(g) The aggregate non-audit fees and services billed by KPMG LLP for fiscal year
ended September 30, 2004 were $0. The aggregate non-audit fees and services
billed by Ernst & Young LLP for the fiscal year ended September 30, 2003 were
$229,512. These fees were primarily for tax compliance and other services to the
Registrant's former investment adviser, Turner Investment Partners, Inc. and its
subsidiaries.
(h) The audit committee is required to pre-approve services to certain entities
to the extent that the services are determined to have a direct impact on the
operations or financial reporting of the Funds. This includes services rendered
to the adviser (excluding sub-advisers) and any entity controlling, controlled
by or under common control with the adviser that provides ongoing services to
the registrant (hereafter referred to as "affiliates"). There were no services
provided to affiliates requiring pre-approval by the committee.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end management investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable. Effective for closed-end management investment companies for
fiscal years ending on or after December 31, 2005
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable to open-end management investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 22, 2004, the shareholders of the Trust's then-sole series, the Target
Select Equity Fund, approved a change in the Fund's investment adviser to
Constellation Investment Management Company, LP ("CIMCO"), approved a new
sub-advisory agreement between CIMCO and Turner Investment Partners, Inc.
("TIP"), and approved a new distribution agreement with Constellation Investment
Distribution Company, Inc. On May 7, 2004, the sole shareholder of the
Constellation Clover Large Cap Value Fund, Constellation Clover Core Value Fund,
Constellation Clover Small Cap Value Fund, Constellation Clover Core Fixed
Income Fund, Constellation Chartwell Ultra Short Duration Fixed Income Fund,
Constellation Chartwell Short Duration Fixed Income Fund, Constellation
Chartwell High Yield Fund, Constellation TIP Small Cap Value Opportunities Fund,
Constellation TIP Financial Services Fund, Constellation TIP Healthcare &
Biotechnology Fund, Constellation TIP Tax Managed U.S. Equity Fund and
Constellation Strategic Value and High Income Fund approved new advisory and
sub-advisory agreements with (or relating to) CIMCO and the following firms:
TIP, Clover Capital Management, Inc. and Chartwell Investment Partners. On
August 1, 2004, the sole shareholders of the Constellation Pitcairn Diversified
Value Fund, Constellation Pitcairn Select Value Fund, Constellation Pitcairn
Diversified Growth Fund, Constellation Pitcairn Small Cap Fund, Constellation
Pitcairn Family Heritage(R) Fund, Constellation Pitcairn Taxable Bond Fund,
Constellation Pitcairn Tax-Exempt Bond Fund, Constellation Sands Capital Select
Growth Fund and Constellation International Equity Fund approved advisory and
sub-advisory agreements with (or relating to) CIMCO and the following firms:
Pitcairn Investment Management, Sands Capital Management, Inc., Oechsle
International Advisors, LLC, The Boston Company Asset Management, LLC and
Brandywine Asset Management, LLC.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(a)(2) A separate certification for the principal executive officer and the
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Constellation Funds
By (Signature and Title)* /s/ John H. Grady, Jr.
-------------------------------------
John H. Grady, Jr., President & CEO
Date 11/26/04
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ John H. Grady, Jr.
-----------------------------------
John H. Grady, Jr., President & CEO
Date 11/26/04
By (Signature and Title)* /s/ Peter J. Golden
-----------------------------------
Peter J. Golden, Controller & CFO
Date 11/26/04
* Print the name and title of each signing officer under his or her signature.
CONSTELLATION FUNDS
CODE OF ETHICS
--------------
Adopted Under Rule 17j-1
While affirming its confidence in the integrity and good faith of
all of its officers and trustees, Alpha Select Funds (the "Trust"), recognizes
that the knowledge of present or future portfolio transactions and, in certain
instances, the power to influence portfolio transactions which may be possessed
by certain of its officers, employees and trustees could place such individuals,
if they engage in personal transactions in securities which are eligible for
investment by the Trust, in a position where their personal interest may
conflict with that of the Trust.
In view of the foregoing and of the provisions of Rule 17j-1(b)(1)
under the Investment Company Act of 1940 (the "1940 Act"), the Trust has
determined to adopt this Code of Ethics to specify and prohibit certain types of
transactions deemed to create conflicts of interest (or at least the potential
for or the appearance of such a conflict), and to establish reporting
requirements and enforcement procedures.
I. STATEMENT OF GENERAL PRINCIPLES.
In recognition of the trust and confidence placed in the Trust by
its shareholders, and to give effect to the Trust's belief that its operations
should be directed to the benefit of its shareholders, the Trust hereby adopts
the following general principles to guide the actions of its trustees, officers
and employees.
(1) The interests of the Trust's shareholders are paramount,
and all of the Trust's personnel must conduct themselves
and their operations to give maximum effect to this tenet
by assiduously placing the interests of the shareholders
before their own.
(2) All personal transactions in securities by the Trust's
personnel must be accomplished so as to avoid even the
appearance of a conflict of interest on the part of such
personnel with the interests of the Trust and its
shareholders.
(3) All of the Trust's personnel must avoid actions or
activities that allow (or appear to allow) a person to
profit or benefit from his or her position with respect to
the Trust, or that otherwise bring into question the
person's independence or judgment.
II. DEFINITIONS.
(1) "Access Person" shall mean (i) each trustee or officer of
the Trust, (ii) each employee of the Trust (or of any
company in a control relationship to the Trust) who, in
connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding
the purchase or sale of a security by the Trust or any
series thereof (each a "Fund"), or whose functions relate
to the making of any recommendations with respect to such
purchases or sales, and (iii) any natural person in a
control relationship to the Trust who obtains information
concerning recommendations made to or by the Trust with
respect to the purchase or sale of a security by any Fund,
or whose functions relate to the making of any
recommendations with respect to such purchases or sales;
(iv) each director, officer or general partner of any
principal underwriter for the Trust, but only where such
person in the ordinary course either makes, participates
in, or obtains information regarding the purchase or sale
of securities by the Fund(s), or whose functions relate to
the making of recommendations regarding securities to the
Fund(s); and (v) any natural person in a control
relationship with a Fund or any of the Funds' advisers or
sub-advisers who obtain information concerning
recommendations made to the Funds with regard to the
purchase or sale of a security.
(2) "Beneficial ownership" of a security is to be determined
in the same manner as it is for purposes of Section 16 of
the Securities Exchange Act of 1934. This means that a
person should generally consider himself the beneficial
owner of any securities in which he has a direct or
indirect pecuniary interest. In addition, a person should
consider himself the beneficial owner of securities held
by his spouse, his minor children, a relative who shares
his home, or other persons by reason of any contract,
arrangement, understanding or relationship that provides
him with sole or shared voting or investment power.
(3) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides
that "control" means the power to exercise a controlling
influence over the management or policies of a company,
unless such power is solely the result of an official
position with such company. Ownership of 25% or more of a
company's outstanding voting security is presumed to give
the holder thereof control over the company. Such
presumption may be countered by the facts and
circumstances of a given situation.
(4) "Independent Trustee" means a Trustee of the Trust who is
not an "interested person" of the Trust within the meaning
of Section 2(a)(19) of the 1940 Act.
(5) "Initial Public Offering" ("IPO") means an offering of
Securities registered under the Securities Act of 1933,
the issuer of which, immediately before registration, was
not subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934.
(6) "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to
Section 4(2) or Section 4(6) in the Securities Act of
1933.
(7) "Special Purpose Investment Personnel" means each Access
Person who, in connection with his or her regular
functions (including, where appropriate, attendance at
Board meetings and other meetings at which the official
business of the Trust or any Fund thereof is discussed or
carried on), obtains contemporaneous information regarding
the purchase or sale of a security by a Fund. Special
Purpose Investment Personnel shall occupy this status only
with respect to those securities as to which he or she
obtains such contemporaneous information.
(8) "Purchase or sale of a security" includes, among other
things, the writing of an option to purchase or sell a
security.
(9) "Security" shall have the same meaning as that set forth
in Section 2(a)(36) of the 1940 Act, except that it shall
not include securities issued by the Government of the
United States or an agency thereof, bankers' acceptances,
bank certificates of deposit, commercial paper and
registered, open-end mutual funds and high quality
short-term debt instruments, including repurchase
agreements.
(10) A Security "held or to be acquired" by the Trust or any
Fund means (A) any Security which, within the most recent
fifteen days, (i) is or has been held by the Trust or any
Fund thereof, or (ii) is being or has been considered by a
Fund's investment adviser for purchase by the Fund; and
(B) any option to purchase or sell and any Security
convertible into or exchangeable for any Security
described in (A) above..
(11) A Security is "being purchased or sold" by the Trust from
the time when a purchase or sale program has been
communicated to the person who places the buy and sell
orders for the Trust until the time when such program has
been fully completed or terminated.
III. PROHIBITED PURCHASES AND SALES OF SECURITIES.
(1) No Access Person shall, in connection with the purchase or
sale, directly or indirectly, by such person of a Security
held or to be acquired by any Fund of the Trust:
(A) employ any device, scheme or artifice to defraud
such Fund;
(B) make to such Fund any untrue statement of a
material fact or omit to state to such Fund a
material fact necessary in order to make the
statements made, in light of the circumstances
under which they are made, not misleading;
(C) engage in any act, practice or course of business
which would operate as a fraud or deceit upon such
Fund; or
(D) engage in any manipulative practice with respect
to Fund.
(2) No Special Purpose Investment Personnel may purchase or
sell, directly or indirectly, any Security as to which
such person is a Special Purpose Investment Personnel in
which he had (or by reason of such transaction acquires)
any Beneficial Ownership at any time within 7 calendar
days before or after the time that the same (or a related)
Security is being purchased or sold by any Fund.
(3) No Special Purpose Investment Personnel may sell a
Security as which he or she is a Special Purpose
Investment Personnel within 60 days of acquiring
beneficial ownership of that Security.
IV. ADDITIONAL RESTRICTIONS AND REQUIREMENTS
(1) Pre-approval of IPOs and Private Placements - Each Access
Person must obtain approval from the Review Officer before
acquiring beneficial ownership of any securities offered
in connection with an IPO or a Private Placement.
(2) No Access Person shall accept or receive any gift of more
than de minimis value from any person or entity that does
business with or on behalf of the Trust.
(3) Each Access Person (other than the Trust's Independent
Trustees and its Trustees and officers who are not
currently affiliated with or employed by the Trust's
investment adviser or principal underwriter) who is not
required to provide such information under the terms of a
code of ethics described in Section VII hereof must
provide to the Review Officer a complete listing of all
securities owned by such person as of the end of a
calendar quarter. The initial listing must be submitted no
later than January 31, 2001 (or within 10 days of the date
upon which such person first becomes an Access Person of
the Trust), and each update thereafter must be provided no
later than 30 days after the start of the subsequent year.
V. REPORTING OBLIGATIONS.
(1) Each Access Person (other than the Trust's Independent
Trustees) shall report all transactions in Securities in
which the person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership.
Reports shall be filed with the Review Officer quarterly.
The Review Officer shall submit confidential quarterly
reports with respect to his or her own personal securities
transactions to an officer designated to receive his or
her reports ("Alternate Review Officer"), who shall act in
all respects in the manner prescribed herein for the
Review Officer.
(2) Every report shall be made not later than 10 days after
the end of the calendar quarter in which the transaction
to which the report relates was effected, and shall
contain the following information:
(A) The date of the transaction, the title and the
number of shares or the principal amount of each
security involved;
(B) The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
(C) The price at which the transaction was effected;
(D) The name of the broker, dealer or bank with or
through whom the transaction was effected; and
(E) The date the report was submitted by the Access
Person.
(3) In the event no reportable transactions occurred during
the quarter, the report should be so noted and returned
signed and dated
(4) An Access Person who would otherwise be required to report
his or her transactions under this Code shall not be
required to file reports pursuant to this Section VI where
such person is required to file reports pursuant to a code
of ethics described in Section VII, hereof.
(5) An Independent Trustee shall report transactions in
Securities only if the Trustee knew at the time of the
transaction or, in the ordinary course of fulfilling his
or her official duties as a trustee, should have known,
that during the 15 day period immediately preceding or
following the date of the transaction, such security was
purchased or sold, or was being considered for purchase or
sale, by the Trust. (The "should have known" standard
implies no duty of inquiry, does not presume there should
have been any deduction or extrapolation from discussions
or memoranda dealing with tactics to be employed meeting a
Fund's investment objectives, or that any knowledge is to
be imputed because of prior knowledge of a Fund's
portfolio holdings, market considerations, or a Fund's
investment policies, objectives and restrictions.)
(6) Any such report may contain a statement that the report
shall not be construed as an admission by the person
making such report that he has any direct or indirect
beneficial ownership in the security to which the report
relates.
(7) Each Independent Trustee shall report the name of any
publicly-owned company (or any company anticipating a
public offering of its equity securities) and the total
number of its shares beneficially owned by him or her if
such total ownership is more than 1/2 of 1% of the
company's outstanding shares. Such report shall be made
promptly after the date on which the Trustee's ownership
interest equaled or exceeded 1/2 of 1%.
VI. REVIEW AND ENFORCEMENT.
(1) The Review Officer shall compare all reported personal
securities transactions with completed portfolio
transactions of the Trust and a list of securities being
considered for purchase or sale by the Trust's adviser(s)
and sub-adviser(s) to determine whether a violation of
this Code may have occurred. Before making any
determination that a violation has been committed by any
person, the Review Officer shall give such person an
opportunity to supply additional explanatory material.
(2) If the Review Officer determines that a violation of this
Code may have occurred, he shall submit his written
determination, together with the confidential monthly
report and any additional explanatory material provided by
the individual, to the President of the Trust and outside
counsel, who shall make an independent determination as to
whether a violation has occurred.
(3) If the President and outside counsel find that a violation
has occurred, the President shall impose upon the
individual such sanctions as he or she deems appropriate
and shall report the violation and the sanction imposed to
the Board of Trustees of the Trust.
(4) No person shall participate in a determination of whether
he has committed a violation of the Code or of the
imposition of any sanction against himself. If a
securities transaction of the President is under
consideration, any Vice President shall act in all
respects in the manner prescribed herein for the
President.
VII. INVESTMENT ADVISER'S, ADMINISTRATOR'S OR PRINCIPAL UNDERWRITER'S
CODE OF ETHICS.
Each investment adviser (including, where applicable, any
sub-adviser), administrator or manager (where applicable), and principal
underwriter of the Trust shall:
(1) Submit to the Board of Trustees of the Trust a copy of its
code of ethics adopted pursuant to Rule 17j-1, which code
shall comply with the recommendations of the Investment
Company Institute's Advisory Group on Personal Investing
or be accompanied by a written statement explaining any
differences and supplying the rationale therefor;
(2) Promptly report to the appropriate Trust in writing any
material amendments to such code of ethics;
(3) Promptly furnish to the Trust upon request copies of any
reports made pursuant to such Code by any person who is an
Access Person as to the Trust; and
(4) Shall immediately furnish to the Trust, without request,
all material information regarding any violation of such
Code by any person who is an Access Person as to the
Trust.
VIII. ANNUAL WRITTEN REPORT TO THE BOARD.
At least once a year, the Review Officer will provide the Board of
Trustees a written report that includes:
(1) ISSUES ARISING UNDER THE CODE - The Report will describe
any issue(s) that arose during the previous year under the
Code, including any material Code violations, and any
resulting sanction(s).
(2) CERTIFICATION - The Report will certify to the Board of
Trustees that the each Trust has adopted measures
reasonably necessary to prevent its personnel from
violating the Code currently and in the future.
IX. RECORDS.
The Trust shall maintain records in the manner and to the extent
set forth below, which records may be maintained under the conditions described
in Rule 31a-2 under the Investment Company Act and shall be available for
examination by representatives of the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any
time within the past five years has been, in effect shall
be preserved in an easily accessible place;
(2) A record of any violation of this Code and of any action
taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than
five years following the end of the fiscal year in which
the violation occurs;
(3) A copy of each report made by an officer or trustee
pursuant to this Code shall be preserved for a period of
not less than five years from the end of the fiscal year
in which it is made, the first two years in an easily
accessible place; and
(4) A list of all persons who are, or within the past five
years have been, required to make reports pursuant to this
Code shall be maintained in an easily accessible place.
(5) A copy of each annual report to the Board of Trustees will
be maintained for at least five years from the end of the
fiscal year in which it is made, the first two years in an
easily accessible place; and
(6) A record of any decision, and the reasons supporting the
decision, to approve the acquisition of Securities in an
IPO or a Private Placement, shall be preserved for at
least five years after the end of the fiscal year in which
the approval is granted.
X. MISCELLANEOUS
(1) Confidentiality. All reports of securities transactions
and any other information filed with the Trust pursuant to
this Code shall be treated as confidential.
(2) Interpretation of Provisions. The Board of Trustees may
from time to time adopt such interpretations of this Code
as it deems appropriate.
(3) Periodic Review and Reporting. The President of the Trust
shall report to the Board of Trustees at least annually as
to the operation of this Code and shall address in any
such report the need (if any) for further changes or
modifications to this Code.
Revised November 5, 2004